ASOS H1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 24, 2025

There are 8 speakers on the call.

Operator

Okay. Good morning, everyone. Thank you so much for for spending time with us this morning in our half year results presentation. And as always, it's it's very exciting to to have you here in ASOS.

Operator

So let me start because I'll try to speak less than last time. Last time we didn't leave enough time for questions, so I'm gonna try to be more concise. That doesn't really mean I'm gonna speak faster. I know I already speak fast enough. I'll try to be more concise, so that we can leave more time for questions.

Operator

So what is it that we want to share with you today? I'm going to start just by sharing the big messages that we want to highlight. Then I will give you more color on the strategic update, on main actions we have been delivering during the course of the last six months. Then Dave, our CFO, will give you more detail on our financial results, and this is probably where everybody's more interested in, and the outlook, and then we will make sure we have enough time for Q and A at the end. So let me start.

Operator

And let me start, sorry. Let me start by taking a second, and I promise it's gonna be very short, and talking about some concepts that I've been hammering on you over the course of the last two and a half years, so that I'm going try to put them together, let's say, if I do a good job in a way that it resonates with everyone. Over the course of the last two and a half years, I've been talking about things like becoming the most inspirational destination for fashion eleven twenty somethings. I've been talking about making sustainable profitable growth, making creating a business model that is resilient, business model that is flexible and hence sustainable. And I want to try to put it all together today.

Operator

This transformational journey is about doing these two things at the same time. And I don't think they are contradictory. I think they reinforce each other. On one hand, what we're doing is when we look into the consumers, we want to become a place for inspiration, a destination. They come because they are offer the most exciting, the most relevant product in the most inspirational way.

Operator

And at the same time, we're transforming our business model to be sustainable and resilient and flexible. And when you put these both things together, on one hand, the inspirational we are, the more profitable we become. And on the other hand, the more resilient and the more flexible we are, the more we release resources to reinvest into our consumer. And this is when we put both of them together, this is where we're talking about sustainable profitable growth. That is the outcome of doing these two things at the same time.

Operator

And today, I'm here very happy telling you that I feel we have really make a step forward during the last six months in this direction. And that's why we have increased our EBITDA versus last year on approximately £60,000,000. I think this figure summarizes very well where is that we are going, and why do we feel we have made such a important step. And this has been built on three main pillars. The first one is our new commercial And I've talked a lot about this new commercial model, I'm trying to summarize it in one line is, this is being capable of offering our consumers the right product at the right time.

Operator

This is done for a lot of things, this is done through adding additional speed to the system, this is done ensuring we offer the right level of quality, this is done through enlarging and improving the assortment of brands we offer to our consumers, they are more exciting, offering better collaborations and more exciting items. This is done through more flexibility in our fulfillment methods and business models. This is done through a more dynamic stock management during the course of the season. There are a lot of activities behind that. But during the course of the last six months, we feel we have taken step forward here.

Operator

And I'm gonna try to summarize this in two numbers. Number one is that, in the last six months, our own brands, full price business has grown, while at the same time, we have increased our gross margin almost 500 basis points. And I think this is a very good example where both things come together. We are doing more full price business, 12 points better than full price business versus last year, and that has resulted in higher margins. And higher margins has not been a detriment to grow our own brands globally full price business.

Operator

So I think it's a very good example of when the commercial model works, it delivers very interesting and very positive results. The second pillar is efficient operations. We have to make sure that we deliver while we are obsessed with being efficient. And that is based on two things. One is rigor and discipline in cost management, and we have done a lot of things over the course of the last two and a half years and more concretely over the last six months.

Operator

We have reinvented our supply chain, for instance, I'll give you more color later, producing 140 basis points are the cost of supply chain. But it's also on being very, very disciplined on efficient capital allocation. And again, trying to summarize that into two figures, we're very happy to see that we continue improving our cost efficiency, and that is giving us the right economics continue, and at the same time, we have accelerated our stock turn, which means we can use our capital better to reinvest our capital into growth. And the third pillar is ensuring that we provide our consumers engaging experiences. Engaging, inspirational.

Operator

There is a lot to do here, we're only at the beginning of the journey. We are very, very excited about what's coming, and I hope I will be able to share with you some of these things this morning, and we think this is going to be what is going to help us to really push this sustainable profitable growth to a different level. So if you want, in a nutshell, we're very happy with what we have achieved over the six months. There has been a lot of activity, I hope you will appreciate that at the end of this presentation this morning, and the outcome is very encouraging, this improvement of 60,000,000, which is an increase of 30% of our variable contribution over the course of the last six months. And at the same time, we're very excited about what's coming.

Operator

We're very excited about all the activity that is coming, all the new things that are going to be landing during the next months. And we feel we are prepared. We feel that we have the right product. We feel that we have the right economics, and it's the right time to take this transformational journey into becoming the most inspirational destination for fashion eleven twenty somethings, while we do it with profitable, flexible and sustainable business model to a different step. So let me start going, giving you a little bit of color of all the activity we had over the last six months.

Operator

And let me start by our commercial model, and obviously the target of our commercial model, as I said, is to deliver relevant product at the right time. And let me start with this chart that I find extremely interesting. This chart you can see the evolution of the variable contribution per geography and per line of business, or own brands and brand partners over the course of the last six months. What you can see in the bottom part of the chart is that every line of business, every geography has grown in terms of variable contribution, absolute terms over the last six months. And I think that is a testament of, yes, our journey into a sustainable, profitable business model is going in the right direction.

Operator

It's not an exception, it's not one, it's the whole business that is moving in this direction. That has happened through a lot of work, and part of this work, as we have shared before, has had a negative impact on sales. For instance, to get here, we have been working on our basket economics, and we have been reducing the availability of product, we have been reducing stock, and over the course of the last two years is around 60% reduction. We have been reducing promotion, we have been reducing the investment in perform marketing. So obviously that has an impact on the top line.

Operator

But that has not been a barrier to grow the variable contribution. And I think that's why this chart is so encouraging for the whole of the team. And, but there is another thing that is also quite encouraging in this chart. While we've been doing that, we've also been doing other things. We've been implementing our new commercial model.

