ASC Asos Plc

17 April 2024

ASOS plc

Global Online Fashion Destination

Interim results for the 26 weeks to 3 March 2024

Strong progress on speed and profit initiatives under Back to Fashion strategy

Summary financial results

Strategic update and results summary

·   Strong progress on Back to Fashion strategic priorities to make ASOS faster, more agile, and more profitable:

-  Delivered c.£240m year-on-year ('YoY') improvement in H1 free cash flow (outflow of c.£21m) through disciplined inventory and cost management, representing our strongest H1 cash performance since 2017.

-  Ahead of plan on stock reduction with £593m stock at H1 (vs. FY24 objective of c.£600m). Approximately half of the stock reduction came from the clearance of stock over 12 months old.

-   Sold through c.83% of AW23 stock in H1, representing a 17ppt YoY improvement and resulting in two-thirds reduction in volume of AW stock carried forward vs. prior year.

-   Increased stock turn on newness by more than 40% YoY with a c.10ppt YoY improvement in 12-week sell through - indicative of better and more relevant product under the new model.

-   Flexible models scaling well: Test & React running at c.5% own-brand sales and already above 30% in launch category (ASOS Design Jersey Tops); Partner Fulfils running at c.5% of partner brand GMV.

-   Structurally improved profitability with cost to serve⁴ down 120bps to 41.5% of sales despite volume deleverage over fixed costs and UK brand marketing investment.

·    As previously announced, H1 FY24 sales -18% as we annualised actions taken during FY23 to improve core profitability under the Driving Change agenda and with H1 intake c.-30% YoY as we right-size stock levels.

·    Over 60% of sales from product now excluded from promotions. However, adjusted gross margin down 260bps YoY due to planned discounting to clear old stock. Further clearance activity planned in H2 to unlock the full benefit of the new commercial model from FY25. Gross margin drag in H1 from heightened mix of old product sales estimated over 5ppt. Consequently, adjusted EBITDA ('AEBITDA') loss of £16.3m in the half.

·    Reiterating guidance for FY24 sales decline of 5 to 15%, positive adjusted EBITDA and cash generation. Further clearance activity planned in H2 to unlock the full benefit of the new commercial model from FY25.

·     AEBITDA for FY25 expected to be significantly higher than FY23 and FY24 driven by: (1) materially higher gross margin following removal of old stock and higher full-price sales mix of flexible stock models; and (2) ongoing transformation of the business following cost action already taken in FY23 and H1 FY24.

·     Further strengthening of company leadership including appointment of new CFO detailed in separate RNS.

ASOS plc

Global Online Fashion Destination

Interim results for the 26 weeks to 3 March 2024

José Antonio Ramos Calamonte, Chief Executive Officer said:

"At the beginning of this year we explained that FY24 would be a year of continued transformation for ASOS as we take the necessary actions to deliver a more profitable and cash generative business. Under our Back to Fashion strategy, we set out three priorities for the year - to offer the best and most relevant product, to strengthen our relationship with customers and to reduce our cost to serve. We have delivered on each of these in the first half of the year, including right-sizing our stock ahead of target to drive our best first half cash performance since 2017 and seeing excellent results in our Test & React model, which is growing at pace. ASOS is becoming a faster and more agile business, and we are reiterating our guidance for the full year as we lay the foundations for sustainably profitable growth in FY25 and beyond."

CEO Review

We started this journey with a clear target in mind, to turn ASOS into a company that delivers sustainable, profitable growth. That meant three things: i) to provide our customers with the best and most relevant product through better stock management and an obsession with speed; ii) to reduce our cost to serve, removing waste and improving our use of data; iii) to strengthen our relationship with customers, ensuring ASOS is top-of-mind for fashion. Over the last six months we have seen progress on all fronts.

We have seen good momentum in our transformation to make ASOS faster and more agile, bringing the most exciting product to our fashion-loving twenty-something consumers from both our own brands and the best partner brands. Product produced through our Test & React model, which brings product from design to site in less than 3 weeks, is amongst our top sellers every week, with strong full-price sell-through and a gross margin of 58%. This is still a small part of our business but we are scaling it at pace, now accounting for close to 40% of sales in one of the product categories we launched with in November. I have the confidence that this model will be truly transformational for ASOS, both for our customers and for the profitability and cash generation of our business model. With better product and more disciplined stock management, over 60% of our sales now come from product excluded from any markdown or promotions. 

