ASOS Plc (ASC) Earnings Call Transcript & Summary

Hello, and welcome to today's ASOS analyst call. My name is Bailey, and I'll be the moderator for today's call. [Operator Instructions] I would now like to pass the conference over to our host, Jose Ramos, CEO. Jose, please go ahead.

Good morning, everyone, and thank you for joining us on our P3 trading update. I'm here with Sean, our CFO; and Michael, our Senior Director of Strategy and Corporate Development. It's only a month since we last spoke. So thank you so much for joining us on our call this morning, a bit earlier than usual. And I'm aware that some of you have a busy morning with other calls. So I'll try to be brief on to the point. Let me first start by updating you on our achievements in P3. I'll then share with you my perspectives on our plan to rightsize our stock, generate cash, pay down our net debt and improve our structural profitability. And finally, I'll hand over to you for questions. So the first thing to say about our P3 performance is that we are delivering on our plan and reiterate our H2 and full year guidance. We have restored profitability in P3 as expected. This is despite a 14% decline in our sales, driven in part by our deliberate actions to stop pursuing top line growth at any cost. Adjusted EBIT in the quarter was up more than GBP 20 million compared to last year and swinging from negative to positive EBIT. And we are well on track to deliver the year-on-year improvement in EBIT required to deliver on our guidance of GBP 40 million to GBP 60 million adjusted EBIT in the second half. We have done this through, first, an improvement in our gross margin of 350 basis points, more than half coming from freight deflation and the remainder to improvements in our realized selling value and sourcing. Secondly, by delivering an additional approximately GBP 33 million per month in profit optimization and cost savings measures, taking us now to GBP 200 million year-to-date in our back-to-basics program, as we call it internally. We are well on track to deliver our target of approximately GBP 300 million by year-end. At the same time, we have made progress with our inventory. It's now down 15% on fiscal year '22, and we are on track to reduce the stock by circa 20% by year-end. I'm really pleased with what we have achieved in the period to deliver on our plan. But let me take a step back for one moment and explain why this is the right plan for ASOS. In October, when I spoke to you for the first time as CEO, we had closed the year with GBP 1.1 billion of inventory, twice the size of our inventory in 2020. This has driven an increase in our net debt position of circa GBP 560 million, pretty much in line with the increase in our stock balance. Our stock issue was no doubt compounded by difficulties, predicting demand and managing supply over COVID, but it was clear that significant changes were required to the way we were operating. Today, our stock is down 15% year-to-date, and we have reduced our H1 fiscal year '24 intake by 33%. The stock write-off removed our older stock resulted in a significant improvement in the quality of the stock that remains. This stock we can now sell through our platform in the ordinary course of our business and take our stock turn to pre-COVID levels by the end of fiscal year '24, generating cash and paying down our net debt as a result. Beyond generating cash from a working capital inflow in the second half of this fiscal year and in fiscal year '24, our focus is on generating EBITDA in excess of our cash outflows going forward. The new commercial model will improve the realized selling price of our stock through a mix of initiatives, including the more relevant and updated styles, pricing, better sourcing and faster clearance of our out of date stock. We have seen that when we create a product that really resonates with our consumers and it's priced correctly, full price sales are very strong. Alongside this, we are improving our order profitability internationally, which is already yielding results, and we have made great progress on Driving Change agenda initiatives. I have already said, we're on track for our GBP 300 million target this year. This gives us an annualized gross savings of approximately GBP 385 million, driving sustainable improvement in profitability. While it's early for us to outline our growth strategy, the best way to create the conditions to grow is to again offer the best combination of fashion and excitement. And this is precisely what we're doing. I truly believe that as we restore ASOS to offering fashion loving consumers, the best products with unique styling and an inspirational shopping experience, we can grow our customer base again. But for now, we are laser focused on delivering our Driving Change agenda. And with that, I'm giving over to you for questions.

[Operator Instructions] Our first question today comes from the line of Michael Benedict from Berenberg.

I have very quick ones, if I may. First one, just on your further work on inventory next year. I think you said in the statement, the option count will be down 13% in H1. Could you talk us through how you're thinking about the impact of that on your growth heading into FY '24, please? Second one, just on the gross margin, clearly tracking well ahead of H2 guidance. Anything we should think about in terms of why there's no upgrade there? And then last one from me. I wondered if you could give us a bit of color around some of the learnings you've sort of gained from some of the initiatives you've tried and tested maybe pulled back from whether that's around premier pricing, delivery propositions or otherwise?

