Asos PLC reported a drop in sales in the fourth quarter and warned profit would be at the low end of expectations as it continues to pursue its Driving Change agenda.
In a trading statement for the period ended 3 September 2023, the retailer said sales fell 15% with the hot weather boosting sales in June followed by weaker performance in July and August amidst a deterioration in the UK clothing market.
Sales continued to fall across the group's four main geographies - the UK, EU, US and Rest of World - but the downturn worsened in every region except the EU.
Earnings before interest and tax (EBIT) are expected around the bottom end of the guided £40 million to £60 million range, with free cash inflow in the second half now expected to be c.£60 million, down from £150 million, principally as a result of timing effects that will reverse in September and October.
Asos explained that the hot weather drove a strong June and a wet July and August produced a weaker sales result.
Adjusted gross margins for the second half were up just 150 basis points (bps) year-on-year, below previous guidance of a 200bps improvement, due to the investment in promotional activity to reduce inventory levels.
Asos said while the stronger-than-expected June and weaker-than-expected July and August broadly netted out to deliver sales and EBIT in line with guidance, the phasing of sales impacted year-end cashflow.
This impact will reverse during September and October, it said.
Inventory levels are down around 30% year-on-year, ahead of guidance, while adjusted gross margin rose 150bps in the second half, below guidance, as lower freight and duty costs were partially offset by tactical investment in promotional activity to prioritise stock reduction in a challenging trading environment.
“We remain on track to return stock to pre-COVID levels by the end of FY24 (reducing stock below £600 million), which will importantly continue to drive down our net debt,” the firm said.
José Antonio Ramos Calamonte, chief executive officer, said: “We have reduced our stock balance by c.30%, significantly improved the core profitability of the business and generated cash against a very challenging market backdrop.”