Asos has insisted its decision to cut back on promotions-led acquisition activity in favour of directing marketing spend where it can help boost profitability is on-track despite reporting a pre-tax loss of £87.4m for the first half of its financial year.
The loss for the six months to 28 February 2023, a sharp drop from the £14.8m profit the company posted in the same period last year, was mainly attributed to the “deliberate actions on capital allocation to improve profitability.”
Revenue for this period was £1.84bn, down from £2bn last year. UK sales dropped 10% year-on-year.
As part of its focus on profitability, Asos has previously vowed to “omptimise” marketing spend to focus on territories it sees most opportunity and where it can drive up the value of what customers spend and where it sees opportunities to take a greater share of wallet.
This after admitting last year it had prioritised promotional activity over brand building, at the expense of margin.
In this half-year, Asos said it showed “greater restraint” on its marketing spend, which was down 8% year-on-year. Focusing on long-term brand building over promotions was expected to adversely impact sales and customer numbers, “in some cases”, the company claimed.
As part of efforts to increase profitability, Asos is focusing on laying out a new commercial model and creating stronger order economics. With these latest results, Asos has identified 6% of its active customers as having a “disproportionately” negative impact on profitability, at over £100m due to their reliance on discounted items and returns.
While some of these changes have impacted short-term sales growth, there are many causes for optimism as we progress through the second half of the year.
José Antonio Ramos Calamonte, Asos
The company’s CEO, José Antonio Ramos Calamonte, added: “This behaviour may be temporary, part of the lifetime journey of a profitable customer or simply bad business for ASOS. ASOS is now undertaking more refined action, using a more personalised approach to incentivise positive behaviours,” he said.
Asos’s active customers declined by 0.6m year-on-year to 24.9m, attributed to churn and its “disciplined approach” to marketing investment seeing new customer acquisitions fall.
It also suffered a 7% year-on-year decline in its ‘Premium’ customers, who pay £11.95 a year to access free next day delivery. This is due to an increase in price – from £9.95 – and introduction of minimum order values, the company claims.
“While some of these changes have impacted short-term sales growth, there are many causes for optimism as we progress through the second half of the year,” he added, noting how the business is improving its gross margin run rate, seeing the benefits of a repositioned stock profile and is taking action to reduce the proportion of unprofitable sales.
“Initiatives are in place to drive a further £200m of benefit in the second half and I am very confident of our return to sustainable profit and cash generation in the second half of the year and beyond,” he added.
Asos plans to increase marketing spend to capture long-term growthShares in Asos fell 9% in early trading. Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, said: “It shows that the operational turnaround plan won’t be a quick fix, with Asos having a mountain to climb to rediscover its former glory.”
“For too long, Asos has had all the wrong priorities. The biggest problem was that it cared more about sales than the bottom line,” he added, noting there are “some early signs of success” as Asos sacrifices short-term sales for long-term profitability.
“Asos is off the operating table, but it remains in intensive care. It will be some time before the success of the recovery can be judged, Huggins added.