ASOS Defies Wider UK Retail Trend with a 15% Drop in Sales

27 Sep, 2023

ASOS Defies Wider UK Retail Trend with a 15% Drop in Sales

AS ASOS faced a challenging year, with its shares plummeting by over 5% on Tuesday morning. This decline added to a year of setbacks for the company, as its stock had already seen a substantial 38% decrease in value. The company's latest financial results revealed a concerning trend of declining sales.

In the three months leading up to September, ASOS experienced a significant 15% drop in sales compared to the same period in the previous year. This contributed to an overall 11% decline in sales for the entire year. The company attributed these disappointing figures, in part, to adverse weather conditions in July and August, which coincided with a broader decline in retail sales during July. However, ASOS's sales decline was notably steeper than the slight contraction in consumer spending during the same period. July saw some of the wettest weather in the UK's history, but it also drove online sales to their highest levels since the pandemic began.

ASOS's lackluster performance was also linked to a "deterioration in the UK clothing market." Notably, some of its domestic rivals, such as Next and Primark, reported more favorable profit outlooks in their recent announcements.

Despite these challenges, ASOS did report a bright spot in its results. The company's order profitability increased by 35%, primarily due to the introduction of fees for returns and restrictions on "buy now, pay later" (BNPL) options. Fewer returns were noted as a result of these changes.

Following the release of its results, ASOS's share price initially dipped to a low of 361.35p but later recovered to 380.68p during the day. In 2018, the company's valuation exceeded £6 billion, surpassing that of high-street competitors Marks & Spencer and Next.

Russ Mould, the investment director at AJ Bell, attributed ASOS's challenges to the broader economic climate. He emphasized that while unfavorable weather conditions played a role, the company's customer base had less disposable income to spend on clothing they might wear only a few times. Despite these difficulties, Mould acknowledged that ASOS has been effective in managing its inventory and controlling costs. However, he also noted the evolving consumer preferences away from fast fashion and towards in-store shopping, which presents a potential long-term challenge for the company.