5 November 2024                                        

ASOS Plc

Global Online Fashion Destination

Final results for the period to 1 September 2024

Back to Fashion targets met, foundations in place to deliver sustainable, profitable growth

Summary financial results  

Strategic update and results summary

·     Back to Fashion targets met: Stock clearance complete, new commercial model embedded, Test & React scaled above 10% of own brand sales, flexible fulfilment doubled and unit economics transformed with variable contribution per order now +28% on FY22. Foundations of more agile and profitable business now in place.

·    Significant cash flow improvement: FY24 adjusted EBITDA of £80.1m, at the top end of consensus expectations, and £37.7m free cashflow, a £250.7m improvement year-on-year ('YoY').

·    Stock transition complete: inventory down c.50% since FY22 to £520m, through disciplined stock management and c.£100m write-down to complete transition to the new commercial model by end of FY24. Stock position now offers greater newness for customers, with aged stock down c.75% YoY and >80% of stock under 6 months old.

·      Continued optimisation of profit contribution over revenue, resulting in FY24 revenue decline of 16%⁴ YoY, in-line with guidance provided in our September trading update.

·      New commercial model resonating with customers: sales of newness +24% YoY over the last 3 months (Jul-Sep) with only 6% higher stock, demonstrating strong demand for full-price product. Offset at group level by c.30% YoY decline in sales of old inventory from c.60% lower stock levels. Importantly, this has a sustainable positive impact on gross margin and profit, despite the near-term revenue headwind.

·     Balance sheet strengthened significantly following the year end through a comprehensive refinancing and proceeds from the formation of the Topshop and Topman joint venture⁶ (TSTM JV).

·     Strong foundations now in place, shifting focus in FY25: focus on taking actions to delight customers, doubling Test & React to 20% of own-brand sales, further scaling FF models, adding exciting brand partners, empowering faster innovation through our Technology and Digital Product transformation, launching loyalty programme, launching Topshop.com, and further tackling the causes of unnecessary returns.

·      In FY25, driven by a significant increase in our full-price sales mix, we expect at least 300bps increase in gross margin to over 46% and adjusted EBITDA to increase by at least 60% to £130m to £150m, including the impact of the TSTM JV. FY25 FCF expected to be broadly neutral, with capex of c.£130m and cash interest of c.£35m.

·      In the mid-term our focus remains sustainable, profitable growth. We continue to expect revenue growth, gross margin towards c.50% and an adjusted EBITDA margin of c.8%, sustainably ahead of capex, interest, tax and leases.

José Antonio Ramos Calamonte, Chief Executive Officer said:

"We achieved our key priorities for the year, significantly reducing our inventory position, while generating positive adjusted EBITDA and free cash flow. Following the year end, we further strengthened our balance sheet with our Topshop Topman joint venture and our refinancing. Our product is now in the strongest position it has been in years, with the right level of newness to excite customers, and we have fundamentally improved our profitability through a relentless focus on operational efficiency. With these solid foundations in place, we can focus on delivering experiences that delight our 20 million customers. There is much work to do, but we have already seen our efforts rewarded with new product sales increasing 24% YoY over the last three months. I am energised by the progress we have made so far and excited for the next phase of our journey."

CEO Review

Our mission is to be the number one destination for fashion-loving 20-somethings. We know that by having the most exciting product, by focusing on inspiration over transaction, and by providing an exciting customer journey, enabled by a fast and agile operation, we can build a sustainable, profitable business and return to growth. Our business model affords us competitive advantages in these areas, which has been core to our success. However, we must continue to relentlessly improve across each of them. Our goal is to build a business that delights customers so much that they give us more of their time, love and fashion spend. 

To reach our goal, Phase 1 of the journey has been about setting strong foundations. This meant ensuring that our operations were efficient and effective, and that all our efforts were creating value for our customers, our brand partners, ASOSers and our shareholders. We have been clear about the challenges the business faced and the medicine needed to put ASOS on the right path - undertaking a disciplined revision of everything we do, bringing a refreshed level of rigour to each process in our value creation chain. This has enabled us to build ourselves faster, more agile and better able to serve our fashion-loving 20-something customers. Ultimately, this meant clearing through old stock, changing our product model to ensure we can bring our customers the best, most relevant product and exiting unprofitable activities to invest into areas that matter most to our core customers.

