Good morning, everyone. Ian Dyson here, Chair of ASOS. I'm joined in this meeting by our new CEO, José Ramos, and our COO and CFO, Mat Dunn. I'm here to talk about the board changes we announced this morning, and then I'm gonna hand over to Mat and José, and they'll take you through the trading statement. I'm really delighted to announce José as our new CEO. Since he joined the business in early 2021, he's done a superb job as chief commercial officer. He's driven our products and trading strategy globally, made huge changes to the commercial and trading function. He's also a key member of the executive team that built and presented the ASOS strategy at the CMD that we presented last November. He has a stellar fashion and retail CV, having worked at Inditex, Carrefour, Esprit, and latterly as CEO of Salsa Jeans.
In short, the board believes José is the perfect person to lead the delivery of the exciting plans we've laid out for the business. With his deep fashion, retail, and e-commerce experience, we're also standing in good stead as we look to navigate through what looks like a difficult economic and consumer environment. José is gonna take on the CEO role with immediate effect, with Mat continuing as COO and CFO. I'd like to take this opportunity to thank Mat for leading the company over the last eight months. He really has done an excellent job in an increasingly challenging external environment. We've also announced today that Jørgen Lindemann will take over from me as chair on the first of August. Given my already long tenure on the board, I was clear when I took over the chair role last autumn that I had three objectives.
To work with Mat, José, and the team to deliver against our plans, to appoint a new CEO, and having done that, to work with the board to find my successor as chair. Jørgen has made a big impact since joining the board. His experience in digitally led and retail businesses positions him perfectly to work with José, the executive team, and the board to deliver against our plans. It's also a real positive to be able to have a seamless transition at chair level, particularly in the current economic environment. Mat will take you through the trading statement in a minute, but first, I'm just gonna hand over to ask José to say a few words. José?
Thanks a lot, Ian, and good morning, everyone. I am really delighted to be with you all on this call this morning. ASOS is, without a doubt, a very special company, and I am really, really excited to have the opportunity to devote all my energy and passion as CEO to turn ASOS into the global destination for fashion-loving twenty-somethings. I have spent 18 years in this industry, working in different companies all over Europe, from Spain to Germany and Portugal, and of course, here in the UK. With the perspective of these years, I can say that I have always been impressed by the strong fundamentals of ASOS. The fashion credibility of our brands, our capacity to stand them in conjunction with the most relevant international names in the industry, and our differentiated visual language that creates a unique connection with fashion-loving twenty-somethings.
I am convinced that we have a great opportunity to continue building a winning business formula upon these solid pillars in the coming years. Before I hand over to Mat to talk to you on our recent results, I would like to highlight three important messages from my perspective. First, I would like to emphasize the strong operational and strategic progress we have shown in the last months. Good examples of this progress are the evolution of the sales of our brands, the successful integration of Topshop, and the setup of our partnership with Nordstrom. This positive progress has shown in the sales evolution in most of our geographies in this quarter. The acceleration of our growth sales shows the increasing quality of our value proposition for consumers. However, this positive evolution has been at least partly offset by the impact of inflation on consumer behavior.
This has had some impact on demand for sure, but more significantly, the sharp jump in return rates we have seen has had a disproportionate effect on profitability. These short-term challenges are something we need to navigate in the coming months. Still, I firmly believe in the solid fundamentals of our business, as I mentioned before, in our long-term potential and our ability to capture our fair share of the GBP 430 billion total fashion-loving twenty-something market opportunity. I'll now hand over to Mat.
Thanks, José, and good morning, everybody. Before I start, consistent with the approach taken at P1 and H1, all sales numbers quoted throughout the call are on a constant currency basis and reflect total sales growth. In addition, all the growth numbers we quote exclude Russia from the base, following our decision to suspend sales to the country on the second of March. We have also quoted performance inclusive of Russia in the base period in our RNS to assist with reconciling numbers on your side and to align to the full year guidance. We delivered 4% revenue growth in P3, which comprises March, April and May, against the prior year comparative growth rate of 47%.
