The key question for ASOS is: will raising £80 million by issuing new shares and refinancing its debt really cut it?
The fast fashion online retailer hopes this can create a solid base for the company’s recovery. However, with the company paying high rates of interest on its newly agreed debt, much of the money raised from shareholders will almost immediately be going out the door on servicing its borrowings.
AJ Bell’s Russ Mould said: “The danger is ASOS hasn’t raised enough this time round, either through choice or necessity, and it will have to dig out the begging bowl again before too long. After all, the company is not generating free cash flow and the prospects of it doing so soon do not look too encouraging.
“ASOS and other pure online plays did well during the pandemic as there was no alternative and people were less likely to make returns. That situation has now reversed leaving the company exposed to a difficult combination of rising costs and shrinking demand, as well as mounting competition.
“And, longer-term, the whole idea of fast, disposable fashion may not fit with the attitude and ethos of a youthful demographic which are particularly sensitive to environmental issues.”