As we sit at the end of Phase 1 of our journey, I am incredibly proud of what the team has achieved. We have more than halved our stock position over the last two years and completely restructured the way that we buy fashion so that we never find ourselves back in such a heavily overstocked position. We have developed a new product model in Test & React that brings product from design to site in less than 3 weeks and scaled this to over 10% of own-brand sales by year end. We have fundamentally improved our order economics, with profit per order increasing 19% YoY in Q4 following the end of our elevated clearance period. We exited certain unprofitable activities, with all countries now delivering a positive contribution and we have improved the profit contribution margin from our least profitable customers by 8ppts. Following the year end we also formed a joint venture for Topshop and Topman, unlocking opportunities for growth for those brands while also significantly reducing our net debt position, and re-financing the majority of our convertible debt out to September 2028.

The medicine we have taken - reducing our intake, discounting to clear old stock, and rigorously revising our operations - while necessary, has not made for attractive financial results over the last two years. However, we are confident we now have the right team, processes and business resilience on which to drive sustainable, profitable growth. Since the full transition to our new commercial model, over the last 3 months, we saw evidence of that progress, with sales of newness up 24% YoY with only 6% more stock, turning c.30% faster, and with c.4ppts higher variable contribution margin. Against this, we have seen old and aged sales down c.30% off c.60% lower stock, providing an offsetting effect as we annualise the end of our stock transformation. Over the next financial year, we expect a continuation of these trends: the benefits of our new commercial model - both in terms of revenue growth and gross margin improvements - will become increasingly apparent at a Group level as our new stock continues to perform, and the offsetting decline from lower sales of heavily discounted old and mature stock will annualise throughout the year. The decisive actions taken over Phase 1 of our turnaround means we are confident in achieving significant profit improvements in FY25 regardless of revenue levels.

Understandably, we will be asked by analysts or investors, "when will ASOS grow again?", and growth remains an important part of our future, so I wanted to share my framing here. At ASOS we have to focus on the inputs - which for the last two years have been weighted towards taking the medicine of reducing stock and exiting unprofitable activities. As we move into Phase 2 of our journey, the year ahead, and beyond, will be increasingly weighted towards taking actions that delight our customers to win more of their time, love and fashion spend. However, from experience we know that exactly when that results in growth in revenue is not something we should try to manage. We could, for example, decide to accelerate growth next month by re-engaging promotional marketing or discounting product, but that would not be in the long-term interests of the business. We will do things in the right way and we're going to be patient.

We have already seen the green shoots in the performance of our new stock in recent months which gives us confidence that our new commercial model is delivering customers the right product at the right time. This will be the driving force behind our gross margin improvement back towards 50% in the medium term. Our relentless focus on operational efficiencies and optimising our cost to serve have laid the foundations to be able to deliver future growth without sacrificing margins. This will enable us to rebuild adjusted EBITDA margins sustainably back to c.8%. And our disciplined capital allocation means that we will continue to drive capex down to our target range, and reduce our interest costs over time as we lower our net debt levels. I am confident that we have something incredibly unique to offer customers and that in the coming years we can return to growth while generating meaningful, sustainable free cash flow.

I'd like to describe in a bit more detail the journey we've been on, what we've achieved over the last 12 months, as well as what's next for ASOS.

What have we achieved?

ASOS is unequivocally a faster, more agile and more efficient business than when we started our Driving Change transformation two years ago. This has been made possible by a significant effort from ASOSers to deliver against our strategic priorities.

1.   Product is in a great place, through disciplined stock management and an obsession with speed

Our mission is to be the world's number one fashion destination for fashion-loving 20-somethings. Having the best product is at the core of our flywheel. We want to delight our customers with the hottest and freshest products and brands, at the right price, delivered in a reliable and consistent way - great products lead to positive customer experiences and inspire loyalty. We can drive better unit economics from selling full-price products, and a better return on marketing investment when directing people to the best product. The more efficient we get, the better the experience we are able to deliver.

At the core of this process has been the transformation of our stock model and the transition to our new commercial model and we can be proud that today our stock position is in the strongest position it has been for many years. At the beginning of our transformation, our stock levels had more than doubled to over £1bn due to Covid-related disruption and poor commercial practices which led to the build-up of old and aged stock. Over the last two years, we have reduced stock levels by c.50% to £520m and c.80% of our current fashion stockholding is in product that has been on site for less than six months.

