ASOS's earnings report on Thursday highlighted the success of its long-term strategy to rejuvenate growth and reinforce its fast fashion appeal among its youthful, 20-something clientele. However, the retailer now faces a new challenge: global tariffs. ASOS is confident in its ability to adapt, thanks to its nimble commercial model, which emphasizes delivering fresh styles to shoppers swiftly.
This agility positions the company well to handle disruptions in global trade. "We are closely monitoring the evolving U.S. tariff situation and are ready to respond with enhanced agility and flexibility in our sourcing and distribution model," ASOS stated.
For the 26 weeks ending March 2, ASOS reported adjusted half-year earnings (EBITDA) of £42.5 million ($56.43 million), surpassing the consensus forecast of £34 million. The company is on track to achieve annual earnings between £130 million and £150 million.
Facing increasing competition from Chinese fast fashion powerhouse Shein and online retailer Temu, ASOS announced in January that it would pause operations at its U.S. warehouse. Consequently, most U.S. sales are now shipped individually from the UK.
Profitability and market share gains
ASOS saw a notable increase in profitability and market share, particularly in its largest market, the UK. The online fashion giant saw its adjusted EBITDA rise by approximately £60 million year-on-year, bolstered by its new commercial model and strict cost discipline. The company's variable contribution grew by about 30%, supported by a higher gross margin and improved order economics, while keeping fixed costs flat, effectively neutralizing inflationary pressures.
The retailer's strategic focus on freshness and speed to market has been well-received by customers, evidenced by a roughly 500 basis point increase in gross margin year-on-year. ASOS Design, the company's flagship brand, saw a 9% sales increase in the UK.
Global sales of ASOS's own brand full-price items have returned to growth, and the company's sales trajectory is aligning with expectations despite a 13% decline in H1 revenues, a continuation of the previous fiscal year's trends. This decline was attributed to a reduction in old inventory and optimized performance marketing.
ASOS experienced a free cash outflow in H1 due to normal seasonality, but anticipates a significant cash inflow in H2, driven by higher profitability and net working capital inflow, aiming for a broadly neutral free cash flow in FY25. The company has also reduced its net debt, thanks to a comprehensive refinancing and the formation of a joint venture for Topshop and Topman.
Reiterating its FY25 profitability guidance, ASOS expects a gross margin of at least 46% and a minimum 60% increase in adjusted EBITDA to £130m-£150m. Revenue growth is projected towards the lower end of the consensus range, with gross merchandise volume growth outpacing revenue growth due to scaling Flexible Fulfilment models. Analysts anticipate ASOS's U.S. business will generate approximately £300 million in revenue this financial year, accounting for about 10% of the company's total sales.
CEO José Antonio Ramos Calamonte expressed confidence in the company's new commercial model and its ability to deliver sustainable, profitable growth, citing strong customer response and market performance as key indicators of success.
