ASOMF - ASOS Plc (ASOMF) Q4 2023 Earnings Call Transcript

2023-11-03 18:03:04 ET

ASOS Plc (ASOMF)

Q4 2023 Earnings Conference Call

November 01, 2023 05:30 AM ET

Company Participants

José Antonio Ramos Calamonte - Chief Executive Officer

Sean Glithero - Interim Chief Financial Officer

Elena Martinez - Senior Product Director

Dan Elton - Senior Customer Director

Vanessa Spence - Senior Creative Director

Michelle Wilson - Senior Director, Strategy & Corporate Development

Conference Call Participants

John Stevenson - Peel Hunt

Matthew Abraham - Berenberg

David Hughes - Stifel

Ben Hunt - Investec

Anubhav Malhotra - Liberum

Presentation

José Antonio Ramos Calamonte

Okay. Good morning, everyone. I can see you guys like the back benches. I used to like the back bench as well. Good morning, everyone. Thank you for being here today. For those of you who are here – is this working, I hope it is. And also thank you for those who are online. We are very excited to share with you our fiscal year 2023 year-end results and to give you guidance for the mid-term as well. And also we are very excited to share with you a little bit of the pillars of our strategy to take ASOS back to the path of growth.

This is not a full strategic update. We will give you a light and strategic update, don’t you worry, so you will not be here for hours. It's going to be short but we thought is the right moment to give you more color on where we are in our future plans.

So as I told you today pretty much we're going to cover three blocks. The first one is going to be our year-end results that Sean Glithero, our CFO will do. The second one we're going to share with you our guidance for fiscal year 2024 and the medium term. And last but not least and very important for us, we want to go more into the details of our plans for this fiscal year and the future to put ASOS back in the path of growth, as I said before and to make it the most exciting destination for fashion into some things.

But before handing over to Sean, I just wanted to make a little bit of a summary of fiscal year 2023, if you want from a personal perspective. October 2022, we were here I think basically in the same place and we share with you a pretty clear diagnosis of where the business was. We told you that we have five relevant challenges. We were struggling to generate profit and cash. We were piling up stock and that was generating tensions in our balance sheet. We were losing track in the connection with our consumers. And last but not least, we had an issue in terms of our team that was in a moment of reconstruction.

During the course of fiscal year 2023, we have tackled that situation and we have started to set the foundations of a new ASOS, so a new way of a doing – of a deeper change if you want. And the ambition today is to give you a little bit more color about that. But let me start with fiscal year 2023.

The changes we brought in fiscal year 2023 can be, if you want grouped around four big topics. The first one is we renewed our commercial model, where we have been tackling the old stock, bringing a more disciplined and flexible approach into intake. And last but not least, adding our faster approach to market in general. And if you want as an example that we always use but it's just the forefront of what we're doing is our test and react clients as the fastest approach we have right now to the market.

The second thing we did during the course of the year is to work on strong order economics and a lighter cost profile. As we announced at the beginning of the year, we wanted to have – we will put in place a program that we call back to basics with the ambition to have an impact of £300 million of profit during the course of the year and we have delivered that. And on top of it, we have increased our profit per order more than 30%, which is quite remarkable.

The third big topic is our robust and flexible balance sheet. As you know in May 2023, we secured annual financing, which a very light set of covenants and flexible set of covenants that have given us the platform to execute the changes that we have been executing so far. And during the course of the second half of the year, we went back to cash generation. And last but not least, we have refreshed our culture and our leadership.

Today, I'm very happy to have with me here a big part of that team. And actually today you're going to hear some of these people Michelle Wilson, which is our Senior Director of Strategy and Corporate Development; Vanessa Spence, which is our Senior Creative Director; Elena Martinez, which is our Senior Product Director; and Dan Elton, which is our Senior Customer Director. There are more members of the team. You will get to know them in a different occasion. It was not to bring them all here today But I said, it was also very good that you get to know this new team. And I'm pretty sure it's the right team to the journey we have just started.

Obviously, these changes had an impact in our performance during the course of the year. And I think it was quite clear that it was a year of two halves. The first half where we were having all the headwinds of the inflation plus the momentum that we were bringing from the previous year in terms of excess stock and also the level of the cost level we were having.

And the second half of the year, where we managed to – through the measures we put in place we managed to tackle that situation and then to go back to generating cash, generating profit and reducing stock. And as I said on top of that, we started to set the foundations for a deeper change in the company.

Today, we want to share with you details – a lot of details – some details about this deeper change. And as we have announced this morning our conviction that is the moment to accelerate in this transition. We have seen the first reactions or the first the reactions of the changes we did during the second half of fiscal year 2023 and we are very clear that is the moment to accelerate that transition to take ASOS back to this path of growth in the midterm and to make it again the most exciting destination for fashion and integrity things.

And with that I'm going to hand over to Sean who is going to start giving you some details about fiscal year 2023. And unfortunately for you, you will have to listen to me a little bit later.

Sean Glithero

Thanks, José and thanks everyone for joining us today. As you already know from the trading update, we gave a month ago the apparel market in the fourth quarter was challenging. And this resulted in sales for the full year back 11% at constant currency. So very much in line with our guidance for low double-digit decline in the second half.

At the same time we saw adjusted gross margin improved by 60 bps for the full year, benefiting from renegotiated freight rates. However, we also shifted investment from performance marketing into more markdown over the summer months given the market backdrop. This was consistent with the discounted approach under the new commercial model, which involves clearing more stocking season, reducing the level of age stock we hold as we move forward.

When it comes to the adjusted EBIT margin, this is really where the year was a tale of two halves, with a loss in the first half of the year when headwinds from inflation and increased return rates were at their strongest. However, in the second half we saw EBIT more than doubled versus the same period last year as the benefits of profitability measures we started taking effect. We started in January took effect.

Adjusted PBT also includes the impact of the refinancing we announced back in May. CapEx came in line with guidance at £178 million and we closed the year with net debt of £319.5 million after a free cash outflow of £213 million. This was financed by a combination of the drawdown under our new financing facility and the equity placing announced back in May.

The proper actions we've taken including remedial action to improve profitability among loss-making customer segments are reflected in our KPIs. Average basket value up 5% was supported by pricing increases, whilst active customers were back 9% reflecting our focus on profitability over growth including the action taken to tackle unprofitable customer behaviors.

Consistent with this approach order profitability improved substantially up over 30% year-on-year, while order frequency visit and conversion all declined as customers made more considered purchases in what was a tougher macro environment.

Briefly looking at our segmental performance. You can see similar themes across the board with variation in performance stemming from both varying market conditions and the extent of the profitability actions we took in the different regions. The UK market was particularly challenging, while Europe was more buoyant.

Top line in the US and Rest of World segment was more affected by the specific actions we took to improve profitability. As you can see profit per order improved in all segments as a result.

On gross margin, you can see we had a substantial benefit from freight in the second half of the year including renegotiated terms on our long-term contract with Maersk. Partially offsetting that was trade which was a drag on gross margin due to increased discounting through the summer as we prioritized reducing stock levels by the year end. We also started to see improvements in our intake margin particularly on own brand product as we made changes to our sourcing model.

Turning now to OpEx. Due to deleverage on our fixed cost base as volumes fell our operating costs increased by 250 bps as a percentage of sales for the year as a whole more than offsetting the improvements we saw at the gross margin level. However, where more of our costs are variable you can see full year improvements, for instance, on distribution and marketing costs.

As previously outlined the inflation and returns headwinds we face in the business disproportionately impacted the first half of the year, while the benefits from our cost-saving initiatives came through in the second half. This is particularly evident looking at warehouse costs in the charts on the right. The main driver has been that we closed ancillary storage and improved our efficiency by using our more manual Lichfield facility less. We moved unique SKUs to our Barnsley fulfillment center and stop shipping UK split orders.

Other costs were £36 million lower in H2 compared to H1 as we manage head count and overhead spend tightly. The impact of falling volumes on our EBIT margin can perhaps be seen on this slide, where you can see that the driving change agenda and freight benefits more than offset the inflation, annualization and returns headwinds.

As on the previous slide, headwinds were two-thirds weighted towards the first half while self-help benefits were two-thirds second half driving the shape of our EBIT during the year. And on this slide, just as a reminder of what our adjusting items in the period were. The key items are the exceptional stock write-off announced alongside our FY 2022 results. Property impairments relating to our head office and logistics infrastructure and then our usual amortization of the Topshop brands. The majority of these were booked in H1 with a cash flow impact limited to £54 million, of which £31 million related to refinancing fees.

When bridging from adjusted EBITDA to our adjusted free cash outflow of £213 million for the period, the largest drivers are; one CapEx, which came in line with our guidance. Secondly, an inflow from reducing inventory during the period, which totaled £180 million excluding the impact of the £130 million non-cash write-off. And thirdly, offset by an outflow caused by a decrease in trade and other payables, which probably requires a bit more explanation.

The chart on the right-hand side of the slide compares our trade and other payables closing balance, which has reduced by £330 million year-on-year. Average payable days have declined by 11% between our P4 of FY 2022 and our P4 of FY 2023, which drives part of this cash movement. But the largest driver of this change was volume. As intake has been cut substantially and operating costs in the period also declined due to the cost saving measures we have taken. And finally it's worth noting that the free cash outflow was £127 million better year-on-year and all that improvement came in the second half.

And to explain our movement in net debt for the year from £153 million at FY 2022 to £320 million in FY 2023. The free cash outflow broken down on the previous slide was funded by a drawdown of the new £200 million term loan and a portion of the proceeds from the equity raise in May this year.

With the undrawn £75 million new RCF, we finished the year with a healthy liquidity position of £428 million.

So on to our expectations for FY 2024 and beyond. José and the team will talk in detail about our mid-term priorities and how we plan to get there shortly. But as a result of these changes we made last year and those that we've got planned in the coming months, we expect to return to revenue growth in FY 2025 and for that to be double digit.

Accordingly we will see EBITDA margin around pre-COVID levels of circa 6%. And thereafter, growth will continue to be profitable with gross margin improving steadily back towards 50%, driving expansion in our EBITDA margin. And our model will also be cash generative, delivering EBITDA sustainably ahead of CapEx, interest, tax and leases. The medium-term inventory holding of around 100 days will be complemented with CapEx in the range of 3% to 4% of sales.

For FY 2024 this means we will accelerate our transition to all our stock being under the new operating model to get to our mid-term run rate as quickly as possible. We've seen really positive signs on how our stock brought in, in recent months under our new operating model has performed and this has increased confidence in our direction of travel. However, at the moment, it's not a large enough proportion of the mix to meaningfully impact our group level results.

The £300 million of driving change agenda benefits delivered in FY 2023 or annualize to around £385 million in FY 2024. This will broadly offset the impact of volume deleverage and fixed cost inflation with sales expected to decline between 5% and 15%. On top of this, we are making two incremental investments to put us on the path to sustainable long-term growth and cash flow generation.

Firstly, we will increase our use of markdown to clear through the oldest stock in a way that balances speed with the potential to generate cash, that will mean sacrificing short-term gross margin to reach 90% of our stock have been brought in under the new model by the end of the year. Secondly, we will invest an additional £30 million into the ASOS brand, initially in the UK to make ASOS famous for fashion again and support the brilliant work we're doing on product. This will increase our operating ratio by circa 1%.

As a result of these investments, we expect FY 2024 to be EBITDA positive to generate cash and reduce our net debt with stock of around £600 million that is significantly higher quality by the end of the year. We expect the first half of the year to reflect similar top line trends to P4 FY 2023 as the market continues to be challenging and the drag on sales from profitability actions introduced from January onwards still persists. We then expect to return to top line growth in the final quarter of the year.

On the basis of our current capacity requirements and lower stockholding in longer term under our new operating model, we've also taken the decision to cease operations at our Lichfield fulfillment center, which we will seize that following completion of the automation program scheduled for the end of FY 2024. That means the remaining £45 million of automation spend will be treated as an adjusting cost item in FY 2024. And CapEx, excluding that, in FY 2024 will be around £130 million. ASOS has ended FY 2023 as smaller but inherently more profitable and resilient business.

I'm now going to hand back to José to explain how we're going to capitalize on our best assets and return the business to sustainable cash generative growth in FY 2025 and beyond.

José Antonio Ramos Calamonte

Thank you, Sean. Thank you so much. So as you have seen fiscal year 2023 has been a challenging year but we're also quite happy with what we have achieved. During the course of the year, we have managed to increase our profitability to reduce our costs to manage our stock to go back to profit and cash generative. And we have also on top of it, as I said before, set up the foundations to a new model, to a big change in the model. And that is what we want to share with you today. We want to share with you today. We want to share with you how is this evolution.

The thing, as Sean has mentioned is that we feel comfortable that right now is the moment to accelerate in this transition. And that's why we are coming with this investment in cleansing this old stock and we will explain now why and how and also on doubling down on our marketing capabilities.

But let me if you want go back to this idea of the transformation. We want to go back to the core of what ASOS was. And if you want that's probably the best way to explain why is that we're doing what we want to do, what is it that we are trying to accelerate? So we think ASOS is different. Obviously you will hear that from everyone and we are not different in that sense. We think ASOS is different. We think our model has some capabilities that are unique. And what we want to do with this project is to double down on these capabilities.

The first capability is we have the capacity to bring the best and most relevant product. And here we're talking about our capacity to bring the best and most relevant product from our brands and also from our brand partners. And we want to talk to you today a little bit on how is it that we want to do it? How is it want to make sure, that the product we put in front of the consumers is the product that they are looking for.

Relevant means, relevant to the weather, relevant means, relevant to the trends, relevant means, what they are looking for. And it's all the capabilities that we have put in place and we're going to develop even more to make sure that what they see is what they are looking for.

The second element is, how do we blend our brands with these third-party brands in a seamless way. This capacity to blend it into specific outfits is what turns ASOS into a destination for style. This is quite unique. Not many companies can do it out there, especially in the mass market. And this is something that sets us apart and has an impact in the behavior of our consumers. And what we are saying here is that, we want to double down on this capability and take it further.

The third one is, how we want to change our customer journeys, how we want to make our customer journeys much more around excitement about inspiration. And that's why we are modifying our marketing model. And on top of it, we are making an additional investment and we will share with you exactly what the kind of things we're going to do.

The fourth thing is that, we do that with what we call competitive convenience. We want to make sure that the journeys of our consumers are frictionless. We want to make sure that they are as convenient as they can be anywhere else. And this is a relevant part of the digital sales process. We are convinced about that and we will explain to you the way we want to deploy that or the way we're deploying it. And all this is underpinned by a disciplined capital allocation. This is a way to continuously look for resources, to continually look for liberate resources, to reinvest these resources in the top four capabilities creating a reinforcing loop.

When we're talking about disciplined capital allocation, we're talking about the excellence of our operations to have an efficient, international model, to have a data-driven technology model and to have a growth-minded culture and leadership. We will talk a little bit about that later.

Implementing this model will have an impact on our economic model. And it will change the basic of our economic model. When we're talking about doing these things that I mentioned before means that we're moving to a model that is built on speed and light stock levels. Being able to react faster to the trends, being able to react faster to the weather, being able to react faster to whatever that is coming and is happening out there is approaching us to the moment that our consumers are making the decisions.

Hence, we can increase our heat ratio and reduce our promotions and therefore increase our gross margin. Being able to sell with less stock obviously is releasing resources and is enabling us to a more efficient capital allocation. That may sound a little bit theoretical is exactly what we are seeing with our new lines. With the new collection that we started to launch during the spring/summer and especially during the summer campaigns, so the last part of the spring summer, what we see is that newness is performing significantly better. Sell-through has gone up 10 to 15 points. We see that the forefront of this newness which is our test and react lines are turning three times faster than the comparable styles. And we are seeing that through the reduction of promotions, we are increasing our margins. For instance, in the case of womenswear, 250 basis points. So it is something that makes some theoretical what we're seeing it is working.

The second element, as I mentioned before is how do we blend the best of our brands with the best of our brand partners into specific outfits. This is a capability that is not newness, but is differentiating for ASOS. And it is behind our current basket size. Our consumers on average buy more than three units every time they buy. This is clearly ahead of most of our competitors and it's pretty much driven by our capability to create this unique outfit and make us being this different destination for style. What this model will do is we'll increase the basket sizes even further and will help us to continue selling full price.

Putting these two elements together with the efforts we are going to reinvent our marketing and the investments in our marketing, will help us to create customer newness that are more around inspiration and excitement, that will help us tackle, the churn, reduce the churn of our consumers because, we know that transactional relationship with consumers generate more churn, while inspirational relationship with consumers reduce the churn and that will help us also reduce our customer acquisition costs. And of course, our relentless focus on finding waste and reinvesting that waste will help us to keep our competitive cost to serve and a competitive cost of returns.

Let me go a little bit deeper into these different elements. And let me start by bringing the best and most relevant product. When we say here, as I said before, this is applying to our own brands, but it's also plan to our brand partners. And in fashion product is the area we breathe this is our business to bring relevant product.

And in that sense so it's a little bit of a -- if I can use that expression on special animal. We are a brand and we are a retailer. A lot of our competitors are either one or the other. We are both. 40% of our sales is generated by our own brands, 60% of our sales is generated through the partner brands that we carry in our assortment.

This is the only place where consumers can buy brands like ASOS Design or Topshop or COLLUSION or Reclaimed Vintage and like that all the way up to the 13 brands we offer them. And this is not irrelevant. 71% of our consumers at a certain point in time have bought one of these brands. And 55% of the baskets of new consumers, include at least one product of our own brands. By the way this ratio is higher outside of the U.K. than in the U.K.

Obviously, we are perceived as a fashion creator. We are perceived as a fashion house, and that gives us a big amount of credibility in the market.

As I said, we are not only a fashion creator or a brand. We're also a retailer. We offer our consumers the best curation and this word is very important that curation of the most exciting third-party brands for fashion-loving 20-somethings.

The magic happens when we put them together, because by putting these two elements together we create a higher level of credibility in front of the eyes of consumers and a higher level of credibility in front of the eyes of brands that can see us as a channel for growth, and as a channel to reach different consumers or different locations. So I will tell you a little bit more about that how we want to take that further.

Our ambition is to take these capabilities one step beyond. And obviously, this ambition builds on the fact that we have our own brands and we have this third-party brands. But we have to recognize and we have done so during the course of the last months and in the last time we have come to you that our model was showing some limitations too much stock. We've been talking about that. Too much stock that was driving too much discounts so not very exciting for the consumers. We were very slow to market and we had a formula with our brand partners that was very rigid. We could only offer them a wholesale model -- wholesale kind of relationship.

What we're going to do now is to change that. First, by changing our stock management model. The ambition is that when consumers come to ASOS, they are exposed to the relevant assortment. It is of not a lot of use to make a lot of effort in bringing new assortment, if this new assortment is lost in a sea of a lot of older things. So what we want is that when our consumers come, they really can see properly this new assortment and is receiving the right focus. In order to do that, we have started and we already started in fiscal year 2023 to change our stock management system.

On top of it, as we've been talking about speed, speed, speed, our ambition, our obsession is to accelerate our go-to-market. And that is built on two critical capabilities, a different sourcing model, a more strategic sourcing model and Elena will talk to you about that in a moment, but also a change in our go-to-market process, so that we can get to market much faster with all of our lines and even in two weeks with the forefront of our assortment that is our test and react clients.

And last but not least, I don't want to forget about our brand partners. We want to enrich our relationship with them. And that enrichment comes along the lines of bringing them different possibilities to deal with us. That will make it easier for smaller brands for local heroes to work with ASOS and that will make it also more interesting for us and more efficient for us to work with them.

Let me start talking about the first one. About a better stock management system. Well I think it is no secret that for the last years we have been pulling up on a lot of stock. From fiscal year 2018 to fiscal year 2022, we doubled our stocks. And while there is no question that there were a lot of external factors. Probably the biggest one was COVID and all the changes in product classes that COVID came. So we are selling trials. Now we're not selling trials, we're only selling homewear. Now we're not selling homewear, we're selling these again. And obviously that had an impact. It's also true that there is a big part of it is behind our operations. Operations were slow and inefficient. That's quite clear.

So what we want to do here is to change that. And in order to change it, it's clear to us that we really needed a new model. So let me share with you a little bit of the main idea behind that model.

The first idea as I told you before is speed, speed, speed. We want to make sure that we are fast reacting that we can bring to the consumers, the most exciting assortment as fast as possible. But this assortment has to be visible. So in order to make it visible, we have changed more elements in our stock management program.

The first one is how we do demand planning. We have put in place a new team across divisional team. Our global merchandising team, that takes care of how do, we manage our purchase. And we have put in place a much more rigorous and flexible approach into value so that we can adapt better to the changes in the market.

The second big change is we have given a very clear ownership to the product teams on their lines. And it's an ownership that is based on their sell-through. We want them to sell what they buy. We want them to return on the investment they are making on buying merchandise.

The third big change is how do we are managing the in-season pricing and the in-season stock management -- sorry, managing the stock management. We are much more active right now. We're using pricing in a much more active way to make sure that we tackle the problems as soon as we detect them.

We don't want to wait until the end of the season. At the moment we see something that is not working, and we are using our data-based technology. We are tackling it immediately.

The last but not least, is that we have a really decided approach into the end of the season. So we want to make sure that at the end of the season, we have cleansed as much as possible and as necessary so that we get to a healthy stock profile.

Our ambition is that at the end of -- sorry not the end of the season. Our ambition is that nine months after the beginning of a season which is more or less after mid-season sales we have sold 90% to 95% of the pieces we have bought for that season. That is our internal KPI to get there.

In order to do that, we are aware that we had to intervene and what we have put in place is three clear levers and I pretty much described them before. The first one is that we needed to tackle the old stock.

And obviously we've done that. The idea was to get all the irrelevant stock out of the system as fast as possible. We started that in fiscal year 2023 and I will give you more colours around that.

But that was not enough in itself. That was tackling the old problem but we have to make sure that we have put in place a system that ensures that that never happens again. And this is why we put in place as I mentioned before, a flexible and rigorous intake system and very active in-season cleansing.

So we make sure that at the end of the season, we reached this target of 90%. At the end next -- sorry at the end of the nine months sorry -- we reached this 90% to 95% sell-through.

Obviously during fiscal year 2022 that didn't happen, because we only came here to talk to you in October fiscal year 2023 -- sorry in October 2022, but fiscal year 2023 sorry. So we started that journey at the beginning of fiscal year 2023. And we started that journey having a very decisive and unclear target to cleanse the old stock.

In the course of last year, so we started the year as I mentioned before with £1.1 billion. During the course of the year we have sold 84% of that stock. So I think we can conclude we have really gone strong on this old stock.

If you are thinking about the stock write-off we did that equals to 13% of that £1.1 billion. Obviously the stock write-off helped, but it's not the only thing we did do in the course of the year. We did many more things.

Obviously it has had an impact on our margins. We have made an effort to do that. But as opposed to what we saw in previous years, this effort has helped us to reduce the stock to reduce the stock days that we had. So it's been an effort for a reason not just to push sales artificially.

During the course of the year we also started with the levers two and three. So we also started managing the in-season. We could not do that for autumn/winter that's very clear, because we only came to you here in October.

And in October our autumn winter was pretty much in our warehouses already. So it was very difficult to change the intake, as you may imagine we started that effort in spring/summer. And we are very happy with the results we have seen.

We have ended the spring/summer. We're pretty much now after the nine months more or less not yet, but close to with a sell-through that is 10 points higher than before we have reduced the leftovers by more than 30%.

When you put it all together clearing the old stock plus controlling -- in this case only spring/summer we have managed to reduce our end of year stockpile, almost 30% and ahead of our expectations. We are very happy with that.

If you put that in connection with the results of the new lines and how the customers are reacting to that we are convinced it is the moment to accelerate in the execution of that. It is the moment to double down on executing this stock management system. And that is why we are coming with this acceleration that is having an impact in our profit in fiscal year 2024.

The ambition is that during the course of fiscal year 2024 we will tackle the remaining 16% that we didn't tackle in fiscal year 2023, plus the leftovers of the bottom winter. And obviously we will continue in a very disciplined manner with autumn/winter first and spring/summer later with this flexible and rigorous intake and this in season cleaning. That will take us to the end of fiscal year 2024 with a completely clean system and with the capacity to show our consumers the full potential of our new model.

A full potential that will show – obviously, we have an impact story in how do we manage the stock and our profitability in season. This new model is focused on selling the new stock. What we want to do is sell the new stock. And that is why we are coming faster. That is why we are getting better sourcing. That is why we are buying better that is why we are bringing better prices and that is why we're investing in marketing, because we are convinced that we can push this new stock. And this is a stock that we're going to sell with very low discounts. We have seen that with our new lines and we continue to see that and that is our ambition.

Obviously, there are always mistakes. There are always things that don't work and what we're going to do -- what we are doing what we started to do in spring/summer 2023 and we continue doing is a very active in system promotion. We do not want to wait until the season is over. We will tackle the problems as soon as we detect it. Obviously, that comes with a bigger level of discount barring is still better than waiting longer, and this is triggered by better data personalized promotions and as I said as clear as we go logic.

Once we get to the end of the season we will go with it, even a more decisive approach with this end of season period. First of all in our site obviously and if necessary we will do it in different sites of off-site as we have been developing these capabilities during the course of fiscal year 2023. We have developed our sample sales activities. We have created connections and activities with some of the off-price retailers out there so that we can do that. The ambition is to pretty much eliminate this edge clearance.

The ambition as I said is to get to a 90% to 95% sell-through by that point in time. So the age clearance would be almost 0 that will ensure that when our consumers come to ASOS they can really be exposed to the new assortment increasing the quality of their relationships increasing the quality of their interactions with us and also the excitement and hence this fashion. I'm going to hand it over now to Elena, who's going to be talking about the other elements of this change in our stock management and I'll be back with you a little bit later again. So Elena.

Elena Martinez

Thank you, . Hi everyone. For those, I haven't met before I'm Elena, Senior Product Director. And I'm going to take you through our sourcing strategy through our speed model and a view on our brand plans. So, starting with sourcing. Fiscal year 2023 we have seen two percentage point improvement in our intake margin, driven by mixing into duty-free countries and by consolidating our supplier list.

This year-on-year, are we're still seeing a significant opportunity in our social media strategy to further improve our intake margin increase our speed to market ensure higher quality products and gain better visibility of sustainability and human rights practices in our supplier base.

First we have implemented a very robust supplier engagement plan, rooted in our fewer bigger better principles to foster strategic relationships. We further consolidate the supplier base through this plan to get even better prices through the increasing scale and to quicker speed to market by streamlining processes.

Second we dump down our winning locations shifting into duty-free advantages. It's important to say we are not changing our short-lived long-lead route mix by this plan. Instead, we are just allocating in a more cost-effective. For example, we have mixed into Bangladesh from China where we can see the duty-free benefit. And finally, we have just launched our first offshore sourcing operation in Turkey to work directly with our suppliers and reduce our clients from the agents in the region.

As a strategic region due to the proximity and capacity, Turkey will allow us to emphasize fashion while creating a fast and cost-effective sourcing hub with the scope to roll out to other locations in the future. So overall, we expect to see a low single-digit percentage point opportunity in our value margins across our entire own brand assortment which we can invest in price in speed or take it to profitability.

Additionally, and as we were mentioning before with José, we expect to see an increase in our full price sell-through, due to our ability to be faster to the market and to bring to our consumers what they want when they want it. And this is really a very critical point in our strategy. Our relentless focus on speed and flexibility for both for our own brands and for third-party brands and I will cover them both in the following slides.

So is speed. Speed is absolutely critical in our business model to have the most relevant product for our consumers. We were mentioning before trend driven and seasonal appropriate. This is why we are really focused on eliminating unnecessary checks and processes, producing our lead times end-to-end from design to the market to give our consumers again and again what they want when they want it. This not only set us apart from our competitors, but also maximize our sales potential to reduce the risks of overstock and markdowns to improve our profitability.

Then on our own brand side, whether it's short lead or long lead, we are improving speed to market by our supplier engagement plan where speed is a really critical KPI for them for our suppliers and for our teams. And this really is our greatest example of experience flexibility and our most powerful tool to stay ahead of the market. And in this initiative, we buy very small quantities to assess their performance. And based on real-time data, we react and not only repeat, and I will come back to this in a second, to increase production for the base items.

By react and not only repeat, I mean that we understand what are those components that makes those styles exceptionally good and we apply that learning to the rest of the assortment. So the entire production cycle takes two weeks, around two weeks, from design to going live in our platform, which is really market-leading. We have achieved this by designing the critical, minimal -- the minimal critical path, sorry, working very closely with our suppliers to ensure we don't compromise the quality nor our ESG standards. And we have seen remarkable results. So far we have launched over 500 options with the stock turning three times faster than business as usual, as José was referring at the beginning of the session.

And this means that we have been able to sell the majority of our products at a full price. As a result, we have reduced our spending in promotions and markdowns around 15 percentage points, leading to a gross margin improvement of 5 percentage points higher than similar categories. This right side of the assortment not only is more profitable, but also has helped us to cut down the waste so aligned with our sustainable ambitions. And we have also seen that these products successfully engage with a higher proportion of younger audiences than usually has bigger basket sizes than average.

So for example, those styles in the slide, we began with them with a very small initial purchasing orders. And after seeing their reaction in two weeks, even sometimes shorter cycles, we've been able to trade up and get the most of those styles in season up to 9,300, for example, on that style on the top. On the contrary, as an average with a style of two months lead time production, which is market average, by the time you get it back in stock, the season is on. So we have set ourselves a target of 10% in our own brand assortment by the end of this year with ambition to reach around 30% in the mid-term. And you may be wondering why we are not aiming for a bigger percentage of this mix. And the reason is related to the width of the assortment and the choice available in ASOS, which is really setting us apart from our competitors.

For example, our top end [indiscernible] collection, extremely successful with we are market leaders. This isn't suitable for the central [ph] and the reality is that nobody wants to find the same dress in the same party. So we have totally different approach for this kind of product.

On non-clothing, for example, it's not suitable for either footwear for instance and it doesn't make economical sense to produce quite a basic product under this initiative where we can get the benefit of higher margins with less risk, because doesn't date that quickly. So we're very excited about this. The potential of this model and the contribution that we are already seeing it is making to have the best assortment.

Then moving into the brand side. We will also sharpen our focus on our brand offer within sportswear, payback dividends and fashion, which accounts for 60% of the total sales mix as we were seeing before.

We have great partners. We have built up great relationships, win-win relationships through the years, but we can do whether and we can do much more to ensure that we have the best product in our side. So our own brands give us authenticity in the fashion industry, a unique and different point of view that amplifies our brand identity and our customer loyalty.

But our customers doesn’t wear one brand, head to toe, nobody does. They love to find other brands. They love other brands and they love to find them in our website. Therefore, our most strategic relationships remains as strong and ever that through our obsession for fashion we will reinvigorate our role as a brand elevator to reach the highly attractive fashion of 20-something consumer.

We will offer also greater flexibility for both for the brands and for ourselves, offering partner fulfills and excess fulfillment services broaden the number and the type of partners we can work with. Always curated and this is very important, only relevant brands and relevant product for our customers and I will come back to this model in a second.

We will also update the way we engage with our brands as a key growth partner to offer all our services and build stronger relationships. Single owners of our top brands or improve data share practices are some of the initiatives we have put in place. And we will also simplify our processes, improving our speed-to-market with new products and new brands and collaborating on the way we plan and the way we buy.

So let me see where we are in our more flexible business model. Again to have the best product and the best brands on site, we must offer greater flexibility for our partners and our assortments. And here is where we have three options, wholesaler, partner fulfills and ASOS fulfillment services.

So wholesale model is the most profitable model, partner fulfills and ASOS fulfillment services enable us to have more width and more depth with less risk. It will also enable us to localize our assortment, tailor the selection to meet the preference of the local customers. We have already made good progress in partner fulfills and we have a 33 brands in six different markets, an example of those are Adidas, Calvin Klein, Jack & Jones, Only, or River Island.

And with some of them we have already reached a hybrid model of 80% wholesale, 20% partner fulfills. This year we will double the number of brands and the number of markets where partners fulfilled is available.

The ASOS fulfillment services is very attractive option for many of our partners given the infrastructure through in our core three markets; UK, Europe and US, particularly important after Brexit. So it's something we have been working in the last year and investing over the last year. So now we have the technology and the team in place to roll out and scale up and we have already signed our first customer, our first partner and ready to roll it ups soon.

So we are not setting any target for these models and we're in a significant shift, we’ll improve our mid-term stock turn, is not something we want to rely on from that perspective. It is all about run and again to offer our partners more solutions, to ensure that we have the most relevant product in our site for our customers.

Now I hand then back to José.

José Antonio Ramos Calamonte

Here again, for the third time and not the last unfortunately. So far we've been talking about product. This is the core of what we do in this company, and in this industry. Now I want to switch to the fashion journey of consumers. And in ASOS, that is something that is very special. How do we perfectly marriage, these third-party brands, these brand partners with our own product into specific outlets.

