Good morning, everyone. Thank you so much for spending time with us this morning in our half-year results presentation. As always, it's very exciting to have you here in ASOS. Let me start because I'll try to speak less than last time. Last time, we didn't leave enough time for questions. I'm going to try to be more concise. That doesn't really mean I'm going to speak faster. I know I already speak fast enough. I'll try to be more concise so that we can leave more time for questions. What is it that we want to share with you today? I'm going to start just by sharing the big messages that we want to highlight. I will give you more color on the strategic updates, on the main actions we have been delivering during the course of the last six months.
Dave, our CFO, will give you more detail on our financial results. This is probably where everybody's more interested in, and the outlook. We will make sure we have enough time for Q&A at the end. Let me start. Let me start, sorry. Let me start by taking a second. I promise it's going to be very short. Talking about some concepts that I have been hammering on you over the course of the last two and a half years. I am going to try to put them together, let's say, do a good job in a way that it resonates with everyone. Over the course of the last two and a half years, I have been talking about things like becoming the most inspirational destination for fashion loving 20-somethings.
I've been talking about making sustainable, profitable growth, creating a business model that is resilient, a business model that is flexible, and hence sustainable. I'm going to try to put it all together today. This transformational journey is about doing these two things at the same time. I don't think they are contradictory. I think they reinforce each other. On one hand, what we're doing is when we look into the consumers, we want to become a place for inspiration, a destination. They come because they are offered the most exciting, the most relevant product in the most inspirational way. At the same time, we're transforming our business model to be sustainable and resilient and flexible. When you put these both things together, on one hand, the more inspirational we are, the more profitable we become.
On the other hand, the more resilient and the more flexible we are, the more we release resources to reinvest into our consumers. When we put both of them together, this is where we're talking about sustainable, profitable growth. That is the outcome of doing these two things at the same time. Today I'm here, very happy telling you that I feel we have really made a step forward during the last six months in this direction. That's why we have increased our EBITDA versus last year on approximately GBP 60 million. I think this figure summarizes very well where it is that we are going and why we feel we have made such an important step. This has been built on three main pillars. The first one is our new commercial model. I've talked a lot about this new commercial model.
I'm trying to summarize it in one line is this is being capable of offering our consumers the right product at the right time. This is done through a lot of things. This is done through adding additional speed to the system. This is done ensuring we offer the right level of quality. This is done through enlarging and improving the assortment of brands we offer to our consumers so they are more exciting, offering better collaborations and more exciting items. This is done through more flexibility in our fulfillment methods and business models. This is done through a more dynamic stock management during the course of the season. There are a lot of activities behind that. During the course of the last six months, we feel we have taken a step forward here. I'm going to try to summarize this in two numbers.
Number one is that during the last six months, our own brand's full-price business has grown, while at the same time, we have increased our gross margin almost 500 basis points. I think this is a very good example where both things come together. We are doing more full-price business, 12 points better full-price business versus last year. That has resulted in higher margins. Higher margins have not been a detriment to grow our own brand's globally full-price business. I think it's a very good example of when the commercial model works, it delivers very interesting and very positive results. The second pillar is efficient operations. We have to make sure that we deliver while we are obsessed with being efficient. That is based on two things. One is rigor and discipline in cost management.
We have done a lot of things over the course of the last two and a half years and more concretely over the last six months. We have reinvented our supply chain. For instance, I'll give you more color later, reducing 140 basis points the cost of supply chain. It is also on being very, very disciplined on efficient capital allocation. Again, trying to summarize that into figures, we're very happy to see that we continue improving our cost efficiency. That is giving us the right economics to continue. At the same time, we have accelerated our stock turn, which means we can use our capital better to reinvest our capital into growth. The third pillar is ensuring that we provide our consumers engaging experiences, engaging, inspirational. There is a lot to do here. We're only at the beginning of the journey.
We are very, very excited about what's coming. I hope I will be able to share with you some of these things this morning. We think this is going to be what is going to help us to really push this sustainable, profitable growth to a different level. If you want, in a nutshell, we're very happy with what we have achieved over these six months. There has been a lot of activity. I hope you will appreciate that at the end of this presentation this morning. The outcome is very encouraging, this improvement of GBP 60 million, which is an increase of 30% of our variable contribution over the course of the last six months. At the same time, we're very excited about what's coming.
We're very excited about all the activity that is coming, all the new things that are going to be landing during the next months. We feel we are prepared. We feel that we have the right products. We feel that we have the right economics. It's the right time to take this transformational journey into becoming the most inspirational destination for fashion loving 20-somethings while we do it with a profitable, flexible, and sustainable business model to a different step. Let me start giving you a little bit of color of all the activity we had over the last six months. Let me start by our commercial model. Obviously, the target of our commercial model, as I said, is to deliver relevant product at the right time. Let me start with this chart that I find extremely interesting.
In this chart, you can see the evolution of the variable contribution per geography and per line of business, so own brands and brand partners over the course of the last six months. What you can see in the bottom part of the chart is that every line of business, every geography has grown in terms of variable contribution, absolute terms, over the last six months. I think that is a testament of, yes, our journey into a sustainable, profitable business model is going in the right direction. It's not an exception. It's not one. It's the whole business that is moving in this direction. That has happened through a lot of work. Part of this work, as we have shared before, has had a negative impact on sales. For instance, to get here, we have been working on our basket economics.
We have been reducing the availability of product. We have been reducing stock. Over the course of the last two years, it's around 60% reduction. We have been reducing promotion. We have been reducing the investment in performance marketing. Obviously, that has an impact on the top line. That has not been a barrier to grow the variable contribution. I think that's why this chart is so encouraging for the whole of the team. There is another thing that is also quite encouraging in this chart. While we've been doing that, we've also been doing other things. We've been implementing our new commercial model. This new commercial model is starting to show early signs of success.
Because while we've been doing that and while we've been increasing our gross margin 500 basis points, we have been capable of growing our full-price business in our own brands globally, with the exception of the U.S. I will touch upon that a little bit later. It is very encouraging to see how both things come together and how this is working. Let me give you a little bit, as I said, more color of what is behind this change from our product point of view. I will start with our own brands. The secret behind the development of our own brands is simple as everything in life. It is based on three things. One is speed. The other one is quality. The third one is flexibility. These are the big changes we have implemented in our own brands.
