UK Fashion Retailer Asos Expects Profit at Low End of Guidance as Overhaul Falters

British online fashion retailer Asos reported a 15 percent fall in fourth-quarter sales and forecast earnings around the bottom of its guided range but said it was making progress with its turnaround plan.

The group, led by chief executive officer José Antonio Ramos Calamonte, announced an overhaul of its business model last October after the economic downturn and operational problems hammered its profits and its shares.

Already down by 38 percent over the last year, they fell another 1 percent in early trading on Tuesday.

Rivals Primark, Next and JD Sports Fashion have all reported positive updates this month, while official data showed UK retail sales rose in August.

Ramos Calamonte’s strategy is to prioritise profit over top-line growth by reducing the amount of stock Asos carries, cutting costs and improving its cash position.

Asos said the fourth quarter sales decline was in line with guidance, with a stronger start to the period followed by a weaker performance in July and August.

But its second-half adjusted gross margin fell 50 basis points short of its guidance of a 200 basis points improvement as it increased promotions.

Consequently, second-half earnings before interest and tax (EBIT) were expected to be towards the bottom of the previously guided £40 million to £60 million ($49-$73 million) range with free cash inflow £90 million below expectations, due to what it said were timing effects that would soon reverse.

“We have reduced our stock balance by circa 30 percent, significantly improved the core profitability of the business and generated cash against a very challenging market backdrop,” Ramos Calamonte said.

Prior to the update, analysts on average forecast a full year to Sept. 3 adjusted loss before interest and tax of 24 million pounds, versus earnings of £44.1 million in 2021/22.

Asos’s fourth quarter sales were down 16 percent in the UK, down 7 percent in the European Union and down 19 percent in the United States.

Mike Ashley’s Frasers Group has built an 18.3 percent stake in Asos.

By James Davey; Editors: Kate Holton and Barbara Lewis

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