Operator

And this new commercial model is starting to show early signs of success. Because while we've been doing that, and while we've been increasing our gross margin 500 basic points, we have been capable of growing our full price business in our own brands globally, with the exception of The US. And I will touch upon that a little bit later. So it is very encouraging to see how both things come together, and how this is working. Let me give you a little bit, as I said, more color of what is behind this change from our product point of view.

Operator

And I will start with our own brands. The secret behind the development of our own brands is simple, as everything in life, and is based on three things. One is speed, the other one is quality, and the third one is flexibility. These are the big changes we have implemented in our own brands. That has taken us to show, as I said, growth of our own brand full price business globally.

Operator

That has taken us to grow our total business of ASOS Design in The UK by 9% and to gain market share. And one of the critical things behind is the development and the performance of our test and react, one of our flagship projects during the course of the last six months. Test and react is already 15% of our sales, of the sales of our own brands. And test and react is the technology that enables us to be able to understand what the consumers want, and react fast, and deliver it to them. And that's why we can deliver it to them in the right time, at the right price, to the things that they are looking for.

Operator

These are some of the examples of the trends we have seen over the last six months. Stripes, boxy shapes, barrel legs. These are things that we learn from the market, we learn from social media, we react it immediately, we put it in front of consumers, and it worked very well. When quality and speed come together, this is when we see the project, or if you want the ambition or the test, not the test, sorry, the project working at its best. And let me illustrate that with one example.

Operator

One of the star categories over the last six months has been needware. Needware is where we have improved significantly our quality and our speed to market. Today 50% of our needware business in ASOS design is done through test and react. And we have seen double digit growth globally in the business of needware with ASOS. I think that is a very clear example of how far the concept can go and how ambitious we can be if we continue going down this path.

Operator

When we move to partner brands business, we have seen, again, a very strong development from variable contribution, less strong from a top line point of view. We were aware of that, we knew that our own brands would come first, but we're also seeing a very interesting and a very strong momentum happening here. And this is built on three things. One is making sure that we have the right selection of the right partner with us. We have implemented a new brand acquisition team, and this team is having an impact.

Operator

Over the course of the last six months, we have 25 new brands. And when we are adding new brands, we are not adding them randomly. We are new brands that are relevant for our consumers. As I told you, we want to be a destination for consumers. So that means we are adding brands in the areas where consumers are interested.

Operator

We have been adding brands more on the higher end of our assortment, brands like Arquette or Bean by Lola that have resonated with our consumers and are working very well with us. We have also added brands that are exclusive to ASO. So we are the first retailer in The UK or in Europe, in that sense, for instance, have Princess Polly, that is an Australian brand, that we are the first retailer in, the first wholesale partner in Europe. And we have added a brand like Gina Trico, is a Scandi brand, that is working very well as well and we are the first retailer and partner in The UK for that brand. And we're also adding some cold classics brands, like Prohibited for instance.

Operator

That is a brand that is also resonating very well with our consumers that we're styling with vintage products, and we are seeing that is part of this destination. So we are the place where consumers can find all these brands that they are looking for. Or find or discover the brands they don't know. That is also a very important part of this journey. The second thing here that is very important is how we have gone deeper in the relationship with some of our core partners.

Operator

And just to quote some examples here, one would be Mango, a brand that I already quoted in the full year results that had amazing results last year. During the course of this year, we have added Mango Men, and he's working very well with us. Another brands would be Adidas and New Balance, where we have had exclusive items that have worked very well, and I will give you a little bit of color immediately. So this is also part of this discovery journey, being able to offer consumers exclusive items that are the result of our great relationship with some of these key brands. And the last piece is our flex fulfillment models.

Operator

We have already gone up beyond the 7% of our brand, our partner brands business, sorry, And we are working with more than 120 brands. So we see that this is gaining more and more momentum, and we are very optimistic that our business in this area will also continue developing very well. As I mentioned, I wanted to give you a little bit of color about the cowprint. If you didn't hear about the cowprint, it means you were not in The UK in February year, so I'm sure you heard about it, or you were maybe skiing, who knows? But that has been one of the big things happening in the world of fashion in The UK this fall, this autumn, and or spring actually.

Operator

And what we did, in case you were not here, or you forgot, because there are so things happening, is like we launched an exclusive colorways with two of the most iconic Adidas products, that are the Adidas Sambas and the SL72s. It was a cow print colorway, and to reinforce that concept, we use our test and react technology, we created a collection of 10 exclusive items in the course of three weeks, so that it was going to be part of that launch. The D Day was the February 19, and what we saw that day is that traffic grew 70% with zero investment in discounts and zero investment in additional marketing, beyond some coffees that we were giving away in King's Cross, so quite modest, to be honest. So that shows the power of when we put these things together. It was interesting to see that we sold out the Adidas styles in quite significant numbers in a matter of hours, couple of hours.

Operator

We sold out the exclusive collection, we sold 90% of the units in a couple of two weeks, in a matter of two weeks. Actually, we've been repeating this collection ever since, and that has been creating more traction with consumers and more excitement. And I think this is a great example of how powerful it can be when we put together both things. Great relationships with some of our key partners, our capacity to react to trends very fast and to come to market with relevant parts for our consumers. Let me move to second poll of action, which is efficient operations.

Operator

I've been talking about that for the last two and a half years. We are relentless in making sure that we are disciplined with our cost management, and we have continued doing that. As I said before, we have seen a good development in our cost lines, and I wanted to highlight here two activities that are very relevant. One is what we have done on our supply chain, where we have reduced our supply chain cost by 20%, pretty much by reinventing our supply chain. We have simplified our supply chain, you've seen we have closed some of the fulfillment centers we're having, and that has helped significantly.

Operator

But we have also improved our processes. And just to give you an example, our pick and pack process is now 10% more efficient than at the beginning of the year, and obviously that has an impact. And there is more room to go here. We will continue simplifying our supply chain and as we announced in January, are closing our warehouse in The U. S.

Operator

To move to a hybrid model and I will give you more color later. But we're also seeing opportunity to reinvent the way we're working some of our partners, our delivery partners to make our supply chain even more efficient. So we see more room to improve here, and that is a very important area of activity. Another one that I wanted to highlight is returns over the course of the last, not only six months, more than that we've been working on returns with a full, if you want, package of activities, going from improving the quality of our products and the consistency of our sizing, improving the way we communicate sizing to consumers, using AI to make a better match between what consumers are buying and the sizing of the products to reduce unnecessary returns and also with implementation of our net threshold on returns. Our obsession is to reduce non value added returns.