No problem. Thank you, Michael. Let me start with the 30% option count and the impact on next year. And it's explained to a certain extent in the RNS, what I want to say now. So what we did at the very beginning of this fiscal year was to really react very fast in how do we manage our intake to make sure that we have the right level of stock as we have said, that is clearly one of our preferences and one of our focuses this year. So we had a very fast reaction and that had a significant impact in the width of our assortment with a reduction of approximately 33% of the options that the customers can buy enough. Obviously, that has an impact on their choice, and that has an impact on ourselves. For the first half of next year, what we see is that we have been able to manage a stock reduction but with a significantly smaller impact on the width of our assortment. So our expectation is that should have a significantly milder impact on our sales. As we said in the H1 conference call, we were calculating that 50% of the impact that we were suffering was coming from external circumstances, 50% was coming from internal circumstances. So it should come to ease that situation in H1 and obviously, to get better during the course of H2. If I move to your second question about gross margin ahead of guidance and no upgrades. What we are saying is -- and actually, we said that also in a month ago, we are giving ourselves flexibility during Q4 or P4, sorry, in terms of promotional activity. And the reason is that we are really, really focused on making sure that we deliver the 20% stock reduction by the end of the year. So that is very, very important that we keep this possibility. Taking into account that we are seeing a very promotional market. We are not the only ones seen stock -- over stock or stock issue whatever you want to say it. So we are expecting that the market will be quite, let's say, animated in terms of promotional activity now during the sales season of the summer. And the last one about learning from initiatives. Well, as you know, we took a broad brush approach when we laid out our back-to-basics program, understanding that some of these initiatives would have some side effects. It's interesting you mentioned Premier because, for instance, Premier is one of the initiatives where we have seen that the side effect in the U.K. was not precisely what we wanted, and that's why we have priced it back to GBP 9.95. So we increased the price of Premier, and we have decided to go back because it was not giving the impact we were looking for. While in other cases, for instance, the creation of a minimum order in order to enjoy Premier is working well because it's helping us to avoid this behavior of consumers that order, as I said last time, 18 times a year, a lipstick with promotion and may buy not later. So that kind of initiative is working well. So I would say that probably overall, 85%, 90% of the initiatives we have put in place are doing exactly what we want. In some cases, we are either pulling back like Premier. I think it's probably the biggest example or fine-tuning them to make sure that we achieve what we want.

The next question today comes from the line of Simon Bowler from Numis.

Two for myself, if okay. The first one just being regard some of the details you've given on the composition of your inventory with 86% being less than 12 months old and some of the aging numbers that you've given. Do you expect that to be kind of meaningfully different by the time we get through to full year? And then the second question is just noting some of the comments and release around the ability to lower prices and/or improve quality on own brands whilst holding percentage margins. Just can you give any sense of how much you think you've got to be able to reinvest into own brands whilst holding that margin? And is that a reflection entirely of your own work and a positive sourcing environment? Or are there also assumptions around reduced markdown within that comment?

Okay. Thank you, Simon. Let me start with the inventory composition. So we said that right now, pretty much 86% of our inventory is younger -- I don't know younger work anyway younger than a year, 55% is younger than 26 weeks and 10% is younger than a month, which is a good composition, but it will keep on improving. So by year-end, it'll be better. Tough for me to tell you exactly how much better because, obviously, I would really need to be able to anticipate what is exactly that the consumers are going to buy, but it will be better. And our ambition is to keep on improving more and more. As we said when we were talking about the new commercial model, we really want to make sure that the inventory is for sale max 2 seasons. That means that what is both for spring/summer must be sold in spring/summer, if it's a fashion item. And next spring/summer, maximum, if it's a flow style, but flow styles are 10%, 15% of our assortment. So that means that a stock composition that is 95% -- 98% of less than a year and 70%, 75% of less than 6 months would be more our target for the next 6 to 9 months. You were talking about our ability to lower the prices, given the fact that we are seeing some gross margin improvements and how much. What we're seeing in gross margin, it's coming from a set of factors. One of them is the fact that we have simplified our sourcing processes so we are making faster decisions and simpler decisions and eliminating unnecessary costs. That is giving us better gross margin in all regions. And the other one is that we have optimized, let's say, our origins in terms of sourcing, not necessarily going more to long term versus long term, but optimizing sourcing in terms of which is the ideal origin for specific product classes. And that is coming with a good improvement for us. How are we going to use this improvement? As I always said before, we always want to price competitively. So we will make sure that our prices are competitive in the market. We potentially anticipate a price reduction in the market next year, and we will be there to fight that battle. So we feel comfortable with that. We're in a good position to do it. And which part of it is going to be coming from sourcing, which part is going to be coming from markdowns? Obviously, we don't know. As I said in previous occasions, our ambition is to reduce markdowns, to reduce markdowns not just because we want consumers to feel excited and buy at full price. And this is what happens when we offer the right item at the right price. One of the beauties of our business model is that we offer very different sets of price points. So if a consumer wants to buy a dress at GBP 30, she can buy a dress at GBP 30 without buying a dress on promotion, she can buy a dress at GBP 30 being at full price. And we want to make sure that this stress has the value, the price and the excitement, so that she buys that at full price and at the right time. So we are not sitting on the stock for long. Sorry, very long answer, Simon.

