ASOS is taking a ‘shrink to be better’ approach and a return to profitability would suggest its recovery efforts are finally paying off.
AJ Bell’s Russ Mould said: “Its old model was go-go growth, trying to amass as many customers as possible and using massive discounts to drive sales volumes.
“A shift in the market environment, partly driven by cost pressures and a revival in consumers going to physical shops, has meant online retailers like ASOS have had to rethink their model and focus on quality of sales over quantity.
“ASOS has been sitting on significant amounts of stock that it needs to clear before inventory levels fall to desired levels. This is still playing out, which means its new strategy is a slow burner rather than turning a light switch on and everything changing in an instant.
“A plan to sit on less stock, improve gross margins through better sourcing, buying and pricing, and not have so many discounts seem like obvious business practices. Why has it taken so long to decide this strategy? Rather than dwell on the past, the focus is on where the business can go next.
“Green shoots of recovery could be the trigger for renewed takeover chatter as the recent progress helps to lower the risks of the equity story, yet the valuation of the company is still cheap should someone be prepared to look through near-term pains and focus on the longer-term opportunity.”