Operator

We think that returns is a critical part of online experience, but we really want to reduce non value added returns. And what we have seen is that in the course of the last six months, we've been able to reduce the underlying return rate by 150 basis points, which is a significant reduction. Again, we see more development, more room to improve here. We think that we can improve more in the use of AI, and we can also continue rolling out these net threshold returns, so that we expect that we will be able to continue reducing and improving here. Our obsession with efficiency in operations is not only on costs, it's also on capital allocation, we wanna I make sure that we are always making the best use of our capital to release resources, to reinvest, as I said before, and to marry the two concepts, to reinvest in our consumer facing activities.

Operator

In this sense, over the course of the last six months, months, we ensure that we were gaining flexibility in our balance sheet through the successful joint venture on Topshop, Topman. We have also, as I mentioned before, optimized further our operations in supply chain through the mothballing of Atlanta, and not to be also forgotten, the implementation of our new commercial model and the discipline in this new commercial model has helped us to increase the speed of our stock turn, and that obviously is releasing capital that we are using in other areas. Yeah, okay, how are we doing that? I think it's interesting to give you a little bit of color here. Basically, the new commercial model, one of their obsessions is return on investment.

Operator

When we invest in stock, we want a return on it. These returns comes to two main options. One is to sell more sell through, the other one is to sell with less discount, mark on. So very simple. I like simple things.

Operator

How do we do that? Well, we improve our sell through and reduce our mark down through three main levers. One is speed, so the closer we make the decision to the moment of sell, the higher the hit rate, the lower the mark down, and the higher the sell through, that always great news. The second one is an effective in season management. We're not waiting till the end of the season to act when something is not working.

Operator

We monitor that every week and we take action immediately to make sure that we have an impact. And the third one is obviously the implementation of our flex fulfillment models that is helping us to offer our consumers more depth and more width in a more efficient way. The outcome of that is that during the course of the last two years, we accelerated our stock turn by 35%, releasing a lot of capital that we are deploying somewhere else in the business. I wanted to pause for a second and give you a little bit of color on The US, which I think is a very interesting example, and probably, I don't know if the word is extreme, but certainly stark example of these new policies and these new model that we have implemented. As I told you before, over the course of the last two and a half years, we have been focused on this creation of a sustainable profitable growth, and in some cases that has, in all cases that has meant taking some actions that has not necessarily pushed our top line sales.

Operator

We have reduced the stock significantly, as I told you, around 60% over the course of the last two years. We have reduced promotion, and we have reduced the investment in performance marketing in the case of The US significantly more than in other geographies. That has had an implication on top line. The top line of The US over the last six months has dropped by 28%. We have dropped some sales that were not profitable, but were sales.

Operator

But at the same time, we have increased our variable contribution in The US. Actually The US has shown the highest growth and variable contribution to become one of the most relevant contributors in the company in absolute terms. So obviously that is very helpful, and that is the right direction of travel. Lately we have come with another way of changing The US. And this way of change has come through two different things.

Operator

One is like, we are becoming more, we are developing our activities into a more and more customized way, so we have a specific team working with The US that has been working on how do we sell to consumers, on how do we do marketing activities to consumers to be more customized to US consumers, and we have changed our delivery model in The US. We have multiple at Atlanta warehouse, as I told you before, and we have evolved into hybrid model, where we're serving The US from our fully automated warehouse here in The UK in Barnsley, from a smaller and more flexible facility in The US and through partner fulfills. The outcome of that second change is really encouraging. Over the course of the last weeks, we have seen our sales trajectory in The US, the run rate has improved double digit, while we have significantly reduced discounts. And we see a much higher level of engagement with consumers, because they are exposed to a bigger assortment.

Operator

So we are very, encouraged by that change. And this change is going to have also another impact, of course, it's going to help us manage our fixed costs. By multiplying Atlanta, this year it will not have a visible impact, but next fiscal year we expect an impact on our EBITDA between 10 and £20,000,000. So that is clearly the outcome of making the right decisions in terms of capital allocation, that helps us improve offer a concept to consumers. So again, this reinforcing loop.

Operator

And last but not least, I want to talk about engaging customer experience. Here we're only starting the journey, as I told you, this is the journey to go back to growth, to go back to excitement, to regain the heart of our consumers. The first thing we have done here is to change our marketing model. We had a marketing model that was really focused on the bottom line or the end of the funnel, and we have evolved into a full funnel marketing model. As a result of that, we have increased the influencer network that we work with, and we have increased that by 30% during the last six months, and that is having an impact.

Operator

We are improving our ROAS, but we are also improving the reactivation of consumers. In The UK, it has grown by 7% versus last year. So we are seeing quite interesting results. But that is only the beginning of the journey. The interesting part is going to come now.

Operator

First on the product side, during the course of the next six months, we will see the stand react going from 15 up to 20%, and this is going to come obviously by going deeper in all the categories where we are, but also rolling out some new categories like swimwear and tailoring. This is also going to happen by adding new brands, and we successfully launched a new brand more on middle higher price range of the price range we offer called Arrange, with a very, very successful launch that we sold out in a matter of a few days, and there will be new drops of this run coming soon. We are scaling our partner fulfills model and we will go beyond where we are right now. We are rolling out partner fulfills in The US and in Ireland, and we are also adding a major global brand through AFS soon, and we are also continuing adding more and relevant brands. 40 will come during the course of the second half of the year, some of them as relevant as Good American, one iconic name brand, or Ice Cream that is brand, or some iconic brands like House of CB, or, I mean, you see the brand, it's up to 40.

Operator

And as I told you, we're gonna work a lot on the customer experience side to make it more exciting and more inspirational. I wanted to highlight three things, there are a lot of things happening here, but I will not bore you. I wanted to highlight three things here. One is the launch of our loyalty program, ASOS World. We have been testing it during the last months, and we will be launching it in the second half of the year, so soon.

Operator

This is a program created around excitement and fashion, in our program around discounts, it's a program created around access to product and exclusive experiences, it's a peer based program, and we have been testing it in, I mean some of these experiences are early access to product, some of these experiences are early access to back end stock notifications, or some of these access is to exclusive events, or to our AI power stylist. It's quite interesting to see that in the test group that we have launched it, the people that are interacting with the AI stylist have increased the amount of products say for later by 60%. We know that say for later product is a clear leading indicator of sales. 30% of our sales normally come from save for later. So that seems to be a very good sign that this program is going to help us improve the quality of our relationship with our consumers and make it more and more exciting.

