ASOS has forecasted a drop in sales ranging from 5% to 15% in FY24, although the company expects to see profitability and a return to growth FY25.
The online retailer’s negative outlook follows FY2022/23, which showed a 12.2% decline in group revenue, a further downturn from the 9.1% decline in revenue it experienced during the first nine months of the year.
The reason behind this sharp drop, according to Pippa Stephens, senior apparel analyst at GlobalData, is Asos’ failure to appeal to its core shoppers by offering products that resonate with them while younger consumers are also flocking to more affordable competitors.
Stephens says: “Alongside the ongoing inflationary pressures, the retailer has seen its Gen Z customers shift towards more agile and affordable competitors like Shein, while its designs have become too youthful for the millennials that grew up with it, driving its full year sales to plummet by 9.8%.”
Asos’ chief executive officer José Antonio Ramos Calamonte has been taking steps to revamp the company’s performance by reducing discounts and inventory levels, which have declined by around 30% over the year. However, Calamonte acknowledged that this approach is putting a strain on the company’s revenue, particularly as consumer demand continues to weaken.
Asos also reported profit improvement and cost-saving measures, which it says are “particularly evident” in its outbound supply chain, with distribution costs as a percentage of sales improving by 120 basis points, or 1.2%. It attributed this to the discontinuation of split orders in the UK and “favourable negotiations with carriers”.
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Key results from Asos Q4
- Group revenue dropped 10% to £3.55bn ($4.31bn)
- Adjusted EBITDA decreased to £124.5m from £183m the year before
- Operating loss was reported at £248.6m, compared to £9.8m in 2022.
Asos’ performance in the UK and the US were both hit by increasing inflation, as revenue decreased by 12% and 13% respectively in the two markets. Stephens says: “Asos’ performance in the US is particularly disappointing considering its Nordstrom partnership which should have boosted sales in the region, with its sales also waning massively in H2 compared to H1, spelling trouble for the year ahead.”
Asos performed best in Europe, which saw constant currency revenue fall by just 3%, although Stephens says this was “partly due to weaker sales in the comparative period”.
Outlook for FY24
The online giant said it will “prioritise a shift back to fashion” as it plans to offer “the best and most relevant product, styled the Asos way, with an exciting and seamless customer experience geared around fashion and excitement.”
Asos is also looking to improve the speed to market of its products with lead times of just weeks, as part of its ‘test & react pilot’, which it hopes will enable it to better compete with Shein. The retailer also plans to boost marketing with a £30m incremental investment with the aim of “re-igniting” the brand, which it says is an increase of around 1% in its operating cost ratio.
While Stephens believes these outcomes are positive she says: “It will take time for these initiatives to have a material impact on Asos’ results, with a revenue decline of between 5% and 15% anticipated in FY2023/24, and an eventual return to growth only expected by FY2024/25.”
Calamonte says Asos has “significantly improved the core profitability of the business” during the year. He adds: “We are taking decisive action in FY24 to clear stock brought in under our old model while substantially improving our speed to market and investing in our brand, reminding our customers what we’re really about fashion.”
It was announced last week (30 October) that Asos is reportedly considering selling UK retail brand Topshop to Authentic Brands Group (ABG) after acquiring it in 2021 in an attempt to recover profitability.
Stephens notes that Asos should not take this decision lightly as Topshop has remained one of its top performers, attracting older shoppers in previous years and has the potential to become a “shining light for the platform once again if given the right attention”.
However, Stephens adds: “Topshop’s products can get lost among Asos’ extensive offering, so if the rumoured sale were to happen, it could provide greater visibility to its ranges, especially if ABG decided to relaunch Topshop’s physical stores.”