We have also made great progress in reducing our cost to serve, ensuring we focus our spending in areas that truly benefit our customer and deliver the experience they value most. We reduced our cost to serve ratio below the prior year despite the deleverage of some of our fixed costs from the decline in sales. At the same time, we made considerable headway in strengthening our relationship with customers, increasing our visibility across social media platforms by increasing organic product seeding to more than 300 influencers per month, building relevance for our core customer and ensuring ASOS is top-of-mind for fashion.

This strong stock discipline and cost management has delivered our strongest H1 cash performance since H1 FY17, but the impact of our meaningful strategic progress on profit was concealed by the action we took to reduce our stock. We have successfully sold through a significant volume of the old stock that accumulated under our old commercial model, particularly over the Covid period. At the same time we reduced intake by c.30% YoY in the period, primarily to facilitate the right-sizing of stock, but also due to delays in shipments cause by disruption to ocean freight routes to avoid the Red Sea. The result of this is a sub-optimal level of newness and higher proportion of sales of old stock, providing a less compelling customer proposition and creating a drag on sales and gross margin over FY23 and FY24. However, it is the medicine we needed to take. Our progress over the last six months means we can feel confident that from FY25 we'll have the right level of newness to excite our customers again.

While we can be proud of what we've achieved so far, there is always more to do. We are relentlessly focussed on delivering even more against each of these priorities throughout the remainder of H2 FY24.

Progress against our FY24 priorities:

1.   More relevant product through disciplined stock management and an obsession with speed

At its core, ASOS is about bringing exciting product to our fashion-loving twenty-something customers and inspiring them to be whoever they want to be. With our combination of prominent own brands including ASOS Design, Topshop and Topman alongside a curated edit of the most relevant assortment from our partner brands, we are uniquely positioned to offer exclusive product while also meeting the desires of our target customer. As I set out in November, a key mechanism by which we can offer the most relevant product is by becoming faster and more agile, principles which we have successfully embedded at the heart of both our new commercial model and our culture. 

Our Test & React capability, which brings stock into the business on a two-to-three week lead time, will ensure that ASOS is the first place that our customers are able to access the latest trends. We have made good progress in scaling this model to a run-rate of c.5% of own-brand since launch in November and are now working with suppliers in Turkey and Morocco as well as the UK. Test & React was initially launched in the strategically important ASOS Design Womenswear Jersey Tops and Jersey Eveningwear Dresses categories, together responsible for close to 20% of ASOS Design Womenswear sales. Test & React has already scaled to over 20% of the Jersey Eveningwear Dresses category and in Jersey tops is approaching 40%. We have now rolled out Test & React to other categories such as Soft Wovens and will expand into Denim in the second half. We are on track to hit our Test & React target of exiting the year with a run-rate of c.10% of own-brand mix and achieving c.30% in the mid-term. Gross margin on Test & React product in H1 was c.58%, an exceptional achievement despite higher sourcing costs as a result of strong full-price sell-through turning on just 3 weeks cover. These impacts will become more visible in our group performance as Test & React becomes a larger part of our mix in FY25 and beyond.

Beyond Test & React, we are working hard to increase speed to market across all our own design product, significantly reducing lead times, particularly in long lead regions. While still in its early stages we have achieved promising results, with a c.30% reduction in lead times achieved by a number of key suppliers of Jersey, Denim and Dresses. These initiatives will ultimately enable ASOS to get product to market faster and to hold fewer units of each style, meaning more relevant product for our customers while also reducing inventory risk and improving profitability and cash generation.

On the partner brands side, we've started to ramp up our flexible fulfilment models with Partner Fulfils making up c.5% of partner brand sales by the end of H1. At FY23 we set out plans to double both the percentage of GMV and the number of brands operating on Partner Fulfils over the course of this year. Partner Fulfils allows us to be more flexible in how we collaborate with our brand partners, while simultaneously providing increased width (i.e. expanding the product range available on the ASOS platform) and depth (i.e. allowing us to continue fulfilling orders on our bestsellers when our wholesale stock is depleted). This is all without taking on inventory risk and hence provides the ability to churn slow-moving styles off the site without any cost to ASOS. For our brand partners, it provides access to our 21m fashion-loving twenty-something customers with the flexibility to match supply to demand across different distribution channels, including their own online distribution. In December, we also launched a pilot of ASOS Fulfilment Services ('AFS'), partnering with Spanish brand Scalpers. We will continue to analyse data from this pilot and iterate the programme throughout the remainder of FY24 before implementing our learnings as we scale AFS in FY25.