That is only at ASOS, that is very special and that creates a lot of this credibility that Elena was mentioning before and transates us into a true destination for style. In fashion, context is everything. And there are many different ways to tell a story. With the same skirt, we can target very different consumers and very different locations, just the way we style it. That is very important and that is something that we do differently at ASOS.

This capability, this differentiating capability is built on two pillars. One, is our distinct visual language. We are capable of doing things in a different way. We're capable of looking at the world from bottom to top. And that is something that we have seen has inspired some of our competitors over time and we're really proud of it. And additionally, is how do we bring fashion to live into specific outlets. How do we put it together, in this seamless integration of our own brands and the most exciting brands that exist in the market. This is not new. That has always been with ASOS. And our ambition is to double down on this capability to make it even more differential, during the course of the next months and years.

Our brand partners love it. They love what we do and they see a lot of value. But it's not me saying that. This is some of them saying, that well they love the tone of voice assortment curation, aesthetics and execution adding immense value and authenticity or someone saying that is credible and relevant connection to the fashion-minded female GenZ consumer in Europe. This is not set by someone, who doesn't know anything about brands. This is said by people like PVH or Adidas or the most exciting brands in the market.

Our brands love it our customers love it. We are capable of creating a special connection with customers. And it's with all customers, in all locations. When we do outfits, we have a special approach into outfits. We do outfits that are personalized for specific customer types, and not personalized for specific occasions. And that's what enabled us to take one brand and deploy the brand to very different consumers, in very different locations. That is something quite unique quite differential. And as I said, our brand partners love it.

A good example of that is the current collaboration that we are doing with Puma and with the style called Palermo, which is their newest thing. We have done with them we have co-created a campaign with them with Jack Grealish putting together their Palermo, if you want the more advanced fashion statement and some of our own denim and some of our own jewelry to create a unique outfit. This is a campaign that has gone not only through our own media but Puma and Jack Grealish, who has if I'm not mistaken 10 million followers more or less 50-50 men, women and is putting ASOS into a different stance and actually press into place that nobody else can. You will not see any retailer doing that out there.

Another good example, is when we bring fashion to live in this outfit that I was saying before and this is something that not only our brands love our customers love. And we do it in a way, that as you can see here is different, that creates value for consumers because they can see the same item style in different ways. So obviously, that gives more value to the item. And that is driving something that is also interesting for us. That is the size of our basket.

As I told you before, on average we sell more than three units per basket, which is ahead of the industry average and is ahead of most of our competitors. And it's based, on this capacity to talk to consumers that is differential. We want to double down in this capacity and as an example of that, I'm bringing you here that we are reinventing our buy-the-look capability. This is just an example, of a bigger program, but I think it illustrates well the direction of trouble.

We already have a buy-the-look capability. In my opinion not the best it uses image recognition to offer consumers similar products, but it's a little bit -- it's not properly integrated.

In the relaunch, we are doing now and I think it's happening now, it has already happened if I'm not mistaken in Android and it's happening in iOS in the coming days or this week even, it's a completely different story.

It's going to be fully integrated. So, it's going to be very easy for consumers to buy exactly the look they are seeing. Is going to offer them alternatives in case that there are stock outs in some of the items. And it's also going to be linked with social media. So consumers will be able to connect social media with this [indiscernible] look. That will give the consumers the possibility to see the same style in many different outfits, obviously, creating more value for consumers.

That is only an example as I told you we are investing in pushing this capability of creating outfits of communicating to consumers and making their journeys much more exciting.

With that, I'm going to hand it over to Dan and Vanessa who is going to talk about how do we change the whole journey and I'll be back with you at the end.

Dan Elton

Hi everyone. Great to meet you. I'm Dan Elton. I am the Senior Customer Director here and alongside my partner in crime, Vanessa, we're going to talk to you a little bit about how we are changing the marketing model here at ASOS.

So, José and Elena have taken you though Pillar 1 of our strategy to have the best and most relevant products and Pillar 2 of our strategy to be a destination for style. I'm going to talk to you about Pillar 3, which is a customer journey built around fashion, built around excitement.

To start, I'm just going to talk to you about how we're revolving our communications approach. So, what you can see on the slide here is that over the last five years the proportion of our marketing activity that's been allocated to activities other than performance marketing has declined by 25 percentage points.

So, put another way, we spend 90% of our budget in channels that are very commercially impactful in the short-term, but which make it very hard to tell our brand story and to drive brand affinity and brand affinity is something that you'll hear me coming back to a little bit over this section.

So, we've developed this kind of one dimensional model, if you like, and it's an approach that isn't working for us in the way that we want anymore. And I'll tell you why.

The number of customers that we acquired in 2023 was back at the same level as 2019. That's one indicator. Our churn is increasing, particularly, among newer customers. I guess that's another indicator.

And I think one of the most important indicators for me is that our share of branded search so that is consumers who are searching for search terms that involve ASOS has declined and that's the brand affinity point that I'm talking about and that's something we really need to address.

So, we need to adapt our marketing approach to address these problems, rather relying on those same kind of one-dimensional models, tactics that pay back in the short-term but which don't address those challenges.

I should recognize that during COVID, it was appropriate to have this performance-only model. As you know we had millions of consumers entering the e-commerce market for the first time, forced into the e-commerce market, and it was the marketing team's job really to kind of capture that unfulfilled demand using these performance tactics.

But performance -- times change and performance tactics are greater capturing that in-market demand when it exists, but it's not so good at stimulating demand and growing that brand affinity for the longer term.

So, in short, when the e-commerce market was in growth in demand for ASOS alongside it that model is fine, but we need to change. Eventually all brands hit this performance marketing plateau, the point in which you need to pivot away from just relying on performance marketing to start to grow your brand instead and moving to a more balanced approach.

So, how are we doing that? How are we doing it in a disciplined way? Well, internally we're using a full part model and I'll talk you through that now. So, in the top right what you can see here is the acquired quadrant. And we're predominantly talking there about reigniting interest in the ASOS brand reigniting brand heat and making us famous for fashion again. That's a term that we use a lot internally.

In the bottom half, we're then talking about developing lifetime value and preventing churn and really what we're trying to do there is both develop the lifetime value of our existing customers, but really increase the payback on customers that we do acquire.

And then top left, we're reactivating customers that we've lost. Today, I'm going to talk about the acquired quadrant and then I'm going to talk a little bit about the developed and prevent churn quadrants. So, in that acquired quadrant you can see three main initiatives on the right-hand side of this chart. You can see that we're moving to a full funnel marketing approach that balances our existing strong performance program with consideration building activity.

Secondly, we're building stronger relationships in the fashion ecosystem, particularly with influencers and creators and designers. We'll talk a bit more about that in a moment. And then we're also creating a program of what we call brand heat activations and I will let Vanessa talk a little bit more about that in detail. But that's really activations that spike interest in our brand and really that is about acting more like a fashion brand again, rather than just a performance advertiser.

On those -- bottom two quadrants building lifetime value preventing churn. What are we talking about? Three things really, driving high-value actions. So high-value actions are those actions that are highly correlated with building lifetime value. I'm sure you can imagine what those are, but we'll talk about them in a moment. We're talking about more personalization in the customer journey. And then we're talking about loyalty particularly Premier here.

So that's the model, that's the framework. We'll dive now a little bit into each of those in a bit more detail, starting with the acquired quadrant. And you can see those three initiatives that I talked which are on the right-hand side of the last chart laid out here. Full funnel marketing for those of you kind of not familiar with that term, I'm sure most of you are but it refers to activity that meets objectives at every stage of the funnel rather than just at the bottom of the funnel.

So building awareness of the brand, building consideration to purchase with that brand then driving purchase then driving repeat purchase. In recent years we've operated very much at the bottom of that funnel prioritizing activity that drives as I said those short-term returns, but doesn't necessarily stimulate demand and build brand affinity awareness and actually in the UK really consideration. We have very high awareness already but it's a consideration where we need to work.

So starting today there is one unexpected benefit of having the delay. Starting today we've got a new campaign launching and Vanessa is going to talk to you about that in a moment. Hopefully, you saw some of the creative if you were waiting in reception earlier.

And unlike the other campaigns that we've run over the last few years that have relied on a very narrow set of channels so paid to those kind of -- those shopping ads that follow you around social media and the web. This is a campaign that is built based on media that meets all of those objectives at every stage of the funnel that I talked about earlier. So we'll be using experiential marketing to have customers reappraise the brand and drive a bit of excitement. We'll be using out-of-home advertising to take our brand into the real world and not just exist in kind of on screens and in the digital environment.

And then as you would expect, we'll be also including a substantial investment in influencers and social advertising to engage customers in -- let's be honest the environments where they live most -- the places where it's most natural to them. But rather than just relying on those bottom-of-the-funnel activations like the shopping ads we'll be trying to do that in a more inspirational way.

I think the key thing that I want to say is across all of these channels the message is the same and José talked about this a little moment ago. What we're trying to do is build more deep relationships, more emotional relationships with customers rather than relying on these very functional relationships that can be quite transactional. This is about building a deeper emotion with customers, a deeper brand affinity.

And it will focus on elements of the brand that José and Elena have already talked about. It will talk about – it will focus on our ability to create outfits and help customers inspire their style. It will focus on allowing customers to express themselves and build confidence. What we're trying to do is get back to inspiring fashion lovers at more like a fashion brand and really build on our brand heritage if you like.

We offer something unique and this is really about building our brand story. So that is the first one on the left-hand side of that chart. In the middle there what you can see is then what we're calling kind of building these stronger relationships with the fashion ecosystem. Particularly, what we are trying to do here what Vanessa and I are trying to do is build mid-tier and micro influencer relationships.

A lot of our competitors focus on hit and miss megastar partnerships. But we're focused on building relationships over the long-term with a much larger group of micro and mid-tier influencers, creators and designers. The reason we're looking to do that is because those creators tend to have a much more engaged and loyal following. And if they advocate on our behalf, this will help us have a much more authentic conversation with our customers. There's always going to be a role for brand to consumer advertising traditional advertising if you want. But actually having these authentic voices advocate on our behalf is a much better way to build brand trust in the long-term.

Finally for the acquired Quadrant, we will be running a program of activity to ignite interest and to ignite talkability in ASOS. And we're going to start with a pop-up that we'll be running later this month and Vanessa will talk a bit more about that in detail. I mean in short what we're trying to do there with that part of the program is create spaces and places and experiences where our customers can be excited by ASOS again. It's hard to be excited by a paid search ad where they can create their own content and where they can be inspired by our brand. So that's acquire.

Moving on then to the bottom of that circle I talked about before which is about developing lifetime value and preventing churn. We'll start with high-value actions. So again on the left-hand side here. So again what I mean by high-value actions is those actions that are highly correlated with building lifetime value.

What I've observed since I've been here what we observe is that tenure-based average customer value so average customer value being how much spends with us in a given year or how much profit they generate depending on which way we look at it. Tenure-based average customer value grows very strongly when we're able to retain a customer. And that is often very correlated with exactly what you'd expect app download, frequent app engagement, engagement with other parts of our app like content, multi-category purchases is a big one and then subscription to Premier and resubscription to Premier is another one.