The next question today comes from the line of Georgina Johanan from JPMorgan.

Just two for me, please. Just the first one following on from the previous question from Simon. Just to understand where you sort of say you do anticipate some price reductions in the market next year and so on. When we sort of think about the balance of all of the different factors, would we expect your gross margin or should we expect your gross margin to make progress year-on-year in fiscal '24? Or actually is it more sort of stable outlook, reasonable given those comments? And then the second question was just on the market more broadly. What is your view on sort of how excess inventories are across the market more broadly now? Are we getting to a point where we can sort of start to think about them having been sold through? Or actually, do we think it could be another sort of quarter or two yet? I'm also mindful of the number of retailers, including yourselves as sort of talked about selling stock on to various off-price sites and so on. Are you concerned that there might be sort of buckets of stocks that sat with these sites that might sort of continue to pressure promo activity in the market in the next quarter or two? Just interested to hear your views on that, please.

Thank you, Georgina. So I was writing down. Otherwise, I forget the questions. So on price reductions, I mean, to be honest, I'm pretty much echoing what I have also heard from some of our competitors that they are planning to reduce prices. So difficult for me to tell you to what extent this is going to be a big price reduction or a smaller price reduction. We are ready for that. We will -- as we have said before, we want to price competitively. And if the market is going to go in this direction, we will go in this direction. One of the beauties of our business model versus the business model of some of the omnichannel is that we are much more flexible. We don't need to relabel stock that is sitting in 3,000 stores all over the planet. So our commitment with our consumers is that we will offer them the best fashion at the best price, and we're going to stick to that commitment. Then I think you were asking me for a little bit of outlook of next year. And my apologies, but I'm not going to give you the outlook, sorry, Georgina. But obviously, our commitment, if you want -- as we stated before, is that we want to improve our gross margin over time. The improvement that will be coming from sourcing, the improvements, as you were mentioning and Simon was mentioning before, that will be coming from a reduction on markdowns because what we want is to make sure that our consumers find the right product at the right price and they buy it immediately. And that will protect our gross margin, but we'll also ensure that we get the stock turn we want because sitting on the stock for long, even if you get a little bit of a nicer margin later, it's not a winner. It doesn't work well. We want the stock to produce return fast. On the excess inventory across the market, well, that's a great question. I think, to be honest, probably some of the brands will already be getting out of it by the end of this fiscal. So by the end of the summer, sorry, which is our fiscal maybe not for all of them. But some of them will be getting out of them, probably not everyone, I think, to be out of the problem -- first of all, sorry, first of all, I think it's a pretty widespread problem. And the fact that we have been talking to some off-price channels gives us a very clear vision that it is a widespread problem, not just for us, even though, of course, we have it, as we've been very clear about it. Second, I think that some people have taken a more decisive action and some people have been trying to procrastinate a little bit more. Those who took the decisive action will be out pretty much by the end of the summer or maybe the first month of autumn/winter. For those who were procrastinating a little bit more, it might be becoming more of a chronic problem that can stay much longer, and that will be a problem for them. We're happy not to be in the second part. And then when you say that the off-price channels are full. Well, that's a good question. They might. Tough for me to tell you because we are not in that market, they might. What we see is that both markets are not necessarily connected. So there are consumers who tend to buy mostly on off-price markets. And there are consumers who tend to buy mostly on the main market, on the core market. So it might be that it is kind of full and probably some of these off-price players will have already stocked for more than one season. That's potentially true. But again, that would speak in favor of those who have taken early decisions rather than those who have been procrastinating.

