ASOS PLC (LSE:ASC) might be a potential buyout target according to retail guru Clive Black at Shore Capital even though he rates the online fashion retailer as a 'sell'.
Ahead of the online fashion retailer's full-year results released next Wednesday, Black and fellow analyst Eleonora Dani noted the low value of sterling might attract foreign interest.
Specifically, the American luxury department store Nordstrom was named as a potential buyer, while Black also highlighted a recent trend of traditional brick-and-mortar stores buying or building stakes in pure online players.
Luxury conglomerate Richemont appears to be on track to build a 25% stake in online pure player Farfetch and Austrian home retailer XXXLutz is acquiring German Home24.
Shore Capital said all eyes will be on the outlook in ASOS' next results, with the “economics of pure play business” having changed and not in the retailer’s favour.
Rising cost inflation and a lack of an own label offering are eating into already exposed margins, Black said, while value-focused retailers generally are being hampered by an inability to pass on costs with their targeted demographic under pressure from the cost-of-living crisis.
ASOS’s “main issue” though is a failure to grow with its customers in a way its competitors have through brand deals, such as boohoo with Debenhams, Shore believes.
Excess stock levels have also sent debt to a “concerning” £150mln, although access to an undrawn £350mln revolving credit facility means it will not need to raise additional equity, for now, said the broker.
ASOS's share price is down 77% so far this year, though Shore believes this is largely due to a return to its trajectory pre-Covid, having been a lockdown winner which resulted in abnormal growth.