So that happens very well naturally and we build average customer value naturally over time. But we haven't really focused a deliberate program on trying to incentivize these high-value actions. So that's going to change this year. We're going to build life cycle customer strategy to embed that in our customer journey. In the short-term, we're particularly, focused on app downloads and app engagement and some of the features that José just talked about in that second pillar of our overall strategy will help with that. And we're trying to build even more reasons into our Premier program to do that too. I'll talk about that in a second.

Secondly, we've recently developed a number of new capabilities, a number of new features in our customer journey to increase personalization. And we're doing that in two ways. We're doing that both on the cost side to improve profitability but we're also doing it on the growth side. On the cost side, we've got features like the ability to personalize the checkout. So we have the ability, for example, to restrict buy now pay later for our least profitable customers which has improved profit growth there. We've also restricted some promotional advertising for our least profitable customers. And then what we've been able to do as well is to exclude our least profitable customers, our very least profitable customers from paid media. So we're not spending money to acquire and reacquire those customers.

I think more excitingly on the growth side, we started using AI-driven one-to-one personalization across the journey, particularly in our CRM program. I think as a fashion brand what we often assume is that kind of editorial decisions are better. But actually, what our customers want is one-to-one decisions based on their data. We've had some very strong results in our CRM program over a short period of time and we'll be building on that over the course of this year.

Last and by no means least, we have -- we absolutely recognize what an outstanding asset we have in Premier. And I think Premier has for a long time been very much focused on convenience and getting fashion quickly and when you want it. And that will always be one of its core strengths. What we want to do in financial year 2024 is do what we're doing elsewhere across the journey, elsewhere across our marketing, which is making it more about fashion.

So we're going to refresh Premier this year. We'll be doing things like making it a gateway to access exclusive events. So starting with the pop-up it will be a gateway to access a pop up in London and elsewhere. We also want to use it as a gateway to access exclusive ranges, design collaborations, products, et cetera, et cetera, drops of products. And then we'll be using it to reward our customers with fashion-based perks such as face and body samples later in the year as well.

So that's a bit of a summary across those three segments of that circle I talked about. It's a bit of a summary of the changes that we're making, which obviously begs the question, how are we measuring this and how do we know we're winning. So, as I showed on that first slide we've become too reliant on performance media that is very seductive in the short term it visibly pays back very quickly. And one of the reasons that we haven't invested in a full funnel marketing approach previously is because it does have a different payback profile and the effect can be felt over a longer period of time.

Marketing aimed at building awareness building consideration is critical to a robust and healthy brand but you do have to recognize that it doesn't pay back in the same way that a promotion does, in the same way that a paid search ad does. So we'll be using a measurement approach that reflects that in the short-term because of that lagging effect we will be using leading indicators. So really what we're talking about here is a couple of very specific measures.

The first thing that Vanessa and I really want to do is to focus on share of voice and earned media value. So that is a very good indication that we are backing the conversation with customers. One of the things that I've heard about from customers since I've been here is that they don't hear enough from us actually. So we want to use that as an indicator that they are hearing from us again. And then the other metric is brand search and I referenced this before. And again, that is a good leading indicator that customers are thinking about our brand.

Over time in the medium-term, what we'll start to do then is to focus on business outcomes. So specifically we want to see a greater number of direct on organic visits, which will indicate a greater number of customers with brand affinity for ASOS. We want them to come to the ASOS brand without necessarily having to be stimulated to do so without -- by a promotion or by seeing an ad. And so what we're trying to do is to build that natural consideration. In the long-term then we'll be focused on brand health but that is an extremely lagging effect and higher frequency and higher overall return from our marketing program.

So I've talked a little bit today about the framework that we're using to change our marketing approach. I guess more excitingly is what we're doing today. And before I hand over to Vanessa, I just want to talk about the launch of this campaign Asos Way, which is the first campaign that we're running with this full funnel approach. The key message here is one of self-expression and self-confidence. We're focusing on styling and individual styling as a driver of self-confidence. And we think that is a unique territory for us building on style inspiration and what José was talking about a moment ago. The campaign is very much multichannel, using some of the channels I talked about earlier. But as you would expect it is socially led. That is where our consumers are – and as I mentioned before, we really want to get back into conversation. And so we're serving an enormous number of impressions, nearly 570 million impressions over the life of the campaign to really just build that share of voice. So that's the boring theoretical bit out of the way. I'll hand over to Vanessa. She's going to talk about a much more exciting creative work.

Vanessa Spence

So, hi, everybody. I'm Vanessa Spence, Senior Creative Director and I'll be taking you through the creative for the brand campaign. So José has spoken a lot about the importance of style and styling. And with this campaign we will amplify ASOS as a destination for style.

So as Dan said, very much focusing on individual style through the ASOS lens. So we're going to be asking our customers wherever they are, whatever they're doing to ASOS your way. So the campaign launched today really exciting and let's play a video.

[Video Presentation]

So you'll definitely have that music in your head by the end of this. And so that's the second piece. There are multiple cut downs that show up across all of our relevant social channels. And as you can see from the video, we feature a diverse mix of influencers, talent, models that just really reflect our 20-something customers.

So then moving on to steel. So to the cost that influences with large followings. So in the center there you've got Cindy Wolfe and she has 1.8 million followers. She is a true instagram girl. So it's about happening to have authentic style and her audience as well. And then she sits alongside ESA and SKY [ph] each with completely different looks. ESA is more kind of sporty grunge girl and Sky is our Gen now customer. So from these images you can just see the width of our product offer.

And then on to menswear, we have Josh Ryan in the center. He has 3.7 million followers. So again, it's all about being really authentic to his personality. So he's our insta-alpha guy. So very much that fashion majority. He sits alongside Harry and Kim, who again have completely different looks.

So in these images, we showcased a number of brands. So we've got Kaha ASOS Design Adidas, which features the must-have sneaker of the season, the Samba, Vans, Nike and Collusion. So in just three images we're able to capture the width of our brands and our authentic styling and we know now 20-something dresses head to toe in just one brand.

So then moving on to out-of-home. We've got out-of-home part of the campaign and that's through the month of November. And we'll have billboards, fly posters and that's all about reinforcing the ASOS Your Way Messaging.

And then because it is a social first campaign, we have a content franchise called ASOS MyWave [ph]. So we're going to be cloud sourcing creators via TikTok with a guaranteed 40 million impressions. So we'll get them to use an ASOS TikTok filter and then we'll ask them to create content. So we'll ask them to stop editing an ASOS MyWave. So if you imagine your typical Gen Z content creator they could be doing something as simple as like ordering that afternoon, Matt Latte. And then suddenly tell three to one, they'll strike oppose, they'll do advance just anything that shows their individual style in ASOS. And so here are some examples of our main part doing this on set. So first of all we've got Harry.

[Video Presentation]

And then, Cindy

[Video Presentation]

And Josh

[Video Presentation]

So this content is designed for TikTok, it's native to TikTok. It has brand cues and music sounds in the background. It's all about them creating content and being inspired by ASOS.

So then following on from this, we have 40 supporting talent. So here the focus is very much on authentic engagement as Dan spoke to. They'll help us have these authentic conversations with our customers and create a range of content linked to the campaign, but also the pop-up.

So Dan and I have both mentioned here, we are doing an ASOS pop up. It's a physical moment that we know will surprise and delight our 20-something customers. It's in London for five days in November. One of those days will be a private event for press and influencers. Now, it will be a shoppable space, but the real focus is on it being truly experiential. So, it's all designed to create capability, increased share of voice and just general hype around ASOS.

Now here's a brief overview of the event. Now, we don't want to reveal too much at this stage, but the location is in London. We will showcase our multi-brand edit so have AsosDesign, Topshop, Topman, as well as breaching a selection of our third-party brands. And then we'll partner with some of the biggest space in body brands. So it's all about it being really immersive like social moments throughout the space. It's designed for our customers to create their own content and more importantly share it.

So finally, there will be a full schedule of events for the pop up. Now again, I don't want to say too much at this stage, but just to say watch this space. So this is all incredibly exciting. It's all focused on ASO sure way of messaging. And just given our customer lots of ways to engage with us as a brand.

So thank you and I'll pass over to Michelle.

Michelle Wilson

Thanks, Vanessa. So our fourth pillar is competitive convenience. Unfortunately, no videos or music in this section. Convenience is still a key reason to shop online and we don't overlook its role in our future growth, but we don't view convenience as our key differentiator. In the past, we've been guilty on overrelying on convenience, but it doesn't drive brand engagement. First and foremost, we must focus on having the most relevant product. We must focus on being a destination for style and for giving our target customers an exciting and an integrational shopping experience. So we're redefining ourselves as a fast follower matching local competition on delivery returns and payments while reducing cost to serve. And we'll constantly reassess to make sure that we're reinvesting into the right areas that matter most for our customers.

With our delivery proposition, we know sometimes the fashion you need fast delivery maybe you need the product for an event. So we offer fast delivery solutions. We know that sometimes you need to try fashion on to make sure it looks right. So we offer free returns in our core markets. And we offer a seamless checkout experience with locally relevant payment options.

As part of our focus on profitability over the last year, we have made changes to our proposition. Yet we do continue to offer next day delivery in our core markets. So we offer free delivery within two days to 95% of our global customer base and free -- we offer next-day delivery to 95% of our customer base and we offer free delivery with a minimum order value. And that minimum order value is tailored in each market to make sure we're balancing profitability and growth.

We go beyond many of our peers by offering free returns in core geographies. We think that's essential to the fashion experience. But in some geographies, we've recently introduced paid returns after 14 days. So that helps us align our interest with the interest of our customers. It encourages customers to return product faster and increase the likelihood of the product being resold at full price. And the early signs of that are promising. We are seeing faster returns without any impact on conversion.

We're able to offer that proposition in our core markets, because of our global infrastructure. So we have fulfillment centers in each of our core markets in the UK, in Barnsley, in Europe, in Berlin and in the US, in Atlanta. And we have returns processing centers to maximize the efficiency of those operations. So returns is typically a very manual process which needs a lot of space and no automation whereas our distribution centers are highly automated.

In Poland, with our returns -- with our returns process center we have a particular advantage. So a much lower labor cost in Poland than on our Berlin distribution center. Under the new commercial model, we will operate with less stock going forward. So we've already reduced stock levels by 30%. You heard, Sean talk about that earlier. And we'll further reduce stock by about 20% in fiscal 2024. And we think with greater speed and the fact that we'll be clearing stock in season we just won't need as much capacity on an ongoing basis. With that in mind since the year-end we've reviewed our capacity requirements and we started a process to mothball our second UK fulfillment center in Litchfield.

In late fiscal 2024, following the conditions autonomous market, that in late fiscal 2024 following the completion of automation work. The decision to open and automate Litchfield was taken back in 2019 without the ability to take to break the contract mothballing the site means that we have the flexibility to reopen that site if we wish to or to sell it.

And the annual cost saving for that will be GBP 20 million. Our fifth pillar is disciplined capital allocation. So as José talked about earlier our unique proposition has a flywheel effect on our financials. It supports higher basket value lower returns rates reduced churn and faster stock turn. It ultimately improves our profitability and cash generation, while also providing substance to drive our growth.