That has taken us to show, as I said, growth of our own brand full-price business globally. That has taken us to grow our total business of ASOS Design in the U.K. by 9% and to gain market share. One of the critical things behind is the development and the performance of our Test and React, one of our flagship projects during the course of the last six months. Test and React is already 15% of our sales, of the sales of our own brands. Test and React is the technology that enables us to be able to understand what the consumers want and react fast and deliver it to them. That is why we can deliver it to them in the right time, at the right price to the things that they are looking for.
These are some of the examples of the trends we have seen over the last six months: stripes, crochet, boxy shapes, barrel legs. These are things that we learned from the market. We learned from social media. We reacted immediately. We put it in front of consumers. It worked very well. When quality and speed come together, this is when we see the project, or if you want the ambition, or the test, not the test, sorry, the project working at its best. Let me illustrate that with one example. One of the star categories over the last six months has been knitwear. Knitwear is where we have improved significantly our quality and our speed to market. Today, 50% of our knitwear business in ASOS Design is done through Test and React. We have seen double-digit growth globally in the business of knitwear with ASOS.
I think that is a very clear example of how far the concept can go and how ambitious we can be if we continue going down this path. When we move to our partner brands business, we have seen, again, a very strong development from variable contribution, less strong from a top-line point of view. We were aware of that. We knew that our own brands would come first. We are also seeing a very interesting and a very strong momentum happening here. This is built on three things. One is making sure that we have the right selection of the right partners with us. We have implemented a new brand acquisition team. This team is having an impact. Over the course of the last six months, we have added 25 new brands. When we are adding new brands, we are not adding them randomly.
We add new brands that are relevant for our consumers. As I told you, we want to be a destination for consumers. That means we're adding brands in the areas where consumers are interested. We have been adding brands more on the higher end of our assortment, brands like Arket or Bimba Y Lola that have resonated with our consumers and are working very well with us. We have also added brands that are exclusive to ASOS. We are the first retailer in the U.K. or in Europe. In that sense, for instance, we have Princess Polly. That is an Australian brand that we are the first retailer, the first wholesale partner in Europe. We have added a brand like Gina Tricot that is a Scandi brand that is working very well as well.
We are the first retailer and partner in the U.K. for that brand. We are also adding some cult classics brands like Prohibited, for instance. That is a brand that is also resonating very well with our consumers that we are styling with vintage products. We are seeing that is part of this destination. We are the place where consumers can find all these brands that they are looking for or find or discover the brands they do not know. That is also a very important part of this journey. The second thing here that is very important is how we have gone deeper in the relationship with some of our core partners. Just to quote some examples here, one would be Mango, a brand that I already quoted in the full-year results that had amazing results last year.
During the course of this year, we have added Mango Man, and it's working very well with us. Another brand would be Adidas and New Balance, where we have had exclusive items that have worked very well. I will give you a little bit of color immediately. This is also part of this discovery journey, being able to offer consumers exclusive items that are the result of our great relationship with some of these key brands. The last piece is our flex fulfillment models. We have already gone up beyond the 7% of our partner brands business, sorry. We are working with more than 120 brands. We see that this is gaining more and more momentum. We are very optimistic that our business in this area will also continue developing very well.
As I mentioned, I wanted to give you a little bit of color about the cow print. If you did not hear about the cow print, it means you were not in the U.K. in February this year. I am sure you heard about it, or you were maybe skiing. Who knows? That has been one of the big things happening in the world of fashion in the U.K. this fall, this autumn, or spring, actually. What we did, in case you were not here or you forgot because there are so many things happening, is we launched exclusive colorways with two of the most iconic Adidas products that are the Adidas Sambas and the SL72s. It was a cow print colorway. To reinforce that concept, we used our Test and React technology.
We created a collection of 10 exclusive items in the course of three weeks so that it was going to be part of that launch. The D-day was the 19th of February. What we saw that day is that traffic grew 70% with zero investment in discounts and with zero investment in additional marketing beyond some coffees that we were giving away in King's Cross. Quite modest, to be honest. That shows the power of when we put these things together. It was interesting to see that we sold out the Adidas styles in quite significant numbers in a matter of hours, a couple of hours. We sold out the exclusive collection. We sold 90% of the units in a matter of two weeks. Actually, we've been repeating this collection ever since. That has been creating more traction with consumers and more excitement.
I think this is a great example of how powerful it can be when we put together both things: great relationships with some of our key partners and our capacity to react to trends very fast and to come to market with relevant products for our consumers. Let me move to the second pole of action, which is efficient operations. I have been talking about that for the last two and a half years. We are relentless in making sure that we are disciplined with our cost management. We have continued doing that. As I said before, we have seen a good development in our cost lines. I wanted to highlight here two activities that are very relevant. One is what we have done on our supply chain, where we have reduced our supply chain cost by 20%, pretty much by reinventing our supply chain.
We have simplified our supply chain. You have seen we have closed some of the fulfillment centers we are having. That has helped significantly. We have also improved our processes. Just to give you an example, our pick-and-pack process is now 10% more efficient than at the beginning of the year. Obviously, that has an impact. There is more room to go here. We will continue simplifying our supply chain. As we announced in January, we are closing our warehouse in the U.S. to move to a hybrid model. I will give you more color later. We are also seeing opportunity to reinvent the way we are working with some of our partners, our delivery partners, to make our supply chain even more efficient. We see more room to improve here. That is a very important area of activity.
Another one that I wanted to highlight is returns over the course of the last not only six months. More than that, we've been working on returns with a full, if you want, package of activities going from improving the quality of our products and the consistency of our sizing, improving the way we communicate sizing to consumers, using AI to make a better match between what consumers are buying and the sizing of the products to reduce unnecessary returns, and also with the implementation of our net threshold on returns. Our obsession is to reduce non-value-added returns. We think that returns is a critical part of the online experience. We really want to reduce non-value-added returns.
