Asos: Buy case is growing despite rise of Shein, Vinted and Temu, says broker

The arguments for buying ASOS PLC (LSE:ASC) are growing stronger, reckon analysts at Shore Capital, following recent signs of operational progress that have led to much improved profit margins.

Analyst Katie Cousins put out a note pointing out that the online fashion group has reduced inventory levels by 60% since 2022 and improved product freshness, with 80% of items now under six months old. This helped lift gross profit margins by 490 basis points in the first half of 2025.

Own-brand products now account for around 40% of sales, with 15% driven by its Test & React model as a "key enabler", a level that is expected to rise to 20%.

"Although there has been a focus on own-branded sales, key partnerships also remain important," said Cousins, pointing to 25 new brands added in the first half, with 40 said to be launching in the second but with a more selective process.

Some brand partnerships include "high-impact events", such as with Adidas, where Asos designed two exclusive trainers as well as 10 exclusive pieces through the Test & React process that saw traffic increase by 70% after the launch and a 90% full price sell-through in less than two weeks.

"We anticipate Asos will seek similar exclusive opportunities with relevant brands going forward."

As well as increased own-brand sales, the analyst noted margins also benefited from lower markdown activity and a higher full-price mix at the top line, while automation and fulfilment changes helped reduce distribution and warehouse costs by 20%.

The broker acknowledged macroeconomic headwinds and ongoing pressure from low-cost competitors and re-commerce platforms, such as Shein, TikTok Shop, Vinted and Temu.

"Although ASOS is now targeting a higher quality and price point, we believe the ASOS brand still has quite a strong association with fast fashion, and the continued popularity of these sites is likely to continue putting pressure on top-line sales."

But signs of improvement are emerging, with Cousins saying she and investors want to see further progress in top-line growth and customer metrics, and build confidence in the investment case.

"ASOS was once the go-to destination for UK online fashion; however, over the years through missteps it should be said plus changes in consumer preferences, a broad stock offering, not the strongest private label at times, and increased competition, we believe the group lost an awful lot of its competitive edge.

"Hence, it has been encouraging for us to see the steps taken by the group to attempt to return the business to viability and relevance, and while we believe there is still a lot to do, there does appear to be green shoots emerging."