This approach will make ASOS a more profitable business going forward, with less stock risk because shorter lead times enable lower initial purchase orders on own-brand and because of stockless partner brand models. We will also 'clear as we go' on product that doesn't work well. Our approach to managing fashion-led stock under the new commercial model involves removing aged stock from our model by clearing product close to the season in which it is relevant. This avoids very deep aged clearance discounts, improving gross margin and ensuring a better customer experience by presenting more fresh, relevant product.

As expected, the significant steps forward we have made over the first half are not reflected in the profit we have reported for the period. As you already know, the business accumulated c.£550m of stock between FY20 and FY22. This reality meant that throughout FY23 and FY24 we have had to significantly reduce new intake (by c.30% in H1 FY24) while heavily discounting old stock in order to reach our goal of holding c.£600m of inventory by FY24, so that we can operate fully on our new commercial model in FY25. We reached our goal early with H1 FY24 inventory of £593m. As already explained, this clearing progress has had a direct impact on our adjusted gross margin (310bp YoY impact from higher discounting). Driving sales to old product also cannibalises slow-moving product in mid-season and end-of-season sales, increasing the discount required to clear it, as well as diluting our fashion-centric customer proposition. Pleasingly, despite this overhang, we sold through 83% of our AW23 product in H1, a 17ppt improvement on the prior year. We still have old Spring Summer stock to clear in H2 while seasonally relevant, but we feel we have laid strong foundations for a significantly better product proposition in FY25, which will come with substantially higher gross margins and pre-Covid EBITDA margin (c.6%), as previously guided.

2.   Reduce our cost to serve, remove waste and improve our use of data

We are laser-focused on ensuring the investments we make, both in terms of cost and time, help us play to our strengths and further our strategic goals. Actions taken over FY23 and the first half of FY24 have reduced our cost to serve⁴ by 120bps to 41.5% of sales, which is a notable achievement in the face of volume deleverage over our fixed cost base and the incremental investment we decided to make into full funnel marketing. The improvement is the result of hundreds of initiatives, some of the more material of which are:

·     Consolidation of our delivery network: A consolidation of parcel volumes to fewer delivery partners across multiple regions has lowered our contracted rates in the half, with the associated benefit continuing through H2. The cessation of split orders from our two UK distribution centres in H1 FY23, alongside removal of Covid levies and fuel surcharges, has further reduced our distribution costs. Distribution costs as a percentage of sales have fallen by 100bps on the year, from 12.5% to 11.5%.

·     Warehouse optimisation: We have delivered a reduction in both variable and fixed warehouse costs. As of October, all UK and Rest of World ('RoW') orders are fulfilled from an automated distribution centre, reducing the variable cost to serve. Further variable cost savings have been delivered through the optimisation of shift patterns, which have more than offset headwinds from continued wage inflation in the high single digits. Fixed costs were also reduced by the sell-down of aged stock enabling the gradual closure of off-site storage facilities in H1 FY23, as well as the implementation of leaner management structures in our fulfilment centres. In total, warehouse costs as a percentage of sales reduced by 130bps YoY in H1, from 12.4% to 11.1%.

·     Head office: Other costs have also fallen as a percentage of sales, the most significant element of which relates to the cost of head office staff. Following the headcount reduction in January 2023 we have continued to find efficiencies in our structure, including in relation to vacancies. As such, staff costs have declined by 12.5% YoY despite offsetting headwinds from wage inflation running at mid-single digits.