Operator

As I told you, this is about customer experience, and for us customer experience is about personalization. We are working very hard in this topic. Not only through the AI stylist, we are improving our search recommendations engine, and we are landing already new search and in a more personalized way, and we will be landing during the course of the next month new recommendations algorithm in a more personalized way. We are launching an AI powered outfit creator, where consumers will be able to create outfits out of a specific item, taking into account their preferences and their history. And we're also launching in these next months, ASOS lives, where we're gonna have a much more video content and a much more obviously live relationship with consumers, because it's going to be live, and we're very excited about what it can bring in terms of the quality of our engagement with our consumers.

Operator

And last, but not least, I want to talk about Topshop that I'm pretty sure is one topic that everybody is also quite interested. You know, we really believe that Topshop is a great brand, and we're listening to our consumers because they also think it's a great brand. We've been working in the product, improving the product over the course of the last two years, seeing that the product was in a place where we were feeling more confident. We launched on a specific team to take care of ASOS, sorry, of Topshop Topman. We've been investing in reigniting the brand heat and based on the reaction we have seen in social media, I think the team is a great job, and the time has come for Topshop to come back and has its own expression in front of consumers.

Operator

That sense, we are relaunching Topshop.com in the next months, and in Q4 we will see Topshop.com live again, and we are, I shouldn't say slowly but surely, but we are coming to physical presence. We have already reached some agreements with some hotel partners, and we are going to do some more to have physical presence, and if I can say that stay tuned, because we will be coming with more news over the course of the next months. So, in a nutshell, we're very excited in this transformational journey of becoming the most inspirational fashion destination, but no but and with a flexible and resilient business model. We think that an improvement of 60,000,000 EBITDA is a very clear proof that this transformation is working. We're very happy about the outcome of all the activity that we have done over the last six months on test and react, on quality, on adding new brands, on adding more partner fulfills, on adding more exclusives, on managing more actively our assortment, And the outcome as you see is, as I said, the growth of our own brand and at the same time, full price business and at the same time, increase of four ninety bps of our gross margin.

Operator

There has been also a lot of activity in terms of reinventing our supply chain, in terms of returns, in terms of capital allocation, and that has created a better cost structure and a faster return. And we are also very excited about the activity that is coming and how it's going to help us to really continue in this journey of transformations and making it a more exciting fashion destination in the planet. So with that, I hope it was not too boring. I'm gonna hand over to Dave that is gonna share with you the numbers and the guidance, and then we will move to Q and A at the end. So thank you very much.

Speaker 1

Thank you, Jose. Morning, everyone. As Jose just said, I'll walk you through briefly our half one performance in a bit more detail, conclude with our outlook and then we'll take Q and A from the front as well. Regarding the first half, as Jose has just said, our headline here is on our profitability improvement, driven by our new commercial model, delivering an adjusted EBITDA improvement of almost GBP 60,000,000 year on year, supported by both higher gross margin and better economics despite the volume deleverage. Taking it through in order, our adjusted constant currency sales declined by 13% year on year, a slight improvement on the high teens we outlined at FY24 results, driven by a continuation of the trends discussed there, namely annualising the declines in old and aged inventory and a significant reduction in unprofitable performance marketing.

Speaker 1

Against this, we've seen strong performance in our new stock operating under our commercial model with our own brand full price sales returning to growth year on year. Adjusted gross margins are up four ninety basis points year over year, driven by an improved full price mix and the lower discounting that we've been doing. Cost to serve have increased by 60 basis points with strong underlying cost performance broadly being offset by the volume deleverage. The result here is an adjusted EBITDA improvement of GBP 60,000,000 year on year to GBP 42,000,000, primarily driven by that gross margin improvement and our focus on cost efficiencies. Stock reduced by GBP 181,000,000 year on year to GBP $4.12 million as we continue to see the efficiency benefits of our new commercial model, delivering more efficient return on inventory.

Speaker 1

Our free cash flow in the first half was an outflow of GBP84 million, primarily driven by a return to our normal springsummer intake seasonality earlier in the half, resulting in a significant year on year reduction in the trade payables. However, we are still expecting to balancing free cash flow in the second half to leave us broadly neutral as guided. Net debt reduced by GBP 73,000,000 year on year as a result of the Topshop Topman transaction and the refinancing that we completed in September, less the impact of the half one free cash outflow. By geography, performance to results are similar to what has previously been shared. The variation in revenue performance reflecting the profit actions we've taken across the group in different markets to consistently improve profitability across the board.

Speaker 1

Our UK sales performance was relatively strongest. We've already referenced the performance of ASOS Design, which is gaining market share in The UK, given this is where our strongest brand equity is. US top line performance does continue to be the weakest of our core markets, but again as Jose has mentioned, the profitability improvement we're seeing here has resulted in the strongest improvement year over year across all of our regions as earlier discussed. The general trends across the board, declines in active customers while conversion holding steady and ABV increasing, resulting in a like for like sales performance better than the visits decline. In relation to gross margin in half one, as said previously, the main driver of this has been a better execution of full price sales and a lower markdown that we're seeing under the new commercial model.

Speaker 1

New revenue streams, including flexible fulfillment, continue to be gross margin accretive as they will continue to scale as well. As mentioned, our cost to serve increased by 60 basis points, driven primarily by the operating deleverage across our other predominantly fixed cost items, despite continued improvements in both our distribution and warehouse cost ratios. However, it is worth noting that excluding the introduction of the Topshop Topman royalty, our cost to serve was broadly flat year on We held our fixed cost base broadly flat year on year despite general inflation that's seen demonstrated a continued focus on driving through efficiencies in our cost base. You can see this in our adjusted EBITDA bridge, a significant year over year improvement really driven by the benefit from that gross margin and our commercial model, despite the volume deleverage we've seen, along with the benefits that we're getting in our variable cost to serve. Finally, before turning to outlook, I just want to walk through the half one free cash outflow.