The UK grew by 4% against an incredibly strong prior year comparative of 85%, while we delivered a continued acceleration in the US to 15%, hurdling a 14% growth rate in 2021. Europe declined by 2%, which is behind our expectations, and our rest of world segment declined by 9%. At our half-year results, we set out the actions we have taken as we face into a more challenging operating environment, and specifically the work we have done to improve our stock profile and drive increased unit and availability in the face of the global supply chain challenges during the first half.
This, combined with an increase in event-led demand linked to the return of weddings, holidays, events and festivals, has driven an acceleration in growth sales in P3. At the same time, at the half year results, we called out two key H2 uncertainties, the impact of inflation on consumer discretionary spend and the impact of geopolitical risk on consumer sentiment. We knew that P3 would give us valuable insight into the impact of these on consumers. With three months of growth sales and two months of actual returns for March and April now available, we are now able to update you with more clarity on what this will mean for our guidance for the balance of the year.
While we have seen an acceleration in growth sales, as I have mentioned, this has been partially offset by significantly increased returns rates in April, which we have seen as we got the returns back in May. In order to understand this change in April, we've worked to isolate all the known impacts, including country mix, payment mix, and product mix, and we are still left with a sharp underlying increase from March to April. Given the timing and the extent of the change in behavior, we believe that this clearly shows that inflationary pressure is being felt by our customers and impacting their pattern of spending. The way they shop may adjust over time, but we are taking swift and decisive steps to minimize the impact.
It has been encouraging to end the period with 10% sales growth, even after incorporating a similar returns expectation for May as we have seen in April, with improvement across all key territories. This is supportive of the sales growth that we expect to see in the balance of the year. Furthermore, we have also seen robust market share performance within our key territories, which reflects the continued attractiveness of our customer offer. Moving on from sales to gross margin, let me now cover the factors which has led to a 310 basis points decline. As anticipated, we saw sustained levels of promo activity in the market and higher freight costs, although the rates we have locked in are favorable to the market, they are higher year-on-year.
Gross margin has also been affected by product mix, as some casual wear categories have been more resilient than expected. While we are clearly navigating significant levels of short term uncertainty, we remain focused on ensuring we maximize our long term potential by progressing the building blocks we laid out at the Capital Markets Day back in November. We'll give a much fuller update again at our year-end results. Before I hand over to José to talk through our commercial performance, we have some key areas of strategic progress for the quarter that we'd like to share with you today. First up, we have further expanded our Partner Fulfils offer, adding additional width to the assortment of stock available ahead of our plans.
This has been done in support of key product launches with Adidas, namely the February launch of the Ivy Park collection, as well as the new Spring Summer 2022 collection, which includes 250 additional styles. We have further U.K. width expansion starting this month, with just under 500 additional new styles planned, and we are also on track to roll out Partner Fulfils to both Europe and new brand partners by the end of FY 2022. We have also grown our Premier customer base by a further 19%. This is extremely important to us as it means that we convert our customers into more engaged shoppers, driving improvements in frequency, average customer value and conversion.
I'll now hand over to José to talk you through our progress against the commercial pillars of our strategy before taking you through some more detail on territory performance.
Thank you, Mat. We shared with you back in October our ambitions to double down on our fashion offer and to add GBP 1 billion of sales to our own brands in the medium term. I am pleased to share with you that we have started to experience a significant growth of our core brand, ASOS DESIGN, especially in the last eight to 12 weeks, resulting in a 5% average growth over the course of the last quarter. This trend is even more remarkable if we look at the part of our assortment more focused on occasion dressing, like ASOS EDITION, where we have observed a growth beyond 80%. In the same direction, Topshop has shown a very positive evolution. We are now more than a year on from the Topshop acquisition, and P3 is our first quarter where we have largely a like-for-like comparison.
