Barclays upgrades ASOS to Equal Weight, doubles price target on debt outlook

Barclays has upgraded British online fashion retailer ASOS plc to "Equal Weight" from "Underweight" in a research report published Monday. The bank pointed to moderating sales declines, proceeds from asset sales, and an expected debt refinancing as factors that are improving ASOS’s financial outlook.

The British bank also doubled its 12-month price target on the FTSE-listed company to 420p from 210p, a level that closely aligns with ASOS’s recent share price of 418p.

Barclays said that while top-line growth remains pressured by intense competition from ultra-fast fashion group Shein and resale platforms such as Vinted, operational adjustments and balance sheet deleveraging have materially reduced the downside risk in the stock.

Balance sheet deleveraging and refinancing

A key factor behind the rating change is the significant improvement in ASOS’s debt profile. Proceeds from the recent sales of warehouses in Lichfield, UK, and Atlanta, US, generated £115 million in net cash. Barclays projects that this will help bring net debt excluding leases to -£63 million by the end of fiscal 2026, compared with -£320 million in FY24.

Barclays expects ASOS to undertake a comprehensive debt refinancing in early 2027, replacing its expensive convertible bonds with a more conventional term loan facility on considerably more favorable terms.

"We forecast clear positive equity free cash flow in FY28 and an EFCF yield of 11%, providing a much-needed valuation anchor," Barclays analysts wrote.

Interest expense is projected to fall from £75 million in FY25 to £36 million in FY28, giving ASOS a substantial buffer for cash flow generation.

Top-line performance is showing signs of stabilization. Group gross merchandise value declines are expected to narrow to -5.5% in FY26 before returning to low-single-digit growth of 2.7% in FY27.

In peer comparisons, Barclays maintained an "Overweight" rating on German online fashion retailer Zalando SE with a price target of €34.00, citing its cleaner balance sheet and established cash generation.