Firstly, it's underpinned by operational excellence, so relentlessly removing waste to reinvest back into opportunity. And this is about prioritization. So not trying to do everything, but knowing our strengths, and choosing where we can be fast movers and where we should be fast followers. And hopefully, we explained where we stand on that today.

Returns is a great example of where we can cut waste to reinvest commercially. Returns are a key part of fashion retail consumers do want to try the product on. But there are bad returns. So where the sizing information isn't great or where the fit and quality isn't what the customer expected. While we believe free returns is an important investment it's these bad returns that we need to eliminate to allow investment into more commercial areas.

Secondly, we've adapted our international model to deliver positive variable contribution in every region over FY 2023 and we see long-term profitable growth potential in all of our core markets. We tailor our approach depending on whether we view the market as core which means it's large and highly profitable or has the potential to be or whether it's adjacent meaning it can contribute meaningfully to group profit o noncore which means it's either small low profit or both with limited potential. We'll reinvest resources more significantly into core markets and core markets for us for the U.K.

Germany France and the US with dedicated marketing and localized assortment best-in-class convenience which is supported by the local infrastructure which we just talked about. Outside of our core markets we'll typically use central marketing and assortment will leverage adjacent infrastructure and we'll consider the wholesale of our own brand to build awareness and to supplement our scale. And we'll constantly reassess the classification of our markets and adapt our approach where necessary to make sure we're maximizing the return on our investment over the midterm.

Thirdly, from a tech perspective, we continue to invest but we're being more disciplined in the way that we spend. So, we're making sure we're investing, where it matters for our customers or where it can make a real difference to the way that we offer it. Elena, has already talked about the investment we've made into the technology need to scale up partner fulfills and AFS.

And that's key to improving our assortment 8 months to our stock management. And we'll continue to develop data science and machine learning capabilities focused on improving the customer experience and collaborating from developing customer facing use cases for generous about it.

Dan has already talked about the benefits there with customer engagement. Little bit this year we started to explore how Generative AI can support the business and we've early access to Microsoft AI and copilot capabilities. We're also collaborating with Microsoft on developing customer-facing use cases for generative AI. And then finally on leadership and culture we've refreshed our leadership team both at the board level and the management level to bring the energy and expertise that we need to drive the transformation at ASOS both operationally and culturally.

And I'll hand over to José to wrap-up.

José Antonio Ramos Calamonte

[indiscernible] I'll be very fast I promise. So basically, what we're saying is that is our future is about being more ASOS than ever. Is investing in these capabilities that make us different. It's investing in having the best and most relevant products accelerating our stock management going faster to market making more flexible relationship with our brand partners.

It's been more of a destination for Style than ever doubling down on our capabilities that are differentiating, but we can take them much further, is reinventing our customer journey with the new ideas and the new investment is keep on making sure that we are competitive in terms of frictionless and convenience to customer journeys and it's being relentless in this capital allocation to make sure we can liberate resources and continuously reinvest in this reinforcing loop.

As I said before that will change our economic model, that will take us to a model where it's much more based on full price is much more based on lower asset need lower stock needs -- and that is reflected on our mid-term guidance. As Sean shared with you, we're talking about going back to growth by the end of fiscal year 2024 and certainly in fiscal year 2025 with the gross margin to take it towards 50% being more profitable with an EBITDA margin that it will be above our pre-COVID levels, cash generative with an EBITDA that will be above our CapEx plus interest plus tax plus leases. With less stock running faster than 100 days, and with a disciplined investment in CapEx of 3% to 4% of sales.

I know you guys love numbers, here we love fashion. So I thought it was a nice way to finish giving you a little bit of a picture of fashion not numbers only, about where we want to go. And with that I'm going to rush into Q&A, because I'm sure you guys will want to ask questions that we have taken a lot of the time. So thank you very much for your time this morning unless and let's get to Q&A. Michel is going to be pretty much moderating, that's the word. Thank you.

Question-and-Answer Session

A - Michelle Wilson

Okay. Great. If I can ask -- if you ask all your questions at once, but if you can give your name and where you're from before you start. okay?

John Stevenson

John Stevenson from Peel Hunt. A couple of questions some from the present, some for the future, I guess. So in terms of the where we are now, what do average debt levels look like this year? And the sort of scale of the interest burden. I appreciate there's a lot of moving parts and it depends on the clearance, but would help to sort of get an indication of how quickly you think that can come down assuming, let's ,say to the 600 million target of stock over the year.

Second question on full price sell-through. I don't know if you can comment what you expect full price sell-through to look like in say, full year 2025 versus what it was like in the business pre-COVID. How much of a change are we -- what impact is that going to make on the business?

And third question just around, I mean someone is going to ask, so it might will be me. Topshop is the brand strategic for ASOS and what your views are on the suggestion that you're going to potentially sell the brand?

Elena Martinez

Okay. I'll take the Topshop question. José maybe take full price sell-through and then Sean can come on the deposition. In terms of Topshop, obviously, I'm anticipating the question during the weekend news, but we don't comment on rumors or speculation in terms of whether we're looking to dispose that Topshop has been a great performer for us this year. It's performed actually ahead of the rest of our brands. It's something we're kind of very proud of the way that Topshop has performed. And the same improvements that we've been making to Topshop over the last 12 months will now come on to make to Miss Selfridge as well. So we prioritized Topshop first and now we'll do the same with Miss Selfridge. So, no comment as I'm sure you expect. It is part of our own brand offering. So, part of us offering our most relevant proposition.

José Antonio Ramos Calamonte

On full price sell-through, well, we have not commented. You're totally right. I was commenting on total sell-through of 90% to 95%. Our vision is to get to -- when I talk full price that would include promotions, promotions is part of our formula, and we're saying we're going to reduce promotions, but not totally eliminated promotions. So we are aiming to get north of 56%, but it's difficult to give you a specific number because promotions would be in there.

John Stevenson

[indiscernible]

José Antonio Ramos Calamonte

I think we have never disclosed that data to be honest, but is significantly better. Let me give you what we are seeing right now is that after four weeks the new lines, the full price sell-through, because this is one is really with very little promotion. Full price sell-through is in some cases doubling. So it is accelerating really a lot. Obviously that does not continue overtime. You don't have the footprint center, but it's really accelerating a lot.

Sean Glithero

And then in terms of net debt -- sorry so I said earlier net debt will fall and that will -- it will fall because we're going to generate cash. And you think through that cash flow generation is broadly positive EBITDA, good contribution from working capital particularly with the stock falling, that will therefore together that will offset the CapEx as well as the Lichfield automation and interest and lease payments.

So cash generation more skewed to the second half with the profit of the revenue improvement in the second half. So -- and the timing. So the cash flow generation more skewed to the second half which the debt will follow the math of that. In terms of the debt burden, I think both P&L and cash interest will be similar to this year, so P&L 40-something, cash 30-something.

Michelle Wilson

Next one?

John Stevenson

Good morning, Sean, Dan and team. Two for myself, first one and then you spoke a bit around kind of better intake margin on brands potential for -- to reinvest or retain that. Do you have a sense of to what extent you think you may retain or if you do invest it whether it goes into speed or pricing?

And then secondly just on the decision around kind of [indiscernible] and Lichfield. It must have been an alternative option to [indiscernible] of the overseas warehouse understand what you're saying with regards to convenience, but can you perhaps talk a little bit around to what extent that and considered and perhaps also reducing your warehouse capacity.

Vanessa Spence

Okay. I can maybe start on Litchfield and José, [indiscernible] and then Elena come in on that.

José Antonio Ramos Calamonte

Yeah. Thank you, Simon. I think obviously, I think I used literally there are no sacred cows. So there are no sacred cows in [indiscernible]. So we have considered absolutely everything. The reason why we decided to move on literally is that with the new model we don't really need it.

We don't really need -- each need to operate. We see the value of keeping our overseas operations both in Berlin and in Atlanta. Today, we are happy with what we have done internationally.

We see that all our countries have gone back to positive contribution to profit, positive profit contribution variable contribution which means that we are happy with what we did. But if things change in the future we will take additional measures in this regard. But today we're very happy with where we are.

Vanessa Spence

I would just add to that when we look at our international model with our core markets which are markets that we think have great potential to be big and high profitable markets. We want local infrastructure to help support that. And so having that distribution center in Atlanta provides that support where we obviously already have a distribution center in the UK.

Elena Martinez

Yeah. We will actively invest in pricing. So we haven't covered pricing today, but in our own brand strategy is included to be competitive in the market. And we are seeing that the market is being invested in pricing. So we are actively doing that.

On top of that, we are going to deliver a low single-digit percentage improvement in our intake margins that we were covering before through our ability to consolidate furthermore the supplier list the local sourcing and the most cost efficiency we've seen way that we have already talked before.

So if we decided to invest even more it was what we were saying today like, we have already invested, but we still having room to invest further if the market changes or if we feel that our customer needs further improvement further invest on pricing. So we're still have in that room.

José Antonio Ramos Calamonte

If I can add a little bit on that, as I said in other occasions, we price competitively. So we don't do cost plus. We price depending on where the price is in the market. What we're ensuring with the improvements in our sourcing and improvements in on sell-through is that we're creating the right platform to be ready to be competitive always.

Our ambition is to offer to our consumers the best fashion at a competitive -- we don't want to be the cheapest but we want to be competitive in any case. We're very happy with what we are creating because it's giving us the possibility to do that. And we will be reactive to the market for sure.

Michelle Wilson

Sir?

José Antonio Ramos Calamonte

Sorry.

Matthew Abraham

Excellent. My name is Matthew Abraham from Berenberg. So just a couple of questions on marketing. That data provided today was quite interesting. Thank you. So first of all, just interested in what the spend profile itself will look like. So you've obviously provided that commentary on what you expect for FY 2024. But considering you are shifting that mix. How should we think about the quantum of spend going forward relative to the historical spend that's been observed?

Second question also in reference to marketing. You've said that there's a difference in the return of this different marketing approach. Specifically, what I'm interested in is there going to be a difference in the lag between the deployment of that spend and the customer engagement? Can we expect a shorter lead time between you activating this different marketing approach and a better top-line outcome.

My third question is in reference to gross margin. I appreciate that there's limited color that's been provided on gross margin. My question, specifically, in reference to the second half gross margin in that half year we're going to be lapping the freight benefit of the second half in FY 2023 as well as the strategic benefit that's been observed in FY 2023. How are you thinking about that gross margin outcome in percentage terms compared to the prior comparative period? However…

Vanessa Spence

Okay. Dan, I think the first two of yours and then Sean on the last one if you want to give more color on half-by-half gross margin.

Dan Elton

So I guess I'll take the payback profile first. So I'm not sure we would disclose the specific details of our payback profile on our marketing investment today. But what I would say is that I've really worked somewhere with such a short payback on its marketing investment because we focus so relentlessly on performance advertising because actually we have pretty good frequency for customers that we acquire in the first year.

So we have a short in-year payback of our existing profile. And the investment that we are planning to make plus the change in the mix we're not talking about a long payback on that. We're modeling payback in the first part of next year. And the reason for that is frankly we're dealing with a -- from a brand perspective we're dealing in the UK with an extremely strong asset. And that's one of the reasons we're dealing with the UK first. So that on the payback profile. I don't know anything to add on that?

