Hello, welcome to today's ASOS analyst call. My name is Bailey, and I'll be the moderator for today's call. All lines will be muted during the presentation portion, with an opportunity for questions and answers at the end. If you would like to ask a question, please press Star followed by one on your telephone keypad. Alternatively, if you have joined us via the web, you may submit a written question via the Q&A box on your screen. I would now like to pass the conference over to our host, José Ramos, CEO. José, please go ahead.
Good morning, everyone, and thank you for joining us on our P3 trading update. I'm here with Sean, our CFO, and Michelle, our Senior Director of Strategy and Corporate Development. It's only a month since we last spoke. Thank you so much for joining us on our call this morning, a bit earlier than usual. I'm aware that some of you have a busy morning with other calls. I'll try to be brief and to the point. Let me first start by updating you on our achievements in P3. I'll share with you my perspectives on our plan to rightsize our stock, generate cash, pay down our net debt, and improve our structural profitability. Finally, I'll hand over to you for questions.
The first thing to say about our P3 performance is that we are delivering on our plan and reiterate our H2 and full- year guidance. We have restored profitability in P3, as expected. This is despite a 14% decline in our sales, driven in part by our deliberate actions to stop pursuing top-line growth at any cost. Adjusted EBIT in the quarter was up more than GBP 20 million compared to last year and swinging from negative to positive EBIT. We are well on track to deliver the year-on-year improvement in EBIT required to deliver on our guidance of GBP 40 million-GBP 60 million adjusted EBIT in the second half.
We have done this through, first, an improvement in our gross margin of 350 basis points, more than half coming from freight deflation and the remainder through improvements in our realized selling value and sourcing. Secondly, by delivering an additional approximately GBP 33 million per month in profit optimization and cost savings measures, taking us now to GBP 200 million year- to- date in our Back to Basics program as we call it internally. We are well on track to deliver our target of approximately GBP 300 million by year-end. At the same time, we have made progress with our inventory. It's now down 15% on fiscal year 2022, and we are on track to reduce stock by circa 20% by year-end.
I'm really pleased with what we have achieved in the period to deliver on our plan. Let me take a step back for one moment and explain why this is the right plan for ASOS. In October, when I spoke to you for the first time as CEO, we had closed the year with GBP 1.1 billion of inventory, twice the size of our inventory in 2020. This had driven an increase in our net debt position of circa GBP 560 million, pretty much in line with increase in our stock balance. Our stock issue was no doubt compounded by difficulties predicting demand and managing supply over COVID, but it was clear that significant changes were required to the way we were operating.
Today, our stock is down 15% year- to- date, and we have reduced our H1 fiscal year 2024 intake by 33%. The stock write-off removed our older stock, resulted in a significant improvement in the quality of the stock that remains. This is stock we can now sell through our platform in the ordinary course of our business and take our stock turn to pre-COVID levels by the end of fiscal year 2024, generating cash and paying down our net debt as a result. Beyond generating cash from a working capital inflow in the second half of this fiscal year and in fiscal year 2024, our focus is on generating EBITDA in excess of our cash outflows going forward.
The new commercial model will improve the realized selling price of our stock through a mix of initiatives, including the more relevant and updated styles, pricing, better sourcing, and faster clearance of our out-of-date stock. We have seen that when we create a product that really resonates with our consumers and it's priced correctly, full price sales are very strong. Alongside this, we are improving our order profitability internationally, which is already yielding results. We have made great progress on Driving Change agenda initiatives. I have already said we're on track for our GBP 300 million target this year. This give us an analyzed gross savings of approximately GBP 385 million, driving sustainable improvement in profitability.
While it's early for us to outline our growth strategy, the best way to create the conditions to grow is to, again, offer the best combination of fashion and excitement. This is precisely what we're doing. I truly believe that as we restore ASOS to offering fashion-loving consumers the best products with unique styling and an inspirational shopping experience, we can grow our customer base again. For now, we are laser focused on delivering our Driving Change agenda. With that, I'm giving over to you for questions.
