ASOMY - ASOS: An Autopsy Lessons Learned And The Expectations Going Forward

2024-02-12 07:15:04 ET

Summary

• ASOS’ recent collapse is a reflection of near-term headwinds and fundamental issues that were not rectified as Management’s focus was purely on growth.
• We believe ASOS is facing considerable threats from “faster fashion” brands, as well as due to the lack of differentiation. Focus from margin improvement must quickly switch to improving this.
• ASOS is not completely over its issues, yet. Inventory levels must be brought down, although it has at least reached margin neutrality following several periods of loss-making.
• This said, economic conditions should improve in late 2024 and into 2025, allowing growth to return.
• Whilst we do not consider ASOS a long-term winner, we do believe there is the opportunity for short-term gains at a NTM FCF yield of 16%.

Investment thesis

Our current investment thesis is:

• While we were completely wrong about ASOS as a long-term investment, we do see value as a short-term opportunistic play. Sentiment is at a low and its valuation is depressed. We believe with reasonable execution, focused on cutting costs and ensuring alignment to trends, the company should experience an upswing once economic growth returns.
• From our review of what went wrong, we do not believe the company has the credentials to be a long-term hold. There are far too many risks and a lack of differentiation. A potential partnership with Fraser Group ( OTCPK:SDIPF ) and/or Bestseller could change this, however.

Company description

ASOS ( OTCPK:ASOMF )( OTCPK:ASOMY ) is a wholly online fashion and cosmetic retailer based in the UK. Its target demographic is "20-something" year olds, offering them over 100k products across its 13 ASOS brands and over 900 third-party brands. ...

For further details see: