Asos: buy case is growing despite rise of Shein, Vinted and Temu, says broker

Shore Capital analysts maintain a buy rating on ASOS PLC, citing significant operational improvements including a 60% reduction in inventory since 2022 and a 490 basis point increase in gross profit margins in H1 2025. The company's focus on own-brand products (40% of sales) and strategic brand partnerships, such as with Adidas, are driving positive results, with automation reducing distribution costs by 20%; however, macroeconomic headwinds and competition from low-cost rivals like Shein and Temu continue to pose challenges to top-line growth.

Analysis

Shore Capital analysts highlight a strengthening investment case for ASOS PLC, underpinned by significant operational advancements. The online fashion retailer has notably reduced inventory levels by 60% since 2022, enhancing product freshness with 80% of items now under six months old. This strategic inventory management, coupled with lower markdown activity and a higher full-price sales mix, contributed to a substantial 490 basis point uplift in gross profit margins during the first half of 2025. Further efficiencies have been realized through automation and fulfilment changes, which decreased distribution and warehouse costs by 20%. ASOS's focus on its own-brand products, now constituting approximately 40% of sales, is a key driver, with its Test & React model accounting for 15% of sales and projected to reach 20%. Strategic partnerships, such as a successful collaboration with Adidas that resulted in a 70% traffic increase and 90% full-price sell-through, are also proving effective, with 25 new brands added in H1 and 40 more anticipated in H2 under a more selective approach. Despite these positive developments, ASOS continues to navigate macroeconomic headwinds and intense competition from low-cost platforms like Shein and Temu. Analysts acknowledge that while ASOS is targeting a higher quality and price point, its brand remains associated with fast fashion, potentially pressuring top-line sales. While these "green shoots" indicate a potential turnaround from past missteps and a loss of competitive edge, sustained progress in top-line growth and customer metrics is crucial for building investor confidence.

Key Decisions for Investors

• Investors should consider the positive operational improvements, such as enhanced gross margins and reduced inventory, as indicative of a potential turnaround, warranting a closer look at ASOS's recovery trajectory.
• Monitor the company's ability to sustain margin improvements and achieve top-line sales growth amidst persistent macroeconomic challenges and intense competition from low-cost and re-commerce platforms.
• Evaluate the ongoing success of ASOS's own-brand strategy and high-impact brand collaborations as key indicators of its ability to regain market share and improve profitability.