ASOS H2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 5, 2024

There are 10 speakers on the call.

Operator

and a little bit of color behind that. And of course, at the end, we'll have time for Q and A as we always have. So let's crack on. In ASOS, we have said repeatedly that our ambition is to be a fashion destination for fashion loving 20 somethings. That means that we have the goal to delight our consumers all the time to make sure that we get more of their time, more of their love and more of their fashion spend of course.

Operator

2 years ago, we came here to probably to the very same place to set out our Driving Change agenda. And in this agenda, we were sharing with you our plans to make ASOS a faster and a more agile and a more profitable, sustainably profitable business. And that require a certain set of adjustments of measures. This is what we call taking the medicine. And we started the journey of doing that 2 years ago.

Operator

And obviously that has taken the last 24 months and obviously and especially the last 12 months to set up the foundations of this journey to make sure that this journey was set on solid foundations. And that was a journey that had I'll try to summarize it a lot of objectives but if you want to try to summarize it in 3 was like we wanted to transform our commercial model to make sure that we were always offering our customers the most relevant and hence attractive product. We wanted to develop stronger relationship with our customers and that stronger relationships based on inspiration and excitement and not necessarily on promotion and discount. And we were bringing an obsession with continuous improvement and with delivery to make sure that our operations were efficient. And as I said, over the course of the last 2 years, we've been working on setting up the foundations for this journey.

Operator

Obviously, that has had an impact on financials that were not especially attractive if you want, but it was necessary. It was necessary to have this solid starting point. And today, I'm very happy to say that we feel very confident that we have done a good job in this first step of the journey. In the last 12 months, we have seen relevant achievements that give us the confidence that we're in the right place to move into the step 2 of our journey. Let me very briefly try to summarize what I think we have achieved over the last 12 months.

Operator

First of all, we have completely transformed our commercial model and our stock profile. When you are obsessed with selling newness and fashionability to customers it is very important that this newness is easy to find by consumers. And with this newness is surrounded by a mountain of older stock, it becomes very difficult to do so. That's why at the beginning of the journey, we said we were going to drastically reduce our stock. And in this journey of 24 months, we have reduced our stock from £1,100,000,000 approximately to £520,000,000 That is a reduction of approximately 60,000,000 units.

Operator

Just look at the magnitude of the challenge. 60,000,000 units is 1 unit per people in this country. That is a titanic change that we have undertaken over the last 2 years. And we have done it, transforming that into cash. We have not burned it.

Operator

We have not shipped it anywhere. We have been turning that into cash. Obviously, that has an impact on our financials, but the journey is done. And we have done it while we were transforming our commercial model. We have changed the way we buy to buy faster, to buy better and to clear as we go.

Operator

And the reason we have changed the way we buy is to make this change sustainable. We don't want this to happen again. We don't want to sit on the same stock mountain again. And that was very important to do it and why we have been doing both things at the same time. This new model is built on new ways of doing things and I've been over the course of the last 12 months highlighting quite a few.

Operator

You know I've been talking a lot about test and react. I've been talking about pattern fulfills. There are more but I think these two are quite relevant and worth mentioning. During the course of the last 12 months, we went from nothing to 10% of our sales being produced by Test and React. So it is a remarkable achievement.

Operator

And when we go to partner fulfills, it was hardly anything at the beginning of the year. Today it's 5% of our sales of brand partners. It shows the magnitude of the transformation we have been undertaking over the course of the last 12 months. As a result of all these changes, we see that our stock profile is significantly improved. We have now more than 80% of our stock is younger than 6 months, which is and we have reduced the older stock by 75%.

Operator

This change in our stock profile is having an impact on our performance and we have seen that during the course of the last 3 months. The newest part of this stock is more is easier to spot by consumers and then the performance has increased by 24% year on year with only 6% increase in stock, which means that our newest stock is turning 30% faster and is having an impact on our profitability. And in the same months, our profit per order has increased 19%. So obviously, all these facts give us confidence that we're in the right track and in the right path to deliver our ambitions. The second thing I wanted to highlight is that we have started to transform our marketing model.

Operator

And we told you 12 months ago that we wanted to go from a more tactical approach that it was the other was pretty much focused on the bottom of the funnel and on performance marketing to a more strategic approach that it was more full funnel marketing and trying new tools and new ways of approaching our consumers. So during the course of these 12 months, we have worked very hard to improve the efficiency of our marketing of our lower funnel marketing. We have increased during the last quarter of the year 18% ROAS, which obviously has helped us to release resources to invest in the setup of a social marketing engine. We have created a way of working. And every month, we are working with more than 1500 creators to bring to our consumers the excitement and the inspiration of our new collections.

Operator

And last but not least, I would also like to highlight as an achievement of this year the focus on continuous improvement. We have spent a lot of time revisiting a lot of our processes to become simpler and with this simplicity to become more resilient and more efficient. During the course of the last 12 months, we have reduced both our variable and our fixed costs to a point that we have been able to reduce our cost to serve in spite of the deleverage of the loss of volume that we have experienced, which I think is a remarkable achievement. That has been achieved through many, many measures, but probably it's worth mentioning the efforts we have done on our supply chain and also on the reduction of our returns. With all that, we feel we are in the right moment to start talking about the Phase 2 of our journey.

Operator

The Phase 2 that is about, as I said before, winning the love, the time and the fashion spend of our consumers by delighting them every day in a sustainable way. And I think this is very important because from the very beginning we said we want to turn ASOS into sustainable growth, sustainable profitable growth. Only profitability makes it sustainable. And the way to do it sustainable is to double down on what makes us different or on what we call our right to win, which is pretty much based on the 4 things you can see on the screen. We can win when we deliver the best and the most relevant product to our consumers.

Operator

We can win when we do it in a differential way so that we come a destination for style. We can do it when we engage our customers throughout their whole journey and when we offer them a competitive customer proposition. And this is what we're going to do over the course of the next months and next years, but obviously starting in the next months. We're going to focus on delivering the best product to them. Deliver the best product means we want ASOS to be a fashion first destination for our consumers, a place where they discover fashion.

Operator

In order to do that, we will double down on the efforts we started this year, doubling down on Test and React, doubling down on the new ways to bring more attractive brands to make sure that our consumers always have at their disposal the best possible assortment. We will also increase our efforts on becoming a destination for style. How do we sell to our consumers? During the course of this year, we have been investing in our visual language. We have been investing in the development of new features like Buy the Look.

