Asos warns of tough clothing market as shoppers cut back amid cost crisis

The group reported pre-tax losses of £31.9m for the year to August 31 against profits of £177.1m the previous year.

Online fashion firm Asos has slumped to an annual loss and warned it will remain in the red over the first half of its new financial year amid turnaround efforts and an ‘incredibly challenging’ economic backdrop (Asos/PA)

Online fashion firm Asos has slumped to an annual loss and warned it will remain in the red over the first half of its new financial year amid turnaround efforts and an “incredibly challenging” economic backdrop.

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 rampant inflation has seen shoppers rein in their spending.

On an underlying basis, pre-tax profits slumped 89% to £22 million.

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.

Figures showed sales grew by just 1% to £3.94 billion over the past financial year.

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.

An overhaul being led by new chief executive Jose Antonio Ramos Calamonte will include moves to “right-size” its stock, but this is set to push it to a first-half loss as it launches discounts to shift clothes.

Against the backdrop of an incredibly challenging economic environment, this unique combination has enabled our business to deliver a resilient performance this financial year in the UK

Jose Antonio Ramos Calamonte, Asos

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, but that this will start to pay off in the second half, when it will also see cost savings and lower shopping costs come through.

Mr Calamonte said: “Against the backdrop of an incredibly challenging economic environment, this unique combination has enabled our business to deliver a resilient performance this financial year in the UK – but I know we as a company can achieve far more.

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

“This includes a number of decisive, short-term operational measures to simplify the business, alongside steps to unlock longer-term sustainable growth by improving our speed to market, reinforcing our focus on fashion, strengthening our top team, and leveraging data and digital developments to better engage customers.”

Asos’s current predicament is only adding to longer-term concerns about the whole fast fashion model and whether ... it has as solid a future as previously thought

Russ Mould, AJ Bell

Shares in Asos rose more than 12% on Wednesday as the City cheered Mr Calamonte’s planned changes for the group.

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: “Costs are being cut and Asos may have to follow the lead of other retailers and start charging for returns.

“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.”