Proactive Investors - Financial figures were scarce in ASOS’ stock exchange trading update, which was heavily dominated by its Driving Change policy.
Much of this policy was forced on ASOS as a result of its weak balance sheet and tough consumer environment.
At the centre of its problems was its business model, which “isn’t well set up to deal with the current economic environment,” according to Charlie Huggins, head of equities at Wealth Club.
As one of his first acts in the hot seat, chief executive José Antonio Ramos Calamonte set about attempting to rectify this, outlining four actions in a 12-month turnaround plan to reinvigorate the business which has suffered in the post-pandemic world.
These comprised renewing its commercial model and improving inventory management; simplifying and reducing its costs profile; ensuring a robust and flexible balance sheet; reinforcing the leadership team and refreshing the culture.
Today’s update was well received by investors, with shares climbing 14% to 665p, with John Stevenson, a retail analyst at Peel Hunt adding it was the “first big step.”
“What they’ve announced today is a bit more information behind the plan, including detail on the £300mln profit optimisation and cost mitigation measures,” Stevenson added, a measure he believes will encourage investors.
ASOS also said it “physically extracted” half of the stock it plans to write off to manage stock levels, with the group making progress on two of the four mentioned actions.
However, aspirations that ASOS can return to the highs of the pandemic by October are lofty, to say the least.
“It’s not a slick 12-month turnaround, it’s a multi-year programme,” stressed Stevenson, who believes several questions still need to be answered by the retailer, including how it aims to market in the US and other regions.
Aside from hurdles within ASOS’ control, the turnaround plan is made even more ambitious given the retailer is attempting it against the backdrop of the doom and gloom that lingers over the market.
Inflationary pressures, a normalisation of return rates and mounting costs will continue to create a cocktail of headwinds that will need to be carefully navigated.
“The recovery plan appears to assume an overall macro improvement,” said Eleonora Dani, a retail analyst at Shore Capital, who isn’t sure it is something ASOS can bank on.
ASOS has much to work on internally while navigating the external market, a process which will take years rather than months.
As Huggins states: “It won’t be a quick fix and ASOS has a mountain to climb to rediscover its former glory.”