Operator

14,000,000 consumers have already interacted with Buy the Look during the course of the last 12 months. We are changing our tech and digital product setup to accelerate our capacity to deliver new features and new ways of interacting with our consumers during the course of the next months and moving forward. We want to accelerate in how do we engage with our consumers throughout the whole journey from the very beginning to the very end. As I told you, we have started the transformation of our marketing model. We are going to supercharge that change with the launch of our loyalty program, ASOS World, that will bring more excitement.

Operator

It's a loyalty program built on this idea of fashionability and inspiration to our consumers. And we will continue working on offering them a seamless customer proposition. We've worked a lot this year on improving the quality of our deliveries and also on reducing our non value added returns and we will continue working to improve our efforts in this direction. All this is always underpinned by our, if you want, obsession of a proper capital allocation and use of resources. And I as you know, at the very beginning of this fiscal year, we did a big change in reaching a joint venture with our partner and investor Heartland on Topshop and refinancing all our convertible bond.

Operator

That has brought additional flexibility on our balance sheet that is going to create the right platform for all these changes and we will always continue with this obsession of the right capital allocation. As a result of all that, I'm very confident on fiscal year 2025 and to say that our ambition is to bring significant improvement in our gross margin of 300 basic points to land on a gross margin north of 46%, an improvement that will be fueled by our capacity to sell more full price. This improvement will generate an improvement of our EBITDA significant improvement of our EBITDA of at least 60%, taking our total EBITDA for the year to the ballpark of £130,000,000 to £150,000,000 which in absolute terms is more or less in the ballpark of our pre COVID EBITDAs. And we will be capable of producing a neutral free cash flow. So this is pretty much where we're going to be elaborating during the next minute in this morning.

Operator

And now I'm going to hand it over to Michels, who's going to give you a little bit more details on our achievements during the course of this. Ms. Galeazzo, I'll be back with you a little bit later.

Speaker 1

Thanks, Jose. So looking in a bit more detail at what we've actually achieved this year. Last October, we set ourselves 3 key priorities under the Back to Fashion strategy. Firstly, in terms of most relevant products, we committed to finishing the job and clearing through old stock and scaling both Test and React and our flexible fulfillment models. In terms of stronger customer relationships, we wanted to reignite our brand heat and build stronger connections with customers.

Speaker 1

And in terms of reducing cost to serve, we committed to more efficiency in all of our processes and minimizing cost to serve while also improving the customer experience. And over the next few slides, I'll take you through a bit more detail on each of those areas. So firstly, on best and most relevant product. ASOS is now fundamentally a faster and more agile, more efficient business when we started the driving change transformation 2 years ago. And product has very much been at the heart of that.

Speaker 1

We've really been on 2 journeys. The first journey was about dealing with the legacy of our old commercial model. So put simply, coming into FY2023, we had too much stock. We had to reset. We had to take a step backwards before we could take steps forward.

Speaker 1

We cut intake to free up capacity to clear out that old stock and that meant we temporarily had less newness and less excitement in our product offering. And we can be really proud to say that we've now completed that journey in FY 2024. We've halved stock levels from over £1,000,000,000 down to £520,000,000 over the last 2 years. After clearing through as much as we could on-site, we completed the journey in Q4 by taking a write off. We wrote off the final £100,000,000 of stock.

Speaker 1

And you can see now from the chart on the right hand side, not only is stock down 50%, but it's much fresher. So 80% of stock that we now have has been on-site for less than 6 months. The second journey is about scaling our new commercial model. So the new commercial model isn't rocket science, but it will very much transform how we operate going forward. It's fundamental to having the best and most relevant product.

Speaker 1

So what does it actually mean? It means being first to fashion. It means buying better to increase our hit rates and maximizing full price sell through minimizing waste. It means an uncompromising focus on quality. And it means disciplined stock management, so giving more visibility to newness and reducing the need for discounts.

Speaker 1

And we'll achieve all that by being faster and more agile. We'll use more data to better understand trends. And by being closer to the point of purchase when we take buying decisions, it means we can be more accurate and have more relevant product on-site. So with our own brands, we can supercharge that through Test and React. And with 3rd party brands, we're supercharging that by collaborating more closely with partners and rolling out models like flexible fulfillment.

Speaker 1

The improved speed and agility is all possible because of the long term relationships that we build with suppliers. So we've consolidated those relationships over the last 2 years to work more closely with long term focused suppliers who can maintain high quality at speed. And we're delighted to recently announce Luis Lopez Rey, probably can't pronounce that as well as Jose could, as our Responsible Sourcing and Quality Director. So Luis spent the last 23 years at Zara, where he was responsible for building out their speed and optimizing their supply chain. We're really excited about the improvement and further improvement he can deliver at ASOS.

Speaker 1

All of those actions will improve our hit rate and give us a greater opportunity to excite customers with every item on-site. When an item doesn't resonate with customers, when it's slow moving, we'll clear it quickly. And that means we'll minimize the markdown needed to sell it through. And we'll also maximize the cash generated, which means we can reinvest into new product, more excitement a better product for the customer. So it's worth reflecting on just how much of a transformation we've achieved in the last 12 months.

Speaker 1

When we started this journey 2 years ago, we had a lot of heavy lifting to do. Coming into FY2023, around 50% of our stock was over 6 months old. We cut intake by around 30% to make room to clear through that excess stock. The heavy discounting has been a major drag on our gross margin over the 1st 9 months of FY 2024 and had a negative impact on our unit economics as well. We've ended FY 2024 with the hardest of the work behind us now and stock in a really strong position.

Speaker 1

So we've reduced old stock by 75% year on year. We've created much more space for newness. The stock is new and fresh and we scale Test and React and Partner Fulfills to facilitate that. 80% of stock that we have is now less than 6 months old and it's selling through faster with a higher full price mix. So 15 percentage points better sell through and 30% faster stock turn.

Speaker 1

That underpins our confidence delivering sustainable gross margin improvements in the year ahead. So moving on to our second priority, which is strengthening relationships with customers. We're incredibly proud that we have 20,000,000 customers that have shopped with us in the last 12 months. That number has been higher in the past and we built impressive growth over the last 2 decades through an ambitious geographic expansion. But that created a wide base of customers globally with a relatively low share of wallet and in some cases unprofitable customer relationships.

Speaker 1

The growth engine that we're focused on in the future is about winning greater share of fashion spend from our core customers in our core markets. And that means greater engagement and more excitement to take a greater share of wallet of our core demographic. In the U. K, we already have some pretty impressive stats. In total, customers spend on average £2.14 per annum with us and returning customers shop with us 7 times a year.

