Proactive Investors - ASOS (LON:ASOS), the online fashion retailer, is focused on a turnaround strategy which shifts inventory faster to allow it to be a more cash-generative business, a move analysts at Barclays (LON:BARC) believe the company is making progress on, even if “execution has not been totally clean”.
Removing stock by 30% during the 2023 financial year through write-downs, an increase in discounts and a reduction to intake, ASOS is also showing early signs of improving the number of products being sold at full price.
Tough market conditions for the upcoming year could pose some issues, however, which could result in price deflation as industry leaders start to pass on supply cost savings to the consumer.
“It will take some time for it to cycle through some of the strategic changes to be able to see both top-line and profitability growth against a clean base,” Barclays said.
“In the meantime, focus on cash remains intense and the £30m free cash flow miss in 2H23 (excluding the £60m timing effect) doesn't help build real confidence in the turnaround execution – yet.”
Free cash inflow in the second half is expected to reach £60 million and liquidity at the end of this period totalled £430 million, following refinancing, stakebuilding by Frasers Grooup PLC and an equity raise in May.
Net debt sits at £330 million and Barclays says the recent increase in cash makes the “funding position less acute in the near term”.
Barclays now awaits ASOS’s full-year results, due on 25 October, to develop a deeper understanding of its turnaround strategy and is keen to see what 2024 financial guidance will be given.
Tweaking 2025 profit forecasts to account for changes to customer propositions, analysts have dropped the company’s price target from 450p to 445p and rated the stock ‘equal weight’.
Shares in ASOS are up a little over 1% on Wednesday, having opened at around 377p.