Thank you. If you would like to ask a question, please press Star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press Star followed by two. Again, to ask a question, please press Star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question, and please do ensure that you have unmuted locally. Our first question today comes from the line of Michael Benedict from Berenberg. Please go ahead, Michael. Your line is now open.
Morning, all. Thanks very much for taking my questions. I have three quick ones, if I may. First one, just on your further work on inventory next year. I think you said in the statement the option count will be down 13% in H1. Could you talk us through how you're thinking about the impact of that on your growth heading into FY 2024, please? Second one, just on the gross margin, clearly tracking well ahead of H2 guidance. Anything we should think about in terms of why there's no upgrade there? Last one from me, I wondered if you could give us a bit of color around some of the learnings you've sort of gained from some of the initiatives you've tried and tested, maybe pulled back from, whether that's around Premier pricing, delivery propositions, or otherwise. Thanks very much.
No problem. Thank you, Michael. Let me start with the, with the 30% option count and the impact on next year. It's explained to a certain extent in the RNS, what I'm gonna say now. What we did at the very beginning of this fiscal year was to really react very fast in how do we manage our intake to make sure that we have the right level of stock. As we have said, that is clearly one of our preferences and one of our focuses this year.
We had a very fast reaction, and that had a significant impact in the width of our assortment, with a reduction of approximately 33% of the options that the customers can buy now. Obviously, that has an impact on their choice, and that has an impact on our sales. For the first half of next year, what we see is that we have been able to manage a stock reduction, but with a significantly smaller impact on the width of our assortment. Our expectation is that should have a significantly milder impact on our sales.
As we said, in the H1 conference call, we were calculating that 50% of the impact that we were suffering was coming from external circumstances, 50% was coming from internal circumstances. It should come to ease that situation in H1, and obviously to get better in the course of H2. If I move to your second question about gross margin ahead of guidance and no upgrades, what we are saying is, and actually we said that also a month ago, we are giving ourselves flexibility during Q4, sorry, in terms of promotional activity. The reason is that we are really focused on making sure that we deliver the 20% stock reduction by the end of the year. It is...
that is very important that we keep this possibility, take into account that we are seeing a very promotional market. We are not the only ones seeing stock, overstock or stock issue, however you want to say it. We are expecting that the market will be quite, let's say, animated in terms of promotional activity now during the sales season of the summer. The last one about learning from initiatives. Well, as you know, we took a broad brush approach when we laid out our back to basics program, understanding that some of these initiatives would have some side effects.
It's interesting you mentioned Premier, because, for instance, Premier is one of the initiatives where we have seen that the side effect in the U.K. was not precisely what we wanted, and that's why we have priced it back to GBP 9.95. We increased the price of Premier, and we have decided to go back, because it was not giving the impact we were looking for. While in other cases, for instance, the creation of our minimum order in order to enjoy Premier is working well because it's helping us to avoid this behavior of consumers that order, as I said last time, 18x a year, a lipstick with promotion and with Buy Now, Pay Later. That kind of initiatives is working well.
I would say that probably overall 85%, 90% of the initiatives we have put in place are doing exactly what we want. In some cases, we are either pulling back, like Premier, I think it's probably the biggest example, or fine-tuning them to make sure that we achieve what we want.
That's great. Thanks very much.
Thank you. The next question today comes from the line of Simon Bowler from Numis. Please go ahead, Simon. Your line is now open.
Hi, good morning. Two for myself, if okay. The first one, just being with regard some of the details you've given on the composition of your inventory, with 86% being less than 12 months old and some other aging numbers that you've given. Do you expect that to be kind of meaningfully different by the time we get through to full- year? The second question is just noting some of the comments in the release around the ability to lower prices and/or improve quality on own brands while holding percentage margins. Just, can you give any sense of how much you think you've got to be able to reinvest into own brands, while holding that margin?
Is that a reflection, entirely of, your own work and, a positive sourcing environment, or are there also assumptions around reduced markdown within that comment?
