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FTSE: Asos to drop 35 brands and close five warehouses as sales plunge

An employee organises photographs of models at the ASOS headquarters in London April 1, 2014. British online fashion retailer ASOS posted a 22 percent fall in first half profit, reflecting its move to step-up the pace of infrastructure investment to meet future demand. The firm said on Wednesday it made a pretax profit of 20.1 million pounds ($33.4 million) in the six months to Feb. 28, down from 25.7 million pounds in the same period last year. Picture taken April 1, 2014.   REUTERS/Suzanne Plunkett (BRITAIN - Tags: BUSINESS FASHION)
Asos is cutting 35 of its least profitable brands. Photo: Suzanne Plunkett/Reuters

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.

PARIS, FRANCE - AUGUST 22: Emilie Joseph @in_fashionwetrust wears black large sunglasses, silver earrings, a dark brown shiny leather long oversized dad trench coat from Asos Design, a black one shoulder cropped t-shirt, silver rings, blue faded denim high waist wide legs / flared ripped jeans pants, lamsy cowboy beige and brown leather python / snake print pattern pointed block heels ankle boots by Isabel Marant, on August 22, 2021 in Paris, France. (Photo by Edward Berthelot/Getty Images)
Asos is closing five warehouses. Photo: Edward Berthelot/Getty

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.

Read more: M&S sales up 10% after 'record breaking' festive boost

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.

Read more: Tesco posts bumper Christmas sales despite cost of living crisis

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."

Watch: Asos to slash office space and shut storage warehouses after sales fall