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Supply Chain Constraints Weigh on Asos in First Half

Fast-fashion e-tailer Asos Plc reported first-half results that reflected ongoing supply chain issues and the subsequent impact on sales.

In a Nutshell: Supply chain issues impacted both newness and stock availability in the first half of the current financial fiscal year. The company also said that despite reduced stock availability, both the US and U.K. saw revenue increases on a constant currency basis at 8 percent and 11 percent, respectively. Sales in the European Union “remained subdued,” up just 1 percent in constant currency.

The decision to suspend sales in Russia on March 2 came after the end of the interim report cycle. In fact, Asos was among the first fashion companies to begin limiting the availability of their merchandise in Russia following its invasion of Ukraine.

“Asos has delivered an encouraging trading performance against the continuing backdrop of significant volatility and disruption. The team has acted with determination and pace and is making good early progress on the strategic plan for the next phase of growth,” Matthew Dunn, chief operating officer and CFO, said. He’s still the lead c-suite executive since former Asos CEO Nick Beighton stepped down last October.

Dunn said that much still needs to be done, and that the company has a clear plan for each of the three key pillars: “platform, consumer offer, and international expansion” and that the company is “already seeing positive signs of progress across the business. We’re confident of the benefits these efforts will create and our continued ability to deliver.”

For the second half, Asos expects sales growth to accelerate through an improved stock profile, easing of comparative growth rates, return of event and holiday-led demand, improved lead times as supply chain constraints ease and increased marketing to support international sales.

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Net Sales: Results for the six months ended Feb. 28 showed that group revenues rose just 1 percent to 2 billion pounds ($2.6 billion), from 1.98 billion pounds ($2.57 billion) in the same year-ago period. On a constant currency basis, the gain was just 4 percent.

Asos said its gross margins in the first half fell 190 basis points reflecting increased clearance activity and elevated freight costs. The online platform said the higher costs were offset by efficiencies that helped to deliver improvements in buying margins.

During the half, the company said it saw “continued triple digit sales growth of its Topshop brands” that were up 193 percent on a year-on-year basis, with strong results across the U.K., U.S. and Germany. The company in February 2021 acquired the Topshop and Topman assets after former parent Arcadia Group entered administration. The deal for the brands, goodwill and inventory for 265 million pounds ($363.2 million) also includes the Miss Selfridge and HIIT brands, but not any of leased stores for the brands.

The company also had a debut of select Asos brands in two Nordstrom stores and on nordstrom.com in November, with additional extensions to two new retail concepts in store in February. Last November, Asos and the American retailer announced a joint venture and saw the department store take a minority stake in Asos Holdings.  The period also saw the completion of the reorganization that included the creation of 12 new business units centering around brands, geographies and emerging channels, all of which provide “increased autonomy and pace of decision making,” Asos said.

Earnings: The company posted a before-tax loss of 15.8 million pounds ($20.5 million), against before-tax profits of 106.4 million pounds ($138.4 million) in the year-ago period. On an adjusted basis, also before tax, Asos reported profits of 14.8 million pounds ($19.2 million), representing an 87 percent decline from 112.9 million pounds ($146.8 million) in the year-ago period.

Asos said it expects a more challenging external environment since guidance for the year was first provided in October 2021. Despite greater risk in the second half in connection with the rise of inflationary pressures and potential impact on discretionary spend, the company wasn’t changing its guidance.

Back in October, the company said it expects adjusted profits before taxes in the range of 110 million pounds ($150.1 million) to 140 million pounds ($191.0 million) for fiscal year 2022.

CFO’s Take: “We’ve entered the second half of the year well placed, and believe that our stock position, with increased product availability and newness, will stand us in good stead. We remain mindful of the potential impact on demand from the growing pressures on consumer spend and will continue to be responsive to any changes in market conditions as we progress the work started in the first half to deliver on our ambitions,” Dunn said.