This hasn't been an easy journey, and we have operated through 'peak pain' over FY23 and FY24 as we've cleared through high levels of excess aged inventory built up under our old operating model, reduced our intake of new and exciting product and shifted to a model of clearing through any underperforming stock as we go. During H2, we began testing the removal of the remaining old stock on our site to see how it would affect customer engagement and sales. The trial was a success: sell through of new stock increased dramatically, conversion rates improved, and we almost halved discounting on site. In Q4, we decided to permanently remove the remaining excess stock from site, which we subsequently wrote-down and will clear through alternative channels. This write-down mainly relates to stock over 12 months old, and means that we finished FY24 with a more compelling customer proposition and the right level of newness to excite our customers again. The results are clear. Over the last 3 months (July-September), sales of newness increased 24% year-on-year with only 6% more stock, and turning c.30% faster, with c.4ppts higher variable contribution profit margin.

Our new commercial model ensures this build-up of old inventory never happens again. We have significantly improved our speed to market (the lead time between buying and selling stock), meaning we can make better choices on our intake. We focus on selling the best fashion at full-price and clearing through any underperforming stock in-season, improving gross margin, avoiding deeper discounts, releasing cash to invest in new stock, and ensuring a better customer experience by presenting more fresh and relevant product.

Our market-leading Test & React model is fundamental to our new commercial model, bringing product from design to site within three weeks, ensuring our own brands always offer the most exciting product and set the trends for our fashion-loving customers. Having developed the model during FY23, we have now successfully scaled to more than 10% of our own-brand sales mix at the end of FY24 and remain on track to scale to 30% over the mid-term. We test product before 'reacting' and committing to volume. When we do commit, given the speed to market, we typically aim to hold just three weeks of stock, supporting a cleaner stock profile. Despite the higher sourcing costs that small batch sizes incur, the high customer demand and full-price mix means the product generates higher gross margin.

Our obsession with speed spans our entire portfolio, and is indicative of an evolution in our broader culture. The development of flexible fulfilment models, Partner Fulfils and ASOS Fulfilment Services ('AFS'), enables us to be more agile in how we collaborate with our partner brands while bringing our customers 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). As planned, we successfully doubled the share of third-party gross merchandise value (GMV) to c.5% and the number of brands using flexible fulfilment to c.100 over FY24.

2.   We're faster and more agile, after reducing our cost to serve, removing waste and improving our use of data

It is critical that we invest in the areas that matter most to our customers. We have simplified processes and removed wasted time and cost to reinvest into productive commercial activities. This has laid the foundations for future growth without sacrificing margins - in other words, to be able to deliver sustainable, profitable growth. 

While there are many initiatives driving improvement, it is worth highlighting our progress in two particular areas - our logistics operations and customer returns - which helped improve our distribution and warehousing cost ratios by a combined c.200bps in FY24, despite volume deleverage.

In logistics, we have undertaken a significant transformation rationalising excess space and rebuilding our processes with increased visibility and speed to bring our customers a better experience. This was driven by a range of initiatives, reflecting our shift in business culture prioritising continuous improvements, such as:

·      Improved customer experience: Through better use of granular and near-time data to identify trends and patterns in our delivery experience, we have halved the percentage of orders that were missing our customer delivery promise over the last eighteen months, significantly improving our customer experience while reducing our costs.

·   Warehouse optimisation: We lowered our variable warehousing costs through increased automation, reducing our labour cost per unit by c.10%, whilst the reduction in stock levels has enabled the consolidation of our warehouse infrastructure, reducing fixed costs by c.25%.

·      Delivery cost efficiencies: Through optimising our delivery partners and renegotiating contracted rates, we have lowered our variable delivery costs. The cessation of split orders from our two UK distribution centres in H1 FY23, alongside improved rates from carriers, has further reduced our distribution costs.

Minimising unnecessary returns remains a central focus for ASOS. During our rapid expansion period, we focused on reducing the friction in the returns process to maximise the customer experience. More recently, we have turned our attention to lowering the returns rate and eliminating needless pain points for our customers. This has involved making improvements to our size and fit and how clothing and accessories are displayed on product pages, including greater use of videos and 360 imagery as well as introducing AI to better understand and address reasons for returns, creating a feedback loop for improvement. As an e-commerce business, we understand that there is such a thing as 'good returns' that enhance the customer experience, and we continue to offer free returns to all customers in our core markets. For customers with an exceptionally high returns rate, this is now subject to keeping to a minimum net order threshold.