Looking ahead to H2, we expect incremental savings from the mothballing of both the Lichfield fulfilment centre and closure of the Selby returns facility, the timing of which means the impact on H1 has been limited. The decision to mothball the Lichfield site was taken on the basis that the business will hold less stock under the new commercial model and therefore the capacity provided by the facility was no longer necessary to support ASOS' future growth. With the majority of automation spend already committed, we completed the project in March and site closure is scheduled for the end of May. Mothballing the site is expected to result in cost savings of c.£20m p.a. from FY25, with automation spend of c.£16m incurred post-impairment treated as an adjusting item through our P&L rather than capex. The site will be marketed for sale and is a versatile, fully automated pick-and-pack distribution centre suitable for use in a range of industries, and as such we hope to recover a portion of our investment. In the absence of an offer, a non-cash impairment charge of c.£114.7m has been taken against the asset on our balance sheet.

It is worth reiterating that we will never stop in our journey to optimise our operations, instilling continuous improvement at the heart of our culture. Beyond the projects outlined above, we have improved the data in our logistics operations to better scrutinise our shipping performance and therefore improve customer experience, we are upgrading our Product Lifecycle Management ('PLM') systems and processes which will significantly improve our speed, accuracy, and efficiency, and we are improving our use of data to increase the efficiency of our marketing activity, amongst many other things.

3.   Strengthen our relationship with consumers

ASOS' relationship with consumers is most critically about exciting them with the most relevant product, brought to life in an inspirational way for fashion-loving twenty-somethings. One of the biggest drivers of traffic, conversion and customer retention is therefore our product. The other critical component is creating the most inspirational shopping experience for our customers. With our initiatives to deliver better and more relevant product now well-entrenched and scaling, over the second half of the year we will focus on our customer-based initiatives. We will provide more detail of this work and update on our progress at our full year results in the Autumn.

Once we have product that is more relevant and a proposition that genuinely inspires our customers, we will then turn up our marketing to amplify our brand message. During our FY23 results, we announced a change of direction in our approach to marketing, returning to our roots of cultural marketing, content marketing and organic social media to provide inspiration and ensure ASOS is top-of-mind for fashion for our core customer. 

In November we launched our UK brand campaign 'ASOS Your Way'. Alongside the campaign itself, we collaborated with top social talent to maximise reach across all platforms and combined this with the first pulse of our experiential guerilla marketing campaign 'ASOS IRL'. As we explained in November, the impact of upper funnel marketing lags by around twelve months, but in the short-term we used test and control groups to isolate the uplift generated by the campaign activities. Early results demonstrated a 10% uplift in new customers and a 2% uplift in organic web visits immediately following the activations. Meanwhile, our first ever pop-up store in central London was visited by more than 6,000 customers across the four days it was open. The campaign achieved a combined paid and organic reach of over 30 million unique users, and in the weeks following we saw a 17% YoY uplift in branded search⁵. We are looking to build on this success with our March activation, 'ASOS Unreal Finds', which aims to reposition ASOS as a destination for style discovery and source of fashion inspiration through bespoke and personalised recommendations.

In support of this new approach, we have launched an always-on multi-faceted social and influencer programme providing us with the opportunity to showcase our brand across platforms, building relevance for our core customer. Our approach involves partnering with both micro and mega influencers, increasing our organic product seeding globally to over 300 influencers per month, with scope to grow further in H2. Concurrently, we have increased our on-site inspiration through the scaling of our Buy the Look functionality. As a multi-brand player and with our unique styling and studio capability, we can provide customers with inspiration for 'looks' not just items, with benefits for our basket economics. We have now created over 42,000 looks based on our re-imagined Buy the Look, available to customers globally across Mobile Web, iOS, and Android platforms. Early control tests have shown the average basket value of orders that include a Buy the Look product is around 55% higher than average, and baskets are larger as well as more valuable, with a basket almost doubling in size when at least one Buy the Look product is included.

Leadership Updates

Alongside our interim results, we are also pleased to welcome three new appointments to our Management Committee, as well as Christine Cross, who has been appointed as an Independent Non-Executive Director of the Company from 16 April 2024 and will Chair the Remuneration Committee.

As announced by separate RNS this morning, Dave Murray will join ASOS as CFO on 29 April 2024. He joins with more than two decades' experience across a range of finance roles in the retail and e-commerce industry, including at Sainsbury's, Amazon, Farfetch, and most recently as CFO of MatchesFashion. Interim CFO Sean Glithero will continue for a period to ensure a smooth transition and leaves with our deepest thanks and well wishes.