What we have seen is that in the course of the last six months, we have been able to reduce the underlying return rate by 150 basis points, which is a significant reduction. Again, we see more room to improve here. We think that we can improve more in the use of AI. We can also continue rolling out these net threshold returns so that we expect that we will be able to continue reducing and improving here. Our obsession with efficiency in operations is not only on costs. It is also on capital allocation. We want to make sure that we are always making the best use of our capital to release resources, to reinvest, as I said before, and to marry the two concepts, to reinvest in our consumer-facing activities.
In this sense, over the course of the last six months, we ensured that we were gaining flexibility in our balance sheet through the successful joint venture on Topshop, Topman. We have also, as I mentioned before, optimized further our operations in supply chain through the mothballing of Atlanta. Not to be also forgotten, the implementation of our new commercial model and the discipline in this new commercial model has helped us to increase the speed of our stock turn. That obviously is releasing capital that we are using in other areas. Yeah. Okay. How are we doing that? I think it's interesting to give you a little bit of color here. Basically, the new commercial model, one of the obsessions is return on investment. When we invest in stock, we want a return on it. These returns come through two main options.
One is to sell more, sell through. The other one is to sell with less discount, markdown. Very simple. I like simple things. How do we do that? We improve our sell-through and reduce our markdown through three main levers. One is speed. The closer we make the decision to the moment of sell, the higher the hit rate, the lower the markdown, and the higher the sell-through. That is always great news. The second one is an effective in-season management. We are not waiting till the end of the season to act. When something is not working, we monitor that every week. We take action immediately to make sure that we have an impact. The third one is obviously the implementation of our flex fulfillment models that is helping us to offer our consumers more depth and more width in a more efficient way.
The outcome of that is that during the course of the last two years, we have accelerated our stock turn by 35%, releasing a lot of capital that we are deploying somewhere else in the business. I wanted to pause for a second and give you a little bit of color on the U.S., which I think is a very interesting example. Probably, I do not know if the word is extreme, but certainly a stark example of these new policies and this new model that we have implemented. As I told you before, over the course of the last two and a half years, we have been focused on this creation of a sustainable, profitable growth. In some cases, that has—in all cases, that has meant taking some actions that have not necessarily pushed our top-line sales.
We have reduced stock significantly, as I told you, around 60% over the course of the last two years. We have reduced promotion. We have reduced the investment in performance marketing, in the case of the U.S., significantly more than in other geographies. That has had an implication on top line. The top line of the U.S. over the last six months has dropped by 28%. We have dropped some sales that were not profitable, but were sales. At the same time, we have increased our variable contribution in the U.S. Actually, the U.S. has shown the highest growth in variable contribution to become one of the most relevant contributors in the company in absolute terms. Obviously, that is very helpful. That is the right direction of trend. Lately, we have come with another wave of change in the U.S.
This wave of change has come through two different things. One is we are developing our activities into a more and more customized way. We have a specific team working with the U.S. that has been working on how do we sell to consumers, on how do we do marketing activities to consumers to be more customized to U.S. consumers. We have changed our delivery model in the U.S. We have mothballed our Atlanta warehouse, as I told you before. We have evolved into a hybrid model where we're serving the U.S. from our fully automated warehouse here in the U.K. in Barnsley, from a smaller and more flexible facility in the U.S. and through partner fulfillments. The outcome of that second change is really encouraging.
Over the course of the last weeks, we have seen our sales trajectory in the US, the run rate has improved double-digit, while we have significantly reduced discounts. We see a much higher level of engagement with consumers because they are exposed to a bigger assortment. We are very, very encouraged by that change. This change is going to have also another impact, of course. It is going to help us manage our fixed costs. By mothballing Atlanta, this year, it will not have a visible impact. Next fiscal year, we expect an impact on our EBITDA between GBP 10 million and GBP 20 million. That is clearly the outcome of making the right decisions. In terms of capital allocation, that helps us improve and offer a better concept to consumers. Again, this reinforcing loop.
Last but not least, I want to talk about engaging customer experience. Here, we're only starting the journey. As I told you, this is the journey to go back to growth, to go back to excitement, to regain the heart of our consumers. The first thing we have done here is to change our marketing model. We had a marketing model that was really focused on the bottom line or the end of the funnel. We have evolved into a full funnel marketing model. As a result of that, we have increased the influencer network that we work with. We have increased that by 30% during the last six months. That is having an impact. We are improving our ROAS, but we are also improving the reactivation of consumers. In the U.K., it has grown by 7% versus last year.
We are seeing quite interesting results. That is only the beginning of the journey. The interesting part is going to come now. First, on the product side, during the course of the next six months, we will see Test and React going from 15%-20%. This is going to come, obviously, by going deeper in all the categories where we are, but also rolling out to new categories like swimwear and tailoring. This is also going to happen by adding new brands. We successfully launched a new brand more on the middle higher price range of the price range we offer, called Arrange, with a very, very successful launch that we sold out in a matter of a few days. There will be new drops of this brand coming soon. We are scaling our Partner Fulfils model.
We will go beyond where we are right now. We are rolling out Partner Fulfils in the U.S. and in Ireland. We are also adding a major global brand through AFS soon. We are also continuing adding more unrelevant brands. Forty will come during the course of the second half of the year, some of them as relevant as Good American, one iconic name brand, or Icecream that is a Pharrell Williams brand, or some iconic brands like House of CB, or I mean, you see the brand. It's up to 40. As I told you, we are going to work a lot on the customer experience side to make it more exciting and more inspirational. I wanted to highlight three things. There are a lot of things happening here, but I will not bore you. I wanted to highlight three things here.
One is the launch of our loyalty program, ASOS. World. We have been testing it during the last months. We will be launching it in the second half of the year, so soon. This is a program created around excitement and fashion. In our program around discounts, it is a program created around access to product and exclusive experiences. It is a tier-based program. I mean, some of these experiences are early access to product. Some of these experiences are early access to back-end stock notifications. Some of this access is to exclusive events or to our AI Stylist. It is quite interesting to see that in the test group that we have launched, the people that are interacting with the AI Stylist have increased the amount of product Save for Later by 60%.