There is still work to do in this area, but we have been pleased to see these initiatives begin to have a positive impact for our customers, reducing our underlying returns rate by more than 1ppt YoY.

3.   We're better placed to deliver great customer experiences

In the past, ASOS built its growth through an ambitious geographic expansion. This created a wide base of customers globally, but with a relatively small share of wallet. The growth engine of the coming years will be our core customers in our core markets. This means strengthening our relationship with customers, bringing more engagement and excitement to take a greater share of wallet and greater penetration of our core demographic.

In the UK, we have our highest brand awareness, our greatest penetration of our core demographic and our highest share of wallet. On average our UK customers spend £214 per annum at ASOS and our returning customers (i.e. excluding customers acquired during the year) shop on average seven times per annum. In the initial stages of our transformation, we saw two clear headwinds to order frequency and churn: i) reduction in intake to clear through excess stock carried forward, meaning less new and exciting product; ii) heightened levels of clearance which detracted from the overall experience and attracted non-core ASOS shoppers making one-off purchases to take advantage of discounts being offered.

Outside the UK, our brand awareness is significantly lower as is our order frequency and average customer spend. In these markets we have also undertaken a more significant rebalancing of the customer proposition to invest in the areas that really matter to our customers. This has meant a shift away from differentiating through our delivery and returns proposition and into product and inspiration. This journey will take time to bear fruit, but we believe by creating win-win relationships with our customers we can both improve our profitability and grow.

These headwinds also made our marketing investment less efficient during this transition, driving traffic towards a sub-optimal customer experience. However, we made significant optimisations in our performance media model, allowing us to reduce investment year-on-year while delivering a net positive impact on variable contribution generated through performance channels. We were able to identify and remove inefficient spend from paid search, social and affiliate channels leading to an increase in media return on advertising spend (ROAS) at Group level of +18% in Q4.

Concurrently, we have rebalanced our marketing investment towards brand marketing. In order to build lasting, engaged relationships with our core customers we need to deliver consistent brand messaging both on-and-off-site. Having tested a variety of marketing approaches earlier in the year, including full funnel campaigns, we found our always-on influencer programme to be the most effective and efficient, which following successful testing, we scaled to working with c.1,500 influencers per month by the end of the year. This meant we spent less than the £30m incremental brand budget initially planned.

In recent months, we have also seen improved customer engagement. As we have removed clearance stock from our site, increased newness and rolled out our social media and influencer marketing programme, we have seen improving customer reactivations and retention. As we have improved the reliability of our delivery proposition, we have also seen improvements in our corresponding Net Promoter Scores (NPS) which demonstrates the focus on strengthening our core customer proposition.

Underpinned by efficient and disciplined capital allocation

Our strategy is underpinned by efficient capital allocation, allowing us to invest behind our strengths in a disciplined way, and relentlessly removing waste to invest into opportunity. At the beginning of FY25 we announced three key updates which significantly increased our balance sheet strength and financial flexibility:

i)         TSTM JV: In October 2024, we formed a joint venture (JV) with Heartland A/S that purchased the Topshop and Topman brands, with Heartland A/S taking a 75% stake for £135m cash consideration. Through the JV, we continue to be part of the brands' future potential while improving the efficiency of our capital allocation today. We will explore new opportunities, both online and offline, to bring the best of TSTM to customers globally, providing an exciting growth avenue. Within the next six months, we will re-launch Topshop.com, giving the brand an opportunity to further expand its customer base.

ii)       Convertible bond re-financing: We successfully extended our maturity profile while reducing our net debt through the placement of convertible bonds due 2028 and concurrent repurchase of outstanding convertible bonds due 2026 at a discount to par. This was funded, in part, by the sale of a majority stake in TSTM, demonstrating our focus on efficient capital allocation.

iii)    Bantry Bay re-financing: We also announced an amendment and extension of our existing facilities agreement with Bantry Bay Capital to May 2027, with an option for a 12 month extension. As part of the amendment, we switched £50m of term loan into a flexible facility to effectively reduce our blended interest rate as we improve our financial flexibility.

