Asos reveals stock write-downs amid overhaul after losses as shoppers cut back

Online fashion firm Asos has revealed it will need to write off up to £130 million of stock as it slumped into the red and warned over further losses amid a slump in consumer spending.

The group reported pre-tax losses of £31.9 million for the year to August 31 against profits of £177.1 million the previous year after tougher-than-expected trading in recent months as shoppers cut back in the face of the cost-of-living crisis.

It confirmed it had secured a £650 million borrowing facility after shares slumped on Tuesday as it revealed it was in talks over changes to its financial covenants amid more difficult trading.

Asos said the new banking agreement will give it the “financial flexibility” as new boss Jose Antonio Ramos Calamonte leads an overhaul to turn around its fortunes.

This will include better stock management, cost cutting, a review of its flagging international businesses and “refreshing” the group’s culture, starting with a leadership team reshuffle and new hires.

But the move to “right-size” its stock is set to push it to a first-half loss as it launches discounts to shift clothes.

The group, which owns brands including Topshop, added that it will book write-offs of between £100 million and £130 million from the stock changes.

Figures showed sales grew by just 1% to £3.94 billion over the past financial year, with underlying pre-tax profits slumping 89% to £22 million.

And Asos said trading has remained volatile since its year-end, with September showing only a “slight” improvement on a difficult August.

The group forecasts the overall clothing market will decline over the next year as the cost-of-living crisis hits consumers hard.

The group is among online retailers to have seen recent strong growth ebb away in 2022 as rampant inflation has caused many shoppers to reassess their spending.

Rivals including Next and Boohoo have cut their trading guidance in recent weeks as a result of waning confidence.

Mr Calamonte said: “It’s clear that we need to drive real change at Asos now.

“While our core UK business remains strong, we have failed to replicate that success in other markets.”

The group is reviewing its international businesses, but Mr Calamonte said he is hoping his turnaround efforts will see the firm avoid pulling out of any markets.

He said: “Today, I have set out a clear change agenda to strengthen Asos over the next 12 months and reorient our business towards the future.”

He revealed the group has increased prices by a “mid-single digit” percentage over the past year, but sought to assure it would focus on offering value to shoppers, although markdown sales will be scaled back.

The group is also committed to keeping its free returns offer, he said.

Shares in Asos rose more than 12% at one stage on Wednesday on hopes that Mr Calamonte’s planned changes for the group will pay off.

Russ Mould, investment director at AJ Bell, said Asos’s new boss has “demonstrated he is taking the challenges in front of the company seriously”.

He added: “Asos’s current predicament is only adding to longer-term concerns about the whole fast fashion model and whether, in an age when the focus is on sustainability and where sourcing cheap materials and labour is a much bigger challenge, it has as solid a future as previously thought.”