Speaker 1

That's a very engaged customer base, but we know we can do even better. In the U. K, during the initial stages of the transformation, we've experienced 2 clear headwinds in terms of order frequency and customer churn, which has had a negative impact on those engagement stats. So the 30% reduction in our intake meant that we had less exciting product and less newness for our core customers. And the high level of clearance activity detracted from the overall experience and attracted non core transactional shoppers making one off purchases.

Speaker 1

Over FY 2025, as we operate fully on the new commercial model, we'll see those headwinds reverse. And outside the U. K, where our brand awareness is significantly lower, so is our order frequency and our average customer spend. And in those markets, we took more action to rebalance the customer proposition and invest into areas that really matter to the customer. So that's meant focusing more on product and inspiration, things that customers love and shifting away from differentiating through things like returns, proposition and delivery.

Speaker 1

The journey there will take more time to bear fruit. But we believe that creating win win relationships with customers means we can both improve profitability and drive growth. Those headwinds have also meant that our marketing initiatives are less efficient during the transition period. So we've been driving traffic towards a suboptimal customer experience. Instead, we focused on reducing our reliance on highly transactional performance marketing and transitioning into a marketing model that enables us to deliver our core brand messages.

Speaker 1

And that builds longer lasting relationships with customers. We're able to identify inefficient spend within paid search, social and affiliate channels. And that led to an increase in ROAS or return on media advertising spend of 18% over Q4. And we've also been able to better deliver our brand messages by scaling our Always on Influencer program. We now work with over 1500 influencers per month by year end.

Speaker 1

Now that we've built that muscle, we're better placed in FY 2025 to deliver great customer experiences both on-site and off-site to our 20,000,000 customers and beyond. Our final priority was reducing costs to serve through operational excellence. So a key part of the transformation has been simplifying processes, removing waste of time, removing waste of cost and reinvesting into actions that really benefit our core customer. That focus has meant we've been able to reduce our variable costs as a percent of sales by 90 basis points in FY 2024 that follows 110 basis point improvement in the prior year. And we've also been able to reduce fixed costs by 13% year on year.

Speaker 1

There's lots of initiatives driving that improvement. It's probably worth highlighting the work that we've done in logistics and returns, which has helped improve our distribution and warehousing cost ratios by a combined 200 basis points in 2024, while still improving the customer experience. And that's all despite the volume deleverage. We've optimized warehouses through increased automation. So we've reduced our labor cost per unit by 10%.

Speaker 1

We've also right sized capacity to match our stockholding and that's reduced fixed cost by 25%. We've optimized delivery partners and we've renegotiated contract rates. We've increased our use of data to improve the quality of the delivery experience, halving the number of orders that fall outside of our planned delivery window. In returns, we focused on improving quality and size and fit to reduce needless pain points for customers. There's still a lot more work we can do there.

Speaker 1

And you'll remember it's a key focus for us in 2025. But we're pleased to see the progress that we've made already in FY 2024, which has delivered an underlying improvement in our returns rate by 1 percentage point. A key underpin for that strategy has been efficient capital allocation, which allows us to invest behind our strengths in a disciplined way and relentlessly remove ways to invest into opportunity. In FY 2024, the reduction in stock levels meant that we could exit our Lichfield distribution center. And at the beginning of FY 2025, we announced 2 key updates, which significantly increased our balance sheet strength and our financial flexibility.

Speaker 1

Firstly, we entered into a joint venture with Heartland to build the future of the Topshop and Topman brands. That means we can continue to play a lead role in the brand's future while also reducing the level of capital deployed. And then secondly, we successfully refinanced the balance sheet, reducing the net debt position by £130,000,000 through extending our term loan and the majority of our convertible bonds out to 20272028, respectively. We'll continue to operate with rigorous commitment to generating strong return on any capital that we deploy. So to recap before I hand over to Dave to run through the financials.

Speaker 1

In FY 2024, we've made significant progress in our transformation and really laid the foundation for sustainable profitable growth. We're entering FY 'twenty five with our stock in a great position, right sized with the right level of newness. We're really pleased with the performance of our latest turning quickly and selling through at full price. We've hit our targets on scaling Test and React and Partner Fulfills. We've improved our unit economics and reduced fixed costs to build strong profitable foundations.

Speaker 1

And we strengthened our balance sheet with the top shop and top Manjoint Venture and refinancing. I'll hand over to Dave.

Operator

Bless you.

Speaker 2

Thanks, Michelle, and thank you, everyone, for joining us. It's great to be presenting today with my first set of results. For consistency, the summary slide details some of the key metrics that we use to highlight our performance in financial year 2024. As indicated, in early September, our sales were back 16% on the year on a like for like basis as we cycle through the profit actions taken over the last 12 months and the lower intake of new product. Gross margins were impacted due to the heavy discounting to clear our older stock, primarily across the first half.

Speaker 2

However, the other side of this was seen in our free cash flow performance, which was positive for the year as we cleared through this inventory. Looking ahead, we will recover gross margins due to the elimination of this aged stock and the higher gross margin delivered through our new commercial model. I'm especially pleased with our performance on cost to serve, being our adjusted operating expenses prior to depreciation and amortisation as a percentage of sales, which reduced year on year despite the volume deleverage and the impact coming from marketing. This was achieved through a focus on both our fixed and variable costs, as Michelle has just highlighted. Overall, this has resulted in an adjusted EBITDA of £80,000,000 for the full year, the top end of consensus expectations, despite the decline seen in sales during the year.

Speaker 2

We exceeded our inventory target of £600,000,000 due to the disciplined and focused clearance of stock management throughout the year and the final stock write down at the end of the year, which enables the full transition to the new commercial model in FY 2025. Our positive free cash flow performance reflects the hard work done to improve our cost to serve and release cash from the excess stock, both contributing to the £22,000,000 net debt reduction from the same time last year. Our key strategic indicators were introduced at the half year results and these are intended to offer a more up to date reflection of how we're thinking about running the business and our progress. Test and React, as already mentioned, is a key part of our new commercial model, which has surpassed the 10% target of our own brand sales for the year, doubling over the year and from a standing start 2 years ago. Likewise, flexible fulfillment, encompassing both Partner Fulfils and ASOS Fulfillment Services, has doubled to reach 5% of our Partner Brand GMV over the same period.

Speaker 2

Adjusted gross margin is back 80 basis points year on year and 20 basis points on a 2 year view, primarily due to the discounting of the old and aged stock, which we expect to improve into FY 2025 as we annualise the transformation and see the new full benefit of our commercial model. Cost to serve has fallen, as previously described, with our variable contribution from raw order now up 5% year on year. And on a 2 year view, we were up 28%. All of the changes we've made have resulted in our stock working much harder. Stock turns are now up more than 30% year on year as we improve the quality and reduce the volume of the inventory that we're holding.