Speaker 1

84,000,000 in half one, where the primary drivers are inflow from the inventory reduction, which has been more than offset by the reduction in the trade payables as we return to our normal springsummer intake seasonality. The half one EBITDA seasonally lower than half two as normal, meaning that combining this with our net working capital outflow, CapEx, interest and lease payments resulted in a free cash outflow in the first half. In half two, expect a significant free cash inflow, driven by the inverse of many of these factors, seasonally higher EBITDA in the second half and an inflow from our net worth of capital. Again, our guidance here hasn't changed. Finally, to just touch on outlook.

Speaker 1

In FY 2025, continuing to expect the same as we've said before. Gross margins to continue to improve to more than 46%, driven by the commercial model and this full price mix. Adjusted EBITDA growth at at least 60% to 130,000,000 to 150,000,000, including the impact of that top shop top man royalty. We expect revenue growth at the bottom end of consensus range for FY 2025, as we continue focus on creating a solid base on which we'll drive sustainably profitable revenue growth. However, to note that we do expect our GMV growth to be one to two percentage points better than revenue growth, driven by the scaling of our flexible fulfillment models.

Speaker 1

As this becomes a large part of our base, we will report this on a regular basis, so expect more of that in the full year. Again, continue to be broadly free cash flow neutral, CapEx remaining at GBP130 million and cash interest of GBP35 million. Into the medium term, expect to continue to generate adjusted EBITDA sustainably ahead of CapEx, interest, taxes and leases, with adjusted EBITDA margin of moving towards 8% and a return to revenue growth. Our new commercial model can drive materially higher gross margins towards the 50% through a higher full price sales mix, our flexible stock models and the benefit that we see to our inventory days. As a result of the considerable improvements we've made to our operating model, we're confident that this will help us deliver a meaningful free cash inflow in FY twenty six.

Speaker 1

And on that, I will open up to Q and A.

Speaker 2

Hi, good morning. John Stephenson at Peel Hunt. A couple of questions to get us going, please. Just in terms of the tariff effect, do you think there is an opportunity for better factory grade pricing, whether that's sort of a short term window or permanent? And what do you see it doing for sort of bought in over the next sort of year or so potentially?

Speaker 2

Second question, just in terms of the underlying customer KPIs. I don't know the extent to which you can kind of ex out the sort of active churn from the new commercial model coming in. But what's actually happening under the hood? What are you seeing in terms of frequency? What are you seeing in that underlying churn of active customers, those that are with the business already?

Speaker 2

What do new customers look like? And finally, can you just comment on what the full price sales mix is today versus what it would have sort of pre COVID just as a benchmark and where the business is?

Speaker 1

Hold on.

Operator

Okay. So let me go one by one. So tariffs, obviously, the most interesting one, I guess. We've got a few questions this morning also from the journalists. So let's see how many times we come this here.

Operator

I think, obviously, tariffs is a very volatile environment, if you want right now, there is a lot of evolution, there is a lot of change, and we are monitoring that very closely. It changes, not by the day, but almost, and the way we are adapting to tariffs is by becoming more and more flexible. More and more flexible throughout the whole supply chain, from the starting point, from the countries where we source, but also how do we serve the different countries. That sense, we see that the change we have implemented in The US by getting to this hybrid model where we serve from here, but we also have a smaller warehouse in The US and partner fulfilled, is good decision. It's going to help us face the tariffs, and we feel confident we are well prepared to start working to start operating under the new regime, wherever that might be.

Operator

But the critical thing is flexibility, because things are changing, things can change again. And we will focus on doing on what we can do to adapt to it rather than what the market is bringing. In terms of underlying customer KPIs, which is a great question. As I mentioned before, we've been doing a lot of things that has had an impact on customers. We've been reducing the availability of the stock, we've been increasing, sorry, reducing our promotions, and we've been reducing our performance marketing.

Operator

So obviously, that has had an impact on customers, especially on some customers. The customers looking for bargains or for special type of bargains or things like that. What we see is that through the implementation of our new commercial model, we started to see some early signs of success. Seeing that HRD sign in The UK has grown 9%, seeing that reactivation of customers in The UK is up 7%, seeing that conversion, not only in UK, but globally is very strong and is showing very positive development. It is a great development and we are very excited about all the new things that are going to come.

Operator

But the fact that we have seen a variable contribution going, it's I think it's a testament of this is what we wanted, even though we knew it would have an impact on top line as we share with you in previous occasions. And then on the full price mix today versus pre COVID, I don't know exactly the full price versus pre COVID, so forget me about that. Clearly, full price mix now is much higher than we'd have seen over the course of the last three years, for sure, but that was already after COVID. And we see it growing continuously. It does not stop.

Operator

We, if I may use, I can use the example of Adidas, I can use the example of Knitware, I can use, when we bring the right product at the right time with the right price, consumers react. And I think that is a policy that works regardless of the competition, regardless of the environment, regardless of the tariffs, it does work. So this is our obsession, to really do that, and that is helping us to keep on increasing this full price mix, not because we force it, it's because consumers really like what they see and they buy full price. This is not about increasing prices. This is about not being forced to reduce prices because we have bought too much or we have bought the wrong thing.

Operator

It's like buy full price at a competitive price, because it's the right thing. So we are very satisfied with the evolution, and we still see room to improve there.

Speaker 1

I think it's still too soon to say, but we're not going back to our suppliers and pushing them for prices. I think we'll have to wait and see what flushes out generally in the market to see how those prices change. Who knows what

Operator

We always price competitively. We don't do cost plus. So that means that if the market changes, we will adapt to the market. If the market is more competitive in the sense that that is not changing the prices, then we will have to adapt our business model and how we engineer our products to be able to be competitive. This is how we do it.

Speaker 1

I think the one thing we can say is we haven't been back to our suppliers to ask them to put the bill for this, that what happens in the rest of market now that changes, we'll have to wait and see how it plays out.

Speaker 3

Hi, Sarah Roberts from Barclays. Just three questions from me, if I can. So, just firstly on tariffs, there have been some press reports of retailers in The UK and Europe being concerned around de minimis changes in The U. S. Making The UK and Europe a little bit more attractive for some of the Chinese competition.

Speaker 3

Just curious as to what you've seen in terms of the competitive environment over recent weeks and whether that's changed since the implementation of tariffs in The U. S? Secondly, on the loyalty program, so appreciate it's really early days, but can you share a little bit of color on what you've seen so far from your early testing in terms of customer behavior, whether that's on order frequency, customer retention, etcetera? And how are you planning on rolling out the loyalty program throughout the second half? And then finally, can you just provide an update on what you're seeing in terms of current trading in your core markets?

