ASOS PLC (LSE:ASC) shares fell nearly 10% to 264p after the online fashion retailer warned that annual profits would be at the bottom of its guided range, with weaker-than-expected sales overshadowing progress on margins and costs.
The group said adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) for the year to August would be about £130 million, the low end of the £130 million to £150 million guidance.
That is 5% below consensus forecasts of £138 million and comes after a soft second half.
Free cash flow is now expected to deliver a small inflow, ahead of earlier neutral guidance.
For the 2026 financial year, management said it was confident in meeting consensus expectations of about £173 million of EBITDA and £8 million of free cash flow, albeit on a lower sales base as further cost savings take hold.
While ASOS has made strong progress on profitability, gross margins are up 3.5 percentage points and EBITDA margins above 5%, revenues remain the missing piece.
Sales are expected to fall about 12% year-on-year in 2025, at the bottom of the guided range. Deutsche Bank said the third leg of the turnaround, re-engaging customers, “may take longer than expected”.
The bank kept a “buy” rating and a 440p price target, saying ASOS had “dealt with the inventory overhang and introduced a new commercial model” but warned that “investors may start to question whether ASOS can deliver both sales growth and maintaining the margin profile”.
Deutsche added that while the company’s strategic initiatives, including an adidas collaboration, the ASOS World loyalty programme and wider distribution of Topshop, were starting to roll out, management commentary showed greater confidence on costs than on reigniting demand.
Peel Hunt also highlighted the gap between improved unit economics and declining revenue. The broker said investor sentiment would hinge on evidence that the business was regaining relevance with customers.
Analysts gave credit to ASOS for its cost discipline. Distribution and warehousing costs are down by more than three percentage points of sales over two years, while better full-price sell-through has lifted gross margins.
The expected positive free cash flow will not significantly reduce debt but has eased immediate funding concerns.
Despite these improvements, the share price has fallen more than 90% from its pandemic-era highs above 5,000p.
Restoring growth while protecting margins is now seen as the key challenge for José Antonio Ramos Calamonte, chief executive, who has spent two years reshaping the business.