The next question today comes from the line of Emily Johnson from Barclays.

I've got three questions. The first is you made the comment on trade suppliers, removing credit and your expectation of that impact on cash to be pretty modest. Can you walk through what the kind of practical implications are of that trade credit and cover being removed. The second question was around the U.K. Premier customers. So you mentioned that you've reduced the price point there. Can you talk about what sort of testing you did before changing the consumer proposition -- the Premier consumer proposition. What your expected impact was? And now that you've reduced that pricing again? Do you expect the number of U.K. Premier customers to grow again or to just stop declining? And then the third question was around some of the reports -- press reports about ASOS receiving a bid last year and I guess some of the new major shareholders coming into the fold recently. Can you talk about how you as a company think about M&A, the kind of how you think about the value of ASOS and how open the Board is to kind of potential bids?

Thank you, Emily. I'm going to take a little bit of a pause. I want to give the first one to Sean, if you don't mind.

Emily, thanks for your question. I think with the trade credit piece, I think the first thing is to understand how it works. And it's very much a contract and a relationship between the supplier and the trade credit insurer themselves. We're not party to it. So we don't have first-hand sight of what's going on. But through conversations with our suppliers over the last year, we know that there's been a tighten in the industry, and we know that there's been a tightening of credit insurance providers on us, and that has reduced until more recently, we've become aware that some credit insurance have been cut or reduced. You asked about the sort of practicalities. Well, the practicalities for us is that it does lead to conversations with our suppliers. But we have a very diverse supplier base over -- well over 1,000 suppliers and with no individual supplier contributing more than 6%, 7% of our intake so we're very diversified. So whilst we're aware that cover has been reduced, it's led to conversations about terms with a handful of suppliers. We manage it case by case so we take into account the entire relationship that we have with them, how they fit into our buy the size, et cetera. And to date, it's been a very modest impact in terms of what that's meant for sort of us changing terms and working with our suppliers to find an alternative approach.

Okay. Let me go through the -- to your second question. about the Premier price in the U.K. As I said when we laid out the back-to-basics plan, the idea was to really go with this broad brush approach and touching the market as fast as possible. We really wanted to be really action-oriented and making sure that we were having an impact. Assuming that, that would bring some risks and we were willing to run those risks. In terms of -- if we have used different -- if you want -- I think you call it testing before we made the change, we have done different approaches in different markets to learn as fast as possible. And that is what is giving us confidence that we are now making the right decision in that sense because we have seen how different markets have behaved. And we think that, that is the best decision right now. And as I said, this idea of acting fast was also part of this change of culture in ASOS. We really want an action-oriented culture. And we are okay with taking some risks and making some mistakes. That is, again, one of the beauties of our business model that we are more flexible than other players, and we really want to use this flexibility to our advantage and to the extreme. In terms of expectations of growth or no decline, what we have seen is that we have stopped the decline in the U.K. So we are happy to see that. And obviously, our ambition is to fuel future growth, future growth that will be built not only on the price of Premier, but also will be built on making sure that our proposal is exciting, we have the best clothing at the best price with the best experience, and we keep working on that direction. So it's not just to stop the decline, why we're doing it. On your last question about the news about the bid and so on and so forth. As you know, it's our policy not to comment on this kind of rumors, and I will not comment on these kind of rumors.

The next question today comes from the line of Miriam Josiah from Morgan Stanley.

Two questions from me. Firstly, just on the current trading. Could you just give us a bit of color on how you exited the quarter? Did you see worse or better trends in May versus March? And perhaps if you could talk about consumer behavior, particularly around what you're seeing around returns rate, if there's been any changes around that? And then secondly, just going back to the sort of comments on price reductions and perhaps the timing of that. Clearly, you're on track with your profitability initiatives. And if you perhaps did see slightly better promotional environment over the next quarter or you were able to clear through stock faster. Is there any chance that you could perhaps start to invest into price in Q4 to try to pick up the growth sooner? Or should we really think about that as more of an FY '24 investment?