Speaker 3

Thank you.

Operator

Yeah, so on tariffs, are tariffs in The US gonna have an impact in the rest of the world? Difficult to say. I think that in The UK, we're probably one of the most, if not the most competitive market in the planet, so we're used to having a lot This is not new news for us. And what we do is we focus on our value proposition, we focus on delivering the right product with the right price, we focus on being rigorous with our cost management and our capital allocation.

Operator

And when we do it, it works well. It's not that before The U. S. Tariffs, there was not a lot of competition in The UK and globally. And we see that this is working.

Operator

And we see our own rounds full price business growing globally. In that sense, our way to do that is to really focus on what we can deliver and what we can do and double down on that. In terms of loyalty, it is still very early days. As you said, it's difficult to highlight a lot of things in customer behavior changes, because some of these changes take time. For instance, to see a change in average order frequency when our consumers come once a month, then you need at least two months.

Operator

Otherwise, you don't see it. So it is early, and the change in behavior that I highlighted is probably the one that is more visible right now, certainly the one that is more visible right now. That is like, the moment that they interact with the AI stylist, they do increase 60% the amount of say for later products. And that is a leading indicator of sales. So we are very encouraged by that.

Operator

Some of the other, if you want changes, we have seen that when we have done the launch of our new brands, and they have access to these new brands before the rest of the customers. The amount of product they buy and the speed of buying accelerates, so that is a good one. It's early days, so difficult to extrapolate, this is going to happen all the time. We see that when we have and we already had to in real life events for them, it sells out in a matter of minutes, and minutes is less than ten minutes, in four, five, six, seven minutes is completely sold out, so there is a lot of interest. So we see there is a lot of interest, and it's generating a lot of traction with consumers.

Operator

In terms of the rollout, we're going to roll it out during the second half of the year to all consumers. But whatever we roll out is not the final state. Our ambition is to continuously evolve this program, and to bring new features, to bring more excitement, to bring so if you want my vision, and we were discussing that with the team today, is that our loyalty program becomes the most exciting place to buy in the planet. We really want our consumers to feel that they are the best treated in the planet. So whatever you see in the rollout is only the beginning of a journey, and we really want to go much, much farther.

Operator

And then on current trading, what we are seeing after we close H1 is that the evolution is pretty much in line with our guidance for the rest of the year. The market is volatile, I don't know if there will be a question about that, but yes, the market is volatile, obviously all the talk about tariffs or non tariffs is having an impact. And in these environments, what we have to do is again focus on what we can control and what we can deliver. And what we can deliver is making sure we bring the best product, and AC is starting to work again. The best product at the right time and more excitement, and that works.

Operator

And that's what we're doing. If you want, right now it's pretty much in line with our guidance. Question here. Might get a

Speaker 1

bit warm now though.

Operator

Might get warm. That's good for the southern European.

Speaker 4

Hi, it's Ann Critchlow from Berenberg. Just to ask a question on the EU, I know you've been reprioritizing your marketing into The UK at this point, but given the big Berlin warehouse and perhaps the idea of leveraging that, no U. S. Tariffs there, what might be the timing of reprioritizing full funnel marketing into the EU, please? And then a second question on the Test and React 30% target.

Speaker 4

What's the timing you're thinking of there, please?

Speaker 1

Sorry, say that again.

Speaker 4

Regarding the test and react target of 30%, what would be the timing for that?

Operator

Okay. So on the EU, well, the EU, I think I shared that in previous meeting that our top core markets are The UK, France, Germany and The US. Obviously the EU is a very important part of our business. And we continue keeping it as such. In that sense, we are not, we have never stopped our focus into the EU.

Operator

I'm not sure if your question is about if we're going to increase more marketing in The EU as a result of The US, and let me answer that a little bit different. We are not decreasing our interest and our excitement about The US as a result of the tariffs. Probably it's a different way to answer your question. We see The US as a great opportunity. As I shared with you before, after a lot of work, The US is now one of the strongest contributors to our EBITDA generation, to our variable contribution generation.

Operator

We have seen that the reaction of American consumers to the changes in delivery model is incredibly positive. And we see that there is a great opportunity in The US. So we are not reducing our interest in The US, and a result of that reduction, refocusing somewhere else. Then in terms of the test and react, 30%, and when are we going to reach it? That is a great question.

Operator

Obviously, as fast as possible. I would love to have reached it yesterday, obviously, we have not. Take some time, obviously, that a business model that requires a special relationship with suppliers, and reaching that type of relationship takes some time. But if you want, the example that I share about needware also shows the real potential. We share a 30%, but if we can go farther, we will go farther in need where we're already 50%.

Operator

And the outcome is very, very satisfying. So we will continue accelerating. We are very positive that by the end of this fiscal, we will have reached and hopefully more than reached the 20% that we announced at the beginning of the year, and we will continue accelerating as much as possible to deliver 30% and beyond.

Speaker 5

Hi, thanks. It's Georgina Johanan from JPMorgan. Just three from me please. First one, I think you've guided to said you're expecting a meaningful free cash flow inflow next year. So obviously, a huge amount of work on profitability has been done and clearly achieved already.

Speaker 5

As we go into next year, does that guidance rely on sales at least sort of stabilizing? Or actually, is there more that you can do below top line? And it doesn't necessarily rely on that, particularly given that your guidance for H2 sales has effectively moved lower. Second question was just on Topshop, I think for some of us, obviously, whilst it's a very strong sort of heritage brand, if you like, that strength was some years ago now, so it would just be good to know anything sort of fact or a stat that we could put on it to give us confidence that the brand is still resonating, perhaps, like what you're seeing. And then finally, just another one on tariffs, sorry, something else that we've seen in the press is that some retailers have been talking about some brands and retailers maybe trying to redirect stock that was initially planned for The US into The EU and The UK.

Speaker 5

Are your brands reaching out to you potentially about you helping them with that through the marketplace model and so on? Thank you very much.

Operator

Do you want to take that first one?