We know that Save for Later product is a clear leading indicator of sales. 30% of our sales normally come from Save for Later. That seems to be a very good sign that this program is going to help us improve the quality of our relationship with our consumers and make it more exciting. As I told you, this is about customer experience. For us, customer experience is about personalization. We are working very hard in this topic, not only through the AI Stylist. We are improving our search and recommendations engine. We are landing already new search in a more personalized way. We will be landing during the course of the next months new recommendations algorithm in a more personalized way.
We are launching an AI-powered outfit creator where consumers will be able to create outfits out of a specific item, taking into account their preferences and their history. We are also launching in these next months ASOS Live, where we are going to have much more video content and a much more, obviously, live relationship with consumers because it is going to be live. We are very excited about what it can bring in terms of the quality of our engagement with our consumers. Last but not least, I want to talk about Topshop, that I am pretty sure is one topic that everybody is also quite interested. We really believe that Topshop is a great brand. We are listening to our consumers because they also think it is a great brand.
We've been working in the product, improving the product over the course of the last two years, seeing that the product was in a place where we were feeling more confident. We launched a specific team to take care of ASOS, sorry, of Topshop, Topman. We've been investing in reigniting the brand heat. Based on the reaction we have seen in social media, I think the team is doing a great job. The time has come for Topshop to come back and have its own expression in front of consumers. In that sense, we are relaunching topshop.com in the next months. In Q4, we will see topshop.com live again. I shouldn't say slowly, but surely, but we are coming to physical presence. We have already reached some agreements with some wholesale partners. We are talking to some more to have physical presence.
If I can say that, stay tuned because we will be coming with more news over the course of the next months. In a nutshell, we're very excited in this transformational journey of becoming the most inspirational fashion destination, and with a flexible and resilient business model. We think that an improvement of GBP 60 million EBITDA is a very clear proof that this transformation is working. We're very happy about the outcome of all the activity that we have done over the last six months on Test and React, on quality, on adding new brands, on adding more Partner Fulfils, on adding more exclusives, on managing more actively our assortment.
The outcome, as you see, is, as I said, the growth of our own brand and at the same time, full price business, and at the same time, increase of 490 basis points of our gross margin. There has been also a lot of activity in terms of reinventing our supply chain, in terms of returns, in terms of capital allocation. That has created a better cost structure and a faster stock turn. We are also very excited about the activity that is coming and how it is going to help us to really continue in this journey of transforming ASOS and making it the more exciting fashion destination in the planet. I hope it was not too boring. I am going to hand over to Dave that is going to share with you the numbers and the guidance.
We will move to Q&A at the end. Thank you very much.
Thank you, José. Morning, everyone. As José just said, I'll walk you through briefly our half-one performance in a bit more detail, conclude with our outlook, and then we'll take Q&A from the front as well. Regarding the first half, as José has just said, our headline here is on our profitability improvement driven by our new commercial model, delivering an adjusted EBITDA improvement of almost GBP 60 million year-on-year, supported by both higher gross margin and better ordinary economics despite the volume deleverage. Taking it through in order, our adjusted constant currency sales declined by 13% year-on-year, a slight improvement on the high teens we outlined at FY2024 results, driven by a continuation of the trends discussed there, namely annualizing the declines in old and aged inventory and a significant reduction in unprofitable performance marketing.
Against this, we've seen strong performance in our new stock operating under our commercial model with our own brand full price sales returning to growth year-on-year. Adjusted gross margins are up 490 basis points year-over-year, driven by an improved full price mix and the lower discounting that we've been doing. Cost to serve have increased by 60 basis points, with strong underlying cost performance broadly being offset by the volume deleverage. The result here is an adjusted EBITDA improvement of GBP 60 million year-on-year to GBP 42 million, primarily driven by that gross margin improvement and our focus on cost efficiencies. Stock reduced by GBP 181 million year-on-year to GBP 412 million as we continue to see the efficiency benefits of our new commercial model delivering more efficient return on inventory.
Our free cash flow in the first half was an outflow of GBP 84 million, primarily driven by return to our normal spring-summer intake seasonality earlier in the half, resulting in a significant year-on-year reduction in the trade payables. However, we are still expecting to balance in free cash flow in the second half to leave us broadly neutral as guided. Net debt reduced by GBP 73 million year-on-year as a result of the Topshop Topman transaction and the refinancing that we completed in September, less the impact of the half-one free cash outflow. By geography, performance to results similar to what has previously been shared, the variation in revenue performance reflecting the profit actions we've taken across the group in different markets to consistently improve profitability across the board. Our U.K. sales performance was relatively strongest.
We've already referenced the performance of ASOS Design, which is gaining market share in the U.K., given this is where our strongest brand equity is. U.S. top-line performance does continue to be the weakest of our core markets. As José has mentioned, the profitability improvement we're seeing here has resulted in the strongest improvement year-over-year across all of our regions, as earlier discussed. The general trends across the board are declines in active customers while conversion holding steady and ABV increasing, resulting in like-for-like sales performance better than a visits decline. In relation to gross margin in half one, as said previously, the main driver of this has been a better execution of full-price sales and a lower markdown that we're seeing under the new commercial model. New revenue streams, including flexible fulfillment, continue to be gross margin accretive as they will continue to scale as well.
As mentioned, our cost to serve increased by 60 basis points, driven primarily by the operating deleverage across our other predominantly fixed cost items, despite continued improvements in both our distribution and warehouse cost ratios. However, it is worth noting that excluding the introduction of the Topshop Topman royalty, our cost to serve was broadly flat year-on-year. We held our fixed cost base broadly flat year-on-year despite general inflation that is seen, demonstrated a continued focus on driving through efficiencies in our cost base. You can see this in our adjusted EBITDA bridge, a significant year-over-year improvement really driven by the benefit from that gross margin in our commercial model, despite the volume deleverage we have seen, along with the benefits that we are getting in our variable cost to serve. Finally, before turning to outlook, I just want to walk through the half-one free cash outflow.
