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Asos sees inflation hit customers as sales slow and returns rise

Image courtesy of Asos

Image courtesy of Asos

Asos says its customers in the UK and Europe are now feeling the effects of inflation, as sales slow and returns rates rise.

The update came as the fast fashion retailer today announced it has appointed a new chief executive and chairman. José Antonio Ramos Calamonte, previously chief commercial officer of Asos and formerly chief executive of Portuguese brand Salsa Jeans, becomes chief executive with immediate effect, while Jørgen Lindemann will take over from Ian Dyson as chair of the company in August.  

“Since he joined the business, José has made an enormous contribution, driving change through our commercial function and bringing new energy and enthusiasm to the core product and trading functions of the business,” says Dyson. “José was a core part of the executive team that developed ASOS’s strategy, outlined last year, against which we are making continued progress, in spite of the backdrop of difficult market conditions.”

Trading update

In the third quarter of its financial year – the three months to May 31 – Asos has reported sales of £983.4m, down from £987.9m a year earlier. Sales in the UK grew by 4% to £431.8m and in the US by 21% to £141.9m, but in the EU, sales were 5% down at £294m and rest-of-the-world sales fell by 20% to £115.7m. The number of Premier loyalty scheme customers – who tend to buy more often and spend more – grew by 19%, year-on-year, while Topshop brand sales grew by 69%. In the US, Asos is now selling its Asos Design brand in 11 US Nordstrom shops and online, while Topshop and Topman have been relaunched in Nordstrom Canada shops. Asos Design sales grew by 5%, year-on-year. 

In the first nine months of its financial year, Asos group revenue grew by 1% to £2.99bn, with sales rising in the UK (+7% to £1.3bn) and US (+12% to £394.5m) but falling in the EU (-4% to £871.4m) and rest of the world (-16% to £394.3m). 

Asos now expects full-year sales to be between 5% and 7% higher than last year and pre-tax profits to come in at between £20m and £60m. Net debt is expected to be in the range of £75m and £125m. 

How shoppers are buying

UK shoppers bought more holiday clothing and occasionwear for events. However, sales growth both in the UK and the EU was offset by “significantly” increased returns rates as the retailer saw inflation hit customer spending. Returns, says Asos, have knock-on effects on warehousing and delivery costs, while it must also discount to clear returned items. It expects that it will report full-year profits at the lower end of the range if returns rates don’t improve on April, and if sales continue to weaken. 

New customer acquisition slowed, a year on from the Topshop acquisition, while profit margins declined by 310 base percentage points to 44% reflecting higher shipping rates that are now locked in for the second half of the year, higher levels of discounting and the type of products that are now selling. 

However the retailer says its operations are now stronger as it has improved its stock position to make products both newer and more available, and as it continues to have brand partners deliver more goods direct. 

Asos chief operating officer Mat Dunn says: “At our half year results, we set out the actions we had taken as we faced into a more challenging backdrop, notably the work undertaken in the face of the global supply chain challenges which led to an improved stock profile and increased newness and availability. We saw the benefit of this come through in the shape of strong gross sales and a further acceleration of growth in the US. At the same time, we noted that the impact of inflationary pressures was yet to be felt by our customers.

“What is now clear, based on the significant increase in returns rates that we have seen, is that this inflationary pressure is increasingly impacting our customers shopping behaviour. It is too early to tell for how long the current pattern of customer behaviour will continue but we are taking swift and decisive steps to minimise the impacts whilst continuing to deliver against the strategic initiatives we laid out in November that will ensure that Asos builds for the long-term.”

Asos is ranked Top500 in RXUK Top500 research

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