Speaker 2

Turning to our segmental performance, where you can see the headline numbers reflecting the continuation of variations highlighted in previous results and the impact of the profit actions that we've taken across the different regions, as we look to ensure that we can be sustainable profitable going forward. The US and the rest of world have experienced more pronounced impact on sales than the UK and Continental Europe, given the tougher actions that we've taken in these regions to make sure they become more profitable. Across the UK and Europe, consumer sentiment, promotional environments and the wider market backdrop has been the main differentiating factors. Looking now at gross margins, the slide shows the impact of the medicine that we've had to take and the scale of the discounting that's been required for us to clear through our old stock. Overall, adjusted gross margins are down 80 basis points, with the impact of markdown around 100 basis points across the full year, with most of that impact being seen in half 1 and further headwinds from FX.

Speaker 2

The improvement across our inbound freight rates within our supply chain partially offset a large proportion of this headwind, mirroring the success of our cost to serve metrics. And additionally, our revenue streams, including AMG and partner fulfills, have also been slightly accretive to our gross margin. Taking the same chart, but looking specifically at Q4, you can see a slightly different perspective. The key things to call out here is that we completed our stock transformation. We started to see the 1st year on year markdown improvement since the beginning of our driving change agenda.

Speaker 2

This saw a positive contribution from a higher mix of full price sales. And we expect this to become increasingly apparent as we progress through financial year 'twenty five. As mentioned previously, I'm also really pleased with the cost savings that we've made to reduce our cost to serve against the backdrop of the falling sales performance. During the year, we delivered an 80 basis points improvement in distribution costs and 110 basis point improvement in warehouse costs as a percent of sales, resulting from the actions taken in FY2023, including the closure of excess facilities, but also the new initiatives that were introduced in FY2024, such as the renegotiation of delivery partner contracts across each of our major regions and better use of data to reduce the number of orders missing our customer delivery promise. While marketing and other costs have increased as a percentage of sales by 110 basis points and 70 basis points, respectively, you can see that both have fallen in absolute terms.

Speaker 2

During the second half of the year, we've made a number of optimization improvements in our performance marketing model, allowing us to improve the return we're now delivering from this investment year on year. Overall, the net impact on our cost to serve activities are having reduced to 40.7%. In concluding, our underlying financial results highlight how our strong performance across the variable and fixed elements of our cost was able to offset the significant proportion of volume and rate trade headwinds that were required to navigate as we worked through our old inventory and the impact of our actions to improve our underlying profitability. Touching briefly on the adjusting items. The two main items here are the closure of the Litchfield Fulfillment Centre, which we announced along with our FY2023 results, and the final stock write down that we've processed at the end of FY2024.

Speaker 2

These account for $142,000,000 $93,000,000 of the FY 'twenty four adjusting items. It's also important to note that these adjusting items in the period, 90% of this is non cash, with only $20,000,000 being the final settlement in relation to completion of the automation at Lichfield. Finally, on free cash flow, where we generated £38,000,000 of free cash, an improvement year on year of over 250,000,000 dollars Our strong performance in relation to clearing through our old and aged inventory during the year enabled us to release a significant amount of working capital that was previously trapped on our balance sheet. Bridging from adjusted EBITDA to free cash, you can see that the largest items relate to both working capital and CapEx. CapEx of £133,000,000 is down 25% year on year and includes £17,000,000 in relation to the Lichtsville fulfillment center, which was previously mentioned and subsequently impaired.

Speaker 2

The remaining spend is roughly £50,000,000 in the investment in supply chain and £80,000,000 of tech CapEx where we've invested in areas such as test and react, flexible fulfillment and other improvements to our customer experience. Together with interest and other movements, this resulted in a reduction of our net debt of $22,000,000 in the year to $297,000,000 at year end. Also as previously mentioned, at the beginning of FY 2025, we announced the comprehensive refinancing with the formation of the Topshop and Topman joint venture, the combined impact of which was to reduce our net debt by about £130,000,000 significantly strengthening our balance sheet. And on that note, I will hand back to Jose.

Operator

Thank you. Thank you and good to see you again. I'll try to be brief because I know you guys will probably want to make some questions, so we will certainly give you enough time to do so. So let's talk a little bit about fiscal year 2025 and what is coming now. And as I said vision is that we are starting the 2nd phase of that transformational journey and this is the time to plant the seeds for the future of ASOS or to continue planting the seeds.

Operator

And as I said, our ambition is to be a destination for fashion, for Fashion 11 20 somethings and that requires delighting them every day to get more of their love and time and fashion spend, share of wallet, if you want. And there is only one way to do that sustainably and this is to double down on what makes us different, as I said before, which is, as you see here, offering them the best product, being a destination for style, offering this product in a different way, engaging in every step of the journey and doing that with the right customer proposition and underpinned by our discipline and our cost efficiency. That is the right way to do it. Doing it sustainably, there are no shortcuts. The way to do it is to do the right things all the time for consumers.

Operator

As I said before, I am very confident that we have set up the right foundations to do so now. And that's why I am so optimistic right now. What I would like to share with you now briefly is 2 things. First is why I'm so optimistic and if you want to give you a little bit of color on some of the seeds we are planting for growth, I will not give you no worries, We'll not torture you for that long, but some of the seeds. Let me start by why I'm so optimistic.

Operator

And there are a lot of reasons, but let me try to summarize it in 3. Number 1 is, as we said before, our stock is in the best position we have seen for many years. And we have seen that that is creating some positive benefits. We're seeing newness growing 24% and that is incredibly important. And that is the outcome of a lot of actions as I explained before.

Operator

But it's not the only one. There are more reasons why I'm optimistic. The second one is that I see the outcome of the new culture of agility, speed, delivery, continuous improvement and how this is having an impact on ASOS and our daily operations. And just to give you some examples, we have during the course of the last 12 months set up a completely new way of doing things like test and react. That is an example of agility.

Operator

That is an example of speed. We have done an amazing job with cost. That is an example of continuous improvement and rigor. And we are transforming our digital and tech model. That is an example of this agility and this boldness to do different things.

Operator

And this new culture will continue bearing fruit for ASOS not over the course of the next 12 months but moving forward. And if you want in the last if you want reason is I see that a lot of the benefits, a lot of the effort to create if you want this obsession with the right capital allocation is working. We are moving resources from one type of costs to invest them into things that will get better fruit or obviously the whole refinancing. I think that when you put all these things together, it creates a very positive feeling in the whole team that we are in the right moment to really get into where we want it to be. Let me give you a little bit of color on the stock.

