Will shifting inventory on the cheap help ASOS share price pop?

ASOS has launched a new pop-up site to shift outstanding inventory at the low price of £5. That’s not the only thing going cheap, with ASOS’s share price having come undone since its pandemic-era heyday. However, a swing back into profit in its latest trading statement has delivered some optimism that the company’s cost-cutting strategy is working.

• The fast-fashion retailer launches discount site to clear outstanding inventory
• ASOS share price up down over 7% over the past month, and 31% since the start of the year
• Swing back into profitability in the three months to the end of March

ASOS [ASC.L] share price has slumped over 7% over the past month, despite the company delivering a return to profitability in the three months to 31 March.

Since its pandemic heyday, the ASOS share price has fallen steeply. Resurgent competition from high-street retailers and higher returns have all weighed on the fast-fashion retailer. Over the past 12 months, the stock is down almost 62%, and over 91% over the two-year period.

Part of the problem has been stubbornly high inventory levels of unsold clothes, which have weighed on costs. Can a new pop-up site help shift inventory and get ASOS back to creating items customers want?

Everything must go on ASOS pop-up site

ASOS has launched a pop-up site for clearance items. On ASOS Sample Sale, customers will find menswear and womenswear going for just £5 — up to a 90% discount on ASOS com.

An ASOS spokesperson said “This is part of our plan to right-size our stock portfolio, as announced in our full-year results last year, and gives us another route to clear stock in an effective and efficient way.”

The decision could spark criticism over sustainability. Alice Price, associate apparel analyst at GlobalData, told Just Style that the site had “similarities to Pretty Little Thing’s Black Friday strategy in 2020, which saw clothing sold at up to 99% off, leading to widespread criticism surrounding its promotion of overconsumption”.

Price noted that at least the sale site will reduce excess stock from being dumped in landfill, while helping ASOS to reduce inventory levels and focus on making its range “more appealing to customers, having fallen out of favour in recent years”.

ASOS further bolstered its environmental credentials by appointing Anna Maria Rugarli as its non-executive director and chair of the ESG Committee. Rugarli previously spent 11 years at VF Corporation [VFC], the owner of Vans, where she served as circular economy lead.

ASOS share price up after profits return

ASOS’s share price surged over 16% on 15 June after the company reported it had swung back into profit in the three months to 31 March. Adjusted earnings before interest and tax were up over £20m year-on-year in the period. This should put ASOS on course to hit profit guidance for the second half of 2023 of between £40–60m.

Cost reduction has been front and centre of CEO José Antonio Ramos Calamonte’s transformation strategy, dubbed ‘Driving change’. ASOS said it achieved around £200m of profit optimisation and cost savings this year, and was on track to deliver around £300m of benefits in 2023. It added that profits per order were up 30% as the retailer focused on optimising profits in underperforming regions and geographies.

In the three months ending 31 March, inventory levels were down approximately 15% on the full year 2022, with ASOS targeting a 20% reduction for full-year 2023.

“We continue to focus on making ASOS the best possible destination for our fashion-loving customers. At the same time, we are delivering on our plan to turn the business around: to right-size our stock; to generate cash; to reduce our net debt and to structurally improve our profitability," Calamonte said after the latest results.

Where next?

ASOS’s recovery plan has a long way to go, but getting costs under control will be welcome by shareholders.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said that the structural cost stripping seen in the latest update should provide “long-lasting relief to the headwinds that have inflated the group's cost base".

Getting the business in better shape could also boost its appeal as a potential takeover target. Mike Ashley’s Frasers Group has steadily been increasing its stake this year. In June, it was revealed that the Britis retailer had upped its stake in ASOS to 10.6%.

Yet the ASOS share price has already lost most of the gains the latest trading update helped deliver. Investors will need to decide whether further evidence of cost cutting will lead to a sustained rally, or if they should shop around for other options.