Okay. Thank you, Simon. Let me start with the inventory composition. We said that right now, pretty much 86% of our inventory is younger. I don't know if younger is the word, anyway, younger than 1 year. 55 is younger than 26 weeks, and 10% is younger than 1 month, which is a good composition. It will keep on improving, by year end, it will be better. Tough for me to tell you exactly how much better, because obviously that I would really need to be able to anticipate what is exactly how the consumers are gonna buy, but it will be better. Our ambition is to keep on improving more and more.
As we said, when we were talking about the new commercial model, we really want to make sure that the inventory is for sale max 2 seasons. That means that what is bought for spring/summer must be sold this spring/summer, if it's a fashion item, and next spring/summer maximum, if it's a flow style, but flow styles are 10%-15% of our assortment. That means that on a stock composition that is 95%, 98% of less than a year and 70%-75% of less than 6 months, would be more our target for the next 6- 9 months.
You were talking about our ability to lower the prices, given the fact that we are seeing some gross margin improvements, and how much. Well, what we're seeing in gross margin, it's coming from a set of factors. Sorry. One of them is the fact that we have simplified our sourcing processes, so we are making faster decisions and simpler decisions and eliminating unnecessary costs. That is giving us better gross margin in all regions.
The other one is that we have optimized our origins in terms of sourcing, not necessarily going more to long term versus long- term, but optimizing sourcing in terms of which is the ideal origin for specific product classes. That is coming with a good improvement for us. How are we gonna use this improvement? As I always said before, we always want to price competitively, so we will make sure that our prices are competitive in the market. We potentially anticipate a price reduction in the market next year, so and we will be there to fight that battle. That we feel comfortable with that.
We're in a good position to do it. Which part of it is gonna be coming from sourcing, which part is gonna be coming from markdowns? Obviously, we don't know. As I said in previous occasions, our ambition is to reduce markdowns. To reduce markdowns, not just because we want consumers to feel excited and buy at full price, and this is what happens when we offer the right, the right item at the right price. One of the beauties of our business model is that we offer very different sets of price points. If a consumer wants to buy a dress at GBP 30 , she can buy a dress at GBP 30 without buying a dress on promotion.
She can buy a dress at GBP 30, being at full price. We wanna make sure that this dress has the value, the price, and the excitement so that she buys that at full price and at the right time. We are not sitting on the stock for long. Sorry, very long answer, Simon.
no, really, really useful color there. Thank you.
Thank you. The next question today comes from the line of Georgina Johanan from JP Morgan. Please go ahead. Your line is now open.
Hi, good morning, everyone. Just two from me, please. Just the first one, following on from the previous question from Simon. Just to understand where you sort of say you do anticipate some price reductions in the market next year and so on. When we sort of think about the balance of all of the different factors, would we expect your gross margin, or should we expect your gross margin to make progress year-on-year in Fiscal 2024? Or actually is a more sort of stable outlook reasonable, given those comments? The second question was just on the market more broadly, what is your view on sort of, how excess inventories are across the market more broadly now?
Are we getting to a point where we can sort of start to think about them having been sold through? Or actually, do we think it could be another sort of quarter or two to yet? I'm also mindful, a number of retailers, including yourselves, have sort of talked about selling stock onto, you know, various off-price sites and so on. Are you concerned that there might be sort of buckets of stocks that sat with these sites that might sort of continue to pressure promo activity in the market in the next quarter or two? Just interested to hear your views on that, please. Thank you.
Thank you, Georgina. Sorry, I was writing down, otherwise I forget the questions. On price reductions, I mean, to be honest, I'm pretty much echoing what I have also heard from some of our competitors, that they are planning to reduce prices. Difficult for me to tell you to what extent this is gonna be a big price reduction or a smaller price reduction. We are ready for that. We, as we have said before, we want to price competitively, and if the market is gonna go in this direction, we will go in this direction. One of the beauties of our business model versus the business model of some of the omnichannels, is that we're much more flexible.
We don't need to relabel stock that is sitting in 3,000 stores all over the planet. Our commitment with our consumers, is that we will offer them the best fashion at the best price, and we're gonna stick to that commitment. I think you were asking me for a little bit of outlook of next year, and My apologies, but I'm not gonna give you the outlook. Sorry, Georgina. Obviously, our commitment, if you want, as we stated before, is that we want to improve our gross margin over time. There are improvements that will be coming from sourcing.
