ASOS PLC (LSE:ASC) is "taking the right steps" with its overhaul, according to analysts, though they are not yet fully convinced.
RBC Capital Markets cut its target price to 825p from 1,000p and Deutsche Bank cut its target to 800p from 900p. ASOS shares closed yesterday at 550p.
In its results yesterday the online retail group said it had agreed financing to give it time over the next 12 months to simplify its business model with an increased fashion focus, improved economics and more effective management of costs.
The RBC analyst Sherri Malek hoped the strategy laid out by new chief executive Jose Antonio Ramos Calmonte in yesterday’s results will “drive sustainable change and improvements to performance”.
However, Malek said it is very early days and given the challenging consumer environment decided to err on the side of caution with their forecasts and before any potential rating upgrade.
Read more: ASOS has set itself an 'ambitious and necessary' transformation, but what is it?
"We anticipate revenue growth nearterm to be subdued and lack conviction around a meaningful recovery beyond next year," the RBC analyst wrote.
RBC’s research also suggests the FTSE 250 retailer has lost some of its competitiveness around service, which may continue as ASOS takes measures to improve order economics, though underlying earning margins are expected to improve marginally.
Adam Cochrane at Deutsche Bank stuck with their 'buy' rating on the stock, believing the online retailer is “taking the necessary steps to ensure it remains relevant to consumers.”
But the analyst slashed his 2023 estimate for adjusted EBIT 47% given the updated guidance "but can still see the progression over the next few years as the plan evolves".
The decision to focus on guidance on cash flow “highlights both the current macro uncertainty and the current debt situation.”