Asos Plc’s new chief executive officer laid out an extensive plan to reduce stock, slow automation and cut spending in an effort to survive as consumers retrench.

In a sign of the challenges facing Jose Antonio Ramos Calamonte, who took the helm at the British fast fashion chain in June, Asos will take a one-time hit of as much as £130 million ($147 million) while free cash flow this fiscal year will be zero at best. The company expects a first-half loss but said things should then improve without giving profit guidance for the year.

Asos shares fell slightly in early trading before rising as much as 12 percent in London.

As shoppers curb spending on fashion and other non-essential items to cope with a cost of living crisis, Asos — a winner during Covid lockdowns — has faced rough times, with the stock losing almost 80 percent of its value since the start of the year. Besides weaker consumer sentiment, the retailer is battling rising costs, increased competition and supply-chain difficulties, including high freight costs.

Profit Warning

Asos issued a profit warning in June and is undergoing changes to its top management. Longtime chief executive Nick Beighton stepped away last October and interim chief executive Mat Dunn, who also served as chief financial officer and chief operating officer, is leaving this month.

The company, which recently renegotiated financial covenants on a £350 million revolving credit facility, said the new plan will make it easier to produce fashion items more quickly, improve flexibility in buying, lower costs and strengthen the balance sheet. Ramos Calamonte is also seeking to “refresh the company culture” and improve the digital offering.

“I’m pretty confident that we will be able to ensure that we can weather the uncertain economic times we have ahead and can emerge out of them stronger and ready to win in these markets,” Ramos Calamonte said in an interview, adding it was clear to him “personally that we need to drive real change at Asos now.”

What Bloomberg Intelligence Says:

Asos’ amendment to the terms of its £350 million credit facility suggests profit pressure may endure in the challenging UK consumer climate. The additional £500 million deep out-of-the-money convertible bond has now a more than 900 percent conversion premium, meaning there’s pressure to rebuild margin and cash flow to at least support refinancing before it becomes due in 2026.

Most retailers are struggling against falling consumer appetite as the highest inflation in about four decades drives up the cost of basic essentials like eating and heating. Next Plc and Boohoo Group Plc both issued profit warnings last month as sales become increasingly difficult to predict. There’s little sign of improvement as a survey of economists by Bloomberg indicates the UK economy is in a recession that will last until the second half of 2023.

Higher Returns

Asos customers have increased the amount of clothes they’re sending back through the year so that often costly return rates exceeded pre-pandemic levels from May onwards. Rivals Zara and Boohoo have started charging for online returns in recent months to try to tackle the issue while Asos has not.

“We are not thinking about charging for returns right now,” said Ramos Calamonte. “It’s a core part of our commercial proposition.”

Founded in north London in 2000 by Nick Robertson and his brother with a small amount of seed capital, Asos was for many years considered a stock market favourite, reporting increasing sales and profits.

Now Asos is one of the most-shorted UK stocks as investors bet the equity has further to fall. Marshall Wace, Marble Bar Asset Management and GLG Partners have built short positions totalling 5.8 percent of Asos shares.

“Investors seem to think that the fast fashion model is doomed,” Eleonora Dani, an analyst at Shore Capital, wrote in a recent note.