The ASOS plc (LON: ASC) share price has risen 24.8% in the past week after releasing its trading update for the three months up to 31 May 2023. The retailer revealed that despite generating lower revenues than in a similar period last year, it was headed towards profitability.
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Luckily, the rally that kicked off after the results were released on 15 June 2023 has continued and could turn into a sustained uptrend if investor sentiment towards the company remains positive in the coming weeks.
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However, it is essential to note that ASOS is one of the heavily-shorted London-listed stocks, with 2.89% of its outstanding share count being sold short. The short selling is conducted by institutions such as Squarepoint Ops and GLG Partners.
Still, ASOS’ prospects remain pretty promising, given that the company has been on a cost-cutting campaign and expects to save up to £300 million this year. The cost-saving measures are enough to return the company to profitability this year after losses in the previous year.
ASOS is still executing its Driving Change agenda and expects to deliver adjusted pretax profits according to its guidance of £40-60m in H2 FY23. This return to profitability came despite revenue falling 14%, as expected, reflecting deliberate actions on capital allocation to improve profitability.
The online fashion and cosmetics retailer revealed that its gross margins had improved by 3.5% from a similar period in 2022, indicating that the firm could raise prices despite losing some customers. The company had 24.1 million active shoppers in the year to 31 May 2023, compared to 25.6 million clients in May 2022.
Furthermore, I'm optimistic about the company’s prospects, given that the losses incurred over the past two years were largely driven by wrong buying decisions that saw the firm buy more inventory than what it sold, which is a classic mistake that typically leads to losses.
The ASOS management team has clarified that it is going back to basics and will be keener on how it manages its inventory levels, starting with its buying decisions.
*This is not investment advice.
ASOS share price.
The Asos share price has risen 24.83% in the past week. Will the rally continue?
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