There are improvements, as you were mentioning, and Simon was mentioning before, that will be coming from a reduction on markdowns, because what we want is to make sure that our consumers find the right product at the right price, and they buy it immediately. That will protect our gross margin, but will also ensure that we get the stock turn we want, because sitting on the stock for long, even if you get a little bit of a nicer margin later, is not a winner. That doesn't work well. Yeah, we want the stock to produce return fast. On the excess inventory across the market, well, that's a great question.
I think, to be honest, probably some of the brands will already be getting out of it by the end of this fiscal. By the end of this summer, sorry, which is our fiscal, maybe not for all of them. Some of them will be getting out of them. Probably not everyone. I think, to be out of the problem. First of all, sorry. First of all, I think it's a pretty widespread problem. The fact that we have been talking to some off-price channels gives us a very clear vision that it is a widespread problem, not just for us, even though, of course, we have it, as we've been very clear about it.
Second, I think that some people have taken a more decisive action, and some people have been trying to procrastinate a little bit more. Those who took the decisive action will be out pretty much by the end of this summer or maybe the first months of autumn, winter. For those who were procrastinated a little bit more, it might be becoming more of a chronic problem that can stay much longer, and that will be a problem for them. We're happy not to be in the second pack. When you say that the off-price channels are full. Well, that's a good question. They might. That's tough for me to tell you because we are not in that market. They might. What we see is that both markets are not necessarily connected.
There are consumers who tend to buy mostly on off-price markets, and there are consumers who tend to buy mostly on the main market, on the core market. It might be that it is kind of full, and probably some of these off-price players will have already stock for more than one season. That's potentially true. Again, that would speak in favor of those who have taken early decisions rather than those who have been procrastinating.
That's really helpful. Thank you, José.
Thank you, Georgina.
Thank you. The next question today comes from the line of Emily Johnson from Barclays. Emily, please go ahead. Your line is now open.
Morning, I've got three questions. The first is, you make the comment on trade suppliers removing credit and your expectation of that impact on cash to be pretty modest. Can you walk through what the kind of practical implications are of that trade credit cover being removed? The second question was around the U.K. Premier customers. You mentioned that you've reduced the price point there. Can you talk about what sort of testing you did before changing the consumer proposition, the Premier consumer proposition, what your expected impact was? Now that you've reduced that pricing again, do you expect the number of U.K. Premier customers to grow again or to just stop declining?
The third question was around some of the reports, press reports about ASOS receiving a bid last year, and I guess some of the new major shareholders coming into the fold recently. Can you talk about how you, as a company, think about M&A, the kind of, how you think about the value of ASOS and how open the board is to kind of potential bids? Thanks.
Thank you, Emily. I wanna take a little bit of a pause. I'm gonna leave the first one to Sean, if you don't mind.
Hi, Emily. Thanks for your question. I think with the trade credit piece, I think the first thing is to understand how it works, and it's very much a contract and a relationship between the supplier and the trade credit insurer themselves. We're not party to it, so we don't have first-hand sight of what's going on. You know, through conversations with our suppliers over the last year, we know that there's been a tightening in the industry, and we know that there's been a tightening of credit insurance provided on us. And that's has reduced until more recently, we've become aware that some trade credit insurance has been cut or reduced. You asked about the sort of the practicalities.
The, you know, the practicalities for us is it does lead to conversations with our suppliers, but we have a very diverse supplier base. You know, over, well over 1,000 suppliers with no individual supplier contributing more than 6%, 7% of our intakes. We're very diversified. You know, whilst we're aware that cover has been reduced, it's led to conversations about terms with a handful of suppliers. We manage it case by case, and we take into account the entire relationship that we have with them, how they fit into our size, et cetera. To date, it's been a very modest impact in terms of what that's meant for sort of us changing terms and working with our suppliers to find an alternative approach.