GBP 84 million in half-one, where the primary drivers are inflow from the inventory reduction, which has been more than offset by the reduction in the trade payables as we return to our normal spring-summer intake seasonality. The half-one EBITDA is seasonally lower than half-two as normal, meaning that combining this with our net capital outflow, net working capital outflow, CapEx, interest, and lease payments resulted in a free cash outflow in the first half. In half-two, expect a significant free cash inflow driven by the inverse of many of these factors, seasonally higher EBITDA in the second half and an inflow from our net working capital. Again, our guidance here has not changed. Finally, to just touch on outlook, in FY2025, continuing to expect the same as we have said before, gross margins to continue to improve to more than 46%, driven by the commercial model and this full-price mix.
Adjusted EBITDA growth at at least 60% to GBP 130 million-GBP 150 million, including the impact of that Topshop Topman royalty. We expect revenue growth at the bottom end of consensus range for FY2025 as we continue to focus on creating a solid base on which we'll drive sustainably profitable revenue growth. However, to note that we do expect our GMV growth to be one to two percentage points better than revenue growth, driven by the scaling of our flexible fulfillment models. As this becomes a larger part of our base, we will report this on a regular basis. Expect more of that in the full year. Again, continue to be broadly free cash flow neutral, CapEx remaining at GBP 130 million and cash interest of GBP 35 million.
Into the medium term, expect to continue to generate adjusted EBITDA sustainably ahead of CapEx, interest, taxes, and leases, with adjusted EBITDA margin of moving towards 8% and a return to revenue growth. Our new commercial model can drive materially higher gross margins towards the 50% through a higher full price sales mix, our flexible stock models, and the benefit that we see to our inventory base. As a result of the considerable improvements we've made to our operating model, we're confident that this will help us deliver a meaningful free cash inflow in FY2026. On that, I will open up to Q&A.
Hi, morning. John Stevenson at Peel Hunt, a couple of questions to get us going, please. Just in terms of the tariff effect, do you think there is an opportunity for better factory-grade pricing, whether that's sort of a short-term window or permanent?
What do you see it doing for sort of bought-in over the next sort of year or so, potentially? Second question, just in terms of the underlying customer KPIs, I don't know to the extent to which you can kind of X out the sort of active churn from the new commercial model coming in. What is actually happening under the hood? What are you seeing in terms of frequency? What are you seeing in that underlying churn of active customers, those that are with the business already? What do new customers look like? Finally, can you just comment on what the full price sales mix is today versus what it would have been sort of pre-COVID just as a benchmark on where the business is?
Hold on. Okay. Let me go one more one. Tariffs, obviously the most interesting one, I guess.
We got a few questions this morning also from the journalists. Let's see how many times we come this here. I think, obviously, tariffs is a very volatile environment. If you want right now, there is a lot of evolution. There is a lot of change. We are monitoring that very closely. It changes not by the day, but almost. The way we're adapting to tariffs is by becoming more and more flexible, more and more flexible throughout the whole supply chain from the starting point, from the countries where we source, but also how do we serve the different countries. In that sense, we see that the change we have implemented in the US by getting to this hybrid model where we serve from here, but we also have a smaller warehouse in the U.S. and Partner Fulfils is a good decision.
It's going to help us face the tariffs. We feel confident we are well prepared to start working, to start operating under the new regime, whatever that might be. The critical thing is going to be flexibility because things are changing. Things can change again. We will focus on doing what we can do to adapt to it rather than what the market is bringing. In terms of underlying customer KPIs, which is a great question, as I mentioned before, we've been doing a lot of things that have had an impact on customers. We've been reducing the availability of the stock. We've been increasing, sorry, reducing our promotions. We've been reducing our performance marketing. Obviously, that has had an impact on customers, especially on some customers, those customers looking for bargains or for special type of bargains or things like that.
What we see is that through the implementation of our new commercial model, we started to see some early signs of success, seeing that ASOS Design in the U.K. has grown 9%, seeing that reactivation of customers in the U.K. is up 7%, seeing that conversion, not only in the U.K., but globally, is very strong and is showing very positive development. It is a great development. We are very excited about all the new things that are going to come. The fact that we have seen our variable contribution going, I think it's a testament of this is what we wanted, even though we knew it would have an impact on top line, as we share with you in previous occasions. On the full price mix today versus pre-COVID, I do not know exactly the full price versus pre-COVID, so forget me about that.
Clearly, our full price mix now is much higher than we have seen over the course of the last three years, for sure. That was already after COVID. We see it growing continuously. It does not stop. If I can use the example of Adidas, I can use the example of knitwear. When we bring the right product at the right time with the right price, consumers react. I think that is a policy that works regardless of the competition, regardless of the environment, regardless of the tariffs. It does work. This is our obsession to really do that. That is helping us to keep on increasing this full price mix, not because we force it. It's because consumers really like what they see, and they buy full price. This is not about increasing prices.
This is about not being forced to reduce prices because we have bought too much or we have bought the wrong thing. It's like consumers buy full price at a competitive price because it's the right thing. We are very satisfied with the evolution, and we still see room to improve there.
I think it's still too soon to say that we're not going back to our suppliers and pushing them for prices. I think we'll have to wait and see what flushes out generally in the market to see how those prices change. Who knows where we'll go.
We always price competitively. We don't do cost- plus. That means that if the market changes, we will adapt to the market.
If the market is more competitive in the sense that it's not changing the prices, then we will have to adapt our business model and how we engineer our products to be able to be competitive. This is how we do it.
I think the one thing we can say is we haven't been back to our suppliers to ask them to foot the bill for this. What happens in the rest of the market now that changes, we'll have to wait and see how it plays out.
Hi. Sorry, Sarah Roberts from Barclays. Just three questions from me if I can. Just firstly on tariffs, there have been some press reports of retailers in the U.K. and Europe being concerned around de minimis changes in the U.S. making the U.K. and Europe a little bit more attractive for some of the Chinese competition.