Operator

And I know this has been we have talked a lot about stock for the last 2 years and probably to put an end to it. I would like to show you in numbers the journey we've been to because I told you before that has been a titanic enterprise. And I think it's probably easier if you see the numbers. This is the evolution of our stock over the course of the last 2 years. You will see in purple sorry, I'm color blind, believe it or not.

Operator

So I hope it's purple. Purple is the total stock. I think red is the old and green is the new which quite appropriate actually that green is the new. And you see that by the end of fiscal year 2022, we were reaching our maximum level of stock, probably historical maximum level of stock as an outcome of the fact that we're not capable of selling all the old stock we had. You can see that at that point in time, the old stock was significantly higher than the newer stock.

Operator

And as a result of that, we said we shared with you our driving change agenda and you know how important stock was, but there were many things behind that. And one of the things we did immediately was to cut intake, to have less newness because the way to reduce stock is also to reduce the intake, to reduce the inflow. We came with a very aggressive reduction of 30% during the course of fiscal year 2023. And you can see in the green line how the green line drops dramatically. And we've been keeping very low intake already reduced intake until we have seen that the stock was in the right place.

Operator

And now you see how finally we have started to ramp it up again. And that has taken us since that moment till Q4 to slowly deal with the old stock. And that is the reality. That's how we did it. We transformed it into cash.

Operator

As Dave was saying, we have generated GBP 2 £250,000,000 more than last year but there is no secret. The secret is we have been able to turn all this old stock into cash. And it's only at the end of last fiscal year, during the last quarter, the last 3 months where we have been able to see that we were in the right place. But what has been the impact of this stock profile in our sales? Well, here you see the same colors representing the sales from old, new and total stock and you see how these sales have been impacted.

Operator

The end of fiscal year 2022 and beginning of fiscal year 2023, the biggest driver of our sales was old stock. That is the reality. It was old stock. We were generating more sales from old stock than from new stock, which is a little bit of a contradiction for a company like us, but that was the reality. We came with the reduction of new stock and obviously the sales generated by new stock plummeted because there were significantly less.

Operator

There are no secrets there. And then it has taken us a long journey to digest the old stock. And you see how during the course of fiscal year 2023 2024, we have been going through the peak of the pain to deal with that. It's only at the end of fiscal year 2024 where we have felt we were in the right place and where we have executed the final change, the final adjustment. And suddenly, we see how the newness is starting to produce much more sales because it's more visible because consumers can find it better and then have started to ramp up newness.

Operator

And that is one of the reasons behind my optimism because we see how this works. It's not magic. It's just like consumers are exposed to most relevant stock and then they buy it and then they buy it from price. This is when I say that we want sustainable growth that's what I mean. It's generated by full price sales and this is the part of the growth that we will care rather than trying to find shortcuts and accelerating promotion.

Operator

Let me share with you now some of the color behind how do we plan to delight our customers. Obviously, as I told you and I'll try to accelerate a bit, our ambition is to be this fashion destination to delight our consumers every day. We are doing a lot of things. We are planting a lot of seats. Let me highlight 4 of them if you want.

Operator

There are many more. One is speed. And as we told you speed is critical because we want to be a destination for fashion. We want to be the place where customers come to discover fashion. And that is done through a lot of tools.

Operator

One of them obviously is having the best possible fashion on our own brands and in that sense, Test and React plays a critical role. So I'm going to try to give you a little bit of color how Test and React works, has worked and our ambitions for this fiscal year 'twenty five. But our own brands is 50% of what we do. We also sell a lot of other brands, the best brands in the market. How can we bring this spirit of agility and speed to these brands?

Operator

Well, we are doing that in a different way. We are doing that by sharing more and more data with them so that they can react and adapt and see the trends earlier and adapt to those trends. We are doing that by creating collabs with them. Collabs where we co create product or we co create assets that are more relevant to consumers. And we are doing that through the new business models that we have with them.

Operator

Parcel Fills, ASOS for fitness services where it's easier and faster to adapt supply and demand. And we also tried to give you a little bit of color on where we want to go there during the course of this year. Let me talk about test and react. As you know, test and react is critical. We have said it a 1000 times and that is one more.

Operator

And this is the model where we can go from design to shelf in less than 3 weeks. Obviously, this model has a lot of benefits. We only produce a small run of 100 units. We see the reaction of the consumers. And with the reaction of the consumers, we decide whether we should react.

Operator

And this reaction can be a repeat or can be a reaction and I'll explain what I mean with that. And then sell more of that. That generates a lot of benefits. On one hand, we're offering consumers what they really want because if they don't buy the first 100 units, we stop it. It.

Operator

We don't produce anymore. And the other one is like since we're producing what they really want, they buy it at full price, we get a healthier business and there are no leftovers. So it's a business that produces higher margins. What we have seen is that during the course of this fiscal year 2024, we have gone from nothing to 10%. And when you have to move a rock, it's also difficult to get momentum.

Operator

But once you get momentum, it's easier. We've gone from nothing to 10%. So we have done already the most difficult part of it. That has been a big effort. That has meant changing the way we buy.

Operator

That has meant buying fabric in advance. That has meant revisiting all our processes to simplify, to accelerate. That has meant establishing relationships, new relationships with suppliers, finding new suppliers. It's not that easy but it's been a titanic effort and it's been done. And now 10% of our sales are generated by Test and React.

Operator

Sales that are more profitable as I said but the sales that attract younger consumers, consumers that are more active on social media and consumers that have bigger baskets. So it's clearly a flywheel, a positive flywheel that is coming to us. We produced 10%. Our ambition for next year is to double to 20% of our sales of our own brands. How does it work?

Operator

And I'm going to try to bring a little bit of color or bring it to life with a specific item. The one you're seeing on screen, Leopard top is one of the items we tried this summer. We sold it out in a day. So we decided to repeat. This is one of the possible reactions.

Operator

We repeated this top 12 times during the course of the season to sell 15,000 units in the same color with 0 discount. But the reaction goes beyond the repetition. It also implies bringing other options that are similar, bringing new colors, bringing new prints. During the course of this season, we have brought 9 different options of this top to sell additional 30,000 units with an average discount of 1%. That is the beauty of Test and React.

Operator

That is one of the things that it brings. And clearly, our ambition and our commitment is to double its presence in our operations for this year already. But we're also bringing this spirit to our brand partners and we're bringing this spirit in a set of ways. Obviously as I told you our ambition is to be a destination for fashion where people discover fashion first and that requires a continuous update of our brands. We're continually bringing new brands.

