- Sales remain weak
- Topshop and Topman brands sold to Bestseller
- £150 million reduction in debt
Online fast-fashion retailer ASOS (ASC) has sold a majority stake in the iconic Topshop and Topman brands for £135 million to Heartland, an investment vehicle of the Holch Povlsen family and their Bestseller business, ASOS’ biggest shareholder with a 28% stake.
ASOS shares rallied almost 15% to 417.4p as the site for fashion-loving 20-somethings also announced a much-needed refinancing plan involving a £250 million convertible bonds offering and an amendment and extension of its lending facilities with Bantry Bay Capital.
Long-suffering investors were mightily relieved as the combined effect should be a net £150 million reduction in ASOS’ net debt position.
ASOS will retain some exposure to the brands through its remaining 25% stake in the joint venture and the net result is CEO Jose Antonio Ramos Calamonte has more breathing space to pursue his ‘Back to Fashion’ turnaround plan.
TOPSHOP & TOPMAN OFFLOADED
ASOS has formed a joint venture with Heartland which will purchase the Topshop and Topman brands from ASOS.
Heartland will indirectly hold a 75% stake in the joint venture for £135 million cash consideration, valuing the brands at £180 million.
After payments to US department store Nordstrom (JWN:NYSE), which holds a stake in Topshop and Topman, ASOS will receive £118 million in cash which it will use to strengthen its balance sheet.
While the transaction is expected to have a £10 million to £20 million negative impact on EBITDA (earnings before interest, tax, depreciation and amortisation) for the year to August 2025, ASOS insisted it will be ‘increasingly EBITDA accretive over time’.
As part of the deal, ASOS plans to relaunch Topshop.com within six months of completion and also expand the Topshop and Topman brands into offline and online wholesale channels.
BUT SALES REMAIN WEAK
In an accompanying trading update, ASOS highlighted ‘good progress’ on its Back to Fashion strategy, but sales remain weak and are now expected to decline more than 15% for the year to August 2024.
The encouraging news is adjusted EBITDA should be at the top end of a wide £20 million to £75 million consensus range thanks to cost savings.
ASOS is pushing a new Test & React initiative which could enable it to compete with fast fashion rivals by getting new products on the site quicker.
However, there are longer-term risks facing the wider industry if eco-conscious Gen Z consumers turn their back on disposable fashion.
CEO Calamonte said: ‘Topshop and Topman have made good progress since we acquired the brands in 2021. The new joint venture with Heartland is testament to the brands’ potential and the partnership will help bring Topshop and Topman to more customers globally.’
He added: ‘ASOS will continue to focus on what we do best - designing the best fashion and providing a destination for style. Through the joint venture, new opportunities, both online and offline, can be explored and we are excited to continue to be part of the brands’ future while also realising the best value structure for ASOS shareholders today.’
Shore Capital’s Katie Cousins, who has a ‘sell’ rating on ASOS, said it is encouraging to see the Back to Fashion strategy progressing, which is ‘allowing ASOS to reduce its cost to serve and maintain profitability despite, in our view, clear headwinds to sales.’
However, Cousins continues to have concerns ‘that ASOS is losing market share, and ultimately this reduces our confidence in the visibility and sustainability of the group. That being said the refinancing and joint venture announced this morning should provide some near-term cushions.’