You okay? Okay. Let me go to your second question about the Premier pricing in the U.K. As I said, when we laid out the back-to-basics plan, that the idea was to really go with this broad-brush approach and touching the market as fast as possible. We really wanted to be really action-oriented and making sure that we were having an impact. Assuming that that would bring some risks, and we were willing to run those risks. In terms of if we have used different, if you want, I think you call it, testing before we made the change, we have done different approaches in different markets to learn as fast as possible.
That is what is giving us confidence that we are now making the right decision in that sense, because we have seen how different markets have behaved. We think that is the best decision right now. As I said, this idea of acting fast was also part of this change of culture in ASOS. We really want an action-oriented culture, and we are okay with taking some risks and making some mistakes. That is, again, one of the beauties of our business model, that we are more flexible than other players, and we really want to use this flexibility to our advantage and to the extreme.
In terms of expectations of growth or no decline, what we have seen is that we have stopped the decline in the U.K., so we are happy to see that. Obviously, our ambition is to fuel future growth, future growth that will be built not only on the price of Premier, but also will be built on making sure that our proposal is exciting. We have the best clothing at the best price, with the best experience, and we keep on working on that direction. It's not just to stop the decline, why we're doing it.
On your last question about the news about the bid and so on and so forth, as you know, it's our policy not to comment on this kind of rumors. I will not comment on this kind of rumors.
Thank you. The next question today comes from the line of Miriam Josiah from Morgan Stanley. Please go ahead, Miriam, your line is now open.
Great morning, everyone. 2 questions from me. Firstly, just on the current trading, could you just give us a bit of color on sort of how you exited the quarter? You know, did you see worse or better trends in May versus versus March? Perhaps if you could talk about consumer behavior, particularly around what you're seeing around returns rates, if there's been any changes around that? Secondly, just going back to the sort of comments on price reductions and perhaps the timing of that?
Clearly, you're on track with your profitability initiatives and, if you perhaps did see, slightly better promotional environment over the next quarter, or you were able to clear through stock faster, is there any chance that you could perhaps start to invest into pricing in Q4 to try to get to growth sooner? Should we really think about that as more of an FY 2024 investment? Thanks.
Thank you, Miriam. Let me start with the current trading. Let me use a little bit of Spanish humor here. I've been complaining about the weather quite a lot, so I guess if you guys have a window close by, you can look through the window. I cannot complain so much now. I almost feeling like I'm in Madrid. It's been quite warm lately. Obviously that is having an impact on not only on us, in our competitors. I have seen some of our competitors this morning referring also to that. I think obviously we have seen a change in the trend.
As we said, back in a month ago, we were seeing that 50% of the impact was due to internal decisions, but 50% of the impact was due to external decisions. We see a little bit of a change in the trend. It's unfortunate that it has come quite late in the summer because a change in the trend at the pretty much mid-June is late. Anyway, good weather is always welcome, and that's always great.
In terms of consumer behavior and returns, what we are seeing is as a result of potentially the cost of living crisis and the Ukraine War, we saw around April, May last year, an increase on returns, that is kind of stabilizing around pre-pandemic levels, a little bit above pre-pandemic levels. This, in our case, is not different. It's pretty much the same. Our returns rate is generated by a set of conditions, not only just this one. We see returns changing because of the country mix. There are certain geographies that have a higher return rate, which, by the way, are geographies that are performing better lately for us. Is also based on the product mix.
The going out clothing has a higher return rate and is performing better than going out clothing, returns rate are going up also because of that reason. Is related with the tenure of consumers that have been with ASOS for longer tend to return more because they know the system, and it's also related with the method of payment. What we see is that there are a set of reasons why returns have increased beyond the cost of living crisis. Cost of living crisis is one of them, but not the only one.
We expect that the returns rate will kind of stabilize because of the cost of living crisis. The other factors will continue evolving. Depending how the different geographies perform or how the different product classes perform, returns rate might evolve. The way we're tackling the need, and I've tried to be clear about that, is like, we are going on two directions.