Sean Glithero

No.

Dan Elton

No? Okay. So from a spend quantum perspective so we spent 5.5% on marketing last year. We're investing an additional 30 million in marketing this year. One of the reasons we're making that investment is because the money that we do currently invest in performance advertising is on the whole extremely efficient. So it's not like we have a long-tail an extremely long-tail of performance marketing is inefficient that we can therefore kind of reinvest in new objectives.

There is some marginally unprofitable activity there. That's part of what's contributed to stronger order economics through the year. So we have changed the mix a little bit. But on the whole the marketing investment that we make today will continue to be in the large part in performance and then we've invested on top of that in the UK in a full funnel approach. If during the year we see the response accelerate we may change the mix more quickly.

José Antonio Ramos Calamonte

Still if I may build on that 5.5 plus 30 million is going to take us to 6.5 still way below most of our competitors. Which still a very efficient marketing investments versus what we see in the market. Even after the correction of some of our competitors they are on much higher levels of marketing investment or sales. You want to take that.

Sean Glithero

So on the gross margin. So the first point on the freight and duty benefit we expect that -- some of that is still to continue because it's also -- it's baked into our stock. So as that stock is sold the benefit comes through. I mean thereafter there's uncertainty in the world around conflict and oil prices and that. But in terms of what we've baked into our stock that freight and duty benefit will come through. And then the gross margin I suppose is a bigger question around the level of discounting that we would choose to do in terms of to clear the stock and get to the new operating model.

We'd expect more of that investment to be in the first half because of where the autumn/winter stock is that we need to clear and we'll be cleaner by the second half of the spring summer. So that will naturally give a headwind to the first half and a tailwind to the second half. And that's kind of how I'm thinking about it.

Unidentified Analyst

[Technical Difficulty] like you are investing in incremental discounting to kind of clear through that stock. On the other hand obviously in fiscal 2023 you had significant discounting and have done a great job of selling through a very high proportion even excluding the write-off. So actually on a year-on-year basis purely from a discounting perspective, would you expect that to be a headwind or a tailwind to the gross margin? That's my first one please.

And then the second one, just in terms of the product, obviously you're increasing that proportion of test and react. Can you just give us a quick reminder for the rest of the product, sort of your average lead times and so on from a short and long-term basis because I imagine it's probably changed a little bit since you last talked about it at like a formal capital markets day and so on. That'd be great to have an update. Thank you.

Vanessa Spence

Maybe I can take the first one on guidance and Sean chip in and then the second one between José and Elena on testing the act. I guess in terms of gross margin we purposely haven't given guidance. What we are focused on, very focused on this year is finishing the job that we started on, cleansing the stock profile. I think in terms of exactly what level of discounting that will require as we look into the year ahead, we can't predict that at this stage.

Obviously, we have our view but we want to retain the flexibility to make sure that we enter 2025 in the best possible position to operate on our new commercial model. And the way that the models performed over spring summer is what's given us the confidence to really focus on that. We want to get the business into the right place and kind of operating on full fire in 2025. So, sorry to not give a specific number, but it's giving us the real focus for us is cleansing that stock position.

Sean Glithero

You want to start on the?

Elena Martinez

Go ahead.

Sean Glithero

Okay. On your question about what we're doing with the rest of the stock, it's true we talk a lot about test and react. Test and react is a small portion of our stock. It's just, as I think I used the word, the forefront of what we're doing, but certainly we're doing much more. We have this problem that we call speak to market where we're accelerating all our delivery to market. Obviously, when we talk about accelerating, and maybe I will hand over now to Elena, she can give you more concrete figures about that. But when we're talking about accelerating, we have to make a difference between the long lead and the short lead. Obviously, accelerating means doing everything faster, but it's always going to be faster, a teacher, than a code. So just to make this difference. But we are in the process of accelerating everything. And we have already seen part of that. Maybe Elena, you want to take that.

Elena Martinez

Yeah. Just to complete what he has said, because at the end, this is the key thing. We have two speed lines. We have short lead and long lead. And both of them are very different because of the geolocations of the country of origins where we are producing which is kind of obvious. So then, our lead times can go when they are not in Desenreal from five weeks to 12 weeks depending on how we are bringing the goods, which country of origin is this one.

But what we have done, which is really the differentiator and probably give us some room for improvement in the future, is to design that minimal critical path that we were saying before. So what is the minimum that we should be doing to aim for those days of lead time in each country, in each supplier, in each type of product. So we have to go to the each and every detail of the product and the supplier chain to understand what is that number. As an average, it could be that one. But we don't work with average. We work with every single product.

David Hughes

David Hughes from Stifel. On the kind of tale of unprofitable customers that you've talked about before, I think previously talked about this group losing maybe 100 million. Obviously, you've taken actions to try and address that. How much has that changed or any kind of indicators of how much that's moving in the right way and how much those customers have already been dealt with or made more profitable?

And secondly, just picking up on kind of the markdown side of things again, obviously you've had quite a lot of success in reducing them out of stock. Any color on how much markdown has been needed to do that? And then how that compares with when you get to your kind of in-season markdown, nice profile that you're looking at what a steady state might be and where you're trying to get to, or Just something on the level of difference you're seeing there?

Vanessa Spence

Dan, do you want to take the impossible customers? And, José, do you want to take, if there's anything to add on the second question?

José Antonio

Okay.

Dan Elton

David, thanks for the question. Good to see you again. So, yeah, I think the last time you were here, we were talking about that's the cost of the customers, something in the region of 100 million loss. I think that actually hides quite a lot of nuance within it. And there are obviously some customers within that group that are extremely unprofitable. And our focus in the second half of last year was really actually to where needed to kind of eliminate those customers from our offer.

The focus going forward is actually to grow customer value. Some of these customers within that 6% group are extremely engaged with ASOS. They have very high frequency, but they shop in a way that maybe isn't profitable for us. So, the priority going forward is not to kind of eliminate those customers, but it's to tailor the offer to grow profitability.

I don't think we're going to update on that specific 6% precisely because I said it's very nuanced within it. But I think the key output metric is the fact that as I think Sean and José said overall profit per order is up by 30%. And so a rising tide lift all boats here.

José Antonio Ramos Calamonte

On the second one. So, we were talking about if you want what we have done last year what we were going to do this year and as I think you call it steady state right. On a steady state. So, obviously, we're making an effort this fiscal year 2024 as we did in fiscal year 2023 to continue to finalize the cleansing of the old stock.

As I mentioned this 16% that it was we didn't tackle plus the autumn winter of fiscal year 2023 that we didn't tackle and that will be coming through the P&L of this year. Once we're over that, obviously, then the situation is going to be different, we will not need to make these efforts. This is what we're saying one of the risks we're saying that in our midterm guidance that we think that our gross margin will be getting close -- because it will help to increase our gross margin by a reduction of discounts.

Ben Hunt

Hi there. Ben Hunt from Investec. I think you lost to update us and you informed us that you imagine the stock intake would be down about 30% for Autumn/Winter 2024 this year with the options down 10%. Are you able to give us an update where you think spring/summer 2024 will come in? And does that play into the minus 5% to the minus 15% guidance that you've given for sales in FY 2024. What's sort of driving where the range could end up here?

And then just a couple of questions on marketing as well. Intrigued to know where you think the brand search share is going? And then second can you give us a number maybe on what is the actual percentage of organic search visits?

Vanessa Spence

Okay. José maybe you can tackle on the intake for spring/summer. Sean if you could comment on the range on guidance what drives the range of two minus 5% and minus 15%. Sorry was it an update on market of brand search your third question.

Ben Hunt

Yes.

Vanessa Spence

That feels like a Dan question.

Dan Elton

Yes those two I can answer quite quickly if you want.

José Antonio Ramos Calamonte

So, going back to -- obviously, when you say spring/summer you mean spring/summer 2024, right? Just to clarify. So, obviously, we made a big effort of being very rigorous and flexible with our intake as I mentioned before during the spring/summer 2023 and we are continuing with that during the whole of fiscal year 2024 making the effort we made in Spring/Summer 2023 that means that for Spring/Summer 2024, we see a much more stable intake.

But remember, I said rigorous and flexible, which means we're going to continuously adapt to wherever we see that is coming. And I mean that we see that the environment is getting much worse and then we will have to correct it or the environment is getting much better and our performance is better and we will also correct in the opposite direction. That's the beauty of a more flexible model.

Even though the flexibility will not be 100%, but obviously having more flexibility on our own brands and on our brand partners will give us a better capacity to adapt. But we are not foreseeing right now a major correction in the spring/summer 2024 intake. It's going to be more or less level.

Dan Elton

So, the two questions say brand search is a public data set. So, we use Google Trends. We're given that by Google, but it's a public data set and you can find it yourself. We -- when you look at the UK, the share of search within the market as a whole has gone towards share who are a relatively new player and growing very quickly and also towards Vinted who are again a very [indiscernible].

Within the rest of the kind of body of existing players in the market or there is less movement. But in part, it's the growth that's gone for those players that has affected our share for on search, but as has been declining over time.

In terms of direct visits, I won't give an exact number, but a majority of our visits are direct. We have a very strong unpaid-paid profile of visits, which is stronger as you would imagine in the UK, because of what I referred to before as existing brand asset. And that's why the point of that program is to grow that, because that's an area that has suffered a little bit this year, and is critical for customer.

Sean Glithero

So yeah on the revenue guidance, I suppose the revenue guidance for the year is a function of the shape of the year. So if you think about first half continuation of P4 trends, we got to clear some of the older stock, market is uncertain. We still haven't lapped fully or back to basic actions.

So coming into the second year, once we've lapped the spring/summer stock is clearer. It's performing, it's a bigger part of the performance. It's on a new operating model a smaller part in the first half, second half is a bigger proportion. And that really start thinking about the shape of the year. So certain minimum market uncertainty and then about the level of discounting and that we will be driving a, sort of, bridge you to that range because there is a decision.

Unidentified Company Representative

If I can build on that, obviously, you see the volatility in the market that is not new to you. We see that we did a lot of actions during fiscal year 2023 and some of these actions will have an impact especially on the first six to nine months of fiscal year 2024 for obvious reasons, because it's the full year impact.

But our obsession is to focus not on the short-term but on the value creation. Our obsession is to focus on pretty much the plan we have shared with you today on bringing the right stock, making excitement. Because we see that when we do it, our consumers react and react very positively, and they come with -- and they buy full price.

And then we can -- so our obsession is to accelerate as much as possible getting into this retail cycle. We think that as Sean was saying, obviously, the first half is going to be more difficult then we will see better numbers during the course of the second half, and even better numbers during the course of the last quarter of the year and going into fiscal year 2025 and that's where we're focusing.

Unidentified Analyst

First one from me and touching on what you've just talked about there really I suppose. You've talked to returning to revenue growth in Q4 this year. Could you outline the key building blocks that you think are going to get you there presumably some of it's annualization of proposition changes some of its to do with the improved operating model working through. But if you could just outline those things that would be really helpful?