Dave will be joined on the Management Committee by Rasila Vaghjiani, who will join ASOS as EVP, People, in July; and Anthony Ben Sadoun, who joined ASOS as EVP, Digital Product in February. EVP, Digital Product is a newly created role which reflects our commitment to developing a customer experience.

Outlook & guidance

In H1 FY24 we delivered our strongest H1 cash generation since H1 FY17 because of our stock discipline and cost management. Our guidance for FY24 and FY25 remain unchanged and we are committed to accelerating towards an 8% EBITDA margin in the mid-term, enabling ASOS to be sustainably cash generative on an ongoing basis. As set out in our FY23 results announcement:

·    Our mid-term priorities are leveraging our strengths: to offer the best & most relevant product; be a destination for style; build a customer journey created around fashion and excitement; and offer competitive convenience. These things will drive our economic model, delivering stronger order economics and better customer lifetime value.

·    In FY25 we expect to deliver revenue growth and return EBITDA margin to around pre-Covid levels (c.6%). In the medium-term we have confidence in our ability to return to double-digit growth; steadily improve gross margin back towards c.50%; maintain EBITDA sustainably ahead of capex, interest, tax, and leases; reduce capex to 3-4% of sales; and deliver inventory of c.100 days.

·     FY24 is about taking the necessary action to get us to that path. Our priorities of accelerating towards our new commercial model and strengthening our relationship with consumers require investment in the near term into marketing and the discounting of aged stock to exit the year with a clean stock position, including using offsite clearance channels where necessary.

·     As such, our expectations for FY24 are unchanged:

-    Sales decline of 5 to 15%, with P4 FY23 trends continuing through the first half of FY24 and a return to growth in the final quarter of FY24.

-     Adjusted EBITDA positive.

-     Stock back to pre-Covid levels (c.£600m as previously communicated).

-     Capex of c.£130m⁶.

-     Positive cash generation, reducing our net debt position.

Our next update will take place following the end of the FY24 reporting period.

José Antonio Ramos Calamonte                                            

Chief Executive Officer                          

Notes

¹ The alternative performance measures used by ASOS are explained, defined and reconciled to statutory measures on pages 41-44.

² Adjusted revenue includes retail sales, wholesale and income from other services, excluding jobber income.

³ Like-for-like ('LfL') sales are adjusted to remove the benefit of one additional day of trading in H1 FY24 (4 September 2023 to 3 March 2024) vs. H1 FY23 (1 September 2022 to 28 February 2023). The impact of the additional day is less than 1%.

⁴ Cost to serve defined as operating expenses (excluding depreciation and amortisation and excluding adjusting items) as a percentage of adjusted revenue.

⁵ Data from campaign performance studies comparing test and control groups in Nov/Dec 2023.

⁶ Excluding Lichfield automation capex of £20.4m capitalised and subsequently impaired.

Financial Review

All revenue growth figures are stated at constant currency ('CCY') throughout this document unless otherwise indicated.

During the 26 weeks to 3 March 2024 ('the period') ASOS realised an adjusted loss before tax of £120.0m as sales were impacted by continued challenges in the market backdrop, including higher cost-of-living pressures and the impact of profit initiatives taken in FY23 under our Driving Change agenda. The focus of these changes is improving stock-health and clearing aged inventory to improve cash flow and provide an efficient, sustainable operating model into future periods. While hindering top-line growth, these initiatives are simultaneously providing material, ongoing savings throughout our cost base.

The reported loss before tax of £270.0m for the period includes adjusting items totalling £150.0m; including £139.3m relating to the mothballing of our Lichfield fulfilment centre, announced in our FY23 results. £114.7m of this is non-cash and represents the impairment of the tangible, intangible and right-of-use assets associated with the facility. The remaining amount associated with this programme, including £16.5m non-capitalised spend, £6.9m exit provisions and £1.2m in other costs is expected to be cash-settled in future periods.

Outside of the Lichfield programme, other adjusting items include £2.4m relating to property reviews, £1.9m associated with the FY23 stock-write-off programme and £1.0m relating to other initiatives. There was a further £5.4m adjusting item for the amortisation of the Topshop brands as in prior periods.

