ASOS shares surge 20% following Topshop deal

The creation of a Topshop joint venture helped ASOS (LSE:ASC) shares to a one-year high today as the fast-fashion chain stepped up its turnaround mission.

The launch of a refinancing plan and improved earnings guidance also aided today’s rise of more than 20% to 453p, which follows a year of largely sideways movement in the FTSE All-Share.

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The Topshop deal with Bestseller owner Heartland comes as ASOS boss José Antonio Ramos Calamonte focuses on “sustainable, profitable growth” through his Back to Fashion strategy.

While his efforts have continued to provide reassurance on the balance sheet and profitability fronts, today’s developments failed to shake off the City’s worries about top-line headwinds.

This was fuelled by the company’s disclosure that sales are slightly behind the full-year guidance for a decline of between 5% and 15%.

Shore Capital said: “We continue to have concerns that ASOS is losing market share, and ultimately this reduces our confidence in the visibility and sustainability of the group.”

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Based on its last published forecasts, the broker said a valuation of 16 times underlying earnings was a premium to the likes of Boohoo and the peer average of about 11 times.

Shore reiterated its “Sell” recommendation while analysts at UBS had a “Neutral” stance based on a target price of 360p prior to today’s developments.

The shares were near 5,000p during the pandemic spending boom in 2021 before slumping as the online retailer struggled with inflated stock levels and rising debt.

It was in 2021 that former boss Nick Beighton accelerated the group’s multi-brand platform strategy through the acquisition of Topshop, Topman, Miss Selfridge and HIIT for £265 million.

Today, ASOS announced a Topshop and Topman joint venture that will see Bestseller’s owner Heartland spend £135 million on a 75% stake.

The remaining 25% will be held by ASOS, whose share of the deal proceeds will be £118 million once fees and a payment to an existing investor are taken into account. The transaction is expected to have a £10-20 million negative impact on 2025 earnings.

The parties have pledged to explore new opportunities both online and offline, with Calamonte pleased to still be part of the brands' potential upside.

He added: “Topshop and Topman have made good progress since we acquired the brands in 2021. The new JV is testament to the brands' potential and the partnership will help bring Topshop and Topman to more customers globally.”

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Heartland is the holding company representing the interests of the Holch Povlsen family, with its Bestseller retail empire of 2,800 stores in over 30 countries responsible for more than £4 billion of sales. Heartland has an indirect 28% shareholding in ASOS.

The sale proceeds will significantly strengthen the ASOS balance sheet, alongside today’s refinancing plan under which the company will offer £250 million of convertible bonds due 2028. It has also extended a lending agreement with Bantry Bay Capital to May 2027.

On the trading front, it reported good progress on its Back to Fashion strategic priorities to make ASOS faster, more agile and more profitable.

This has included improving speed to market through its Test & React initiative, which brings product from design to site in less than three weeks and has reached its target for 10% own-brand sales by the end of the 2024 financial year.

The progress means adjusted earnings should be at the top end of estimates, based on a wide City consensus range of £20 million to £75 million.