Why did ASOS shares plunge 11%?

Shares in ASOS (LSE: ASC) tumbled by 11% to 353.60 pence at the London open after the company announced a significant widening of its full-year losses as its revenue plummeted by double digits, painting a challenging picture for the online fashion retailer. Despite this setback, the company remains optimistic, expecting a gradual return to growth amidst fierce industry competition.

In the fiscal year ending September 3, ASOS reported a pre-tax loss of £296.7 million, a stark increase from the previous year’s £31.9 million loss. The dip in revenue was notable, falling 10% from £3.95 billion to £3.55 billion. Adjusted earnings before interest, tax, depreciation, and amortisation also suffered, dropping by 32% to £124.5 million.

Despite these challenges, ASOS CEO Jose Antonio Ramos Calamonte expressed confidence in the company’s strategic initiatives. He outlined key measures taken, including reducing the stock balance by approximately 30%, enhancing core profitability, strengthening the balance sheet, and revitalising the leadership team. Calamonte emphasised their focus on accelerating the rollout of new processes, improving speed to market, and investing in the brand identity.

Analysts have varied opinions on ASOS’ future. Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, acknowledged the turbulent year for Asos but praised Calamonte’s proactive approach. Huggins stated, “ASOS still remains in intensive care, meaning the year ahead is also likely to be very painful.” He emphasised the challenges ahead for Calamonte, particularly in reviving sales growth in a fiercely competitive market.

Going forward, ASOS anticipates a decline of five to 15% in sales for the first half of the financial year 2024 but expects a return to growth in the final quarter. The company also aims to achieve positive Ebitda during this period. Furthermore, Asos has set ambitious targets for the financial year 2025, aiming for revenue growth and a return to Ebitda margin levels around 6%, reminiscent of pre-Covid times.

While Asos faces a daunting uphill battle, the company’s decisive actions and strategic direction under Calamonte’s leadership offer a glimmer of hope for investors, albeit cautious, in a challenging environment.