ASOS pins hopes on cost savings after Christmas sales slide

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By Sarah Young

LONDON (Reuters) -Online fashion retailer ASOS (LON:ASOS) said 300 million pounds ($365 million) of cost savings would help drive profits this year after sales fell over its four-month Christmas period, showing the scale of the challenge facing the group's new CEO.

José Antonio Ramos Calamonte, chief executive since June, wants to prioritise profits over sales growth and win back the company's 20-something fashion-conscious customers after the group stumbled following the pandemic.

Shares in ASOS jumped 16% to 682 pence in mid-morning trade, on Thursday spurred by hopes that Ramos Calamonte's cost-saving plan will revive profits.

On the sales front, the chief executive forecast continued volatility.

In Britain, its biggest market ASOS saw sales fall 8% in the four months to the end of Dec.31, hurt by Christmas delivery problems, which shook customer confidence in online, and a tough comparison against last year when, by contrast, the pandemic pushed people to shop online.

Britain is in the midst of a cost-of-living crisis and ASOS blamed weak consumer sentiment for its UK sales fall, but many other retailers, such as clothes chain Next, have managed to grow Christmas sales, making ASOS the laggard.

JD (NASDAQ:JD) Sports, which, like ASOS, has a young customer base, said on Wednesday its shoppers were showing resilience because they were less affected by mortgage and household bills.

The end of the COVID-19 pandemic has also helped groups like JD, which have physical stores. Data from IMRG showed online retail sales in Britain fell last year for the first time ever, to stand down 10.5% on the year.

Analysts remain wary on prospects for ASOS's recovery. Thursday's share price rise only takes it to levels last seen in November. The group has lost 70% of its value over the last 12 months.

"The current market backdrop is not favourable to retailers of ‘nice to have but not essential’ products, so ASOS is by no means out of the danger zone," said AJ Bell analyst Russ Mould.

Ramos Calamonte said that by dropping unprofitable brands, changing marketing spend, winding down extra storage facilties and other moves, ASOS's cost savings would more than offset headwinds from inflation and deliver a modest improvement in profit this year.

In Europe, ASOS did better, growing sales more than 6% in the period.

($1=0.8234 pounds)