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June 16, 2022

Asos names new CEO and sounds profit warning as inflation bites

UK online retailer Asos has sounded a profit warning as inflationary pressures accelerate returns rates, alongside naming chief commercial officer José Antonio Ramos Calamonte as its new CEO.

By Hannah Abdulla

Calamonte, who joined Asos from Portuguese fashion company Salsa Jeans, where he held the position of CEO for almost two years, becomes CEO and a member of the Asos board with immediate effect.

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  • Which industry sectors are most vulnerable to reduced consumer demand?
  • How is the government responding to high inflation?
  • How long will high inflation last in the UK?
  • How can your company survive and thrive in a high inflation environment?
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News of his appointment comes as Asos believes inflation is impacting consumer shopping behaviours, with the retailer now anticipating adjusted profit before tax to come in at between GBP20m-60m (US$24.2-72.7m) for the full year.

The revised guidance is driven by the impact of consumer behaviour on sales and in particular the anticipated continuation of higher return rates. The guidance also considers both increased markdown and labour inefficiency to clear the returned stock.

In its trading statement this morning (16 June), Asos said full-year sales are expected to be in the range of 4-7% reflecting market volatility and an increased returns rate.

Gross margin, meanwhile, is anticipated at between 150bps and 200bps adverse, as elevated returns are expected to drive higher levels of markdown and a continuation in the negative impact of returns on product mix.

Results breakdown

In the three months to 31 May, Asos saw total group revenue slide to GBP983.4m from GBP987.9m a year earlier.

While sales rose by 4% in constant currency in the UK during the period, EU sales fell 2% year-on-year to GBP294m.

Asos said return rates in the UK and Europe increased significantly as shopping behaviours changed in line with the impact of increased inflationary pressures on discretionary spend.

For the nine-month period, however, total group revenue grew to GBP2.99bn from GBP2.96bn a year prior.

COO Mat Dunn said: “At our half-year results, we set out the actions we had taken as we faced into a more challenging backdrop, notably the work undertaken in the face of the global supply chain challenges which led to an improved stock profile and increased newness and availability. We saw the benefit of this come through in the shape of strong gross sales and a further acceleration of growth in the US. At the same time, we noted that the impact of inflationary pressures was yet to be felt by our customers.

“What is now clear, based on the significant increase in returns rates that we have seen, is that this inflationary pressure is increasingly impacting our customers shopping behaviour. It is too early to tell for how long the current pattern of customer behaviour will continue but we are taking swift and decisive steps to minimise the impacts whilst continuing to deliver against the strategic initiatives we laid out in November that will ensure that Asos builds for the long-term.”

New Asos CEO

In a separate disclosure to the bourse, Asos named Calamonte as its new CEO and Jørgen Lindemann as chair, with effect from 1 August.

With an 18-year career in retail, Calamonte has led the commercial strategy for several brands including Inditex, Esprit and Carrefour Spain. He succeeds Nick Beighton who’s departure from Asos was first announced in October last year.

Calamonte is said to have “deep multichannel experience and a track record of driving innovation”.

Since joining Asos to lead the commercial function in January 2021, Calamonte has taken responsibility for driving its product and trading strategy globally encompassing design, sourcing, garment technology, buying and merchandising, global trading, Asos Studios and creative. He has overseen product, category and range strategy, pricing and margin, own-label product innovation and brand partnerships, leading a team of more than 1,000 people.

Outgoing chair Ian Dyson said: “José is the right person to lead Asos through the next phase of growth and the board is delighted that he is becoming CEO at such an important time. Since he joined the business, José has made an enormous contribution, driving change through our commercial function and bringing new energy and enthusiasm to the core product and trading functions of the business. José was a core part of the executive team that developed Asos’s strategy, outlined last year, against which we are making continued progress, in spite of the backdrop of difficult market conditions.

“I will step down from the Asos board after nine years, confident that we have in place the right leadership to deliver against the long-term strategy to significantly increase sales and profitability by leveraging Asos’ strong, scalable global platform and its best-in-class customer experience.”