From a sales perspective, we're pleased with our continued performance as we have delivered 70% growth, primarily in the U.S., U.K. and Germany, again, underpinning the strength of the Topshop brands in these key territories. We spoke to you at half year about our plans for the second half. I can confirm we have increased the amount of newness we're bringing to the market with up to 350 new style drops per week. We have also accelerated our speed to market with 70% of Topshop created on short lead time, up from 65, and 60% of Topman up from 40. I would also like to highlight an important moment for ASOS. For the first time in our history, ASOS has gone physical. In the month of February, we have launched ASOS | Nordstrom, an immersive shopping experience in The Grove in L.A.
An experience we have rolled out to 11 additional stores, including New York, Chicago, Dallas and San Diego in the month of May with an expanded assortment available on Nordstrom.com. Through this launch, we dropped more than 230 styles across summer holiday dressing, swim, party, and evening wear, as well as denim, casual, and athleisure for both men and women, creating a unique opportunity for American consumers to get to know and to experience ASOS in a different way. Our dresses have been very popular, with almost 650 of them sold in the first two weeks in L.A. The Grove alone. Before I turn to our performance by territory, let me give you my perspective on the recent changes we've seen in consumer behavior, particularly returns. I reiterate Mat's point that given returns are specifically linked to...
Specifically linked to any specific brand, product, or payment type, we believe they are driven by the inflationary pressures on our consumer disposable income. We also know that the sharp increase in return rates during the period happened at the same time that consumers started to feel the pinch. For example, in the U.K., we saw a sharp increase in return rates coinciding with increases in national insurance contributions and increased energy, food, and fuel prices. We have a short period of data available. At this moment, it's difficult to say whether this is just an initial knee-jerk reaction to changing conditions or whether it could last longer. In any case, I take great confidence from the accelerations we have seen in our gross sales over the periods.
We view these as a good indication of the attractiveness and competitiveness of our offer, as it shows the fact that our market share remains robust across our key territories. Looking at the situation from a territory perspective, we can observe different performances. The U.K. grew at 4% as consumers shopped into occasion wear and holiday products, lifted by the return of weddings, festivals, and holidays. This drove strong gross sales performance, which accelerated through the period. However, we saw a significant increase in return rates, which offset some of the growth at a gross sales level, and that coincides with when consumers in the U.K. saw increases in national insurance contributions and increased energy, food, and fuel prices, as we explained before. On the other hand, the U.S. continued to outperform the group with a strong shift back into occasion wear.
One year on, the Topshop brands also continued to drive growth through both the ASOS website and the wholesale relationship with Nordstrom. ASOS has grown its market share in the U.S., and strong Premier penetration has supported an increase in consumer engagement. Unfortunately, E.U. declined 2% versus last year as returns rates in some countries have trended to above pre-pandemic levels as inflationary pressure and the associated consumer uncertainty have likely impacted consumer behavior. Consumer demand for going out wear has significantly increased, and we have also seen consumers increase their usage of buy now, pay later payment methods. Rest of the world was down 9%. However, pleasingly, we saw Australia return to growth, supported by improved delivery propositions, a reactivation of Premier, and a successful targeting of local moments such as Click Frenzy.
I'll now hand over to Mat, who will talk you through the outlook.
Thanks, José. In determining this outlook, there are a number of factors that we have considered, which I will lay out for you today to help contextualize the assumptions we've taken at both the bottom and the top end of our range. Given the level of volatility, we have necessarily provided quite a wide range of outcomes. Against the current backdrop of heightened consumer uncertainty and significantly higher level of returns, we now expect sales to be in the range of 4%-7%. This implies an acceleration in the second half when excluding the impact of Russia, and is consistent with our exit rate of 10% in May and weaker comparatives in P4.
In terms of profitability, the net sales impact alone, without taking any of the cost impacts and increased returns into account, would probably have led to a circa GBP 40 million reduction in PBT, taking the range down to around GBP 60 million-GBP 90 million. However, the magnitude and shape of returns is clearly a major input on our profitability, as it's the least profitable way for consumer uncertainty to manifest itself. As a result, we have revised our expected adjusted PBT for FY 2022 to a range of GBP 20 million-GBP 60 million. For those of you who think in EBITDA, this equates to just over a 4% EBITDA margin, even at the bottom end of the range. To help contextualize our revised range, I'm gonna talk you through the assumptions we have made.