Just curious as to what you've seen in terms of the competitive environment over recent weeks and whether that's changed since the implementation of tariffs in the U.S. Secondly, on the loyalty program, so appreciate it's really early days, but can you share a little bit of color on what you've seen so far from your early testing in terms of customer behavior, whether that's on order frequency, customer retention, etc.? How are you planning on rolling out the loyalty program throughout the second half? Finally, can you just provide an update on what you're seeing in terms of current trading in your core markets? Thank you.
Yeah. On tariffs, are tariffs in the U.S. going to have an impact in the rest of the world? Difficult to say.
I think that in the U.K., we're probably one of the most, if not the most competitive markets in the planet. We're used to having a lot of competition. This is not new news for us. What we do is we focus on our value proposition. We focus on delivering the right product with the right price. We focus on being rigorous with our cost management and our capital allocation. When we do it, it works well. It's not that before the U.S. tariffs, there was not a lot of competition in the U.K. and globally. We see that this is working. We see our own brand's full price business growing globally. In that sense, our way to do that is to really focus on what we can deliver and what we can do and double down on that.
In terms of loyalty, it is still very early days. As you said, it's difficult to highlight a lot of things in customer behavior changes because some of these changes take time. For instance, to see a change in average order frequency when our consumers come once a month, you need at least two months. Otherwise, you don't see it. It is early. The changing behavior that I highlighted is probably the one that is more visible right now. It's certainly the one that is more visible right now. That is, the moment that they interact with the AI Stylist, they do increase 60% the amount of, Save for Later products. That is a leading indicator of sales. We are very encouraged by that.
Some of the other, if you want, changes, we have seen that when we have done the launch of a new brand and they have access to this new brand before the rest of the customers, the amount of product they buy and the speed of buying accelerates. That is a good one. It's early days, so difficult to extrapolate this is going to happen all the time. We see that when we have, and we already had, two in real-life events for them, it sells out in a matter of minutes. Minutes is less than 10 minutes. In five, six, seven minutes, it's completely sold out. There is a lot of interest. We see there is a lot of interest, and it's generating a lot of traction with consumers.
In terms of the rollout, we're going to roll it out during the second half of the year to all consumers. Whatever we roll out is not the final state. Our ambition is to continuously evolve this program and to bring new features, to bring more excitement. If you want, my vision, and we were discussing that with the team the other day, is that our loyalty program becomes the most exciting place to buy in the planet. We really want our consumers to feel that they are the best treated in the planet. Whatever you see in the rollout is only the beginning of a journey, and we really want to go much, much farther. On current trading, what we are seeing after we close H1 is that the evolution is pretty much in line with our guidance for the rest of the year.
The market is volatile. I don't know if there will be a question about that, but yes, the market is volatile. Obviously, all the talk about tariffs or no tariffs is having an impact. In these environments, what we have to do is, again, focus on what we can control and what we can deliver. What we can deliver is making sure we bring the best product. AC is starting to work again. The best product at the right time and more excitement, and that works. That's what we're doing. If you want, right now, it's pretty much in line with our guidance. There was a question here.
Might get a bit warm now, though.
Might get warm. That's good for the Southern Europeans.
Hi, it's Anne Critchlow from Berenberg. Just to ask a question on the EU.
I know you've been reprioritizing your marketing into the U.K. at this point, but given the big Berlin warehouse and perhaps the idea of leveraging that, no U.S. tariffs there, what might be the timing of reprioritizing full-funnel marketing into the EU, please? And then a second question on the Test and React 30% target. What's the timing you're thinking of there, please?
Sorry, say that again.
Regarding the Test and React target of 30%, what would be the timing for that?
Okay. On the EU, the EU, I think I shared that in a previous meeting that our top core markets are the U.K., France, Germany, and the U.S. Obviously, the EU is a very important part of our business. We continue keeping it as such. In that sense, we have never stopped our focus into the EU.
I'm not sure if your question is about if we're going to increase more marketing in the EU as a result of the U.S. Let me answer that a little bit different. We are not decreasing our interest and our excitement about the U.S. as a result of the tariffs. That probably is a different way to answer your question. We see the U.S. as a great opportunity. As I shared with you before, after a lot of work, the U.S. is now one of the strongest contributors to our EBITDA generation, to our variable contribution generation. We have seen that the reaction of American consumers to the changes in our delivery model is incredibly positive. We see that there is a great opportunity in the U.S. We are not reducing our interest in the U.S., and as a result of that reduction, we're focusing somewhere else.
In terms of the Test and React 30%, and when are we going to reach it? That is a great question. Obviously, as fast as possible. I would love to have reached it yesterday. Obviously, we have not. It takes some time. Obviously, that is a business model that requires a special relationship with suppliers. Reaching that type of relationship takes some time. If you want, the example that I share about knitwear also shows the real potential. We share a 30%, but if we can go farther, we will go farther. In knitwear, we're already 50%. The outcome is very, very satisfying. We will continue accelerating. We are very positive that by the end of this fiscal, we will have reached, and hopefully more than reached, the 20% that we announced at the beginning of the year.
We will continue accelerating as much as possible to deliver the 30% and beyond.
Hi, thanks. It's Georgina Johanan from J.P. Morgan. Just three from me, please. First one, I think you've guided to, or said you're expecting a meaningful free cash flow inflow next year. Obviously, a huge amount of work on profitability has been done and clearly achieved already. As we go into next year, does that guidance rely on sales at least sort of stabilizing? Or actually, is there more that you can do below top line? It doesn't necessarily rely on that, particularly given that your guidance for H2 sales has effectively moved lower. Second question was just on Topshop. I think for some of us, obviously, whilst it's a very strong sort of heritage brand, if you like, that strength was some years ago now.
It would just be good to know anything sort of factual or a stat that we could put on it to give us confidence that the brand is still resonating, perhaps, like what you're seeing. Finally, just another one on tariffs, sorry. Something else that we've seen in the press is that some retailers have been talking about some brands and retailers maybe trying to redirect stock that was initially planned for the U.S. into the EU and the U.K. Are your brands reaching out to you potentially about you helping them with that through the marketplace model and so on? Thank you very much.
You want to take that first one?
