UK Stock Market Plummets as Asos Suffers from Consumer Crisis and Inflation in 2022

Asos Plc is the UK's worst-performing stock of 2022, plunging 78% as cash-strapped Britons cut spending on clothes and the online retailer struggles with soaring costs and rising debt. The company's share price has been in freefall since the beginning of the year, and it shows no signs of recovery. Asos has been hit hard by the pandemic, with sales and profits both falling sharply. The company is also facing mounting debt, which has put pressure on its share price.
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Asos, an online-only fashion firm, is set to finish the year at the bottom of the leaderboard of FTSE 350 Index members. A consumer squeeze, coupled with a selloff in global technology and internet stocks spurred by rising interest rates, has weighed on the company's performance. Asos only joined the UK benchmark this year after moving its listing to the main market from London's AIM venue for growth firms.
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Online retailers have been struggling due to the pandemic, inflation, and rising interest rates, according to Bloomberg Intelligence retail analyst Tatiana Lisitsina. Asos has also been facing internal turmoil, with a new chairman and chief executive in the last 18 months and the company's interim finance chief announcing her departure earlier this month.
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A spokesperson for Asos declined to comment on the share price performance.
In October, new CEO Jose Antonio Ramos Calamonte announced a restructuring plan that was well-received by investors. The plan includes writing off as much as £130 million ($157 million) of stock and cutting costs. The company said it expects to lose money in its fiscal first-half, but things should improve after that.
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Asos' recent stock price plunge has made the stock much cheaper than it has been historically. It now trades at around 25 times forward earnings, down from almost 90 times at the 2020 high. Even so, it is still much more expensive than the FTSE 350 Retail Index, which trades at only 10 times forward earnings.
A potential cooling of inflation and rates expectations next year could benefit the valuation of UK businesses — though many challenges still remain, with a recent survey by consulting firm KPMG pointing to Britons cutting spending on non-essentials next year.
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Analysts are split on Apple stock, with 15 of 31 tracked by Bloomberg having 'hold' ratings. The average price target suggests shares will rise 58% in the next 12 months, but that would only leave them around where they were in August.
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Asos' talks with lenders will be another thing to watch in 2023. Although the retailer successfully renegotiated the terms of its £350 million ($422 million) revolving credit facility in October, the extension only lasts until 2024. Asos will need to renew discussions with lenders on the loan again next year.
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Meanwhile, Frasers Group Plc, owned by billionaire high street magnate Mike Ashley, has taken a 5% stake in the company. News of Frasers' investment in October spurred a brief rally in the stock, though Bloomberg Intelligence's Lisitsina is doubtful that a full takeover could materialize.
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"Asos has been trading at a discount more than once in the past, which makes us skeptical," she said.
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A spokeswoman for Frasers declined to comment.