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Asos Confirms Credit Talks With Lenders

Asos Plc confirmed it is “in the final stages” of credit talks with lenders.

The British e-tailer said it’s close to amending the “future financial covenants in its Revolving Credit Facility, which matures in July 2024. This action will give Asos significantly increased financial flexibility, against the uncertain economic backdrop.”

It said it has strong liquidity and the amendment represents a “prudent step in the current environment.”

Sky News first reported that the e-tailer’s lenders include Barclays, HSBC and Lloyds Banking Group, which are hiring advisors.

An update from Asos last month for the 12 months ended Aug. 31, 2022, indicated that sales have deteriorated. Essentially, the company warned that “after having seen good growth in June and July, sales in August were weaker than anticipated. This reflected the impact of accelerating inflationary pressures on consumers and a slow start to Autumn/Winter shopping.”

Asos also said that it expects profit at the bottom end of its guidance estimating pre-tax profit of 20 million pounds to 60 million pounds ($22.8 million to $68.4 million).

“While ASOS remains cautious about the outlook for consumer spending, it continues to make strategic progress and manage the business for the current environment,” it said.

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Asos wasn’t the only British retailer that warned on outlook last month. Primark expects a “lower” operating profit margin for the second half of the year ended Sept. 17 than the 8.0 percent it previously estimated. John Lewis Partnership chairman Sharon White said the retailer faces a “uniquely uncertain” outlook. She said the retailer will need a strong second half to offset the first half, adding that much “will depend on the wider economic outlook and consumer sentiment.”

Asos’ troubles date back to last October when former CEO Nick Beighton stepped down amid warnings of supply chain problems and its impact on profitability. He was succeeded in June by José Antonio Ramos Calamonte, who joined the company last year as chief commercial officer. Supply chain issues continued to weigh on first-half earnings reported in April.

When reporting third-quarter results in June, Asos said a “significant increase in returns rates” in the U.K. and Europe weighed on net sales while inflation affected profits. It’s also marking down more product to manage the returns surge.