Asos Plc’s turnaround effort progressed in the last three months as the online retailer returned to profit, prompting a share rally.
(Bloomberg) — Asos Plc’s turnaround effort progressed in the last three months as the online retailer returned to profit, prompting a share rally.
Adjusted earnings before interest and tax rose more than £20 million ($25 million) from last year, the company said in a statement. Asos is on track to deliver as much as £60 million of Ebit in the second half as it cuts inventory and boosts its underperforming brands. The stock rose as much as 16% in London trading, the biggest gain in about five months.
Chief Executive Officer Jose Antonio Ramos Calamonte is attempting to return Asos to continuous profit as speculation swirls around the future of the retailer whose value has shrunk almost 90% in three years. Billionaire Mike Ashley, majority holder of Frasers Group Plc, raised his stake in recent weeks after Anders Povlsen, who owns Danish fashion group Bestseller, took part in an equity raise.
The overhaul includes reducing stock and excessive discounts, cutting spending and slowing automation in some warehouses. The company expects more benefits to come through in the second half with the business generating cash once more.
Shares of another fashion retailer, Swedish giant Hennes & Mauritz AB, also gained Thursday after the company’s second-quarter revenue exceeded pre-pandemic levels and June got off to a good start.
At Asos, revenue fell 14% in the quarter but profit per order has risen more than 30% so far this year. The return to profitability is a “positive sign” although challenges remain, Caroline Gulliver, an analyst at Stifel, wrote in a note to clients.
After booming during Covid lockdowns, online-only fashion brands have struggled lately as consumers revert back to visiting bricks and mortar stores. Shoppers are also prioritizing their spending on pricey essentials like food and household bills, leaving little money for discretionary purchases like apparel.
Concerns of falling profits at Asos have led credit insurers to step back from providing cover to suppliers. About 20% of the payments to suppliers were covered by credit insurers before they removed or cut cover, Asos said Thursday, describing the situation as manageable.
More Flexibility
The company unveiled a debt refinancing last month, obtaining £275 million of borrowing from specialist lender Bantry Bay Capital, backed by US activist Elliott Investment Management. The new facilities carry an average interest rate of about 11% and have been described by analysts as expensive. Asos said Thursday that the asset-backed financing only has a minimum liquidity covenant rather than any profit-based covenants, which gives the business more flexibility.
Read more: Elliott-Backed Lender Dares to Take On Distressed UK Retailers
The retailer has elicited takeover interest. Asos received an approach from Turkish online retailer Trendyol, backed by Alibaba Group Holding Ltd., in December at a price that would have valued the company’s shares at between £10 and £12 each, the Sunday Times reported. Talks between the companies are no longer active, according to the newspaper.
(Updates with credit insurers in eighth paragraph. An earlier version of this story was corrected to show Anders Povlsen took part in an equity raise but didn’t increase his stake.)
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