Speaker 1

Yes, I'll take the first one. Meaningful free cash flow in FY 2026, like it's not dependent on sales growth, like we'll give full guidance on what the sales growth is for FY 2026 when we get to the full year. But as we've said earlier, like we expect to see continued improvement in our gross margin towards 50%. There's still more that we can do on driving efficiencies in our operating cost base. It's the combination of all those things that will put us in a more positive cash environment in FY 2026.

Speaker 1

It's not a requirement that we have to return to etcetera. But again, like the folks that Jose said earlier, make sure that the growth that we do deliver is sustainably profitable, I. It delivers an adjusted EBITDA benefit, and therefore benefits cash.

Operator

On top shop, if I can share some facts with you about if it's still resonating with consumers. Let me share a couple of facts. One is from the brand heat, and the other one is from the brand performance. In terms of brand heat, I think that the activity of the team, and part of the team is here today, is creating a lot of interest out there. Some of the posts had quite scary numbers in terms of likes and visions, in the tens of millions, So clearly there is interest in the brand.

Operator

And if you want in terms of the performance of the brand, one of the things we follow a lot is how fast we are selling the stock. And what we're seeing is that stock turn of Topshop during the course of the last months is trunking with the best of our brands. So it is resonating with consumers. It is resonating with consumers. So we are happy with that.

Operator

We see a lot of interest, and I'm sure that we can really leverage on that interest and bring a lot of future growth. And in terms of tariffs and the impact it might be having on other brands, no one has reached out to us to offer us additional stock. So I understand that there is a concern about that. We have not seen any of that right now, to be very honest. We have not seen any of that right now.

Operator

Whether this is going to have, there was a question about that, an impact on the competitive landscape in Europe and in The UK is clearly uncertain. But as I said, this is probably the most competitive at least online, this is probably the most competitive market in the planet. And I don't think it's going to have a major impact in the competitive dynamics to be honest. But it's very early to see how they're going to react. Richard

Speaker 6

Chamberlain, RBC. Can I ask about product returns? I think you said that your underlying rate was down 150 bps in H1. I just wonder what you're expecting for the second half or full year on that metric. And then back to the sort of de minimis changes, it appears that the UK government might be putting The UK rules under review again.

Speaker 6

So I just wondered if there's anything in your sort of planning assumption regarding The UK, it's already seeing a bit of a pickup, but are budgeting for any improvement in sales on the back of any change to de minimis rules? Well,

Operator

on returns, as I said, we have seen an improvement in the underlying rate of 150 basis points over H1 and we continue working on it. So we expect let me answer it differently. It's like because here we're talking about the evolution versus last year, we already started last year. So then we're talking about absolute returns rate, because like we have seen a better absolute returns rate, in this case is 150 basis points versus last year. We expect to continue improving during the course of H2.

Operator

I don't have a specific target in mind, whether it's 170 or whatever, but we continue we expect an evolution in that sense. That is going even to better. As I said before, there is room to improve, and not only during the course of the next six months, during the course of the next years. I think non value added returns is something that is very important to reduce as much as possible in this industry, not only for ASOS, for other players, and is one the areas that will be a game changer for everybody. So we will continue working and expect better numbers there.

Operator

In terms of the minimise in The UK, and I read the article about the plans of the government, or at least their intentions, whatever that ends up, it's substantiated substantiated into Israel right now, difficult to understand. So we are not putting our plans something that we don't know what it is. What we are doing is focusing on our value proposition. Making sure, first of all, monitor what is happening, we stay as agile and reactive as possible, and making sure what we are delivering to our consumers is value every day, is the right product at the right time, and is with the right level of cost. This is what we're really focusing right now.

Operator

No, no, know from the top of my head, but it wouldn't be 70%. As I said in previous meetings, our target is not to be the cheapest in the market. We really want to offer fashion at a competitive price. So obviously, chain is in a different part of the market. They are really targeting the entry price points very, very aggressively, and that is not where we are.

Operator

We competing, obviously everybody competes against everybody in this market, but that is not our core competitor, if you want in a sense. So what is the percentage of consumers that we share with Sheen, I don't know from the top of my head, I don't think it would be 70%, would be lower. But it's not really our core space of competition.

Speaker 1

Very patient.

Speaker 7

It's Adam Cochrane from Deutsche. Brace yourselves, I've got a couple. Not on tariffs, though. First of all, how do you start getting customers back into the business? So you've got negative active customer growth.

Speaker 7

In terms of that, that's a net number. Can you give us something about the gross additions? Is there any shape to that number where you can show us that you're churning out poor customers but adding on better ones? In terms of customers coming to the website, I'm assuming there are some new customers, are they coming to buy the ASOS own label or are they still looking for the third party products first when they come on to the website? In terms of that third party bit, you probably glossed over it slightly in the presentation, but the performance was relatively weak within that third party branded bit.

Speaker 7

What is the issue here? Is it that because you're discounting on those third party brands, the customers can find those products elsewhere where they are being discounted, so they don't need to shop with ASOS, because the basket size is up, so it's not like the people are shopping and not spending. So what happening with those third party brands? And given you've got so many, it can't just be that you've got the wrong ones, right? You've definitely got some of the right product in there.

Speaker 7

And then your inventory level is now in the right place. So one of the reasons that we've had weak sales for a while has been, you've been reducing your inventory, therefore giving up customers. Now your inventory is in the right place, what is the rationale for the sales growth not to pick up? And that leads on to why do we think that the second half sales is weaker than certainly I expected and maybe others did as well. It doesn't matter at the profit level, but I think to get the top line moving is really going to be a prerequisite to get people excited back in the investment case.

Speaker 7

So really, just want an idea of when will what will the shape of the sales recovery look like, and what's it going to be driven by? Is it just getting the third party sales to stabilize and then you push the ASOS own label? Thanks.

Operator

You sure you don't want to about tariffs? That is a lot of questions. Okay, I'll do my best. I'll do my best. So when are customers gonna come back into the business, and how they are coming back to, I'll try to do my best again, because I'm not sure I wrote down everything.

Operator

As I said before, we have done a lot of things that have, let's say, become, has made ASOS less attractive for some type of customers. We have offer less product, we have significantly reduced the amount of product we're selling. We have offer less discounts and less performance marketing. That was going to have an impact on sales always. Only one of them would have an impact, imagine when you do the three at the same time.