During the year we also continued the evolution of our leadership team to prepare for the next Phase of our journey. We welcomed Anthony Ben Sadoun as our first EVP Digital Product in February, Dave Murray as CFO in April, and Ras Vaghjiani as EVP of People Experience in July. We also welcomed Rishi Sharma as Interim General Counsel and Company Secretary in May (Emma Whyte is on maternity leave), and Hugh Williams as Interim EVP Technology in June.

Where are we going?

The last two years have necessarily been focused on putting the right foundations in place. As we enter FY25, we now feel that the major blocks of our foundations are largely in place. While we will maintain our obsession with operational efficiency and speed, our focus is increasingly weighted towards relentlessly improving on the pillars of our Right to Win - the best & most relevant product, being a destination for style, delivering an engaging customer journey, and competitive convenience - in order to delight our customers so much that they give us more of their time, love, and fashion spend.

We believe that delighting our customers is the best way to build a good economic business. Delighting customers is not delivered through a solitary action, but by putting customers at the heart of everything we do. Internally, we now talk about our growth strategy by planting seeds. We want to model bamboo, with strong roots that first grow deep and allow the plant to then grow sustainably for many years, staying strong. These 'seeds' can be something as small as a new feature on our site such as 'Buy the Look' (which 14m customers engaged with last year) or the addition of an exciting new brand. We have also begun to cultivate a culture of innovation, instilling in our teams the desire to plant seeds, minimising risk by testing before committing. We have already begun to plant many of the seeds across our four pillars that will underpin the next chapter of our transformation:

1. Best & most relevant product: While Test & React has been pivotal to improving inventory management, it also transforms our fashion offering, ensuring we are the first place that customers can access the best product. With the support of AI, we will further scale Test & React from 10% to 20% of own-brand sales over FY25. We successfully tested AFS with our first brand over FY24 and will expand further in FY25. We recently appointed a new Partner Brands Director, Shazmeen Malik, to lead our partner brand team and we will create a brand acquisition team to focus on bringing exciting new partners to our platform following the launch of Arket, Veja and Mango Man.

2.  Destination for style: Following the appointment of Anthony Ben Sadoun as our first EVP of Digital Product, we have begun to transform our Technology and Digital Product models, reorganising into smaller, autonomous units aligned to customer focus areas. We're adding 100 software engineers, increasing our capacity by 25% to empower faster innovation of our on-site customer experience with the cost off-set through the simplification of our structure.

3.  Engaging customer journey: We have improved the efficiency of our marketing activity through the optimisation of our performance marketing model and have already begun deploying these savings into our social media and influencer marketing to communicate our fashion message efficiently and consistently off-site as well as on-site. Over Q4, we have seen a 14% increase in our earned media value and will continue to scale our programme over the next 12 months. We will also test incentives to improve customer loyalty, including the launch of a new loyalty programme in H2 FY25. Finally, the launch of Topshop.com will provide customers a destination for the brand beyond the current ASOS ecosystem.   

4.  Competitive convenience: Our work on size and fit and the use of AI to learn from our customer experience has had a positive impact on our underlying returns rate. We will continue to improve the convenience of our customer experience by tackling the causes of unnecessary returns.

Outlook and guidance

In FY25, the benefits of our new commercial model will become increasingly apparent. As such, we expect FY25 gross margin improvement of at least 300 bps to more than 46%, and adjusted EBITDA growth of at least 60% to £130m to £150m. While the TSTM JV is expected to have a £10m to £20m negative adjusted EBITDA impact in its first year of operation, it will be increasingly EBITDA accretive over time. We expect FY25 free cash flow to be broadly neutral, with capex of c.£130m and cash interest of c.£35m.  

We will continue to focus on managing the inputs that will drive sustainably profitable revenue growth. Over H1 FY25, we expect a continuation of current revenue trends - strong performance of new intake offset by decline in sales of older stock from significantly lower stockholding, resulting in an overall sales decline. For FY25, we expect revenue to be within consensus range⁷. As a result of the significantly higher mix of full-price sales and the decisive actions taken to improve order economics, we are confident in achieving significant profit improvements in H1 FY25 and the full year regardless of revenue levels. 