Thank you, Miriam. Let me start with the current trading. Let me use a little bit of Spanish humor here. I've been complaining about the weather quite a lot. So I guess if you guys have a window close by, you can look through the window, I cannot complain so much. Now I almost feeling like I'm in Madrid. It's quite warm like this. So obviously, that is having an impact on -- not only on us, on our competitors, I have seen some of our competitors this morning referring also to that. So I think, obviously, we have seen a change in the trend. As we said back a month ago, we were seeing that 50% of the impact was due to internal decisions, but 50% of the impact was due to external decisions. So we see a little bit of a change in the trend. It's unfortunate that it has come quite late in the summer because changing the trend at the pretty much mid-June is late. But anyway, good weather is always welcome. And that's always great. In terms of consumer behavior and returns, what we are seeing is as a result of potentially the cost of living prices and the Ukraine war, we saw around April, May last year, an increase on returns that is kind of stabilizing around prepandemic levels, a little bit above prepandemic levels. This -- in our case, is not different, is pretty much the same. Our returns rate is generated by a set of conditions, not only just this one, we see returns changing because of the country mix. So there are certain geographies that have a higher return rate which, by the way here at least are performing very well and lately for us is also based on the product mix. So the going out clothing has a higher return rate and is performing better than going out clothing so returns rates are going up also because of that reason is related with the tenure of consumers. So consumers that have been with ASOS for longer term to return more because they know the system and it's also related with a method of payment. So what we see is that there are a set of reasons why retails have increased beyond the cost of living crisis. Cost of living crisis is one of them, but not the only one. And we expect that returns rate will kind of stabilize because of the cost of the living crisis, but the other factors will continue evolving and depending how the different geographies perform or how the different programs perform return rate might evolve. The way we're tackling it, and I've been -- I've tried to be clear about that is like we're going in 2 directions. One is we really are betting on improving our basket economics because this is the best way to absorb the impact on returns, and we are very happy to see that our average basket value continues growing, healthy and not only because -- I mean it's because of the increase in the average sales price, but we see a number of pieces that is quite stable with a minor, minor, minor decrease. So it is a healthy growth. And we're also tackling the returns that are not useful. I mean a consumer that is buying 2 sizes because she is unsure about which one is her size is not useful. A consumer this buying 3 dresses because she is unsure, which dress she likes better is a useful return. So we are still committed to that. In terms of the price reductions and the promotional environment, we expect a quite animated promotional environment this half, precisely because of the fact that the heat has come late, that is going to push promotion, and we are seeing already that is pushing promotion. So in that sense, that's why we have given ourselves the room and the flexibility to invest in promotion in Q4. I think price reductions will only come next fiscal because it's going to come with a new collection. I think right now, I don't really think that there are many retailers probably known for bringing new styles to the collection right now for the summer. So everybody is going to do it when the autumn collection starts hitting the store that it will be probably in the last days of August, the first days of September. That happens to be our Q1 or the very, very end of Q4. Thank you, Miriam.

The next question today comes from the line of Nicolas Katsapas from BNP Paribas Exane.

I actually only have one. I just wanted to ask really about how the consumer is behaving with respect to buying promotional goods. And I'm thinking more in terms of third-party brands versus your own brands. Are you having to promote your own brands a bit more because consumers tend to want to buy the Nikes and so forth? Or is it sort of fairly similar? And then what is your -- I mean, there's a piece in the statement that says your own brands sell at 40%. But I know you're reducing sort of brands at the tail end and you're reducing your option count. So I just wanted to know what is your expectation for your own brand portion of your sales going forward over the coming months and years?

Thank you, Nicolas. So no, the behavior between the third-party brands and our own brands is pretty much similar. I think that the red thread here is not the name of the brand. The red thread here is whether it's the right style or not. I can tell you with great confidence that we see some of our styles sold out in a matter of hours. So it's not related. Some of the third-party brands are performing very well. And we see, for instance, I think we mentioned that in the statement, we see sneakers performing very well, and some other third-party brands are not performing well. And then we have to also go on this promotional effort. So no, it's more -- the consumers want the right style at the right price at the right moment. And then these 3 things have to be very, very clear. Otherwise, it doesn't work. So no difference. Then on the expectation going forward, we still bet on our own brands as an absolutely critical part of our value proposition. So we are not expecting to reduce this 40% quite, I want to say, it's not quite the contrary. We keep on betting on our brands. The consumers decide. If it's 40%, if it's 35% or it's 45%. But our ambition is that our own brands are a critical part of our value proposition because it's only at ASOS. They can only buy ASOS this and Topshop at ASOS and that is very important. And then the beauty of how do we mix these brands with the curation of the best third-party brands is part of our secret sauce. I'm telling you the secret sauce. I will have to kill you Nicolas, but that's okay. Thank you, Nicolas.

