ASOS shares jump as fresh strategy unveiled

Shares in ASOS rose 11% on Wednesday to 545p, despite the company posting losses for the full-year. The online fashion retailer made a £31.9 million loss for 2022 compared with a £177 million profit in 2021, while group revenues grew by just 1% to £3.9 billion.

Gross margins also dipped by 180 basis points to 43.6% from 45.4% the previous year. ASOS has been hit by higher customer return rates and inflationary cost hikes, such as higher logistics fees.

ASOS shares buoyed by investor relief at new strategy

Despite the poor numbers, investors were cheered by the new direction the company is taking under new chief executive José Antonio Ramos Calamonte. "Today, I have set out a clear change agenda to strengthen ASOS over the next 12 months and reorient our business towards the future,” Calamonte told investors.

“This includes a number of decisive, short-term operational measures to simplify the business, alongside steps to unlock longer-term sustainable growth by improving our speed to market, reinforcing our focus on fashion, strengthening our top team and leveraging data and digital developments to better engage customers.”

ASOS’ new CEO says he believes these actions, which include reducing logistics costs and the company’s geographical spread, trimming its cost base and introducing a new commercial model with a shorter buying cycle, will mean it emerges as “more resilient and agile.”

However, the outlook for next year looks uncertain, with trading “volatile” into the start of the new financial year, although trading in September has improved on August 2022. As such, the company says that consumer demand patterns are currently hard to second guess and it expects a decline in the apparel market over the next 12 months, although management is confident it will take market share.

ASOS is also to take a non-cash write-off of £100 million to £130 million as part of the shake-up of its commercial model.

ASOS: long road to recovery ahead

Shares in the company have lost 80% of their value over the past year and currently trade at 530.5p. Under new CEO Calamonte ASOS looks to be getting back on track and the shares could be a recovery buy. Indeed, while analyst Sherri Malek at broker RBC cut her price target on the shares from 1,000p, she still thinks the shares could hit 825p.

However, Malek expects the bounce back to be slow to take place. "We anticipate revenue growth nearterm to be subdued and lack conviction around a meaningful recovery beyond next year," she said in a note.

With a rough road ahead and customers likely to be cutting back on discretionary spending due to the cost of living crisis, ASOS shares may take time to recover.

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