One is we really are betting on improving our basket economics because this is the best way to absorb the impact on returns. We are very happy to see that our average basket value continues growing healthy and not only because, I mean, it's because of the increase in the average sales price, but we see a number of pieces that is quite stable with a minor decrease. It is a healthy growth. We're also tackling the returns that are not useful. I mean, a consumer that is buying two sizes because she's unsure about which one is her size, is not useful. A consumer that is buying three dresses because she's unsure which dress she likes better, is a useful return.
We are still committed to that. In terms of the price reductions and the promotional environment, we expect a quite animated promotional environment this summer. Precisely because of the fact that the heat has come late, that is gonna push promotion, and we are seeing already that it's pushing promotion. In that sense, that's why we have given ourselves the room and the flexibility to invest in promotion in Q4. I think price reductions will only come next fiscal, because it's gonna come with a new collection. I think right now, I don't really think that there are many retailers, probably none, who are bringing new styles to the collection right now for the summer.
Everybody's gonna do it when the autumn collection start hitting the store, that it will be probably in the last days of August, the first days of September, that happens to be our Q1, or the very end of Q4.
Great. Thank you.
Thank you, Miriam.
Thank you. The next question today comes from the line of Nicolas Katsapas from BNP Paribas Exane. Please go ahead, Nicholas, your line is now open.
Hi, everyone, thank you for taking my questions. I actually only have one. I just wanted to ask really about how the consumer is behaving with respect to buying promotional goods. I'm thinking more in terms of third-party brands versus your own brands. You know, are you having to promote your own brands a bit more because consumers tend to wanna buy, you know, the Nikes and so forth? Is it still fairly similar? What is your. I mean, there's a piece in the statement that says, you know, own brand is still at 40%, but I know you're reducing sort of brands at the tail end, and you're reducing your option count.
I just wanted to know what is your expectation for the own brand portion of your sales going forward over the coming months and years? Thank you.
Thank you, Nicolas. No, the behavior between the third-party brands and our own brands is pretty much similar. I think that the red thread here is not the name of the brand. The red thread here is whether it's the right style or not. I can tell you with great confidence that we see some of our styles sold out in a matter of hours, so it's not related. Some of the third-party brands are performing very well, and we see, for instance, I think we mentioned that in the statement, we see sneakers performing very well, and some other third-party brands are not performing well, and then we have to also go on this promotional effort.
No, it's more the consumers want the right style at the right price, at the right moment. Then these three things have to be very, very clear, otherwise, it doesn't work. No difference. On the expectation going forward, we still bet on our own brands as an absolutely critical part of our value proposition. No, we are not expecting to reduce this 40%. I was gonna say, it's not quite the contrary. We keep on betting on our brands. The consumers decide if it's 40%, if it's 35% or if it's 45%. Our ambition is that our own brands are a critical part of our value proposition because it's only at ASOS.
They can only buy ASOS Design and Topshop at ASOS. That is very important. The beauty of how do we mix these brands with the curation of the best third-party brands is part of our secret sauce. I'm telling you the secret sauce. I will have to kill you, Nicolas, That's okay.
Yeah. Thank you. I'll be hiding.
Thank you, Nicholas.
Thank you. The next question today comes from the line of Ben Hunt from Investec. Please go ahead, Ben, your line is now open.
Well, good morning. You allude to orders being 30% more profitable in your statement, which I think probably works out about GBP 2 an order. I was just wondering, I mean, perhaps it's early days, if you sort of see further upside to that number, and anything you're seeing in terms of basket sizes or reduced frequency from all the profit and optimization measures that you are implementing?
Ben, would you mind repeating the second part of the question?
Yes. Just any sort of comments about basket sizes and frequency as a result of the profit optimization measures that you're implementing.
Okay. Thank you. Thank you so much, Ben. Sorry, I'm writing it down so that I don't forget. Profit per order, yeah, we announced that is 30% growth versus last year. Do we see further upside? The answer is yes. Our ambition is to increase it even further. We wanna make sure that what we sell to our consumers produces the best results for them and the best results for us. We can still optimize part of our investments. We continue investigating on how to optimize our marketing investments. We can still optimize our gross margin, and we have talked a lot this morning about gross margin and how this is gonna come, and the evolution of not only the intake margin, but also the margins.
