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Asos Raises $304 Million to Gird Against Virus Impact

Hoping to mitigate the impact from the coronavirus pandemic and shore up its balance sheet, British online fashion e-tailer Asos on Wednesday successfully raised $304 million through a public placement in London.

The company on Tuesday had provided solid interim results for the six months ended Feb. 29 before the coronavirus outbreak, which included a 21 percent gain in group revenues to $1.60 billion pounds ($1.98 billion). Sales in the European Union rose 21 percent, while U.K. and U.S. sales each grew 20 percent. The company also said total orders placed for the six-month period were 41.4 million, an increase of 19 percent when compared to the volume a year ago.

Much of the focus from the fashion e-tailer’s six-month report was on the virus’ possible impact on the business going forward. The company said group sales were down 20 percent to 25 percent in the weeks after the outbreak as containment measures impacted consumer demand.

Asos also said that most of its markets follow the same pattern of “demand shock before impact partially moderates.” And while disruption to product sourcing from China is minimal, the company is “closely monitoring European sourcing.” Its warehouses remain operational, but at a lower capacity with social distancing measures in place. The company also has cut discretionary costs, and aligned merchandise flows with current demand.

“Asos had a strong start to the year, making significant progress against the priorities we set out and delivering a better than anticipated first-half performance, driven by the operational improvements we are making to the business,” CEO Nick Neighton said. “Along with other businesses, we have been significantly impacted by the COVID-19 outbreak. Our first priority was to quickly put in place the necessary measures to ensure the health and well-being of our people.”

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Since the outbreak, Asos has been focused on the business as it meets consumers’ needs, as well as taking some actions to mitigate the sales impact it has been experiencing, Beighton said.

“At the same time, we have been working to strengthen our financial position, including reaching agreement with our lenders to provide us with additional short-term financial flexibility,” the CEO said. “The COVID crisis is clearly going to continue to be tough for everyone and the short-term outlook remains highly uncertain, but the measures we have taken to ensure we are able to be clearly focused on making sure that Asos emerges as a stronger and better business.”

Looking ahead, Beighton said the Asos business model gives it a certain amount of resilience, which can be seen across markets where consumers are in lockdown.

Wednesday’s incremental equity capital raise of 247 million pounds ($304 million) will “ensure we have sufficient resources to capitalize on the future, whatever it may hold,” the CEO said.

Wall Street has weighed in on the maneuvering as well.

“Management believes that [measures to strengthen its financial position] can prevent sufficient financing for the Asos cost structure in the event that current trends fail to improve for at least the next 18 months,” Ike Boruchow, analyst at Wells Fargo, said.

Boruchow said that while the company appears to have executed a strong turnaround from fiscal 2019, the impact of COVID-19 might be too much for “Asos’ low-margin structure to deal with in the near-term.” With negative free cash flow and added leverage, the company could see more pressure to improve future profits going forward, which could be a real risk if macro trends worsen.

Because the e-commerce firm operates a low-margin business, and significant sales declines are a certainty in the near term and possibly beyond, Asos has very little “cushion” in its margins to absorb the “materially negative impact,” said Boruchow, who has the equivalent of a “Hold” rating on shares of Asos.