Our core focus remains sustainable, profitable growth. In the mid-term we continue to expect to generate adjusted EBITDA sustainably ahead of capex, interest, tax and leases, with revenue growth and an adjusted EBITDA margin of c.8%.  Our new commercial model can drive materially higher gross margin towards c.50% through higher full-price sales mix and flexible stock models, which also benefit our inventory days. Our focus on efficient capital allocation will bring our capex down to 3% to 4% of sales, over time, we anticipate that our improving profitability and cash flow will also reduce our net debt and interest levels. 

Notes

1.   Numbers throughout this section are subject to rounding.

2.   The alternative performance measures used by ASOS are explained, defined and reconciled to statutory measures in the Alternative Performance Measures note at the end of the Financial Statements.

3.   Adjusted revenue includes retail sales and income from other services, excluding non-underlying jobber income.

4.   Like-for-like ('LfL') adjusted revenue are adjusted for the impact of foreign exchange translation (constant currency sales) and the impact of four additional trading days in FY23

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

6.   The arrangement with Heartland, whilst referred to as a joint venture throughout this report, will be accounted for as an associate, as detailed in note 20 of the Financial Statements.

7.   Company compiled consensus range for FY25 revenue growth of -9% to +6%, as of 31 October 2024.

Financial review

Revenue growth figures are expressed on a constant currency (CCY) or like-for-like (LFL) basis unless otherwise indicated. ^1,2

During the 52 weeks to 1 September 2024 ("the period") the Group realised an adjusted loss before tax of £126.0m as sales were impacted by continued challenges in the market, including higher cost of living pressures, and the volume impact of profit initiatives taken in FY23 under our Driving Change agenda, alongside new programmes implemented in the current financial period.

As in the first half of the period, the focus of these changes continued to be on improving stock-health and clearing aged inventory to improve cash flow and provide an efficient, sustainable operating model into future periods. While impacting top-line growth, these initiatives simultaneously provided material, ongoing savings throughout our cost base.

The reported loss before tax of £379.3m for the period includes adjusting items totalling £253.3m. Property-related initiatives account for £144.4m, including the mothballing of our Lichfield fulfilment centre, as announced in our FY23 results. The majority of the expenditure under this programme is the non-cash impairments of tangible, intangible and right-of-use assets.

Outside of the Lichfield programme, other adjusting items include £94.8m relating to exceptional stock write-off programmes. The remaining £14.1m primarily relates to the amortisation of intangibles associated with the Arcadia brands.

During the previous financial year we aligned our internal and external reporting periods to increase reporting efficiency. As a result of this change the previous reporting period had four additional trading days compared to the current financial year. The impact of this on Group sales growth was c.1.4% and the associated profit and cash flow impact is immaterial.

Adjusted EBITDA in FY24 is £80.1m, a reduction of £44.4m vs the £124.5m achieved in FY23, primarily a product of the lower revenues and increased discounting to clear aged stock, mitigated in part by the strong progress made on reducing our cost to serve.

Revenue

Total LFL sales declined by 16%² as a result of the continued impact from annualising the actions taken during FY23 to improve profitability, combined with challenging conditions across our key markets and the impact of a number of new initiatives focused on driving improved profitability.

Active customers declined 16% year-on-year (YoY), continuing trends seen in previous periods as we focus on improving the profitability of our customers. This changing dynamic is in part evidenced by the increase in Average Basket Value (ABV) which rose 2% on a full-year basis.

In addition to the impact of lower active customers and general market factors, visits performance was also impacted by changes to our performance marketing approach in H2 FY24, with optimisations made to the model allowing us to reduce investment whilst delivering a net positive impact on variable contribution.

During H2 FY24 we introduced a net order threshold on free returns for customers with excessive returns in France, Germany and the US. This programme aims to improve profitability within a small group of customers; it does however provide a small headwind in revenue, as we make fewer, more profitable sales.

Performance by market

United Kingdom

Sales in the UK declined by 12% YoY² against a difficult consumer backdrop as a result of the cost of living challenges which particularly impacted the fashion retail sector.

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. When combined with a step-back on conversion this led to an 18% decline in orders. In contrast ABV performed well, +4% YoY, indicating that profit actions are positively influencing customer behaviour to underpin basket economics.

