– ASOS close to appointing restructuring advisors

– M&Co collapses into administration

– Julian Dunkerton in talks to take Superdry private

It has been a dire year for shareholders in ASOS (ASC), with the online fashion retailer’s equity slumping the best part of 80% on a flurry of downgrades.

The shares fell a further 5.7% to 551.5p today on speculation the company is close to appointing restructuring advisors to help it navigate the bleak current environment for the retail sector and particularly for the online channel, which has underperformed bricks-and-mortar year-to-date.

Talks to bolster ASOS’ finance department by adding a restructuring expert follow the recent surprise news interim finance director Katy Mecklenburgh is leaving to join IT reseller Softcat (SCT).

While Mecklenburgh isn’t leaving for six months, the news added to the somewhat chaotic feel around the business.

WILL MIKE ASHLEY MAKE A MOVE?

‘Quite whether or not ASOS has liquidity problems remains to be seen,’ commented Shore Capital, ‘albeit if there was a call for help to equity holders one imagines that it would be undertaken at quite a deep discount to the present share price.’

Watching developments keenly will be Mike Ashley’s Frasers (FRAS), which has amassed a 5% stake in beleaguered ASOS.

News that Frasers had built a material stake emerged days after the online fast fashion firm’s new chief executive José Calamonte outlined a recovery plan as ASOS lurched into the red for the year to August 2022.

Russ Mould, investment director at AJ Bell, said ‘reports about seeking to hire a specialist in restructuring hint at the level of stress the ASOS balance sheet could be under.

‘By ignoring the adage that you should fix the roof when the sun is shining, ASOS has left itself vulnerable to the effects of people returning to shops in person, a greater number of costly product returns to process, rising costs across the rest of the business and a downturn in demand thanks to the weak economic backdrop.

‘Some of these are short-term headwinds but what will really concern shareholders, and potentially lenders, is that the whole fast-fashion model will struggle to recover thanks to a more parsimonious and ethically-minded consumer.’

M&Co APPOINTS ADMINISTRATORS

Most apparel retailers are struggling with rising costs and the inflation-induced squeeze on consumer spending.

To illustrate the point, value clothing retailer M&Co has just collapsed due to what administrator Teneo called a ‘sharp rise’ in input costs with a rapid sale of the business now being explored.

M&Co’s lurch into administration follows the recent high-profile collapse and partial rescue of Joules (JOUL:AIM) by Simon Wolfson’s Next (NXT).

Elsewhere in the sector, unloved fashion retailer Superdry’s (SDRY) shares ticked up 2.7% to 108.2p following a report that co-founder and chief executive Julian Dunkerton had held talks with private equity firms over a potential buyout, having become disillusioned with its poor share price performance.

Bucking the apparel retail doom and gloom however is Primark, the discount fashion chain owned by Associated British Foods (ABF), where trading is said to be ‘encouraging’ with the new store-opening schedule on track.

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.

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Issue Date: 12 Dec 2022