During the second half of the previous financial year we aligned our internal and external reporting periods to increase reporting efficiency. Previously external reporting was based on calendar months with the half-year results covering a period from 1 September 2022 to 28 February 2023. This year the reporting period is from 4 September 2023 to 3 March 2024 and is therefore one trading day shorter than the H1 FY23 results. The impact of this on group sales growth was c.0.6% and the associated profit and cash flow impact is immaterial. 

Revenue

Total sales for the half declined by 18%⁵ as we have continued to annualise the impact of actions taken during FY23 to improve profitability. We continued to reduce intake in the half (c.-30% YoY) to right-size our stock position and newness was further limited by disruption to Red Sea shipping routes.

Strategic trading decisions facilitated improved profitability over the crucial Black Friday period despite lower sales YoY. We also took the opportunity to optimise discounting through the period to drive clearance of old and aged stock. Concurrently, we have taken further steps to increase profitability of our best performing stock through a more targeted discount strategy, with increased use of promo exclusions that help to protect fast-selling full price stock. These have however had some impact on conversion, which fell by 20 bps vs. H1 FY23.

Active customers declined c.14% YoY, continuing trends seen in previous periods as we focus on improving the profitability of our customers. Average basket value ('ABV') CCY increased by 1.6%, as an increase in average selling price driven by product mix more than offset the markdown investment used to clear aged inventory.

Performance by market

United Kingdom

Sales in the UK declined by 16% YoY against a difficult consumer backdrop as a result of the cost-of-living challenges which particularly impact the younger ASOS customer demographic. A stronger delivery proposition, supported by increased robustness in delivery networks post-peak and the launch of 'ASOS Your Way' supported sales during November and December. However, in the post-Christmas period, intake challenges associated with the disruption to ocean freight through the Red Sea, alongside a more strategic approach to promotions targeting clearance of old stock while excluding strong performers impacted conversion, which was down 30bps YoY.

Active customers were down 13% YoY, broadly tracking sales trends based on the same factors. The lower demand in the market also impacted visits throughout the period which were down 14% YoY. ABV was up 3% YoY as mix impacts more than offset discounting, while orders were down 19% YoY indicating that profit actions are positively influencing customer behaviour to underpin basket economics.

Europe

Total sales were down 11% YoY with weak demand in a number of key markets in the period. Colder weather provided some support in the first quarter, driving a mix into higher average selling price ('ASP') Autumn-Winter products, which helped improve the overall ABV despite higher levels of promotional activity to clear older inventory.

Despite headwinds to top-line growth created by actions under the Driving Change agenda, share in core markets has proved resilient. France was particularly challenging in the half, however a more aggressive promotional stance in January, during Soldes, allowed us to grow share and capitalise on demand through this key trading period. Meanwhile, Germany has historically had a particularly high cost to serve with some of the highest return rates in the world experienced across the industry. As such, the profit initiatives introduced in this market have been among the widest-ranging, including delays to the launch of high returning categories such as formal dresses, reduced prominence of certain product categories in customer communications and on the ASOS homepage, and changes to delivery charging infrastructure to align with best-in-class local competitors. Despite weakness in the German market overall market share has held up well, indicating that the changes introduced have not negatively impacted our proposition relative to competitors. 

United States

Total US sales fell by 25% YoY, reflecting challenges in visits down 16% due to general market weakness, strong competition bolstered by high levels of promotional aggression, and our more restrained approach to paid media spend with a focus on increasing return on investment. Conversion also declined 30bps YoY as a result of the wide-ranging actions taken throughout last year to improve the region's profitability.

Rest of World

Rest of World ('RoW') sales fell by 36% YoY reflecting the annualisation of the widespread profitability measures outside our core geographies which were implemented towards the end of H1 FY23, including price increases and changes to our delivery proposition. This can be seen in the key trading metrics with reduced visits and conversion partially offset by ABV up 8%, building on the double-digit ABV increase already achieved last financial year.

Gross margin

Adjusted gross margin² fell 260bps YoY to 40.3%. Increased discounting as part of our planned activities to accelerate clearance of old and aged stock as we transition to the 'New commercial model' was responsible for 310bps of gross margin decline. On a reported basis gross margin improved by 390bps, primarily due to the c.£130m stock write-off programme in the prior year which was treated as an adjusting item.