At the beginning of H2 FY24 we saw similar YoY trends as during H1 however as stock health improved, Q4 FY24 began to show a more promising trajectory on revenue, demonstrating clear demand for our full-price stock.

Europe

Visits were challenging in our European markets, down (16%) YoY with weaker consumer demand, combined with tough competition and continued promotional aggression in these markets.

Despite the impact on conversion from actions taken as part of our Driving Change agenda as well as the new initiatives in FY24, conversion remained resilient, flat YoY. This, combined with the improved ABV, +5% YoY, led to some mitigation to the visit performance, with sales declining by 13% YoY².

United States

Total US sales fell by 28% YoY², with H2 FY24 back by 33%, reflecting the more restrained approach to paid media spend alongside the continued market weakness and the strong competition bolstered by high levels of promotional aggression, which combined led to a 23% decline in visits.

Conversion declined 20bps YoY as a result of the wide-ranging actions taken throughout FY23 to improve the region's profitability, alongside the introduction of a free returns threshold for some customers towards the end of FY24.

Rest of World

Rest of World ('RoW') sales fell by 30% YoY² reflecting the annualisation of the widespread profitability measures outside our core geographies which were implemented during FY23, including price increases and changes to our delivery proposition. This has primarily manifested in reduced conversion, 40bps back YoY, leading to a reduction in orders of 38%.

ABV has continued to be strong in the period, up 7%, building on the double-digit ABV increase already achieved last financial year.

Gross margin

Adjusted gross margin³ fell 80bps YoY to 43.4%. Strong H2 performance (+120bps YoY) mitigated some of the declines reported in H1, where increased discounting as part of our planned activities to accelerate clearance of old and aged stock led to a 260bps decline vs H1 FY23.

Building on the strategic trading decisions taken in H1 FY24 to improve profitability we further optimised our discounting through H2, improving the profitability of our best performing stock, whilst continuing to clear through old and aged stock. As in H1 we have achieved this in part through increased use of promo exclusions, ensuring we protect fast-selling full price stock. At the beginning of Q4 we began testing suppression of some of our oldest stock; increasing the full price mix and ensuring that we continued to target on-site discounting to clearance lines that remained seasonally relevant and interesting to our consumers.

These tests demonstrated the significant gross-margin gains we anticipate as part of our new operating model with H2 FY24 adjusted gross margin c.640bps higher than H1.  

Based on the success of these tests, a decision was taken at the end of the period to recognise an exceptional stock-provision against this stock. This will allow us to operate fully on the new operating model from FY25 onwards - with the provision for stock cleared through off-site channels established during the previous financial year.

Reported gross margin was 40.0% (110bps lower than FY23) with the key difference vs adjusted gross margin being the impact of the stock write-off programmes. 

Operating expenses

Despite an overall volume decline, adjusted cost to serve fell to 40.7% of sales demonstrating the significant progress in improving our operating efficiencies and reducing fixed costs.

Distribution costs at 11.3% of sales decreased by 80bps YoY. Lower volumes provided a headwind, reducing the benefit from volume-based rebates. However as a result of the optimisation of our UK fulfilment operations in FY23 to avoid split orders and improved rates from carriers, secured through consolidating volume into key strategic partners in each region, we were successful in not only mitigating these costs, but delivering a saving versus the previous year.

Warehouse costs as a percentage of sales decreased by 110bps YoY to 10.7% despite the deleveraging of fixed costs from reduced volumes. Initiatives from our Driving Change agenda in FY23 annualised in the first half providing a strong start to the year and further improvements in the efficiency across our fulfilment network, combined with the benefits from reduced fixed costs following the closure of the Lichfield fulfilment centre and the Selby returns centre, supported us to deliver cost reductions that outpaced the volume decline.

Marketing costs decreased by 2.3% YoY. However, as a result of increased full-funnel marketing, the impact of volume deleverage and an increase in the paid-visit mix, as a percentage of revenue, it increased 110bps YoY to 6.6%. Towards the end of the year we made significant optimisations in our performance media model which enables us to reduce investment while delivering an increased variable contribution and supports further investment in our full-funnel strategy. As part of this strategy, we have scaled our influencer programme, working with an average of c.1,500 influencers per month by the end of the year.