At the bottom end of the range, we have assumed a continuation of April returns levels for the balance of the year, and we have also allowed some room for a weakening in growth sales given the pressure on consumer. At the upper end of the range, we are projecting a continuation of May demand trends against soft, against softer comps, but with consumers also adjusting their buying behaviors and a result in improvement in returns from April levels. Along with the impact of higher returns on warehousing and delivery costs, our updated guidance also takes into account both increased markdown and labor inefficiency resulting from the higher levels of returned stock. To partially mitigate these impacts, both now and into the future, we have taken a number of swift and decisive measures.
These include taking some additional pricing actions on higher return categories, refining our customer offer to incentivize lower levels of returns, reducing our investment levels somewhat, and looking to minimize discretionary spend wherever possible. Obviously, as the pattern of behavior becomes clearer, we will consider further action as appropriate. It's clearly too early to discuss any of the further options, as we are still only talking about one month of actual behavior, but as you will know, we have a highly variable and flexible business model and have multiple levers to pull to adjust profitability over the short to medium term. From a cash flow perspective, this profit impact, combined with an investment in working capital, will result in net debt being in the range of GBP 75 million-GBP 125 million.
This investment in working capital arises from the returns profile in part, as well as bringing in autumn winter stock earlier than last year, in line with normal levels of build for peak as the supply chain challenge is normalized. To summarize, while the short term undoubtedly remains challenging, we've strengthened our position with good operational and strategic process, progress made over the period. As José said at the start of the call, we firmly believe we are well positioned to capture our fair share of the GBP 430 billion total addressable market opportunity. We'll now hand over to questions.
Thank you. We will now start our Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad.
If you'd like to withdraw your question, please press star two. When preparing to ask your question, please ensure that your line is unmuted locally. Our first question comes from Anne Critchlow at Société Générale. Please go ahead. Your line is open.
Good morning. Thanks for taking my question. It's on return rates. So I'm just wondering how many percentage points above the pre-pandemic level return rates are now on average, and which countries have seen them go up the most? I mean, I'm guessing it's U.K. and Germany. And also, please, could you remind us how the return rates have changed over previous quarters, just so we can understand when the comps get easier. Thank you.
Hi, Anne. It's Mat. Let me answer that question. In terms of return rates versus pre-pandemic, I mean, again, it's important to say it's April. We've seen very different behavior in April. What I'm gonna comment on is what April return rates would look like rather than being able to, you know, extrapolate for the year, because obviously we still need to see that play out. In terms of April return rates, relative to pre-pandemic levels, they would be around, probably at this point, around 150-200 basis points higher than pre-pandemic levels, if you took and normalized for all the factors I spoke about before. That's where they would be sitting.
In terms of the country mix, actually, we've seen biggest increases in Northern Europe, less so in Germany, and we have seen some movement, as José referred to, in the U.K. So those would be the big areas, but we have seen increased returns rates across every geography. So this is a feature we're seeing across all of our consumer base. In terms of the phasing of returns rates, again, they'll vary by month depending on what we're doing. But I think, you know, what we've assumed for the balance of the year is that at the bottom end of the range, that behavior in April continues relative to the normal level of returns rates that we would see. So that's kind of how we factored into the guidance.
Okay, thank you.
Thank you so much for your question. Our next question comes from Simon Irwin at Credit Suisse. Please go ahead.
Hi, everyone. A couple of questions. The first one is to José, which is really how committed are you to the strategy that was announced, in whenever we are kind of October, November last year, you know, from your perspective, and I guess also that presumably includes the kind of slightly newer look at the board. Secondly, can you just talk a little bit more about kind of elements that you've discussed around profit protection, in particular, you know, whether you're thinking about you know, paid for returns or other methods of getting these levels down?