Operator

So that was going to have an impact for sure. But what we are trying to do here, as I said at the beginning is we're going to be attractive for consumers and doing it in a way that is sustainably profitable, resilient. Selling brands with a very high discount consistently is not a business model For ASOS or for anyone. And that's one of the big changes we have been bringing here, is like, no, we wanna go to a business model that is really sustainable, and has, if you want a healthy, I don't know if that is the right word, sorry, cannot find a better word, a healthy relationship with consumers. And a relationship that is based on, we're gonna give you whatever brand, 30% cheaper than anybody else, is not sustainable.

Operator

It's just like, it lasts for a little bit, and then someone else is gonna be cheaper than you, or you will not have the product because the brands will not supply the product, or whatever that is. So we're really evolving in that direction. And what we're seeing is that there are some early signs that consumers are starting to reconnect with ASOS, as I told you. Let me use The UK, because it's our core market, and where we're seeing more of the impacts. Our own brands are growing 9% total sales in The UK.

Operator

And as I said, that's what we were expecting, because this is what we see, if you want the changes of the model more developed. We are seeing that reactivated consumers in The UK are growing by 7% over the course of the last six months, which means there are a lot of consumers, at least 7% more than last year, that have decided to go back to ASOS. And we are seeing that this is slowly getting there. But is no silver bullet here. This is the thing, the button we have to press, and tomorrow all consumers are gonna come.

Operator

This is a matter of making sure we're doing the right things consistently. And that's why we're so excited about what is coming, because there are a lot of things that are coming that we consider are the right things. Loyalty is the right thing, live sales is the right thing, topshop.com is the right thing, more personalization is the right thing, more brands is the right thing. We need to continue doing that. Obviously our discipline in cost is giving us the space to do that, and is giving us the possibility to continue doing that by and regaining slowly but surely is love of the consumers.

Operator

Is it going to take six months? Is it going take twelve months? I don't know. I think it's a matter of consistency. Some turnarounds are faster, some turnarounds take more time.

Operator

There are some people out there that have been on a turnaround for eight, ten years. Obviously that is not our ambition, and I'm probably too old for that, but it might take some time. What we have to make sure is that we are doing the right things consistently to make sure that we reconnect with consumers, and that is our obsession. And you are talking about our And it is true, obviously the performance is worse, but remember what I show you, the performance top line is worse, bottom line has improved significantly in every geography, and that is very important.

Operator

And we are seeing also if you want, early signs of better performance. I didn't share that in the presentation, but if we go to The UK again, and we see the performance of our partner brands on women's wear, if we exclude the fact that we discontinued the outlet last year, and obviously we are comparing to, if you want to, to businesses that are slightly different, we are almost growing. So it is slowly getting there, and it's getting there by doing the right things, by bringing exciting brands. And you're right, we have a lot of brands, but this is incredibly lively that changes every day. We need to be bringing the new brands.

Operator

We wanna be a destination where people come to discover brands. There are new brands, like being created and disappearing every day, and we have to be as dynamic as the market is. So by bringing new brands, by bringing more exciting collabs. And I think what we did with Adidas is a good example with New Balance, we had also another one that was amazing. We have had it with brands, and there is more to come.

Operator

And hopefully soon we will be able to share with you some news about great, great things that are happening also in this space. But it's not gonna be done on we are consistently discounting more than everybody else. That is not sustainable, that is not the way we wanna do it, because it's not sustainable, and that is not something that creates the right approach. You're asking, is there an issue? No, there is no issue.

Operator

We knew that it was gonna come like that, and we know it take some time, but we're seeing that when we do our job, we sell thousands of units in a matter of minutes at full price. It is more about doing the right job rather than offering 30% on 30% on 30%. And you were saying when sorry, very long answer, but there were a lot of questions to be fair. When are sales coming? When are we going to grow?

Operator

We don't want to I don't know if the word is rush. Rush has a very negative connotation in Spanish, sorry. We cannot force that. It takes time. We have to do the right things, and we have to consistently do the right things.

Operator

And that is where we are focused. We understand that for some investors, top line is obviously what drives, but we wanna make sure that we are capable of delivering this profitable growth in a sustainable way, and we also wanna make sure that during the course of the next six to eighteen months, we are capable of doing that regardless, to a certain extent obviously, to the evolution of sales. And that's why we are always focused on efficiency, capital allocation, gross margin to make sure that we can do that. So I think that's pretty much it. I don't I have a long answer, sorry.

Operator

But you have a follow-up.

Speaker 7

I think the bit was the stock number is now in the right place.

Operator

Oh yes, sorry, forgot about

Speaker 7

So in terms of is it is there no reason to have a stock build, it's just that that stock turn hopefully will increase as your sales go up, is that?

Operator

We are happy with the current level of stock turn. We are seeing that stock is turning up. Obviously, are a lot of nuances in this answer, because some of the lights are turning super fast, probably way too fast, and some are slow. But in general terms, we are happy with the stock, with the stock trend we are seeing. It is in a good place.

Operator

That goes back, if you want, to the concept I shared before of this return on investment. We really monitor that the money we're bringing into stock brings our return. In that sense, we feel we're in a good place, and that is gonna help us start accelerating. Obviously, the more test and react we bring, the more exciting brands we bring, the more good colors we bring, that is only gonna start turning this flywheel, and that is where we are focusing. But we are not, we are not really seeing that the stock is a problem anymore whatsoever.

Operator

If that was your question, not sure.

Speaker 1

I think you were fortunate enough to get in just as the checkered flag came down. I think we're out of time for questions, so do you wanna?

Operator

We're in time, okay. That was fast. So I hope this time you guys had enough time for questions. Maybe there were some that we couldn't answer, my apologies. I really tried to be concise this time, I don't know if I did a good job.

Operator

So, very exciting to have you here again, and as I said, if I could summarize the feeling of the team is to work. We're happy about what we've seen we have achieved. We are happy about, as you will have seen, there has been a lot of activity, but we're happy to see that it's being fruitful, and we are increasing our variable, or EBITDA, sorry, by £60,000,000, and we are very excited about what's coming. We feel that we have the right products, we feel that we have the right economics, and we are in the journey of really making or continuing in this journey of transformation to a successful end of making ASOS the most amazing fashion destination, being also sustainably profitable. So thank you so much, and looking forward to the next session.

Operator

Thank you very much, have a

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Earnings Conference Call
ASOS H1 2025
00:00 / 00:00