Asos: outlook for 2023/2024 spooks market
(CercleFinance.com) - On Wednesday Asos announced that it is expecting a further contraction in sales for 2023/2024, which just began in September, a prospect that spooked the market, the day after Hallowe'en.
By mid-morning, the British online fashion specialist's share, which has already fallen by 22% YTD, was down over 10% in London.
Asos' warning confirms the current loss of momentum in the non-core consumer sector, against a backdrop of persistent inflation and slowing economic growth.
For 2022/2023, which ended at the beginning of September, the group reported an EBIT loss of £29m, on sales that fell 11% to £3.54bn.
For FY 2023/2024, Asos said it expects a further 5% to 15% decline in sales, albeit with an adjusted operating margin that should be positive.
However, it still expects to return to growth 2024/2025, with an operating margin that should return to its pre-Covid crisis levels.
In a reaction note, analysts at Berenberg believe that the group is well positioned to generate growth now that it has cleaned up its cost base, having adopted a business model that is more focused on cash flow generation, while strengthening its balance sheet structure.
Analysts believe that the share's current valuation undervalues the progress made under the Driving Change program, as well as the benefits expected to be derived from the adoption of the new phase of the strategic plan: they therefore renew their buy rating on the stock, while reducing their target price for it from 760 pence to 600 pence.
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