ASOS (LON: ASC) shares are London’s most shorted. As much as 7.5% of the equity is out on loan to short sellers. Compared to some of the positions we see on the American markets that’s pretty small, agreed. But for London that’s a big position - it’s the largest currently in London in fact.
A large short position is not proof that everything’s about to go awry. It is though an indication of how many people think that is going to be true. As we’ve mentioned before, the short position has been rising in the run up to the ASOS results: “ ASC shares have been up 10% in the past few weeks then back down again. This is after the 50% drop earlier this year. This is the sort of situation where we’d expect to see the hedge funds taking an interest. And indeed we do, short positions are rising ahead of the next set of results on 19th September. We would also assume that other hedge funds or investors are taking positions aimed the other way. But as long positions, unless large, do not have to be reported we’d not be able to check that.” Those results actually dropped today: “Adjusted H2 EBIT6 up more than 100% year-on-year ("YoY") and H2 cashflow improving by c.£140m despite double-digit revenue decline, reflecting material improvements to core profitability and strong inventory management. Sales declined 15% YoY in P4, in-line with guidance, with a stronger start to the period followed by weaker performance in July and August amidst a deterioration in the UK clothing market. Despite the decline in sales, P4 will be another profitable quarter. c.£300m of profit improvement and cost savings have now been realised, in-line with the FY23 target set under the Driving Change agenda, driving order profitability8 up more than 35% YoY.” Note that’s the trading statement, the full audited results will arrive in another month.
ASOS share price from Google Finance
As we’ve pointed out a number of times the basic problem with online retailers was lockdown. Yes, online had been eating physical retail at 1% or so a year. Then came lockdown and of course that soared, by perhaps 10% of the entire retail spend. At which point the big question. Is this a blip that will recede? Or a step change that will last? The base problem is that all too many of the online retailers thought it was a step change. When it turned out to be a blip. We’re now back to trend, that 1% a year - and more importantly as if lockdown and the blip never happened.
The base story for so many online retailers - ASOS, Boohoo and others - has therefore been managing back down their costs after the expansions they undertook for the level of business which didn’t remain but faded away again.
ASOS seems to be doing this fairly well, having made that initial mistake. So the shorts might not gain their profits after all.
