Proactive Investors - Liberum has reiterated its 'sell' recommendation for ASOS (LON:ASOS), with a target price of 360p, expressing concerns about the online retailer's recovery and financial health.
In a detailed analysis, concerns were raised regarding the painful transition to a new operating model, which has resulted in a significant decline in sales and profitability in the short term.
For the first half of the 2024 financial year, ASOS reported an 18% year-over-year decline in sales, with its gross margin falling by 260 basis points to 40.3%.
The online fashion retailer also saw a substantial decrease in active customer numbers, down 14% from the previous year.
Despite these declines, some financial improvements were noted, including a £20 million outflow in free cash flow, an improvement largely attributed to one-time factors such as strong working capital inflow, reduced capital expenditures, lower restructuring costs, and a slight uptick in underlying profitability.
Net debt decreased to £349 million at the end of the first half of 2024, down from £432 million the previous year. ASOS has maintained its full-year guidance, with a medium-term outlook projecting an 8% adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin.
However, Liberum's analysts remain cautious, highlighting concerns about the company's ability to generate meaningful revenue growth and improve its free cash flow profile once the temporary benefits from working capital adjustments conclude by the end of the 2024 fiscal year.
The focus for ASOS remains on fixing its business model and enhancing cash generation amid these challenging times.
The shares were up 4% at 363p.