Yeah, should I take the first one? Meaningful free cash flow in FY2026, it's not dependent on sales growth.
We'll give full guidance on what the sales growth is for FY2026 when we get to the full year. As we've said earlier, we expect to see continued improvement in our gross margin towards the 50%. There's still more that we can do on driving our efficiencies in our operating cost base. It's the combination of all those things that will put us in a more positive cash environment in FY2026. It's not a requirement that we have to return to such growth. Again, the focus that José said earlier is making sure that the growth that we do deliver is sustainably profitable, i.e., it delivers an adjusted EBITDA benefit and therefore a benefit to cash.
On Topshop, if I can share some facts with you about if it's still resonating with consumers. Let me share a couple of facts.
One of the ones is from the brand heat, and the other one is from the brand performance. In terms of brand heat, I think that the activity of the team and part of the team is here today is creating a lot of interest out there. Some of the posts had quite scary numbers in terms of likes and visions in the tens of millions. Clearly, there is interest in the brand. If you want, in terms of the performance of the brand, one of the things we follow a lot is how fast we are selling the stock. What we're seeing is that the stock turn of Topshop during the course of the last months is ranking with the best of our brands. It is resonating with consumers. It is resonating with consumers. We are happy with that.
We see a lot of interest, and I'm sure that we can really leverage on that interest and bring a lot of future growth. In terms of tariffs and the impact it might be having on other brands, no one has reached out to us to offer us additional stock. I understand that there is a concern about that. We have not seen any of that right now, to be very honest. We have not seen any of that right now. Whether this is going to have, there was a question about that, an impact on the competitive landscape in Europe and in the U.K. is clearly uncertain. As I said, this is probably the most competitive, at least online, this is probably the most competitive market in the planet.
I do not think it is going to have a major impact in the competitive dynamics, to be honest. It is very early to see how they are going to react. Oh, sorry.
Morning. Richard Chamberlain RBC. Can I ask about product returns? I think you said that your underlying rate was down 150 basis points in H1. I just wonder what you are expecting for the second half or full year on that metric. Back to the sort of de minimis changes. It appears that the U.K. government might be putting the U.K. rules under review again. I just wondered if there is anything in your sort of planning assumption regarding the U.K. It is already seeing a bit of a pickup, but are you budgeting for any improvement in sales on the back of any change to de minimis rules? Thank you.
On returns, as I said, we have seen an improvement in the underlying rate of 150 basis points over H1. We continue working on it. We expect, let me answer it differently. It's like because here we're talking about the evolution versus last year, and we already started last year. Let me talk about absolute returns rate. We have seen a better absolute returns rate. In this case, it's 150 basis points versus last year. We expect to continue improving during the course of H2. I don't have a specific target in mind, whether it's 170 or whatever, but we expect an evolution in that sense that is going even to a better. As I said before, there is room to improve. Not only during the course of the next six months, during the course of the next years.
I think that non-value-added returns is something that is very important to reduce as much as possible in this industry, not only for ASOS, for all the players. It is one of the areas that will be a game changer for everybody. We will continue working, and we expect better numbers there. In terms of de minimis in the U.K., and I read the article about the plans of the government, or at least their intentions, or whatever that ends up substantiating into is right now difficult to understand. We are not putting in our plans something that we do not know what it is. What we are doing is focusing on our value proposition, making sure, first of all, we monitor what is happening.
We stay as agile and reactive as possible, and making sure what we are delivering to our consumers is value every day, is the right product at the right time, and is with the right level of cost. This is what we're really focusing on right now. No, I don't know from the top of my head, but it wouldn't be 70%. As I said in previous meetings, our target is not to be the cheapest in the market. We really want to offer fashion at a competitive price. Obviously, Shein is in a different part of the market. They are really targeting the entry price points very, very aggressively. That is not where we are. We are competing. Obviously, everybody competes against everybody in this market, but that is not our core competitor, if you want, in a sense.
What is the percentage of consumers that we share with Shein? I don't know from the top of my head. I don't think it would be 70%. It would be lower. It's not really our core space of competition. Very patient.
Adam Cochrane from Deutsche Numis. Brace yourselves. I've got a couple. Not on tariffs, though. You'll be clear. How come? First of all, how do you start getting customers back into the business? You've got negative active customer growth. In terms of that, that's a net number. Can you give us something about the gross additions? Is there any shape to that number where you can show us that you're churning out poor customers but adding on better ones? In terms of customers coming to the website, I'm assuming there are some new customers.
Are they coming to buy the ASOS own label, or are they still looking for the third-party products first when they come onto the website? In terms of that third-party bit, you probably glossed over it slightly in the presentation, but the performance was relatively weak within that third-party branded bit. What is the issue here? Is it that because you're not discounting on those third-party brands, the customers can find those products elsewhere where they are being discounted, so they don't need to shop with ASOS? Because the basket size is up, so it's not like the people are shopping and not spending. What's happening with those third-party brands? Given you've got so many, it can't just be that you've got the wrong ones, right? You've definitely got some of the right product in there. Your inventory level is now in the right place.
One of the reasons that we've had weak sales for a while has been you've been reducing your inventory, therefore giving up customers. Now your inventory is in the right place. What is the rationale for the sales growth not to pick up? That leads on to why do we think that the second half sales is weaker than certainly I expected, and maybe others did as well. It does not matter at the profit level, but I think to get the top line moving is really going to be a prerequisite to get people excited back in the investment case. It is really just an idea of what will the shape of the sales recovery look like, and what is it going to be driven by? Is it just getting the third-party sales to stabilize, and then you push the ASOS own label? Thanks.
Wow.
Are you sure you don't want? Warned you. Are you sure you don't want to talk about tariffs? That is a lot of questions. Okay, I'll do my best. I'll do my best. When are customers going to come back into the business and how they are coming back to the business? I'll try to do my best again because I'm not sure I wrote down everything. As I said before, we have done a lot of things that have, let's say, made ASOS less attractive for some type of customers. We have offered less product. We have significantly reduced the amount of product we're selling. We have offered less discounts and less performance marketing. That was going to have an impact on sales always. Only one of them would have an impact. Imagine when you do the three at the same time.
