ASOS PLC (LSE:ASC) has “little relief” heading into 2023, said Stifel, which kept its sell rating and 350p target price on the stock.
“Its customer base is facing a significant decline in discretionary spending power just as ASOS passes on product and delivery inflation,” said the investment bank.
“Hence, we forecast that a profit turnaround will be delayed until 2024, as management seeks to put the business on a sounder financial footing.”
Looking forward, Stifel expects ASOS to report a 4% decline in sales when it updates the market in January.
This is due to weak consumer confidence, customers returning to stores and less attractive delivery options, Stifel said.
Matt Britzman, an equity analyst at Hargreaves Lansdown, also notes that the decline in profits could be down to “cash-strapped customers returning more items this year.”
As a result, operating costs and stock levels remain high, which resulted in discounting, eating away at margins.
“These problems aren’t going to be solved by a strong Christmas performance, but it would certainly soften the blow.”
“The group sells products all along the price scale, meaning it’s set up well to offer something for everyone. At a time where consumers are becoming increasingly cost-conscious, this should be an advantage relative to other fashion retailers, who typically only target one price point,” Britzman added.
A recently negotiated credit facility also gives ASOS a stronger balance sheet that offers some breathing room while ASOS tries to get back into positive territory.