ASOS reports 14% sales drop in latest quarter but returns to profitability, shares jump

ASOS, the popular online fashion retailer, has announced its latest revenue report, revealing a 14% decline in sales for the most recent quarter. However, the company remains optimistic as it successfully returned to profitability, crediting its strategic efforts.

Last October, ASOS embarked on a comprehensive business model revamp following a series of operational challenges and the economic downturn. The company’s primary focus has shifted from top-line growth to prioritising profit, a move that has yielded positive results.

During the three months ending on May 31, ASOS witnessed a noteworthy increase of over £20 million in core earnings (adjusted EBIT). The EBIT margin experienced an impressive surge of 250 basis points.

It is worth mentioning that ASOS had previously indicated a sales decline of approximately 15% in March and April, resulting in a first-half loss. Additionally, the company had anticipated a “low double-digit” decrease in sales for the latter half of the year. Despite these challenges, ASOS maintains its forecast for second-half adjusted EBIT in the range of £40-60 million.

The news of ASOS’s return to profitability and improved earnings has had a positive impact on its share price. ASOS shares (LSE: ASC) experienced a 13% surge at the open this morning.

Meanwhile, speculation about a potential takeover has been circulating in the market. Mike Ashley’s Frasers Group, known for its acquisitions of struggling brands, has been steadily increasing its stake in ASOS, reaching 9%. With the ability to block any takeover bid that may arise, Ashley’s expanding influence sets the stage for a potential battle for control of the company.

ASOS’s recent underperformance has made it an attractive target for investors. The company recently disclosed a loss of £291 million in the six-month period ending in February, primarily driven by an 8% decline in sales, including a 10% drop in the UK market. The challenging trading environment has further compounded ASOS’s difficulties.

If Frasers Group were to acquire ASOS, the company could benefit from Ashley’s retail expertise and establish a stronger trading relationship. Frasers Group already possesses a portfolio of brands, such as Jack Wills and Agent Provocateur, which could potentially be integrated into ASOS’s platform.

While Frasers Group declined to comment on its increased stake in ASOS, this move aligns with Ashley’s history of accumulating stakes in brands to gain influence or foster trading relationships.