ASOS PLC (LSE:ASC) has made progress on its 'Driving Change' agenda, but its balance sheet “still gives concern” due to its stock surplus, according to analysts at Stifel.
Analysts at the brokerage and investment banking firm said on Thursday that the retailer’s elevated stock levels are “impacting both sales and gross margin”.
Meanwhile, high debt levels are affecting its profit before tax (PBT), the analysts said.
Stifel predicts that the retailer will not return to sales growth or positive pre-tax profit until at least fiscal 2025.
The firm’s analysts said they have cut their sales estimates for the retailer for both fiscal 2024 and 2025.
They stood by their recommendation to sell shares in the company, at a lower target price of 320 pence per share, while they wait “for signs of an improving consumer environment, further reductions in excess stock and reductions in debt levels”.
“With management guiding to another year of sales decline in FY24E (-5% to -15% guidance), we expect that ASOS will not return to sales growth until FY25E and will not generate a positive PBT margin until FY25E,” they said in the research note.
“Given this, we cut our FY24E and FY25E sales forecasts both by 9% and our adj EBITDA forecasts by 42% and 21%, respectively.”