Asos surges on turnaround hope despite 4Q sales miss

By Geoffrey Smith 

Investing.com -- Shares in online fashion retailer ASOS (LON:ASOS) surged the most since the start of the pandemic on Thursday on hopes that the company has finally put the worst of its problems behind it. 

ASOS was caught out by the slowdown in online clothes shopping last year as high street stores reopened and the highest inflation in 40 years ate into consumer spending. And the year ended in downbeat style too, as a series of strikes by postal workers hurt its ability to deliver presents ordered for Christmas.

However, the company said on Thursday it expects a significant improvement in profitability in the next months, having identified and started to implement around £300 million (£1 = $1.217) in cost savings and other measures that will "more than offset inflationary headwinds" and a rise in abnormally low rates of returns.

The company has already announced job losses that will cut staffing costs by around 10%. It is also closing excess storage facilities and shedding office space, as well as optimizing the use of other facilities such as fulfillment centers. 

While ASOS still expects to lose money in the first half of the fiscal year through August, it expects "significantly improved profitability and cash generation" from March onward. 

The first four months of the current year were still overshadowed by its familiar problems. Sales in constant currencies fell 6% from a year earlier, a little more than expected, although a 6% rise in EU sales cushioned a bigger 8% drop in its core U.K. market and the loss of its Russian business. A write-off of unwanted stock, already announced, sliced nearly 7 points off the reported gross margin to 36.1%. Adjusted for the write-off, margins held steady at 42.9%. The number of active customers was flat at 25.5 million. 

ASOS stock lost some 80% last year as the pandemic boom in online fashion ended abruptly. The stock was up 16.9% by 04:45 ET (09:45 GMT), its highest since November but is still trading at less than 10% of its 2018 peak, with a market value less than half of this year's expected revenue.