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We also need to work through all of the traders who bought in the 325 - 335p range. It will happen but might take a few days.
More than happy to be patient on this. We are making money and that is a big deal after the doom and gloom.
Agree with everything you say there Happy.
A great trading update and glad to see the business is on the right track. If the business is back to profitability, there is no reason why the shares should be trading at a discount to book value.
I thought a key point in the commentary was about the new financing facility. There is the option to exit early if ASOS wants, but also to extend for a further year in need. This provides great flexibility and is welcome news.
Lots of people will flip this for a quick buck, but we should be back to the £7’s over the next month or so.
GGG - I think it’s highly unlikely they will miss their guidance and I agree with you that the update will be largely positive.
They are working on the things they can control - stock management, reducing overheads, marketing spend, etc.
in the current environment, I’d say it’s difficult for them to predict their sales and return rates with much accuracy. Hence why they’re focusing on the profitability of the sales they do generate.
What’s great about that strategy is that this operating model should stick when the economy eventually improves. So the business should be far more profitable than previously and the SP much higher than it is today. There’s room to grow in this market globally, and I don’t think they should limit themselves to their current regions forever.
TalkingTrades
I’ve been through your post history and you’ve been on quite the emotional journey here. Coming in bullish, averaging down twice (to 380p I believe) and now sh**ting the bed because your position has grown to an uncomfortable size and is down 14%.
Most people here have averages way above yours and are managing to keep it together. So please do us a favour and relax a bit.
If the trading update is good, you’ll be absolutely fine and will make some money. If it’s bad, then you might have to get out and buy some tech stocks to make your money back. Although I suspect the reason you’re salty is that the US market is seeing big gains at the moment and you’re stuck here not wanting to crystallise a small(ish) loss.
Bring on Thursday I say. The company has been very accurate with guidance since the new CEO took over, so I’m hoping for a decent update with no material deviations (to the downside at least).
time for a beer tt. it’s friday and the sun is shining. asos will still be in business on monday morning!
but in all seriousness, someone needed to be on the other side of that 3m uncrossing trade to stop a huge drop today. suspect it’s ma but you never know.
the retail sales figures probably spooked a few people today. look at boo down almost 9%. the economic data is ****e and that’s weighing on retail stocks.
medium term, if the business is still battling then they can always flog off a few brands to deleverage. ma would probably pick up the top shop brands for £150-£200m if asos was desperate to sell. plenty of options on the table before things become terminal.
@ShearClass - the inventory will come down as they reduced their intake at the end of the last year. So if they haven't made as many purchases the position will naturally reduce as they sell through their existing stock. Hence why I think management are confident in their cashflow guidance.
Key for me seeing if the margin improvement has been sustainted. They noted that gross margin was up 300bps YOY in March/April and it would be positive if this continued into May as well. Sales will be down but they've already guided for a low double digit decline for FYE23.
They've already improved their inventory turn from 176 days (FYE22) to 150 days at 1H23. If they can get this down to FYE20 levels (111 days) then the business will be generating a lot more profits and cashflow.
So I think they've got the right idea and it's all about execution now.
Guys - the company isn't going into administration because they wrote off some stock, got out of a few leases early, and made a small operating loss. This is first period of losses that they've had in at least five years (probably longer but I can't see that far back) and is due to cost of living factors and a build up of inventory as supply chains got all messed up last year.
We need to relax a bit and stop speculating. The numbers will speak for themselves and we can discuss them at length when they come out next week. I appreciate that most investors are underwater, but it's good to take a step back sometimes and look at the business over a longer timeframe.
This insurance news is unwelcome but not unsurprising. They will run a mile at the first sign of a recession or negative earnings, but will also be back in a flash once things stabilise.
I'm looking forward to next week - most of the driving change initiatives are baked in and hopefully we see improved margins and some positive cashflow. Not expecting them to set the world on fire, but steady progress is all we need.
That article is sensationalised and clearly written for clicks. The pain is now behind us with the inventory write off already booked, along with vacating certain premises and streamlining costs. The major shareholders wouldn’t have stumped up another £75M if they didn’t believe the business is on the right track. And they will know a hell of a lot more than we do.
I’ve been looking up some comparable US companies and their valuations are eye watering compared to ASOS. As an example, Wayfair had 1Q23 revenues of $3bn, gross margin of 29%, and made a net loss of $350M for quarter (yes one quarter). Book equity is negative to the tune of $2.7bn and the company has around 24M active users.
After taking all of that into account , the business has a market cap of $5.5bn.
Yet here we are at a £418M market cap - with more active users, better margins, a healthier balance sheet, and lower losses (the majority of which relate to the stock write off and turnaround plan).
The discount on UK stocks is quite mad sometimes.
Https://www.similarweb.com/website/asos.com/#overview
Up 6% month on month to 84.0M visits. Still number two in Fashion & Apparel behind Next.
Hardly screams of a brand in decline and I suspect why major shareholders are happy to add/participate in fundraises at these levels.
Patiently waiting for the P3 trading update in two weeks. No point in making any rash investment decisions until then.
In all honesty, the business needs to reduce it's inventory in a big way, so I'm not that concerned about a couple of suppliers having a pause. Less stock means more cash in the bank as they run down to more historical levels.