Operator

We have brought this year more than 50 brands. Some of the most well known are Arquette, Laneige, Opija or Mangoman but it's up to 50. And when we do our job, our customers love it and they react. The trench coat you are seeing on screen is a trench coat from Marquette. £169 sold out in 2 days.

Operator

So it shows that when we are doing our job and we are bringing it and showing it to them in the right way, they react accordingly. As I told you, we are accelerating our cooperation with these brands through a set of means. One of them is these new business models like Paragraph Fulfills. Last year, we did 5%. Our ambition is to double again during the course of this fiscal year 2025.

Operator

Doubling by adding new brands, we're adding brands like Dyson or Aunt Summers but also by going deeper in the relationship we have with some of our core partners like Adidas or The North Face or Tommy Hilfiger or New Balance. Just to illustrate the power of this business formula, one of the examples is Adidas Campus last year. So Adidas is a very, very core partner in this journey of creating a fashion destination. We have a great relationship with them. And as such, we got a great allocation of Adidas Campus that we sold out really fast.

Operator

And then we started selling their stock. It allowed us to sell 60,000 additional units of adidas Campos at full price due to the fact that we have these new formulas. So clearly, these new formulas are helping to adapt supply and demand, are helping us, are helping our partners and are helping serve our consumers better. The second thing that I wanted to share with you is customer experience. As I told you before, it's not only what we sell, it's how we sell it.

Operator

And we've been working a lot during the course of this year with new visual language, with new tools or new features like by the look. I'm very happy to welcome Anthony Velsadoun, who's our new Executive Vice President of Digital Product. And with his arrival, we have decided to completely transform our digital product and tech setup. Moving to smaller units, end to end ownership focused on what matters to customers, things like loyalty or personalization or the development of topshop.com. In this change, we have gone to a simpler, leaner organization and that is allowing us to increase the amount of software engineers by 100 in a cost neutral way, increasing our capacity to deliver new features by 25%.

Operator

And obviously, this acceleration of new features is going to create better and stronger relationship with our consumers. Another thing that I wanted to mention is Topshop. As you know, British iconic brand we bought in 2021. It has taken us long to take Topshop where we wanted it to be. But during the course of the last month, we felt that it was the right moment to accelerate the growth of Topshop and this is where we decided to go for the joint venture that we just closed recently in September.

Operator

This joint venture is going to help us accelerate the growth of Topshop because we feel there is an opportunity, a significant opportunity to grow Topshop way beyond its presence in ASOS. In that sense, we're going to do a set of things. The first thing is that we're going to create a platform for Topshop to express itself, topshop.com that will be launched during the course of this fiscal year. And on top of that, we are going to work very closely with our partner who has a great expertise on the wholesale space to accelerate our global growth wholesale. Additionally, internally, we are creating an end to end team that is going to have full ownership of Topshop, becoming our first AFS full AFS brand within the ASOS platform.

Operator

And we are pretty sure that this is going to accelerate on the Topshop to its full growth potential. And last but not least, I wanted to have a word on let's unnecessary returns. We do believe that returns play a role in the digital space. As I have always said, we do offer the possibility of free returns to all our consumers but there are certain returns that are not generating any value to consumers or to us. Every time the product is not up to the expectations of the customers, this is an unnecessary return that we want to tackle.

Operator

We've been working this year very hard to reduce those returns. We've been working through better communication of sizes, better consistency of our sizes, better pictures, but also the use of AI tools to immediately anticipate when there are problems and change the designs and actually benefiting on our faster capacity to produce. There are clear examples, for instance, on the dresses space where we have been modifying dresses during the course of the season to reduce the returns. And as we have shared before, we have reduced our returns by 1% this year and we're going to double down our efforts in this space to continue this journey. With that, I'm going to hand it over to Dave, who's going to share with you how all this is going to show up in our guidance and then

Speaker 2

we will move into questions. Thank you. I'll be quick just for good order to make sure it's covered and also make sure I give you time for questions at the end. So, just quickly running through FY 2025 guidance before turning to how we expect this to change for ASUS in the medium term. FY 2025, we expect the benefits in the commercial model that we've all talked about to start to become increasingly apparent.

Speaker 2

The result of that will be that our gross margin improvement is expected to be at least 300 basis points to more than 46%, driving an incremental improvement in our full price sales to bring that through on our commercial model. We expect adjusted EBITDA growth of at least 60% to between £130,000,000 £150,000,000 after the impact of the drag that we'll see from the Top Shot JV, driven by both the gross margin improvement and us continuing to focus on managing our cost to serve. As mentioned, as we move through FY 2025, the growth in the new full price stock will continue to drive profit, but we'll still get a drag on our sales performance with fewer sales of our old stock until the point that we annualize this in the second half. As such, we are comfortable with the current consensus range for FY 2025 and expect a continuation of the current negative growth trends in half 1, but improving throughout the year. Overall, we expect cash flow to be broadly neutral in FY 2025, but I want to take a moment just to say why we're confident about how we're going to scale this and continue to move to driving sustainable profitable growth in the medium term.

Speaker 2

We've already seen the green shoots in our performance on our new stock in recent months, which gives us the confidence that our new commercial model is delivering customers the right product at the right time. This will be a driving force behind our gross margin improvement, which will edge back towards the 50% in the medium term. The relentless focus on operational efficiencies and optimizing our cost to serve laid the foundations to be able to deliver future growth without sacrificing margins. And this will enable us to rebuild EBITDA margins sustainably back to 8% and beyond. And our disciplined capital allocation means that we will continue to drive CapEx down to our target range and reduce interest costs over the time as we reduce our net debt levels.

Speaker 2

I'm confident that we have something extremely unique to offer our customers. In the coming years, we can return to growth while generating meaningful, sustainable free cash. Yes, in summary, we're all proud of the transformation. Hopefully, we've provided you some helpful insight into the journey. With the right foundations now largely in place, we're excited about what's ahead in FY 2025.

Speaker 2

But on that note, I'll hand over to the room for some questions. Given time, if we are able to limit to one, where possible, we might be able to get through some of them. Thank you.

Speaker 3

It's Anne Critchlow from Berenberg. I'd like to ask a question on Test and React, please. So, I'm

Operator

Well, thank you for the question, Ann. 30% is the target we place ourselves. It could be more, maybe, but we're going after this target right now. It will never be 100%. It will never be 100%.

