Asos’ shares surged 15% to 374p after better-than-expected results suggest the turnaround plan is starting to bear fruit, which may have Frasers eyeing up a takeover bid.
José Antonio Ramos Calamonte, who took over a year ago, said his focus was on returning profitability through structural changes.
These comprised renewing its commercial model and improving inventory management; simplifying and reducing its costs profile; ensuring a robust and flexible balance sheet; reinforcing the leadership team and refreshing the culture.
Profit per order was up 30%, inventory levels shrunk by 15% and adjusted gross margins shot up 350 basis points on the back of improvements in better pricing on selling and sourcing in the group's third-quarter results.
Indeed, improvements in profitability were at the detriment of sales, with revenues down 14% to £859mln in the three months to 31 May.
Better-than-expected results from a brand 95% off share price highs, coupled with a turnaround plan that is showing green shoots creates the almost perfect storm for a buyout.
Frasers increases stake
At this stage, the most obvious vulture is Frasers, with rumours amplifying following recent stakebuilding.
Today, Mike Ashley’s company increased its stake to 10.5% from 9.8%, the latest in a string of share purchases that will likely not end there.
Frasers, alongside Next, have been the two retail giants to embark on buying sprees of legacy brands, including Gieves & Hawkes and In The Style.
However, Frasers' stakebuilding is a moot point if it can’t get Asos’ largest shareholder, Swedish retailer Bestseller, on board.
Anders Povlsen, Bestseller’s owner, has been with Asos through thick and thin since it first snapped up the stock in 2010, with it now owning roughly 26%.
He too is likely to be buoyed by today’s better-than-expected performance, and now more than may dig his heels in on relinquishing his holding.
“Would Bestseller like to sell out its holding? I wouldn’t have thought so,” said John Stevenson, retail analyst at Peel Hunt.
Should Asos continue to prove it is turning the corner, and its share price remains close to historical lows, expect takeover talks to intensify.