The loss at H1 obviously spooked some of the insurers and they likely decided to not renew their policies for a further term. Once things stablise they will be back - it's hard for them to stay away from the premium income.
Still looks like they've got a sh*tload of stock on their website to me.
There is more competition but ASOS will still turnover at least £3.5bn for FYE23. So if they can improve their margins, reduce their inventory and improve stock turn, the business will be throwing off cash again. This is all within their control and will put them in a much stronger position once the economy rebounds.
That’s what I’m holding for here, as it will result in a sustained increase in the share price. The takeover talk helps and I’ll be happy if we get bought out for £15ish, but to get back to £20+ they need to get back into profit and cash generation.
Agree with Boris on this - I can’t see anything but a mid teens offer being entertained.
It’s not just about the current share price, but what the company is worth to the purchasers and the potential synergies they could gain by owning the business. Even though it’s been struggling lately, ASOS remains a big player in online retail and that is clearly attractive to other parties (i.e. the Turkish offer in Dec).
Also, we need to keep in mind that any offer will always be on Enterprise Value and not Market Cap. So you need to take the Market Cap + Total Debt - Cash on hand. At the current share price, this is around 810p and that’s the level where any valuation will likely start. Obviously from there it becomes a case of how much do you want to pay over and above this to secure the deal, etc.
Anyway, it’s going to be an interesting few weeks if nothing else…!
Feels crazy low but technically we are at 441p based on the old shares in issue. The new shares are being admitted today so we need to be using the 120M figure now when assessing the market cap vs book value, etc.
That being said, adding £80M to share capital at H1 23 (plus 20M shares) gives a new book value per share of 728p. So any sign of profits and cashflow and the current 50% discount will evaporate quickly.
@Skeletor - fair point re: the incremental costs for the new financing. Suspect that much of the raise will be used on this, but I think it’s difficult to overstate how important the new funding is to the overall turnaround strategy. Perhaps the thinking was to raise the equity to allow the company to refinance without impacting short term cash flow? Would certainly make sense if so and I can see why the major investors would be on board with it.
Re: my thoughts on the profitability of the business and free cash generation. I do believe they will generate positive FCF in H2, if nothing else but from running down their inventory position to more historic levels. They reduced their intake for summer so this will naturally lead to a cash inflow for the period.
The key thing going forward is to maintain that lower inventory position and increase their stock turnover. Inventory days were something like 170 at H1 23, when in FYE20 it was around 115 days. This is a major difference in efficiency and if they can improve this it will go a long way to reversing their fortunes.
I could absolutely be wrong and they could make a meal of it, but I’m willing to take the risk and think the upside potential is significant if they get things right.
I have to say, reading this board today has been an experience… people running around like the sky is falling and the business is on the verge of bankruptcy. Calling for management to go, etc.
What we do have here is a £3.5bn turnover business that is going through a necessary reorganisation during a difficult trading period. This is not a quick process and it’s going to take another 6-9 months before the full benefits are realised. However, they have the right plan IMO (reducing inventory levels & improving stock turn, rationalising the warehouse network, cutting overhead costs, focusing on unprofitable customers/returns) and I’m confident of a return to profit and cash generation in H2.
What has changed since last week at 460p? The company now has £80M more cash and 20M more shares, they have funding support until 2026, and the Chairman and CEO have just bought a bunch of stock (albeit a fairly token purchase). Seems like progress to me but each to their own.
All these people moaning about the current share price need to stop watching the daily gyrations of the stock. This is going to be a volatile journey until cashflow turns positive, and if you don’t have the stomach for it then you might need to invest elsewhere.
Likewise - I'm sitting with a 433p average and happy to hold long term on this.
Glad they've got the raise out of the way and obtained a longer term funding solution. Not much else to do except wait for the next trading update (June/July) and then H2 results in October. If they can show a positive EBIT and are cash generative in the second half, then the SP will move north at a rapid pace.
Interesting to see the RNS tonight and I have to say it removes many of the near term risks from the shares. They’ve refinanced all of the short term debt out to 2026 which provides a huge amount of flexibility in terms of the restructuring. Yes it’s more expensive, but rather pay a bit of extra interest than have a liquidity cliff coming up next year. Very positive in my view and it positions the business well for future growth.
I must admit, I didn’t expect a raise and thought they might muddle through via a reduction in inventory, but good to get some certainty now and focus on the rebuild.
Who knows what tomorrow will bring, but I’m very bullish on the long term. Cashflow is key and this has removed much of the uncertainty which has been weighing on the shares.
Agree with James on this one. Second half results are key and I do believe they will be cash generative for the period. From their guidance, they are forecasting a net cash inflow of £125M which will take their cash on hand to approximately £430M.
This is more than enough to repay the step down in the RCF; however I don’t see why the banks wouldn’t extend the facility if the business is back in profit.
Feels like the price will gradually work its way up to 600ish over the summer. There’ll be some sellers along the way, but I’m in for a long hold on this one. Can see £10 easy if they meet their forecasts for the second half.
Per the below, web traffic is up over 15% during March and April (when compared to Feb). Still right up there with the best and significantly higher than Boohoo.
https://www.similarweb.com/website/asos.com/#traffic