The lower freight rates contracted in FY23 continued to provide a benefit to gross margin in the half, although surcharges imposed to reflect re-routing of ocean freight to avoid the Red Sea alongside highly selective use of air freight for high priority shipments will reduce this benefit in the second half of the year. These impacts will be offset by supply chain efficiencies elsewhere in our P&L.

Operating expenses

Despite volume declines, cost to serve fell by 120bps to 41.5% of sales in the half as operating expenses excluding depreciation, amortisation and adjusting items decreased by 20.9% YoY, with supply chain efficiencies (i.e. reduced warehouse and distribution costs) providing a combined benefit of c.£119m. This improvement has outpaced the reduction in revenue with a combined benefit of 2.3% to AEBITDA.

Distribution costs at 11.5% of sales decreased by 100bps YoY primarily as a result of the optimisation of our UK fulfilment operations in FY23 to avoid split orders. Lower YoY volumes provided a headwind in the half, reducing the benefit from volume-based rebates and rates. However, through working with our key delivery partners across each region we have been able to continue to mitigate the impact of this as well as the ongoing pressure on fuel rates and other inflationary cost increases.

Warehouse costs as a percentage of sales decreased by 130bps YoY to 11.1% despite the deleveraging of fixed costs from reduced volumes. Initiatives from our Driving Change agenda in FY23 have annualised into the first half, including the network rationalisation activities and closure of offsite storage and returns-processing facilities all providing YoY benefits. The refined peak trading strategy drove lower, more profitable volumes during this critical period which alongside the easing of labour challenges following general declines in the e-commerce sector post-Covid drove further benefits. Peak incentives and pre-peak excess labour both significantly reduced YoY.

Marketing costs decreased by 8.2% YoY. However, as a result of volume deleverage on our fixed spend and the introduction of the UK brand and upper-funnel marketing activity announced at FY23, marketing as a percentage of revenue increased 70bps YoY to 6.7%.

Other operating costs fell by £36.0m or 16.5% YoY. However, as a % of revenue they increased by 30bps to 12.2% of revenue. The reduction in absolute spend represents the continued benefits from right-sizing our fixed cost base throughout FY23. Headcount was 9.2% lower at the end of the period compared to H1 FY23, which was delivered through both the Driving Change agenda activities in FY23 as well as continued management focus on controlling vacancies, providing c.£13m benefit to operational costs YTD. Technology spend also reduced, despite inflationary pressures with benefits from the Driving Change agenda annualising alongside continued focus on cost efficiency.

Depreciation and amortisation costs (excluding adjusting items) as a percentage of sales increased by 150bps YoY. In addition to the deleveraging impact of lower revenue; similarly to our FY23 results, the absolute depreciation and amortisation charge increased, primarily as a result of the growth in intangible assets including data services, operations systems and improvements to web and payments platforms.

Interest

A finance expense (excluding adjusting items) of £27.3m was incurred compared to £20.5m in H1 FY23. This reflected rising interest rates (SONIA at c.5.2% throughout the period, vs. an average of c.2.9% in the six months to 28 February 2023) as well as a higher margin payable post the May 2023 refinancing (see Net Debt, Refinancing and Liquidity section below).  

Finance income of £5.4m includes interest earned on deposits at financial institutions. A higher level of return in the period to 3 March 2024 compared to the £2.5m in H1 FY23 reflects the higher average cash balance and rising global interest rate environment.

Taxation

The reported effective tax rate is 9.9% based on the reported loss before tax of £270.0m. This is lower than the H1 FY23 effective tax rate due to the impact of derecognising £34.8m of deferred tax assets in the period.

Earnings per share

Both basic and diluted loss per share were 204.3p (H1 FY23: basic and diluted loss per share of 218.7p). The lower loss per share is a function of the increase in shares in issue following the equity raise in May 2023, partially offset by the increased loss for the period of £243.2m (H1 FY23: £218.2m). The potentially convertible shares related to both the convertible bond and ASOS' employee share schemes have been excluded from the calculation of diluted loss per share as they are anti-dilutive for the period ended 3 March 2024.

Free cash flow

There was a free cash outflow¹⁴ (before items relating to financing) of £21.1m for the half, an improvement of £237.7m YoY with the reduction in inventory driving a £175.5m inflow (+£203.1m YoY) during the period.