That was going to have an impact for sure. What we are trying to do here, as I said at the beginning, is we're trying to be attractive for consumers and doing it in a way that is sustainably profitable, resilient. Selling brands with a very high discount consistently is not a business model that is sustainable for ASOS or for anyone. That is one of the big changes we have been bringing here. It's like, no, we want to go to a business model that is really sustainable and has, if you want, a healthy—I don't know if that is the right word. Sorry, I cannot find a better word—a healthy relationship with consumers. A relationship that is based on, "We're going to give you whatever brand, 30% cheaper than anybody else," is not sustainable.
It's just like it lasts for a little bit, and then someone else is going to be cheaper than you, or you will not have the product because the brands will not supply the product or whatever that is. We are really evolving in that direction. What we're seeing is that there are some early signs that consumers are starting to reconnect with ASOS. As I told you, let me use the U.K. because it's our core market, and it's where we're seeing more of the impacts. Our own brands are growing 9% total sales in the U.K. As I said, that's what we were expecting because this is what we see if you want the changes of the model more developed.
We are seeing that reactivated consumers in the U.K. are growing by 7% over the course of the last six months, which means there are a lot of consumers, at least 7% more than last year, that have decided to come back to ASOS. We are seeing that this is slowly getting there. There is no silver bullet here. This is the thing, the button we have to press, and tomorrow all consumers are going to come. This is a matter of making sure we're doing the right things consistently. That is why we're so excited about what is coming because there are a lot of things that are coming that we consider are the right things. Loyalty is the right thing. Live sales is the right thing. Topshop.com is the right thing. More personalization is the right thing. More brands is the right thing.
We need to continue doing that. Obviously, our discipline in cost is giving us the space to do that, and it's giving us the possibility to continue doing that by regaining slowly but surely this love of the consumers. Is it going to take six months? Is it going to take 12 months? I don't know. I think it's a matter of consistency. Some turnarounds are faster. Some turnarounds take more time. There are some people out there that have been on a turnaround for 8-10 years. Obviously, that is not our ambition. I'm probably too old for that, but it might take some time. What we have to make sure is that we are doing the right things consistently to make sure that we reconnect with consumers, and that is our obsession. You were talking about our brand partners. That is true.
Obviously, the performance is worse. Remember what I showed you. The performance top line is worse. Bottom line has improved significantly in every geography, and that is very important. We are seeing also some, if you want, early signs of better performance. I did not share that in the presentation, but if we go to the U.K. again and we see the performance of our partner brands on womens wear, if we exclude the fact that we discontinued the outlet last year, and obviously, we are comparing to, if you want, to businesses that are slightly different, we are almost growing. It is slowly getting there, and it is getting there by doing the right things, by bringing exciting brands. You are right. We have a lot of brands, but this is incredibly lively. That changes every day. We need to be bringing the new brands.
We want to be a destination where people come to discover brands. There are new brands being created and disappearing every day, and we have to be as dynamic as the market is. By bringing new brands, by bringing more exciting collabs. I think what we did with Adidas is a good example. With New Balance, we had also another one that was amazing. We have had it with some of our brands. There is more to come. Hopefully, soon we will be able to share with you some news about great things that are happening also in this space. It is not going to be done on we are consistently discounting more than everybody else. That is not sustainable. That is not the way we want to do it because it is not sustainable, and that is not something that creates the right approach.
You are asking, is there an issue? No, there is no issue. We knew that it was going to come like that, and we know it takes some time. We are seeing that when we do our job, we sell thousands of units in a matter of minutes at full price. It is more about doing the right job rather than offering 30% on 30% on 30%. You were saying when—sorry, a very long answer, but there were a lot of questions, to be fair. When are sales coming? When are we going to grow? We do not want to—I do not know if the word is rush. Rush has a very negative connotation in Spanish. Sorry. We cannot force that. It takes time. We have to do the right things, and we have to consistently do the right things. That is where we are focused.
We understand that for some investors, top line is obviously what drives. We want to make sure that we are capable of delivering this profitable growth in a sustainable way. We also want to make sure that during the course of the next 6 to 18 months, we are capable of doing that regardless, to a certain extent, obviously, to the evolution of sales. That is why we are always focused on efficiency, capital allocation, gross margin to make sure that we can do that. I think that is pretty much it. I do not have a very long answer. Sorry. You have a follow-up.
I think the stock number is now in the right place.
Oh, yeah. Sorry, I forgot about this.
In terms of, is there no reason to have a stock build?
It's just that that stock turn, hopefully, will increase as your sales go up.
We are happy with the current level of stock turn. We are seeing that stock is turning up. Obviously, there are a lot of nuances in this answer because some of the lines are turning super fast, probably way too fast, and some are slow. In general terms, we are happy with the stock turn we are seeing. It is in a good place. That goes back, if you want, to the concept I shared before of this return on investment. We really monitor that the money we're putting into stock brings a return. In that sense, we feel we're in a good place, and that is going to help us start accelerating.
Obviously, the more Test and React we bring, the more exciting brands we bring, the more good collabs we bring, that is only going to start turning this flywheel, and that is where we are focusing. We are not really seeing that the stock is a problem anymore whatsoever. If that was your question, not sure.
I think you were fortunate enough to get in just as the chequered flag came down. I think we're at time on questions. Do you want to?
We're in time. That was fast. I hope this time you guys had enough time for questions. Maybe there were some that we couldn't answer. My apologies. I really tried to be concise this time. I don't know if I did a good job. Very exciting to have you here again.
As I said, if I could summarize the feeling of the team in two words, we are happy about what we've seen we have achieved. We are happy about, as you will have seen, there has been a lot of activity, but we are happy to see that it's being fruitful, and we are increasing our variable or EBITDA, sorry, by GBP 60 million. We are very excited about what's coming. We feel that we have the right product. We feel that we have the right economics, and we are in the journey of really making or continuing in this journey of transformation to a successful end of making ASOS the most amazing fashion destination, being also sustainably profitable. Thank you so much, and looking forward to the next session. Thank you very much. Have a nice day.