Hi, good morning. Well, as you know, I was a very active element of the strategy that we presented in October, November. I already forgot when. I am totally committed to this strategy. I think this strategy was built on the solid pillars that I mentioned before and is going in the right direction. Obviously, we have to be flexible in the sense that how we are going to navigate these troubled waters that we see that are coming right now. I would say that this is pretty much at the core of this industry, that we always have to be ready to react. The pillars of the strategy are completely right and we are still committed to it.
In terms of the second question, you want me to.
Yeah. Maybe we can come back.
Okay.
Simon, in terms of your question on returns mitigation options, I think it's important to remember it's one month of returns, and as I alluded to on the call, we have taken a number of, I guess what we'd call no regret decisions that we think will optimize our customer proposition. We still believe that free returns are a core part of our offer, and therefore, you know, some of the other measures at this stage are not necessarily things we would consider. As I also alluded to, there are lots of other things we could do if the behavior is sustained. I think the important thing is that we don't need to. I'm sure between José and I, it'll be a very active discussion over the coming months.
Agreed.
Okay. Thank you.
Perfect. Thank you so much for your question. Our next question comes from Georgina Johanan at JP Morgan. Please go ahead.
Hi, and thanks for taking my question. I've got two, please. The first one was just around you referenced that you're seeing elevated promo activity or sustained levels of promo activity in the market at the moment. Can you just give some geographic color on that, please? Because I think there have obviously been other retailers that have reported where sales have come in much better than expectations, and indeed, sort of the clothing market looks to be fairly solid in some geographies. Just some color on that would be helpful, please. Then finally, just sort of given the new guidance, could you just remind us where that leaves you in terms of headroom at year-end, please, on cash? Thank you very much.
Sure. Do you want to talk about promo levels, José, and then I can talk about
Okay. Yeah. Thanks for your question. I think in terms of promo activity, what we're seeing is a pretty much even evolution in all our geographies. We're not seeing a significantly different performance or behavior of consumers in different geographies. Obviously, online, it has a certain level of promotions. That's not new. We're not seeing a different approach or a different behavior of consumers in the U.K. or in continental Europe or in the U.S., it's pretty much the same.
Yeah. In terms of headroom, George, we have GBP 850 million of available facilities. We've got the convertible, which matures in 2026, and then we have an RCF that is out till 2024. That's the headroom. The convert is without covenants, and the RCF has kinda industry standard covenants on it. Again, we feel very comfortable with the level of headroom that we'll have available to us at year-end.
Thank you.
Thank you for your question, Georgina. Our next question comes from Michael Benedict at Berenberg. Please go ahead.
Morning, all. Thanks very much for taking my questions. I have a couple, please. First one is around how you expect the promotional environment to sort of evolve as we move into FY 2023. I assume retailers are pulling back on their stock buys, so any color there would be helpful. Secondly, U.S. performance was relatively strong in the quarter. I wondered if you could give color around that. Is that the impact of the marketing investment coming through or wholesale support? Yeah, any color would be great. Thank you.
Hi there. In terms of the, let's say, the outlook of the promotional environment, I guess there are quite a few things that may come to play here. Obviously, one is what is gonna be the stock level of the different brands or retailers and brands that are in difficulty with stock levels might become more aggressive. Beyond that, we are not really expecting a massive change in the current evolution of the role that promotions are playing, and we're not planning to change how we use promotions or to dial up or anything like that. In that sense, I would say unless there are big changes in the stock levels in the different players, things will remain as they are.
I think the only thing I'd build on is obviously for us, at the start of last year, we did have quite high levels of markdown as we exited the year because of the challenges of last summer. Based on our current projections and the markdown, et cetera, we've committed to this year, we would expect year-on-year for us to exit the year with a significantly more right-sized stock profile. I guess, it's difficult to know what everyone else is gonna do, but I think in terms of our stock health and stock quality year-on-year, we'd expect to enter next year with a significantly improved stock health position.
The second one?
U.S. performance.
In terms of the U.S. performance, as you have seen, we have seen a very strong performance. That strong performance is coming from different sources. Obviously, we have the partnership with Nordstrom that I mentioned, even though it's very early days. We have seen a very strong performance of Topshop in the U.S., which is very pleasing. We are seeing our operations in the U.S. are also performing well. We are very positive in that sense with the American markets. I don't know if you want to elaborate on that.
