Online fashion firm Asos revealed it will have to write down up to £130m of shares as it plunged into the red and warned of further losses amid falling consumer spending.
The group reported a pre-tax loss of £31.9m in the year to August 31, against a profit of £177.1m last year, after tougher-than-expected trading in recent months as buyers cut back on the cost of living. crisis.
The company confirmed it had taken out a £650m loan after shares fell on Tuesday after it emerged it was negotiating changes to its financial covenants amid more challenging bidding.
Asos said the new banking deal would give it “financial flexibility” as new boss Jose Antonio Ramos Calamonte carries out an overhaul to turn around its fortunes.
This will include better inventory management, cost-cutting, overhauling its faltering international businesses and “refreshing” the group’s culture, starting with a management shake-up and new hires.
But the “right-sizing” of its shares should push it to losses in the first half as it launches discount clothing changes.
The group, which owns brands including Topshop, added that it planned to write down between £100m and £130m from the stock changes.
The figures showed sales rose just 1% to £3.94bn in the last financial year, while underlying pre-tax profits fell 89% to £22m.
And Asos said trading had remained flat since the end of the year, with September showing only a “slight” improvement on a struggling August.
The group predicts that the overall apparel market will decline over the next year as the cost of living crisis hits consumers hard.
The group is among online retailers whose recent strong growth has stalled in 2022 as rampant inflation forced many shoppers to review their spending.
Rivals including Next and Boohoo have cut their sales forecasts in recent weeks as a result of declining confidence.
Asos’ current predicament only adds to longer-term concerns about the whole fast fashion model and whether it has as strong a future as previously thoughtRuss Mold, AJ Bell
Mr Calamonte said: “It is clear that we need to make real changes at Asos now.
“While our core UK business remains strong, we have not been able to replicate this success in other markets.”
The group is reviewing its international business, but Mr Calamonte said he hoped his recovery efforts would allow the firm to avoid exiting the markets.
He said: “Today I set out a clear program of change to strengthen Asos over the next 12 months and reorient our business for the future.”
He revealed that the group had increased prices by a “mid-single-digit” percentage over the past year, but sought to reassure that it would focus on providing value to customers, although markdowns would be cut.
The group also aims to maintain its free returns offer, he said.
Shares in Asos rose more than 12% at one stage on Wednesday on hopes that Mr Calamonte’s planned changes for the group would pay off.
Russ Mould, investment director at AJ Bell, said the new Asos boss had “demonstrated that he is serious about the challenges facing the company”.
He added: “Asos’ current predicament only heightens longer-term concerns about the whole fast fashion model and whether it will be as durable in an era where sustainability is the focus and where sourcing cheap materials and labor is a much bigger challenge the future, as it was previously believed.”