Second one, on the medium-term aspiration. So we're talking to medium-term 6% EBITDA margin and you got 3% to 4% CapEx coming off that, plus you've got rent and interest, which is going to be a couple of percent? Are we, sort of, saying that the medium-term goal is 0% to 1% on a margin. Is that where we're at?

And then the last one, Shein and team, you obviously touched on Shein just there. How do you view them as competitors, and I guess how do you compete against them when it doesn't really feel a very level playing field. So interested in there perhaps.

Vanessa Spence

Okay. José, I think most of those if you, so returning to growth in Q4, perhaps Sean if you can clarify on the mid-term guidance aspiration perhaps you can help. And then Shein and team, I think probably back to José.

José Antonio Ramos Calamonte

Yes. So back to growth in Q4. Obviously the first if you want thing is going to be that we will start with a much better stock profile and we will benefit from that. And that will -- I didn't have them to explain how this will explain our numbers, but I acknowledge it was not an easy one. So, obviously, having a better stock profile will help us to get better margins, to get better sell-throughs, and to get better connection with customers.

We think that also the efforts we're doing in marketing will help on traffic. So we will see a better evolution of traffic in Q4 that will also help. The quality of our stock will help with conversion and the reduction of discounts will help with the basket value. It is true that basket value might be to a certain extent impacted by the price reduction that Elena has mentioned. To be honest, so far we are not seeing that impact. But it might -- we are counting with a certain impact. But pretty much, we're expecting an improvement in most of the key metrics, a lot of it coming from the strategic changes we were announcing today.

Sean Glithero

Yeah. So on the medium-term, the 6%, roughly 6% EBITDA margin was 25, so that's not a cap. The medium term would be growing beyond that on EBITDA, because of the margin -- well you're going to get a lot -- the revenue growth is going to give leverage benefits. The gross margin is going to benefit from less discounting and better full price, with faster model. So the 6 will grow over time and then the three to four of CapEx will shrink over time. So the combination of the two means, that there's progression in sort of an EBIT or a cash EBIT.

Unidentified Analyst

[indiscernible] EBITDA margin. .

Sean Glithero

The target is to grow to grow from the 6% is the margin fall in towards the 3%.

Dan Elton

So we’ve seen obviously, they are one of the big things happening in the market. And you mentioned probably quite a few things first of all, is how do we see them as competitors, how to compete with them and you also talk about leveling the playfield. The last one, I'm going to leave it for the politicians, if you want certainly not for us, we are going to focus on the first two. So obviously, they are big competitors they are growing a lot. Clearly, they are competing among themselves as well, which is quite interesting. And I did mention, that here I think I mentioned that with the media sorry, I'm forgetting what I said were.

Clearly, there is a reaction of the consumers especially in times of crisis. And we see in our portfolio one of the beauties of our portfolio is that we have a really wide range of prices. We see in our portfolio how consumers, are moving towards certain prices. So they're moving toward more attractive prices. We see that. That's clear, that happens during times of crisis and that is not new. That is the same that happened in the previous crisis, with the growth of some of the value retailers like Primark, back in the days.

The way we compete with them is, we do not want to be the cheapest guy in town. We don't want to be the cheapest source of clothing. We want to be offering our consumers the best fashion for the money. We want to offer fashion at a competitive price. That's why I always say, we price competitively. That's why, I always say, we will move and we feel comfortable, we have the platform, if you want to move it necessary. And we want to invest as much as possible in bringing this excitement back and bringing the best product with the best customer experience and the best image around the best marketing journey.

That's how we fight with them. We are not going to break any of our sustainability ethical commitment to find with them. We are not doing that. We believe that fashion has to be sustainable and ethical, and we do not believe in being selling T-shirts, for two pounds. So that's our ambition is to sell T-shirts, at a competitive price but there are T-shirts that are really coming with a fashion statement around it.

Q – Unidentified Analyst

It's Caroline Gulliver [ph] from Equity Development. I had a follow-up question to Andy's first question actually. You obviously, saw significant operating deleverage in full year 2023. Do you feel you've taken sufficient action on head office and overhead cost given the guidance for further sales decline in full year 2024? And do you feel you're now the right size for where you see the business in full year 2025 and beyond.

José Antonio Ramos Calamonte

Yes. You saw from the H1/H2 splits, that we've taken plenty of action in the second half both on sort of fixed costs, but also the benefits coming through from the lower stock in terms of the network and that will continue. Now as you've heard, today is about growth and getting back to that growth. We running a business, we're always going to look at the cost base. But we feel that we've made good efforts and good strides in 2023 and now it's about getting operational leverage rather than actively pursuing that cost base. But we have to run an efficient business. We look at it all the time, but we're pleased with what we achieved in the second half.

Sean Glithero

If I can build on that. During fiscal year 2023, we have developed this muscle of being very rigorous and very relentless in making sure we make the best use of our resources. And that is cost but there is also CapEx, if you want. We are not giving away this muscle. This is never going to stop. We're going to be always as focused and as relentless as obsessed in making sure we make the best use of our resources. That doesn't really mean, we are going for massive cost cutting. But it means that every day, we question everything we do. And if there is a better way to do it, we are going to do it.

And that applies to everything we do. I think Lichfield is an example. We question everything we do every day. In this business, every day we start from scratch. Like tomorrow morning we will have zero consumers at 9:00 a.m. whatever I mean. We don't open at 9:00 a.m. because we're 24x7 [indiscernible] we have to reinvent everything we do every day. And this is clearly one of our commitments. We started this year. This is not going to stop.

Anubhav Malhotra

Good morning. It's Anubhav Malhotra from Liberum. I had a couple of questions. Firstly on the Test and React. I can see how that helps full price sell-through has gross margin for your own brands. But I was thinking of how do you improve the gross margins on the third party wholesale side. And are there any specific actions that you are taking although, I do see that you have mentioned by the outfit as one of the things that you're doing and marketing investment but there are any specific actions that you think you are doing.

And in relation to that, the visual language that you curate on your website, that's something -- that's an extra additional effort that you do on behalf of the brands. Do you think that gives you a competitive advantage in terms of the buying negotiations you have with them? And do you have compared to other models out there do you get a better margin out of it. Thank you.

Vanessa Spence

I think it’s José on the destination assortment benefit that has for our relationships with third party brands? And then Elena perhaps on the first question you talk a bit about kind of fulfillment [ph] ASOS fulfillment services and the benefit that has for gross margin.

José Antonio Ramos Calamonte

So let me say, you want and then I give it to Elena. All right. So, on the visual language we make a lot of effort. We are really proud for instance of our studio here and the visual language we create. And actually every time we have one of these partner brands visiting us one of the things they are always really loving is that, to the point that I recall having a conversation with one of them and joking. I said, we might close it. And he said, oh, never do that, this is amazing you guys do better pictures than us. One brand said that.

So of course, we see that as a competitive advantage. Of course, we see that opening us doors that maybe our geographical footprint would not justify in a different way. So that's why we have the type of relationship we have with a lot of brands that is really good. We have amazing relationships not only with the sports brands. Today we have used a lot of the sports brands but the same applies to some of the big fashion brands. Actually, I use a quote of PVH here and the same applies to a lot of them.

We use that a lot and that helps us to access assortment that is more inspirational. That helps us run campaigns like the one I showed today with Puma and we've done similar things with Adidas. We've done similar things with other brands. We've done similar things with Polar Lauren or with brands like that. And that will continue happening. Because we open for them the access to either consumers, they really struggle to find. We are one of the very few big retailers who sell more sports goods to female than to male. That is clearly interesting for the brands as we say the sports brands.

But we also opened them the door for new occasions with their own consumers. So people that would not think of this brand in a specific environment, we open this environment. It's clearly a competitive advantage. That's what we're saying and what we're saying is we want to double down in this competitive advantage to make it even more exciting. And this is quite difficult to replicate because most players in the market either sell only one brand or they are pure retailers meaning that they are so focused on cost optimization. They don't reshoot, they don't restyle and do anything like that. That is quite unique to ASOS.

Elena Martinez

Okay. In terms of the models, what we have been covering today is that having more models, having this partner fulfills and anything fulfillment services to increase the flexibility that we offer to our partners is the right plan for profitability as well as flexibility and to have as always we are saying the best assortment possible. So I think what we are now -- what we have now is much more flexibility which obviously impacts us in the gross margin.

Anubhav Malhotra

So the first question is just a follow-up on basket values. So can you comment on the second half the increase that you saw is again mostly a function of price that you commented earlier. Is there an impact of promotion and full price as well? And if so can you give us with some quantification on that? And then the second question is again having seen September and October through are there any particular geographies that do stand out in terms of performance having a slightly different run rate from P4 of 2023. Thank you.

Sean Glithero

Okay. I will take. Okay. So on basket values, we saw a very good development during the course of last year. This development is mainly coming from the average price consumers are paying, while at the same time we kept pretty much flat the size of the basket. And I think this is very important to say.

As you might recall one of the things we did last year due to the inflationary pressures we increased prices as by the way the rest of the market did. This increase in the average value of the basket is coming -- a big chunk of it is coming from the price increase. But this price increase is the price consumers pay at the end, which means that we managed to keep the price increase. We did not discount it so that the final price we were receiving was lower. So it's both. It's -- we increased the prices and we did not discount beyond this price increase. I don't know.

Then this is probably getting into a territory that is complicated probably not for here. But -- the fact that we made an effort to liquidate all stock had an impact on this stock, but the mix of both was pretty much flat which means that the new stock was sold with a lower discount. And that's when I was mentioning that we see very good results on the new lines. We see that the sell-through of the new lines is higher. And the gross -- the final gross margin because of our reduction in the discount is higher. So we are seeing both elements. We're saying that sell-through is working better, especially, in the new line and we are seeing the price increase which percentage comes from what to be honest, I couldn’t answer. Then the other question was sorry I got – I forgot…

Anubhav Malhotra

Current trading.

Sean Glithero

Current trading. So, obviously, with the beginning of the year has been quite volatile. I mean macroeconomic conditions, geopolitical conditions, whether we have had a very warm September that as you know very well is not good for us. It has been a change in the weather in the last week. We're very happy and very grateful for that. And obviously that has a reflection in the performance. We still see the volatility we saw in the end of last year and that is not changing yet. Obviously, we are still going over the full year effect of the measures we took in the second half of last year and that is having an impact. Someone mentioned before the customers that we took measures that were not very profitable. Obviously, that is having an impact. But we are very happy to see that what we did is working and we are really focused on accelerating that transition. And this is our concern right now not so much the short-term performance as how fast can we accelerate the transition and expose our consumers to the full-fledged value proposition of ASOS.

Unidentified Company Representative

[indiscernible] motivation on my part. So I think we can wrap-up. So any closing remarks are José.

José Antonio Ramos Calamonte

Okay. Well, first of all, thank you very much for being here. I think you guys deserve a lot of credit because to be almost more than two hours in those chairs deserve all our. So thank you very much for being here. It is obviously a very exciting moment for us. We see that this is the moment to accelerate. This is the moment to double down on making ASOS unique. We are very excited about doing that and we are very excited about coming back in the next time we meet with how this transition is evolving and to bring back to the growth path as soon as possible. So thank you very much and hope to see you soon again.

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ASOS Plc (ASOMF) Q4 2023 Earnings Call Transcript