ASOS plc ((GB:ASC)) has held its Q2 earnings call. Read on for the main highlights of the call.
ASOS plc’s recent earnings call reflects a strategic pivot towards sustainable and profitable growth, marked by notable improvements in profitability metrics and operational efficiency. Despite these positive developments, the company continues to face challenges in expanding its sales and customer base, particularly in the US market and with third-party brand performance.
EBITDA Improvement
ASOS reported a significant increase in EBITDA, rising by approximately £60 million compared to the previous year. This improvement indicates a 30% rise in variable contribution over the last six months, showcasing the company’s efforts to enhance profitability.
Gross Margin Growth
The company’s gross margin saw a substantial increase of nearly 500 basis points. This growth was attributed to a better full price mix and reduced discounting, reflecting ASOS’s strategic focus on improving profitability.
Own Brands Full Price Business Growth
ASOS’s own brands experienced global growth in full price business, with ASOS Design in the UK growing by 9%. This highlights the success of the company’s own brand strategies in driving revenue.
Reduction in Supply Chain Costs
ASOS achieved a 20% reduction in supply chain costs, contributing significantly to its operational efficiency. This reduction is a testament to the company’s focus on cost management and operational improvements.
Successful Launch of Test & React
The Test & React model, which now constitutes 15% of own brand sales, has been successfully launched. ASOS plans to increase this to 20%, improving its ability to react to market trends and enhance product quality.
Cost Efficiency and Stock Turn Improvement
ASOS implemented a disciplined cost management approach and accelerated stock turn by 35%, allowing for better capital utilization and improved operational efficiency.
Loyalty Program Introduction
The introduction of the ASOS.WORLD loyalty program aims to boost customer engagement and retention, a strategic move to strengthen customer relationships.
US Market Sales Decline
Sales in the US market declined by 28%, attributed to reduced stock, promotions, and performance marketing. Despite this, there was an increase in variable contribution, indicating potential for future recovery.
Overall Sales Decline
ASOS experienced a 13% year-on-year decline in adjusted constant currency sales. This decline reflects reductions in unprofitable performance marketing and inventory, aligning with the company’s focus on profitability.
Challenges in Active Customer Growth
The company is facing challenges in growing its active customer base, with declines due to reduced product availability, promotions, and marketing investment.
Third-Party Brand Performance
While the sales performance of third-party brands was weaker, profitability improved, highlighting ASOS’s strategic focus on enhancing profitability across all segments.
Forward-Looking Guidance
Looking ahead, ASOS provided optimistic guidance, expecting gross margins to surpass 46% and adjusted EBITDA to grow by at least 60%, reaching between £130 million and £150 million for FY 2025. The company aims for a return to revenue growth, supported by the scaling of their Flexible Fulfillment models. Additionally, ASOS anticipates meaningful free cash flow inflow in FY 2026, driven by continued improvements in their operating model and gross margins.
In conclusion, ASOS plc’s earnings call highlights a strategic shift towards enhancing profitability and operational efficiency. While challenges remain, particularly in the US market and with third-party brands, the company’s focus on sustainable growth and cost management is evident. Looking forward, ASOS’s guidance suggests a positive trajectory, with expectations of improved margins and EBITDA growth.