ASOS will be hoping to see a more positive set of results in its trading update this Tuesday, with consumers’ shift back to stores having impacted sales for the online pureplay.

ASOS shares have already tumbled 27% this year. However, a stronger performance from rivals JD Sports and Next, who recently upgraded their guidance, will hope to translate to improved conditions for ASOS.

ASOS is currently the most shorted London-listed stock, according to Shorttracker.co.uk, at 6.8%. Its prior results highlight the challenges ASOS currently faces, with a 10.9% decline in revenue and UK revenue falling 14.2%. The poor performance has been a result of high inflation and a return to in-store shopping. Nevertheless, we should note sales in H1 were still 40% above pre-pandemic levels

However, ASOS’ focus on reduced stock and improving order profitability caused its EBIT to improve by £20m YoY and remain on track to deliver adjusted EBIT of between £40m and £60m in H2. Investors will continue to keep a close eye on its ‘Driving Change’ strategy to improve profitability.

Frasers Group has upped its stake in ASOS to 19.3%, although some analysts are less convinced by the stock. BofA analyst Geoffroy de Mendez recently double-downgraded ASOS shares to Underperform from Buy and set a price target of 350p, down from 725p. The analyst noted the online fashion retailer’s stretched balance sheet after the recent refinancing.

Our view:

ASOS will continue to face issues in its sales as the cost-of-living crisis persists, in-store shopping bounces back, and the business faces a restructuring. The company has transitioned its target audience to the younger consumer despite its prices being unable to compete with Boohoo and Shein.

Its focus on reducing prices may continue to have an effect on the quality of ASOS’ range, suggesting its efforts may not be worthwhile.

However, its Driving Change initiative should apply some stability to its profits as the group slims down and cuts costs.

By James Fyeman