The next question today comes from the line of Ben Hunt from Investec.

You alluded to orders being 30% more profitable in your statement, which I think probably works out about GBP 3 in order. And I was just wondering I mean perhaps it's early days, if you sort of see further upside to that number? And anything you're seeing in terms of basket sizes or reduced frequency from all the profit and optimization measures that you're implementing?

Ben, would you mind repeating the second part of the question? .

Yes. Just any sort of comments about basket sizes and frequency as a result of the profit optimization measures that you're implementing?

Okay. Thank you so much, Ben. Sorry, I'm writing it down so that I don't forget. So profit per order, yes, we announced that is 30% growth versus last year. Do we see further upside? The answer is yes, our ambition is to increase it even further. We want to make sure that what we sell to our consumers produces the best results for them and the best results for us. We can still optimize part of our investments. So -- and we continue investigating on how to optimize our marketing investments. We can still optimize our gross margin, and we have talked a lot this morning about gross margin and how this is going to come and the evolution of not only the intake margin but also the markdowns. So we see an impact there. And if you want, and that will be the perfect segue to your second question. We want to optimize the basket size. The whole idea of ASOS creating this unique environment where you put together our own brands and third-party brands around this concept of the outfit creates the perfect platform for consumers to cross-sell -- to cross-buy for them, cross-sell for us. So we are really investing on making sure that the basket size can grow. And that's why back in the days, we invest -- we included categories like beauty, and that's why we want to ensure that the integration between the different categories is the best possible integration. So yes, we see further upside. And we are really pushing to get further upside during the course of the coming years. Then when I move to basket size and frequency as a result of the profit optimization, what we have seen -- here, we are seeing two different things, and let me explain in basket size and frequency. What we have seen is that some of these 6% of consumers that we mentioned a month ago that had this kind of very unprofitable behavior for us where consumers with really high frequency, but that is not necessarily good for us because we're consumers with very small buckets. And as I said, and I use the image to illustrate where consumers that were buying 18x a lipstick on promotion, and might not buy later. So there was a little bit of the perfect storm. So when measuring frequency, we have to -- we are trying to make a difference between these type of consumers, and let me call it, more normal consumers. So we are -- these type of consumers that have very, very high frequency, we are losing some of them and rightly so. But the average consumer, we are not seeing a massive reduction or a reduction in the frequency. Basket size, as I said, we are seeing an increase in basket size. And the beauty of the increase is that it's not coming from an unbalanced equation, it's coming from a size of the basket that is pretty much stable. I think the reduction is 1%, so it's been flat, while we're seeing an increase in average sales price. So it's a healthy increase as opposed to a completely unbalanced that would be a help.

Okay. And sorry, just -- forgive me for my ignorance, but how much actual gross margin dilution has there been in this period from the actual reduction in inventory that will be sort of clearly except...

Sorry, Ben explain to me what do you refer to as margin dilution?

How much gross margin dilution has there been from the need to have to clear the extra 5% of inventory that you've achieved in this period?

Yes. So the reduction in inventories for our regular trading, so not been a dilution as such from clearing. And promotions are part of our business model. And we've been doing less promotions as part of our new operating model. So reduction in stock is just through regular trading and our focus to realize cash from our inventory levels.

Our final question today comes from the line of Adam Cochrane from Deutsche Bank.

Two quick questions, if I may. The first one is on the option count and the depth of buy. You've put a lot of numbers around there with the sort of reduction in option count you had in various periods. Would you just be able to give us a time line sort of starting off with when your option count was, I don't know, at 100%, and then you got the minus 30%, then minus 13%. How are we expecting that option count to evolve? What's the ideal number compared to maybe a point of reference of, I don't know, 2020 or something? I'm just trying to work out the shape of when you're talking about that option count? And then on the depth of buy is -- how are you thinking about that going forward? Is it plan to have a wide option count, low depth of buy and then test and repeat to refill if particular lines work well? And then is there a huge difference by region in this plan? So certainly, maybe when you look at the last quarter is being relevant or not for that question. But it's really, I suppose, trying to get the picture of how your shape is going to evolve? And the second question is on -- you talked about customer churn of unwanted customers. My question is on customer acquisition. How many new customers are you managing to sign up? Is there -- on the marketing spend, are you able to still achieve a good return? Just a bit of an explanation between the churn and any new customer acquisition and how maybe -- whether marketing is actually having a sufficient payback in this environment?

