Should I buy ASOS shares in 2023?

Online fashion retailer ASOS (LSE: ASC) just joined the London Stock Exchange‘s main market last year. And it was quite a year to forget, as ASOS shares lost 78% of their value.

This latest decline now means the stock is down 92% in five years. What’s going on here? And this is a buying opportunity for me today?

Terrifying waves

Just two years ago, ASOS was riding the wave of e-commerce caused by the pandemic. Consumers are forced to shop online while brick-and-mortar retailers have mandatory ‘closed’ signs.

In the six months to the end of February 2021, sales rose 24% year-on-year to just under £2bn. Meanwhile, profits rose 253% over the same period to £106.4m. The company has even raised £500m to fund its global expansion plans. Things are looking rosy.

Since then, the fast fashion outfit has faced many difficulties. First, the tailwind of the pandemic has disappeared as people have been able to visit physical stores again. Supply chain disruptions from the lockdown and subsequent war in Ukraine have also led to higher input costs.

And rising inflation and the cost-of-living crisis have affected the purchasing power of the consumer base (especially young people). For the year to 31 August 2022, the group reported an operating loss of almost £10m compared to an operating profit of £190m for the previous year.

Needless to say, it was a worrying turn of fortune.

apart issue

Of course, many of these issues are not unique to ASOS. Rival fast-fashion boohoo and many other retailers face the same problem. But there are other company-specific red flags here.

First, the CEO left with immediate effect at the end of 2021. And since June last year, the company has been led by the new CEO José Antonio Ramos Calamonte. He was appointed to transform the company and “re-engage a younger consumer base”.

I was recognized the need to rekindle a brand that appeals to a young consumer worried. This shows that the company is struggling in the face of heavy competition from Chinese digital retailer Shein, which was the most downloaded app in the US last year and is also popular in the UK.

Meanwhile, management is discussing whether to hire a restructuring expert following the departure of the chief financial officer. In fact, it seems that ASOS’ business model and future is in complete flux at this point.

Should I buy the stock?

Of course, new management can lead to changes in the company. CEO Calamonte has been honest about the difficulties facing the business, so I wouldn’t rule him out again.

However, one of the main proposals is to reduce markdowns and promotions. I think this can have a negative effect and even more sales. This is because ASOS customers may have become very accustomed to the brand’s low prices over the years. They may have higher prices, especially with the rising cost of living. And especially with Shein just one click away.

Billionaire Mike Ashley The Frasers Group has built a 5% stake in the company. I wouldn’t be surprised to see a takeover bid develop. However, Shares are far too risky for me to buy now.