Analyst reaction: Fast fashion falls out of favour

Chloe Collins, head of apparel analysis at GlobalData notes heightened returns due to cautious spending amid the rising cost of living hit Asos hard in Q3 FY2021/22, leading to the retailer warning that full-year profit is expected to come in around GBP20-60m, down from GBP193.6m in FY2020/21 and the GBP100-140m it expected in January.

“Share price was down a disastrous 25% in early morning trade, with sales growth also disappointing investors, up just 0.8% for the year to date—much lower than its initial outlook of 10 to 15%. New CEO José Antonio Ramos Calamonte (previously chief commercial officer) has a huge challenge ahead of him, as with Boohoo also releasing a sombre set of results for the same period, with sales down 8.3%, and Missguided recently falling into administration, fast fashion seems to be losing its shine, as financial uncertainty means keeping up with the latest trends is no longer a priority for many shoppers.

“Asos saw the steepest sales declines in its EU and Rest of World regions in Q3, with constant currency falling 2% and 8% respectively (excluding Russia). Though these regions have previously underperformed for ASOS, this has mainly been attributed to global supply chain issues impacting stock availability, and Asos now insists its stock position has improved, so Q3’s poor performance is driven by inflation impacting consumer demand, with returns rates in the EU even succeeding pre-pandemic levels. Surprisingly, the UK still managed to achieve sales growth of 4% thanks to increased demand for occasionwear and holidaywear, as Brits flock abroad and weddings and events resume, but growth still softened versus H1 (+8%) showing the impact of squeezed budgets. With the UK now on the brink of a recession, the rest of the financial year will remain a challenge, with FY2022/23 potentially even tougher as inflation is set to peak in October. The US continues to grow for Asos with sales up 15% in Q3, thanks to its Nordstrom partnership increasing brand awareness and accessibility.

“GlobalData’s survey of 2,000 UK consumers in March found that under 35’s are the most likely to change their clothing and footwear shopping habits due to increased costs, leaving Asos vulnerable. Its product ranges over the last couple of years have also become more youthful, targeted mostly towards Gen Z, to compete with the likes of boohoo.com and Shein, however, these styles lack appeal among millennials and 25-34s account for the largest proportion of Asos’ shopper base (32.1% versus 30.1% for 16-24s). To better target these shoppers and shift its reputation away from being a fast fashion retailer, Asos should make its ranges more versatile and classic yet still fashionable, like Zara which is gaining UK market share.”

Related Companies

Free Whitepaper
img

What is the impact of historically high inflation on the UK consumer landscape?

The average UK consumer is experiencing a severe cost-of living crisis as inflation surges to a forty-year high and the price of goods continues to rise. This shock is the result of the sharply increasing costs of commodities, energy, and the ongoing conflict in Ukraine, and is threatening FMCG manufacturers, retailers, and foodservice operators’ ability to survive and grow. Inflation will have a profound effect on many consumer-facing industries in 2022 and beyond. Consult GlobalData’s new whitepaper, Inflation in the UK: The Impact of Historically High Inflation on the UK Consumer Landscape, to better understand shifts in consumer behavior and their impact on spending patterns, as well as the implications for UK businesses. This whitepaper covers:  
  • Why has global inflation returned with a vengeance?
  • What is the current inflation situation in the UK?
  • What impact is inflation having on UK retail sales?
  • What tactics are businesses relying on to tackle the effects of high inflation?
  • How are consumers changing their behaviors to cope with the higher cost of living?
  • Which industry sectors are most vulnerable to reduced consumer demand?
  • How is the government responding to high inflation?
  • How long will high inflation last in the UK?
  • How can your company survive and thrive in a high inflation environment?
Enter your details here to receive your free whitepaper and ready your business for these increasingly uncertain times.
by GD50 Custom
Enter your details here to receive your free Whitepaper.

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