ASOS Shares Rise as Group Announces Improved Trading to Start Fiscal Year 2023 By

© Reuters.

By Scott Kanowski — Shares of ASOS PLC (LON:) surged on Wednesday after the online fashion retailer unveiled a performance boost to start its 2023 fiscal year and set a timeline to return to positive cash generation despite soaring inflation weighing on consumer spending .

The UK-based group said trading in September showed a “slight improvement” on the previous month. But he warned that it remained difficult to predict the evolution of customer demand due to continued macroeconomic volatility.

In Britain, a key market for ASOS, clothing sales are expected to decline over the next 12 months, the company has warned. However, he was still “confident” that he will be able to take market share, citing the effect of a plan to overhaul its approach to merchandising and purchasing, while cutting expenses by fixing inefficiencies in the supply chain.

“ASOS is waiting […] the combination of reduced transport costs […]the steps taken to support the new business model and leaner cost structure to more than offset the impact of inflationary headwinds on ASOS’ cost base and the expected cost of high yields over the next 12 months “, he said in a statement published in his annual earnings report.

ASOS has signaled it will drop to a loss in the first half of its trading in 2023, citing a non-cash write-off of £100-130m linked to an effort to “adjust” its equity portfolio.

He added that the impact of these broader business changes will only be registered in the last six months of the year, when the business returns to positive cash flow and brings capital expenditure back to between 175 and £200 million.

The announcements come as ASOS, which had seen a surge in demand during the pandemic, struggled following the lifting of Covid-era restrictions.

ASOS reported an 89% drop in adjusted pre-tax profit in its 2022 financial year to £22m after weaker-than-expected second-half growth. However, this result was still within the company’s guidance range of £20-60m.

Including adjusting items, ASOS rose to a reported loss of £31.9million.

“While ASOS expected revenue growth to accelerate against weaker benchmarks, inflationary pressures on consumers increased markedly as the year progressed and impacted consumer confidence and their discretionary income,” the company said.

Meanwhile, inventory levels also rose due to a spike in return rates and the decision to withdraw operations in Russia in March following the outbreak of war in Ukraine.

Shares of ASOS have fallen more than 80% in the past one-year period.

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