Operator

And I think we already discussed that before because of the character of certain categories is very difficult or impossible to do them under Test and React. But we're not limiting ourselves to anything. We will go as far as we can. I think that if you want the biggest piece of news is that now this is real. Last year, we're talking about our project.

Operator

This year, we're talking about our reality. And we will keep on pushing as much as we can.

Speaker 4

Hi, it's Yashrajuchani, UBS. Thank you for taking my questions. So I would really like an update on the ASOS own brand versus the non ASOS brand business. I mean, how has that fared in terms of gross margin and in terms of also the leftover stock? I mean, what percentage of that is ASOS on brand versus non brand, please?

Speaker 4

Thank you.

Operator

Well, thank you for the question. The performance during the course of this year, for instance, some of the areas that have performed better are ASOS Design Womenswear has performed very well. And also during the course of the last 4, 5 months also ASOS Design Menswear has performed very well. So we are very satisfied how these divisions are performing and part of it obviously will be supported by Test and React. But we have also seen that women's wear third party brands has performed quite well.

Operator

So to be honest, during the course of the year rather than our own brands versus our brand partners, there are certain brands that have performed very well. ASOS Design is a good example. Some of the external brands, we have double sales with Mango, to give you an example, or with Adidas. So it's more brand by brand rather than our own brand versus 3rd party brands. But right now, the performance is good on both sides.

Operator

We're quite satisfied and the leftovers are pretty much similar. There is not a specific problem on a specific area.

Speaker 5

Yes. Just a quick question on the top shop and top men disposals. So are you baking in any sort of revenue growth or expecting to see an acceleration in sales in this fiscal year as a result of that? And sort of relatedly, do you see that those disposals affecting your distribution footprint at all?

Speaker 1

So in terms of Topshop, Topman, we're really pleased to sign the joint venture with Heartland. We very much believe that Topshop and Topman are iconic British brands that deserve a life outside of ASOS as well as having the amazing traction that they have with customers on the platform. So the huge benefit that we get from that joint venture is that Heartland with their wholesale and offline expertise, particularly in Europe, can help us grow Topshop's presence further. And then we've also, as we've already announced, ASOS will launch topshop.com this year and we'll also explore different routes to market in particularly in the U. K.

Speaker 1

And North America. So there's very much growth in Topshop and Topman's future. In the current year, the kind of main impact that we'll see from the transaction is the impact of the structure of how Topshop is owned now. So the fact that we pay a commission rate into an IPO. So that will be the main impact the current year.

Speaker 1

But beyond this year, then we do expect growth in those brands.

Speaker 6

It's Mia Strachan from BHU RUBER. Just on the revenue growth outlook, you said you're comfortable with the range of minus 9% to plus 6%. And if you look at the graphics of your old inventories now materially lower, your new inventory is selling well, what makes you like what is justifying this wide range if you say the newness is doing quite well?

Speaker 2

Yes. Just to clarify, I suppose, on the newness in the graphs is 3 months. The 80% is inventory under 6 months. So, it's not the same data just to make sure that you're clear on that. I suppose our focus at the moment is making sure that we can be like continue to be sustainably profitable.

Speaker 2

And we are confident in the profitability improvements that we're making and the strengthening that we've done to both our product and what we're providing for our customers. We've guided to the EBITDA range and we believe that we can deliver the GBP 130,000,000 to GBP 150,000,000 confident we can deliver GBP 130,000,000 to GBP 150,000,000 range that we put in EBITDA. I suppose our point is that we are not going to let that be pushed either way by the revenue growth. And we're going to do the right things to make sure that we can deliver the profitability rather than chase after any specific sales. I think if

Operator

I may build on that really fast, I understand we're late. Our obsession has been to do the right things during the course of this year and we have delivered. We have delivered the stock reduction, growth of test and react, growth of partner fulfills, positive EBITDA, positive cash flow, reduction of debt. We have delivered. We have the right platform to grow, but we have to do the right things.

Operator

We don't want to take any shortcuts. We could now ramp up promotion and accelerate growth, but that would be potentially going back to square 1. And this is not what we want to do. We want to do the right things. We want to win our consumers by giving them the best product in the best way.

Operator

And sometimes that takes time, but we want to do it right.

Speaker 7

Hi there. Andy Wade, Jefferies. Just a couple of quick questions on the stock write off side of things. Presumably, a lot of the stock that was written off as a result of the new testing that you did would have been sold in FY 2025. That would have been the plan presumably.

Speaker 7

Is that correct? That's not my full question, but yes. And on that basis then, I suppose before you did this undertook this new testing and realized you were going to have to provide against that stock, those trading losses, that €100,000,000 would have been carried through recognized as the stock was sold in FY 2025. So up until the point when you recognized that provision, were you expecting an EBITDA in FY 2025 of around the €40,000,000

Speaker 1

mark? Maybe it's helpful to, I guess, run through what we've done with the stock transformation. So we entered FY2023 with 1,100,000,000 of stock, as you know, was probably about double the stock that we thought we needed. And effectively, that stock had built up under the old commercial model because under the old model, we weren't taking the profit hit of clearing stock as we go. So at that point in time, we looked at the stock levels.

Speaker 1

It was too much stock to clear through ASOS channels. It was much, much too great volume. So at that point in time, we wrote off the worst of it. So we wrote off, I think it was €130,000,000 and it might not be the exact number, but it was there or thereabouts. And then we said, okay, we'll clear through the rest of the stock on the ASOS side.

Speaker 1

It absolutely was not the best stock for our customers. It's not fresh, it's not new, it's not exciting product. That meant they had kind of 2 impacts. Firstly, we had to cut the intake of fresh and new that we should have been bringing in to clear through that stock. Secondly, we had heavy discounting, which is the gross margin and the profit impact that you've seen in our numbers that we've reported over the last 2 years and from significant levels of discounting.

Speaker 1

It did mean though that we generated cash, because we were effectively selling stock that we'd already paid for. So, started FY 'twenty four, what we said was we would finish the job that we had started on clearing through that stock and that we would generate cash. And we've delivered on both of those things. So we generated £38,000,000 in cash this year. That's a generated £38,000,000 in cash this year.

Speaker 1

That's a £250,000,000 improvement year on year. So we're really happy with the position that we're in from stock now. In terms of the impact that it had on EBITDA in the period, there was no direct impact on adjusted EBITDA. Obviously, there's an impact on reported EBITDA, but that's non cash. There is an indirect impact on adjusted EBITDA and that's the fact that we can now sell more newness.

Speaker 1

We've got visibility of newness again. We've put ASOS back into a normal position. And so we have seen a really strong performance of sales in newness. We reported this morning 24% year on year growth in new stock off just 6% more inventory. So there is an indirect impact on profitability.