Thanks, Adam. I'll start on the first one, and then I'm sure José will build on it. In terms of option count, we've given kind of a lot of disclosure in the RNS to try to help. I guess, demonstrate the impact that cutting volume, specifically around the Driving Changes agenda have had on the option count. So not necessarily going to give a kind of potted history of what happens. But I guess in terms of the trajectory going forward, the idea is that reduction in option count will ease as we've been able to take, I guess, more forward-thinking action around reducing volume. In terms of aspiration on ongoing basis, you're exactly right. So the idea would be that we don't know today what the perfect option count is, but the idea is that we maintain breadth while having a shallower buy per SKU. We would back the winners more and reduce intake on the long tail. And that will be complemented by the fact that we can now increasingly use B2C, and we're increasing our speed to market with testing that. So that's how we think about that. And the plan there is it creates scarcity value in our products. And so we want our customers to come to the site. They see the product, the first price, right price. And they also realize that if they don't buy it now, it will sell out rather than just waiting to the product to go in sale. That doesn't necessarily happen tomorrow, but that's the direction that we're taking the business in.

Yes. Let me want to elaborate. As Michelle already anticipated, I was going to elaborate. I can't help it, a little bit on it. On the option count, I talk a little bit. There is no formula here. It's not that we need 200,000 options, 500,000 options. It is true, our mission is to serve a lot of different consumers, all fashion loving 20-something in quite a few regions. So we need a wide assortment. And that means that if we reduce the width of this assortment too much, that has an impact on our capacity to sell consumers. So without having a formula, our ambition is always to have a wide assortment. And a wide assortment, full of relevant options, not just of numbers. So this is -- there is a lot about making sure that what we sell is relevant. In that sense, formulas like test and react are absolutely critical because that ensures that whatever we are keeping in the assortment is relevant. Then in this idea of this wide assortment is generated by lower depth then the answer is yes. Yes, that's what we're doing. This is where we're moving towards. We're moving towards lower depth and more flexibility because the access is not only lower depth. The answer is like we learn with a lower depth and then we react. And you might be repeating this one, but is -- and more depth or learning from why and a specific style is selling and bringing new versions, let me use that word of this style. And that will built in this idea that Michelle was indicating of scarcity. This is not about offering the same dress to 50,000 consumers. That is the opposite of exciting, and this is not exactly what we want to do. We want to learn why this dress is popular, and we want to bring different version of this dress for different types of consumers. . If a specific print is working well, then there will be different consumers that will want different shapes or different fabrics, they will be willing to buy at different price points. So that is the idea. Obviously, how we declined this assortment by region, that depends on the behavior of consumers, and that is one of the beauties of our business model that the fact that the assortment is sitting in a reduced amount of locations, in our cases, it's 3 locations that are our warehouses, gives us the flexibility that we can serve different assortments with only want stock pool. That is always a better model, more flexible than when you need to have 3,000 stores because, obviously, the complexity of managing 3,000 assortments is higher. Let me go to your second question about marketing and customer acquisition and customer churn and so on and so forth, which is a quite interesting one. From the very beginning, we said that part of this Driving Change agenda was to focus more on excitement and less on promotion. So what we are doing is testing how can we pivot our marketing to focus more on this kind of attraction to consumers. We are learning along the way, and we are seeing some of the actions are working better, some the actions are working worse. We're still learning more for sure. But what we're seeing is that in this difficult market because we said that this is not a difficult market. We start to see some clearer ideas about how to move forward and how to pivot our marketing towards this type of approach. This is our type of approach that obviously will speak to both. We'll speak to existing consumers and will speak to new consumers. And that is not -- we see ourselves with room to grow in all our markets, even in our core markets. Remember that this is a market that is super fragmented. So the market leader maybe has a market share of 6%, 7%. There is massive room to grow for us even in the U.K. So we are not worried about that, about attracting new consumers in the U.K.

This concludes today's question-and-answer session. So I'd like to pass the call back over to José Ramos for any closing remarks.

Well, thank you very much, everyone. I know it's a busy morning, and I can only thank you for the 50 minutes you have been with us. As always, super happy to be with you and really excited to continue delivering on Driving Change agenda and to continue making sure that ASOS is the best place for fashion loving 20-something consumers. So looking forward to our next iteration. Thank you so much. Have a nice.

This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.