FTSE: Asos to drop 35 brands and close five warehouses as sales plunge
Fashion retailer Asos announced a revenue fall of 3% and UK sales down 8% as inflationary pressures and mounting costs create strong headwinds.
In Thursday's trading update, alongside posting a 3% drop in revenue from September-to-December 2022, Asos also announced plans to cut over £300m in costs in 2023 to boost its profitability.
The announcement of a £300m cost-cutting plan had an effect on the Asos (ASC.L) share price which jumped by over 16% in early Thursday trading.
The share price stood at 680p as of the time of writing, an increase of 94p in 24 hours.
The online fashion retailer said it has started a £300m package of “profit optimisation and cost mitigation measures”.
The company claims that the cost-cutting measures will more than offset the hit from inflation and should facilitate a “modest improvement” in profitability in 2023.
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In the trading update Asos chief executive José Antonio Ramos Calamonte said: "We are undertaking necessary strategic and operational changes, with our focus shifting from prioritising top-line growth to building a more relevant and competitive fashion business with a disciplined approach to capital allocation and ROI.
"At the same time, we are working to reinforce our credibility as a leading destination for our fashion-loving customers.
"We have made good early progress against a number of measures to simplify the business, including re-positioning our inventory profile, reviewing our operational model in our top markets and reducing our cost base."
As part of its cost cutting measures the fashion retailer said it would close three warehouses one in Europe, one in the UK and one in the US.
The company also stated it would be rationalising office space and remove 35 unprofitable brands from its online platform and reduce staff costs by 10%.
In October, the fashion retailer announced 100 head office job cuts in a cost-saving move, as demand weakened amid the cost of living crisis.
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Referring to the trading update from Asos Charlie Huggins, head of equities at Wealth Club, said: “Asos’ trading performance in the first few months of the year has been disappointing and stands in stark contrast to the likes of Next.
"Inflationary pressures on its customers, a normalisation of returns rates and mounting costs have conspired to produce a cocktail of headwinds. This led to a new CEO coming in and a new strategy designed to turn things around.
"Asos’ business model isn’t well set up to deal with the current economic environment.
"With no stores and a 20-something customer base with a tendency to over-order, dealing with returns is a very costly problem.
"This contributes to low profit margins, meaning it only takes a small decline in sales to blow a large hole in profits.
"So far, Asos has resisted following peers like Boohoo in charging for returns, but at some point its hand may be forced."