Cash was used to fund capital investments of £86.1m, a reduction of £28.9m or 25.1% YoY with spend lower across both intangible assets and property, plant and equipment. This figure includes £20.4m of spend in the period relating to the Lichfield fulfilment centre which has subsequently been impaired; excluding this, the total capital investment would total £65.7m for the period.

Net debt, refinancing and liquidity

Excluding lease liabilities, net debt at 3 March 2024 was £348.8m, an increase in the half of £29.3m, with a free cash outflow of £21.1m being the primary movement. The non-cash change in the fair value of the convertible bond and unwind of capitalised fees accounting for the remaining movement. Net debt was £82.9m lower YoY.

Cash and undrawn facilities totalled £361.2m at 3 March 2024 (H1 FY23: £408.6m) and included cash and cash equivalents of £332.3m (H1 FY23: £308.6m). The strong progress on inventory in the period has reduced the available RCF under the Bantry Bay facility to £28.9m which remains undrawn (H1 FY23: undrawn Old RCF of £100.0m).

Sean Glithero

Interim Chief Financial Officer

Notes

¹ Rest of World.

² The adjusting items are explained in note 3 of the financial statements.

³ Retail sales are internet sales recorded net of an appropriate deduction for actual and expected returns, relevant vouchers, discounts and sales taxes.

⁴ Income from other services comprises of delivery receipt payments, marketing services, commission on partner-fulfilled sales and revenue from wholesale sales.

⁵ Includes retail sales, wholesale and income from other services, adjusted for the impact of foreign exchange translation, non-underlying jobber income and the impact of one additional trading day in H1 FY24.

⁶ Active customers defined as having shopped in the last 12 financial months.

⁷ Average basket value is defined as adjusted net retail sales divided by shipped orders.

⁸ Average basket value CCY is calculated as adjusted constant currency net retail sales divided by shipped orders.

⁹ Average order frequency is calculated as total shipped orders in the last 12 financial months divided by active customers.

¹⁰ Conversion is calculated as total shipped orders divided by total visits.

¹¹ As a percentage of adjusted revenue.

¹² Stock-write-offs associated with our driving change agenda in FY23, which accounted for a £127.5m reduction in inventory during H1 FY23.

¹³Includes working capital movements associated with adjusting items; a breakdown is included on page 44.

¹⁴ Free cash flow is net cash generated from operating activities, less payments to acquire intangible and tangible assets, payment of the principal portion of lease liabilities and net finance expenses.

Investor and analyst meeting:

The group will be hosting an in-person presentation for analysts at 9.30am at ASOS HQ, Greater London House, NW1 7FB. A live webcast will also be available, and a recording of the presentation will be uploaded to the ASOS investor relations website afterwards.

To access live please dial +44 208 080 6591 and use Meeting ID: 835 5126 0264 and passcode: 677000. A live stream of the event will be available here.

A recording of this webcast will be available on the ASOS Plc investor centre website after the event: https://www.asosplc.com/investor-relations/

For further information:

Background note

ASOS is a destination for fashion-loving twenty-somethings around the world, with a purpose to give its customers the confidence to be whoever they want to be. Through its app and mobile/desktop web experience, available in nine languages and in over 200 markets, ASOS customers can shop a curated edit of nearly 50,000 products, sourced from nearly 900 global and local third-party brands alongside a mix of fashion-led own-brand labels - including ASOS Design, ASOS Edition, ASOS 4505, Collusion, Reclaimed Vintage, Topshop, Topman, and Miss Selfridge. ASOS aims to give all its customers a truly frictionless experience, with an ever-greater number of different payment methods and hundreds of local deliveries and return options, including Next-Day Delivery and Same-Day Delivery, dispatched from state-of-the-art fulfilment centres in the UK, US, and Germany.

Forward looking statements:

This announcement may include statements that are, or may be deemed to be, "forward-looking statements" (including words such as "believe", "expect", "estimate", "intend", "anticipate" and words of similar meaning). By their nature, forward-looking statements involve risk and uncertainty since they relate to future events and circumstances, and actual results may, and often do, differ materially from any forward-looking statements. Any forward-looking statements in this announcement reflect management's view with respect to future events as at the date of this announcement. Save as required by applicable law, ASOS plc undertakes no obligation to publicly revise any forward-looking statements in this announcement, whether following any change in its expectations or to reflect events or circumstances after the date of this announcement.