We see an impact there. If you want, and that will be the perfect segue to your second question, we want to optimize the basket size. The whole idea of ASOS creating this unique environment where you put together our own brands and third-party brands around this concept of the outfit, creates the perfect platform for consumers to cross-sell, to cross-buy, for them cross-sell for us. We are really investing on making sure that the basket size can grow. That's why back in the days, we included categories like beauty, and that's why we wanna make sure that the integration between the different categories is the best possible integration.
Yeah, we see farther upside, and we are really pushing to get farther upside during the course of the coming years. When I move to basket size and frequency as a result of the profit optimization, what we have seen. Here, we are seeing two different things, and let me explain basket size and frequency. What we have seen is that some of these 6% of consumers that we mentioned a month ago, that had this kind of very unprofitable behavior for us, were consumers with really high frequency. That is not necessarily good for us because we're consumers with very small baskets.
As I said, I use that image to illustrate it, we're consumers that were buying 18 times a lipstick on promotion, and we might not buy later. It was a little bit of the perfect storm. When measuring frequency, we have to. We are trying to make a difference between these type of consumers and let me call it more normal consumers. We have, we are these type of consumers that have very, very high frequency, we are losing some of them, and rightly so. But the average consumer, we are not seeing a massive reduction in, or a reduction in the frequency.
Basket size, as I said, we are seeing an increase in basket size. The beauty of the increase is that it's not coming from an unbalanced equation. It's coming from a size of the basket that is pretty much stable. I think the reduction is 1%, so it's pretty much flat, while we're seeing an increase in average sales price. It's a healthy increase as opposed to a completely unbalanced, that would be unhealthy.
Okay. Sorry, just, forgive me for my ignorance, but how much actual gross margin dilution has there been in this period from the actual reduction in inventory, or the sort of clearing the exception?
Sorry, Ben , explain to me, what do you refer to as margin dilution?
Well, how much gross margin dilution has there been from the need to have to clear the, you know, the, the extra 5% of inventory that you've achieved in this period?
Yes. The reduction in inventory is through our regular trade-ins, so not been a dilution as such from clearing. Promotions are part of our business model, and we've been doing less promotions as part of our new operating model. Reduction in stock has just been through regular trading and our focus to realize cash from our inventory levels.
Okay, perfect. Many thanks.
Thank you, Ben.
Thank you. Our final question today comes from the line of Adam Cochrane from Deutsche Bank. Please go ahead, Adam, your line is now open.
Good morning, guys. Two quick questions, if I may. The first one is on the option count and the depth of buy. You put a lot of numbers around there with the sort of reduction option count you had in various periods. Would you just be able to give us a timeline, sort of starting off with when your option count was, I don't know, at 100, and then you got the - 30, the - 13. How are we expecting that option count to evolve? What's the ideal number compared to maybe a point of reference of, I don't know, 2020 or something? I'm just trying to work out the shape of when you're talking about that option count. Then on the depth of buy, how are you thinking about that going forward?
Is the plan to have a wide option count, but low depth of buy, and then a Test & React to refill it if particular lines work well? Is there any huge difference by region in this plan? Maybe when you look at the last quarter is being relevant or not for that question. It's really, I suppose, trying to get the picture of how your shape is gonna evolve. The second question is on, you talked about customer churn or unwanted customers. My question is on customer acquisition. How many new customers are you managing to sign up? Is there, on the marketing spend, are you able to still achieve a good return?
Just a, I suppose, a bit of a, an explanation between the churn and any new customer acquisition, and how maybe where the marketing is actually having a sufficient payback in this environment. Thanks.
Thanks, Adam. I'll start on your first one, and then I'm sure José will build on it. In terms of option count, we've given a kind of lot of disclosure in the RNS to try and help, I guess, demonstrate the impact that cutting volume, specifically around the Driving Change agenda has had on the option count. Not necessarily going to give a kind of potted history of what happened, but I guess in terms of the trajectory going forward, the idea is that reduction in option count will ease, as we've been able to take, I guess, more forward-thinking action around reducing volume. In terms of aspirational and ongoing basis, you're exactly right.