No. I guess the only point I'd note is that obviously our own brands are a higher percentage of the U.S. business than they are some of the others, and therefore some of the progress that José spoke about in terms of ASOS, et cetera, would obviously be more beneficial in the U.S. just given the higher mix.
That's great. Thank you very much.
Thank you for your question. Our next question comes from Miriam Josiah at Morgan Stanley. Please go ahead. Your line is open.
Great. Thanks. First question, just on customer behavior. Just wondering if you could give a bit more color on what you're seeing there aside from returns. I mean, are you seeing any trading down or people sort of adding less items per basket and if there's any variation by region? Secondly, just on the marketing spend, could you talk a bit about what's sort of baked into your guidance, particularly thinking about how it's fitting to your sort of midterm plans for the increase in marketing in the U.S. and marketing in Europe? Finally, could you just comment on your CapEx guidance and what that is now? Thanks.
Yeah. Let me pick those up then quickly. In terms of CapEx guidance is unchanged, hence why it's not referenced in the statement. In terms of marketing spend, as I mentioned, we have, you know, looked at our investment levels relative to the current consumer environment. Therefore, I would anticipate that while you will still see an increase in marketing as a percent of sales year-on-year, it's probably not gonna be the full 100 basis points that we initially anticipated at the start of the year. You know, we've always said that we will adapt, you know, based on the market circumstances, and therefore, I think we're kinda taking a balanced approach for the rest of the year.
In terms of broader color on customer behavior, we've seen, I guess, two notable features. We've seen very robust basket values. I think as José mentioned, that reflects the quality of the offer and the fact that really people are buying into the fashionability of the product. Obviously within that, you know, dresses, for example, which have performed really well, obviously have higher ASP. I think in terms of those metrics, we're actually seeing really positive customer evolution. The other thing we're seeing is a kind of mix into our, you know, as we cycle really tough new customer comps, we're seeing a mix into our existing customer base. What's really pleasing is we're seeing improvements in frequency alongside those basket values.
I think overall, I think we're really pleased with the way customers are buying into our proposition. Obviously, as they feel the squeeze, it feels like, you know, on balance, they're choosing to return at this time marginally more. Obviously, that may adjust into, you know, a different buying pattern into growth sales or into returns. It's too early for us to tell, and that's kinda what we've built into the guidance is that. I think our working hypothesis is probably that the behavior will start to improve, but over what timeframe and to what extent is still unknown, and that is very much our view. Obviously, you know, we need to wait and see what happens, and hence why we've provided such a wide range of guidance.
Just to elaborate a little on what Mat said. I think if looking into our conversion rates and the strength of our conversion rates, that they are really at maximum historical levels. I think this is a very solid proof of the value of our value proposition to consumers right now.
Great. Thank you.
Thank you. Our next question comes from Charlie Maurice-Jones at BNP Paribas. Please go ahead.
Yeah, thank you very much. Three questions, please. The first one for José, very much reassuring that you're sticking to the strategy, but just with respect to your financial targets there, if you had to sacrifice either the sales growth targets or the profitability, which would you be willing to sacrifice first? The second question just relates to those RCF covenants that you alluded to, Mat. Can you just sort of remind us what market standard terms are for us equity analysts, please? The third question relates to Australia. You said there had been some improvements in the delivery proposition. Can you just tell us sort of quantitatively how good it is now versus let's say three, four months ago? Thank you.
Shall I deal with delivery, profit and covenants, and then you can pick up your perspective on the targets? Because I think Charlie, it's an unfair question for somebody who's only been a CEO for about, I don't know, just over an hour. Please be kind. I thought you might be nice to José on his first day. In terms of delivery proposition, we're talking about a couple of days out of the proposition. We're still not back at normal levels for Australia, but we've seen it coming by a couple of days. Obviously as travel and tourism picks up, we expect to see that continue, not just in Australia, but in all of our rest of world markets.