Other operating costs fell by £48.9m or 12.2% YoY. The reduction represents the continued benefits from right-sizing our fixed cost base throughout FY23, alongside continued management focus on driving profitability supported by controlling costs. Headcount was 3.5% lower at the end of the period compared to FY23, and has now fallen by c.14% vs the FY22 closing position. Transaction costs have reduced by £17.3m both as a result of lower volumes as well as improved terms with key payment providers. Technology spend reduced by £4.9m despite inflationary pressure as a result of continued focus on driving efficiency in this spend area.

Depreciation and amortisation costs (excluding adjusting items) as a percentage of sales increased by 130bps YoY. In addition to the deleveraging impact of lower revenue, 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 £56.5m was incurred compared to £46.3m in FY23. This reflected rising interest rates (SONIA remained at c.5.2% throughout the period, vs an average of c.3.7% in FY23) as well as a higher margin payable post the May 2023 refinancing.

Finance income of £12.0m includes interest earned on deposits at financial institutions, an increase of £5.0m YoY. This increase was primarily a result of the rising global interest rate environment, seen in finance expenses; alongside improved efficiency in investing excess cash deposits.

Taxation

The reported effective tax rate is 10.7% based on the reported loss before tax of £379.3m. This is lower than the FY23 effective tax rate of 24.8% due to the effect of unrecognised deferred tax assets on losses in the current period.

Earnings per share

Both basic and diluted loss per share were 284.4p (FY23: basic and diluted loss per share of 213.0p). The higher loss per share is a function of increased loss for the period of £338.7m (FY23: £223.1m). 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 1 September 2024.

Free cash flow

There was a free cash inflow¹⁴ (before items relating to financing) of £37.7m for the period, an improvement of £250.7m YoY with a further reduction in inventory (excluding the impact of the exceptional stock write-off) driving a £143.1m inflow (FY23: £180.4m) during the period.

Cash was used to fund capital investments of £133.5m, a reduction of £44.4m (25.1%) YoY with spend lower across both intangible assets and property, plant and equipment. This figure includes £17.1m of spend in the period relating to the Lichfield fulfilment centre which has subsequently been impaired; excluding this, capital investment would total £116.4m for the period.

Net debt, refinancing and liquidity

Excluding lease liabilities, net debt at 1 September 2024 was £297.1m, a reduction of £22.4m in the period, with the free cash inflow of £37.7m partially offset by debt movements relating to the non-cash unwind of the effective interest rate on the convertible bond, and the unwind of capitalised fees on the term loan.

Cash and undrawn facilities totalled £408.2m at 1 September 2024 (FY23: £428.3m) and included cash and cash equivalents of £391.0m (FY23: £353.3m). The strong progress on inventory in the period has continued to reduce the available RCF under the Bantry Bay facility to £17.2m which remains undrawn (FY23: £75.0m).

Post balance sheet events

On the 5 September 2024 we announced the sale of the Topshop and Topman brands to a subsidiary of Heartland A/S, as well as a refinancing programme resulting in the repurchase of £173.4m of convertible bonds due 2026 and the exchange of £253.0m into new convertible bonds due 2028. As a result of these transactions ASOS' net debt position will reduce by c.£130m. Refer to note 20 of the financial statements for more information.

Dave Murray

Chief Financial Officer

Notes

1.   Numbers throughout this section are subject to rounding.

2.   Constant currency (CCY) sales includes retail sales, and income from other services, adjusted for the impact of foreign exchange translation. Like-for-like (LFL) sales reflect constant currency sales adjusted for the impact of four additional trading days in FY23.

3.   The adjusting items are explained in note 3 of the financial statements. Reconciliations between statutory measures and their associated APMs can be found below.

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

5.   Income from other services comprises of delivery receipt payments, marketing services, commission on partner-fulfilled sales, revenue from wholesale sales, and income from jobber and other clearance channels.

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 for all lines other than 'Total operating costs' which is expressed as a percentage of reported revenue.

12. Stock-write-offs associated with our Driving Change agenda, accounted for a £130.0m reduction in inventory during FY23 and £104.6m in FY24.

13. Includes working capital movements associated with adjusting items; a breakdown is included below.

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.

15. Reclassified to other payables during FY24.

Investor and analyst meeting:

The group will be hosting an in-person presentation for analysts at 10.30am 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 +44208 080 6591 and use Meeting ID: 810 1611 2586 followed by a #. 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 20-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 over 600 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, 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.