The idea would be that we, you know, we don't know today what the perfect option count is, but the idea is that we maintain breadth while having a shallower buy per SKU. We would back the winners more and reduce intake on the long tail, and that will be complemented by the fact that we can increasingly use DTC, and we're increasing our speed to market with Test & React. That's how I think about that. The plan there is it creates scarcity value in our product. We want our customers to come to the site.
They see the product, the first price, right price, and they also realize that if they don't buy it now, it will sell out, rather than just waiting for the product to go into sale. That doesn't necessarily happen tomorrow, but that's the direction that we're taking the business in.
Yeah, let me, if you want, elaborate, as Michelle already anticipated, I was going to elaborate. I can help it, a little bit on it. On the option count, I totally agree, there is no formula here. It's not that we need, 200,000 options, 500,000 options. It is true, our ambition is to serve a lot of different consumers, all fashion loving twenty-something, in quite a few regions, so we need a wide assortment. That means that, if we reduce the width of this assortment too much, that has an impact on our capacity to sell consumers. Without having a formula, our ambition is always to have a wide assortment, but a wide assortment full of relevant options, not just top numbers.
We, there is a lot about making sure that what we sell is relevant. In that sense, formulas like Test & React are absolutely critical because that ensures that whatever we are keeping in the assortment is relevant. In this idea of this wide assortment is generated by lower depth, then the answer is yes. Yeah, that's what we're doing. This is where we're moving towards. We're moving towards lower depth and more flexibility because the answer is not only lower depth. The answer is, like, we learn with a lower depth, and then we react. It might be repeating this one, that is, and more depth, or learning from why on a specific style is selling and bringing new versions, let me use that word, of this style.
That will build in this idea that Michelle was indicating of scarcity. It's like, this is not about offering the same dress to 50,000 consumers. That is the opposite of exciting, this is not exactly what we want to do. We want to learn why this dress is popular, we want to bring different version of this dress for different types of consumers. If a specific print is working well, then there will be different consumers that will want different shapes or different fabrics, that will be willing to buy at different price points. That is the idea. Obviously, how we decline this assortment by region, that depends on the behavior of consumers, that is one of the beauties of our business model.
That the fact that the assortment is sitting in a reduced amount of locations, in our case, it's 3 locations that are our warehouses, gives us the flexibility that we can serve different assortments with only one stock pool. That is always a better model, more flexible than when you need to have 3,000 stores, because obviously, the complexity of managing 3,000 assortments is higher. Let me go to your second question about marketing and customer acquisition, and customer return, and so on and so forth. Which is a quite interesting one. From the very beginning, we said that part of this Driving Change agenda was to focus more on excitement and less on promotion.
What we are doing is testing how can we pivot our marketing to focus more on this kind of attraction to consumers. We are learning along the way, and we are seeing some of the actions are working better, some of the actions are working worse. We're still in learning mode, for sure, but what we're seeing is that in this difficult market, because we said that it is not a difficult market, we start to see that some clearer ideas about how to move forward and how to pivot our marketing toward this type of approach. This is a type of approach that obviously will speak to both. Will speak to existing consumers, and will speak to new consumers. That is not...
We see ourselves with room to grow in all our markets, even in our core markets. Remember that this is a market that is super fragmented, so the market leader maybe has a market share of 6%-7%. You know, there is, like, massive room to grow for us, even in the U.K. We're not worried about that, about attracting new consumers in the U.K.
That's great. Thank you.
Thank you, Adam.
Thank you. This concludes today's question- and- answer session. I'd like to pass the call back over to José Ramos for any closing remarks. Please go ahead.
Well, thank you very much, everyone. I know it's a busy morning, and I can only thank you for the 50 minutes you have been with us. As always, super happy to be with you and really excited to continue delivering on our Driving Change agenda, and to continue making sure that ASOS is the best place for fashion-loving twenty-something consumers. Looking forward to our next iteration. Thank you so much. Have a nice day.
This concludes today's conference call. Thank you all for your participation. You may now disconnect your line.