There's been some improvement, but we're not back to normal. In terms of covenants, I'm not in a position to give you the details. Our lending banks are always quite sensitive to us giving out our covenants because obviously people can then read across when they're negotiating covenants with other people. There's nothing in our covenants that are in any way out of the norm. I'm sure that you will be able to work those out fairly easily. But as I say, our bank board is quite keen that I don't give out the very specific ones because they're specific to ASOS. Let me hand over to José to deal with your last question.
Oh, hi, Charlie. I guess this is what they mean when they call it a baptism of fire. Basically I would say firstly is that we speak to our guidance, so I think that's clear. If I may, from a more personal note, I think that nothing has changed in terms of the value, let's say the growth potential and the value potential we see in the mid-long term. I think this is a moment to be very clear on that, the real challenge now is not what is gonna happen tomorrow. It's where we're gonna be in 18, 24 months if this is mid-term. That would be my view.
Thank you very much. Yeah, congratulations on most of that.
Thank you.
Perfect. Thank you. Our next question comes Julio Cochrane at Citi. Please go ahead. Your line is open.
Yes, good morning. Thanks for taking my questions. I have a couple, please. The first one on the guidance. I was wondering, within the gross margin dilution of 150-200 basis points, how much of that is related to markdowns versus the rest? Secondly, maybe for José, longer term, how do you see the evolution of your Partner Fulfills program? Do you see this as potentially becoming a meaningful part of the business? Thank you.
I think we heard your second question around evolution of Partner Fulfills. You asked a question on markdown and guidance, but it wasn't entirely clear. Sorry. We've probably got a crackle on the line. Could you just clarify your first question again for me?
Yes. Sorry. On the guidance on the margin, how much of the gross margin dilution is purely related to additional markdown activity?
Sorry, got you. Okay.
Thank you.
Yeah, in terms of the margin change, it's a small. You know, of the 50 basis points, there'll be a bit of mix and a bit of markdown. You know, again, it will. The evolution will be roughly, you know, depending exactly how things fall, but we would expect it to be kind of roughly half-half, I guess, is the best I can give you at a high level. Let me hand over to José to talk to you about Partner Fulfills.
Yeah. Thank you for the question. Well, as we said back in October, November, Partner Fulfills is gonna play an important role in the future. We're very pleased with how we started with Adidas and Reebok, and we're seeing a good development. Our idea is to stay in the guideline we shared at the time that the variable component was somewhere along 5% of our total sales or something like that. Which would be 10% of our sales of third-party brands, because you know more or less it's 50/50 for us.
We see that as being on the right track to get there. Actually, we are very pleased with the initial results of what we're seeing with Adidas and Reebok. We are going to roll out fast to other brands.
Thank you.
Thank you. Our next question comes from Emily Johnson at Barclays. Please go ahead. Your line is open.
Morning. Two questions from me, please. One of them is, I know you've kind of touched on the exit rates in the quarter already, but I'm interested in. Obviously, you won't know the returns rates for May, but can you quantify or talk a bit more about the impact on gross demand that you're seeing from inflation and sentiment in May and June, both in the U.K. and elsewhere? A more general question, how are you thinking about growth into FY 2023?
Let me pick up the first one. I think on the second one, it's probably too early to start commenting on FY 2023, so that's probably for a future point. In terms of gross demand, what we saw in May was robust gross demand, very much in line with what we would've anticipated it to be. Obviously, as you say, we don't know what the returns rate associated with that gross demand is gonna be, but actually our gross demand in May was good. The exit rate reflects the fact that we're now starting to trade into a period where high street retail was open last year.
We've seen a distinct gentling in May from March and April in terms of growth rates, but that's very much driven by the fact that we're now cycling, and will cycle for the rest of the financial year, much softer comparables. I know, again, we normally don't do the three-month split, so in the appendix of the trading statement, we've tried to break out what those comparable are for you. You can see that the comparable for P4 is very much softer than the comparable for P3. I guess, you know, we've seen robust growth trading, it's the returns rate that's probably shifted versus our expectations at this stage.
