As expected, the British clothing retailer Asos Plc closed the 2021/22 financial year with weak figures. The increasing “inflationary pressure” had a negative impact on the purchasing behavior of customers in the second half of the year, the company said in its annual report published on Wednesday. At the same time, the retailer announced a series of reforms aimed at adapting its business model to uncertain market conditions.
In the fiscal year that ended in August, group sales amounted to 3.94 billion pounds sterling (4.52 billion euros). It thus exceeded the previous year’s level by just one percent. Adjusted for exchange rate changes and the consequences of the discontinuation of business in Russia at the beginning of March, revenues grew by four percent.
Sales increases in Great Britain and the USA can hardly compensate for the weak demand in continental Europe
The clothing supplier achieved solid growth in Great Britain and the USA: On the home market, sales rose by seven percent to 1.76 billion British pounds, in the USA they increased by 14 percent (currency-adjusted +10 percent) to 531.4 million British pounds.
The situation in the other markets was not so good: In the countries of the European Union (EU), sales of 1.17 billion British pounds fell short of the previous year’s level by one percent (currency-adjusted +2 percent). In Germany, the effects of rising energy prices on purchasing behavior have had a negative impact, while in France demand for online retail has generally declined because customers are increasingly shopping in brick-and-mortar stores again after the pandemic-related restrictions, the company said.
The bottom line is a net loss of almost £31 million
In the rest of the world, Asos revenue fell 22 percent (-20 percent currency adjusted) to £472.3 million. The high losses were not least due to the discontinuation of activities in Russia. Adjusted for this factor, the corresponding revenues shrank by eleven percent (currency-adjusted -9 percent).
Earnings were impacted by higher costs, extensive price reductions and an increase in the number of returns, as well as negative one-off factors. The company had to post an operating loss of 9.8 million British pounds after an operating profit of 190.1 million British pounds had been achieved in the previous year.
The bottom line was a net deficit of 30.8 million British pounds (35.4 million euros). Asos ended the 2020/21 financial year with a surplus of £128.4 million. Adjusted for special effects, profit before tax amounted to 22.0 million British pounds and was therefore in line with expectations.
The company wants to increase its flexibility and efficiency with a comprehensive reform program
In view of the latest developments, CEO José Antonio Ramos Calamonte announced comprehensive reforms: While Asos is a “strong company” in Great Britain, the foreign business has developed “disappointingly” despite high investments, he conceded. There is “great need for improvement” there because the previous business model has become “inefficient” due to lower sales growth.
The company is now planning far-reaching changes to be implemented over the next twelve months. The focus is on reforms in procurement and inventory management. The aim is to accelerate the purchasing cycles and in this way make new products available more quickly and to make the range more attractive, explained Asos.
At the same time, inventories are to be reduced and remaining items are no longer to be sold at high discounts on the company’s own platform, but in “other ways”. As part of these measures, write-downs of 100 to 130 million British pounds would be made on existing inventories in the new financial year, the company said.
Management expects a loss in the first half of 2022/23
In addition, the group announced general austerity measures to “optimize fixed costs, increase supply chain efficiency and eliminate waste through better controls”. In addition, investments in the current year are expected to be lower. Instead of the previously planned 200 to 250 million British pounds, Asos now only wants to invest 175 to 200 million British pounds.
Due to the ongoing uncertain framework conditions, the company refrained from making specific forecasts for the current 2022/23 financial year. However, the clothing retailer is expecting a loss in the first half of the year before the positive effects of the announced reforms are likely to materialize in the second half of the year.