Speaker 1

That's what gives us the confidence as we look forward and we've now got the right stock position having gone through 2 exceptional years. Looking forward, we've got the right stock positions to be able to commit to a 60% improvement in EBITDA in FY 'twenty five.

Speaker 7

Just to clarify that then. So you would have had to recognize that if you hadn't discovered the new the result of the testing was that you're able to recognize GBP 100,000,000 provision, got that windfall, if you like, you'd have had to have recognized as trading losses, those GBP 100,000,000 provision in FY 'twenty five and you wouldn't have performed as well in the core business. So you would have been doing even less than GBP 40,000,000 of EBITDA.

Speaker 1

I think there's all sorts of decisions you can take as a retail business. Obviously, the reason that we had that stock in the 1st place is because it wasn't sold through and it was kept in a warehouse and it was expected to sell through later. So yes, we could have kept that stock in the warehouse. We could have sold through it at any point in time that we wanted. And we don't know what profit we would have delivered from selling through that product at whatever point in time.

Speaker 1

But we got to the point where we had the volume that we were confident we can clear off-site. That's very much the right thing for our customers. We shouldn't be selling old product. That's not what customers come to ASOS for. So we reached the point where we felt actually that product can be sold through external challenge, their channels, we can now get back to selling newness on ASOS.

Speaker 7

Okay, cool. And just one quick follow-up. Stock, you talked about 80% is now the newest stock, less than 6 months old. But I'm guessing that's on a value basis rather than a unions basis. Yes.

Speaker 7

Yes. So that would have benefited from the stock write offs that you've just done as well. And the stock that you've got that's been written off will be of much lower value. So I'm guessing that 80% at value is more like 60%, so 40% still aged stock at volume terms?

Speaker 1

It's on COGS basis, right? So it's on cost basis. So there's not a huge difference in the newness and

Speaker 7

COGS basis, come on.

Speaker 1

It's balance sheet value, yes.

Speaker 7

Right, okay. Yes. Fine. Will be that balance sheet value of the stock you've written down will be much lower than it was before?

Speaker 1

That's written off. So that stock isn't in the 100%. So 80% of the stock that we have currently on the balance sheet is new stock and 20% is stock that's over 6 months old. Including that that's been written off? That's written off, that's gone.

Speaker 1

But you still

Speaker 7

in the warehouse, right?

Speaker 1

At 0 value.

Speaker 7

Yes. So stock that you've actually got in the warehouse at the moment, units wise, is a lot more than 20%, right, which is old stock? Because yes, that's obviously all this stock which has been written off. Yes. So it's more like 40%.

Speaker 1

Yes. In terms of balance sheet value, in terms of the GBP 520,000,000 that's on our balance sheet at the moment, 80% of that is new. On a unit basis, in terms of the GBP520,000,000 the mix on units will be the same. In terms of the stock written off, that will be taken out of our warehouse and sold through external channels.

Speaker 8

Okay. John Stevenson at Peel Hunt. If we're making sort of mid-20s contribution now at sort of group level, how does that differ between the 3 core regions at the moment? And to what extent is that structural? And what extent is there a lag through Europe and the U.

Speaker 8

S? And are you deliberately focused on the core U. K. Customer? And how do you think you can close that over the next year or so?

Operator

Well, we have seen a big evolution of our contribution in especially let's focus on the top core 4 markets. We have seen a big evolution in all of them. So obviously, the U. K. Is very profitable.

Operator

Europe is pretty much at the same level. U. S. Has improved significantly over the course of the last 2 years. So we feel very comfortable that we have taken, as Dave referred before, the right medicine to take things to a much better place.

Operator

So it's not that our U. K. Operations are so much more profitable that they are subsidizing the rest of them. They all are profitable and they all are contributing. Not the same level, but it's getting closer and closer.

Speaker 8

And is there a I guess by definition, there is a gap, a bigger gap, let's say, in the U. S. Than there is in the U. S.

Operator

The U. S. Has become much more profitable. It's not at the level, but it's I wouldn't say it's a bigger gap. The gap is getting closer, I think.

Speaker 8

Yes. You'll happen by the level of U. S. Profitability now?

Operator

Yes. I would say yes. Yes. Obviously, the U. S.

Operator

Will benefit with more and more volume as everywhere, by the way. But even with the current volume, the U. S. Is at a very healthy level of profitability.

Speaker 9

Hi. Sarah Roberts from Barclays. It would be really helpful if you could talk through your free cash adjusted EBITDA to free cash flow bridge, especially if you come in at the lower end that €130,000,000 I believe you're guiding to €130,000,000 of CapEx plus €35,000,000 of cash interest costs. Just curious to know the moving parts that get you to that broadly free cash flow neutral at the lower end of EBITDA. And I suppose follow on from that, if profitability comes in a little bit on the

Operator

lower side next year, what levers do you have at your disposal to kind of make sure you hit

Speaker 9

that free cash flow do you have at your disposal to kind of make sure you hit that free cash flow breakeven target or neutral?

Speaker 2

Yes. So broadly cash flow neutral, if you take the EBITDA guidance along with the two things that you referenced, both the CapEx and the interest, The other two things that need to be brought into that are both the lease payments that we're making the year and continued working capital improvements that will come through, and that gets you to the right range. The working capital improvements will continue to come through because actually in driving a much higher margin that's coming through from our new improved commercial model, the actual volume of units that we'll be holding to sell through that will be less actually. So there's still a bit more that drops out from a working capital benefit in the year.

Speaker 3

Thanks. So we heard from the BRC this morning, Anselando, that the trend was a bit weaker into October compared to September. I'm just wondering if you saw that same pattern or whether there's enough going on at ASOS to

Operator

have softened that a little bit for you. That's a great question. I think September was very good. Well, I think no, it's a fact. This is me translating, sorry.

Operator

September was very good, obviously driven by weather. Weather was much colder than last year. And last year, if you want, the weather pattern was the other way around. Then October was colder and that made an acceleration. And then year on year, October has not been as good as September.

Operator

We're still happy with our performance. We think that there are a lot of interesting things happening at ASOS. And we see still our newness performing well. So we are not worried. But certainly, I would say market wise, we have seen a big change between October and September.

Operator

So yes, I think that we would confirm what Salano has said.

Speaker 5

Great.

Operator

Thank you so much, everyone. It's always a pleasure and looking forward to the next time we're going to be together. Have a nice day.

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Earnings Conference Call
ASOS H2 2024
00:00 / 00:00