I guess just following up quickly, if I can. How do you It kind of makes sense conceptually that as consumer sentiment weakens, people have packages and return more items because they reassess how much they can afford. I guess, how do you tally that with strong gross demand in May? Is there an uptick in consumer sentiment or are people not thinking logically about only ordering what they might keep, people are still ordering multiple dresses and that's your base case?
I think that's a really good question, Emily, and I think to some extent, time will tell us the answer. I think there are a number of factors at play. You've got the normal seasonal challenges, which means that, you know, reading too much into one month is quite difficult. Obviously, I think, you know, as we would've anticipated with everybody planning holidays, events, festivals, we always anticipated that we'd have quite a strong start in May as the sun came out, et cetera. You know, it's extremely difficult to disaggregate every single factor and say exactly what's happening.
I think our current view would be that, as you say, when people come to, "Shall I keep this or not?" That's where you start to see people looking at the money in their pocket and thinking that their fuel bill's gone up, they're spending more on food, et cetera, and they've decided on balance to keep one less item. That's what we think is happening in April into May. As I mentioned in answer to someone else's question, I guess our expectation is that ultimately probably it will adjust into people's gross sales behavior, and we will see returns behavior kinda normalize back to what we would've anticipated. That's very much a hypothesis. You know, let me underline again, we haven't assumed that in the bottom end of our guidance, and we genuinely don't know whether that's gonna happen.
By the end of the year, we'll know much more whether this is a different consumer behavior, that the shape of the way people buy has changed, or was it that people initially responded through returns and now they've adjusted their gross buying behavior. I don't think. You know, what we do know from previous consumer shifts is these things don't happen overnight. People don't suddenly adjust their behavior. It tends to shift over a period of time, and there will be different evolutions in different countries. Therefore, you know, again, whilst we're giving you our current views, we need to see how it plays out through the rest of June, July and August to get real clarity, I think.
Thank you.
Perfect. Thank you for your question. Our last question comes from Rebecca McClellan at Santander. Please go ahead.
Yes, good morning. It's Rebecca McClellan at Santander. Can you hear me?
Yes.
Yeah.
Yeah. Hi, good morning. I've got three small questions for you, please. I don't know whether you mentioned it, but could you tell us what's the recent evolution of items per basket? Secondly, what's been going on with your average selling prices? Finally, can you remind us just of the returns handling, the timing of that, and how, you know, when that inventory will come back into flow for sale?
Yeah. Maybe I'll pick those up because they're quite detailed questions, if that's all right, Emily. In terms of average basket size, you know, number of items per basket, that's been pretty robust. As I mentioned earlier on, actually where we've seen really strong performance is in the ASP of the products. I think that reflects the mix of people's products rather than anything else, because obviously dresses are more expensive than casual wear, et cetera. We're seeing robust basket values with AOVs kind of holding up and average selling prices going up. In terms of returns handling, obviously we offer a 28-day returns period, so at the very worst, stock is normally. Then obviously there's a bit of delivery on both ends.
Normally stock at the very latest is back within five weeks, depending on the territory, sometimes six. The vast majority of it comes back within the first three or so weeks. Most of it in terms of our handling time, from return center to warehouse is a Mater of a day or two days. We've got a fairly swift turnover of stuff back into stock.
Okay. Your actual average selling price over your pricing is over the season and over spring/summer?
Yeah. Again, it's not a number we've given today. ASP is kind of strongly up, partly reflecting some of the pricing actions and partly reflecting that mix. There's good evolution, but again, we haven't given the number out.
Okay, thank you.
No problem.
Perfect. Thank you so much, Rebecca, for your question. At this time, there are no further questions, and I would like to pass back over to Mat Dunn for any final remarks.
Look, I just guess practical remarks really, which is first of all to thank everyone for participating at short notice. I'm conscious that there may be lots of other questions through the course of the day. As is normal, please do contact Taryn and the investor relations team and we'll pick up any questions as appropriate. Again, thanks everyone for listening.