AO World returns to profit after cutting costs – but sales slump as demand for white goods falls
- AO World implemented a “significant” reduction in its workforce over the period
- The electronics retailer saw its annual pre-tax profit reach £7.6 million
AO World has turned a yearly profit thanks to cost cutting, with the retailer forecasting a return to sales growth for the year ahead.
The online electronics store posted a pre-tax profit of £7.6m for the year ended March 31, up from a loss of £10.5m last year.
However, falling demand for white goods and weak shopper confidence saw sales fall 17 per cent to £1.4 billion.
Uplifting: AO World boss John Roberts is ‘confident’ that the group will soon enjoy sales growth
“Confident” that it will enjoy revenue growth by the end of the current fiscal year, the group told investors on Wednesday that it will soon also “cautiously” invest back into the company.
As part of the cost-cutting effort, the group implemented a “significant” workforce reduction, with senior and middle managers particularly affected.
It also closed certain offices and moved to remote working in some parts of the company.
The group issued a number of profit warnings last year and launched a £40 million fundraising round in a bid to boost its balance sheet.
AO also closed its operations in Germany and plans to cut costs by at least £30m this year.
Unprofitable product lines have been cut and delivery charges have been introduced to reduce costs for the company.
Chief Executive John Roberts said: “We have rationalized relevant ranges and raised the bar of what we are willing to accept in our supply chains. Inevitably, these actions have cumulatively reduced sales, but we believe that the best companies are often defined by what they decide not to do, rather than always chasing every opportunity.”
AO World Stocks rose today and rose 1.24 percent or 1.00 p this afternoon to 81.85 p, after rising more than 70 percent in the past year.
Mr. Roberts added, “The significant improvement in our earnings performance speaks for itself and has been achieved by focusing on our strengths and simplifying our operations.”
“Looking forward, we intend to continue this focus while maintaining the flexibility to drive growth through disciplined investments at the right pace and at the right time.”
In June, Mike Ashley’s Frasers Group took an 18.9 per cent stake in AO World in a £75 million deal buying out shares of Odey Asset Management. Frasers said the duo had been in talks about the possible collaboration for two years.
Last month, Frasers CEO Michael Murray said, “Frasers has long admired what John and the AO team have built, and we are delighted to have the opportunity to form a supportive, strategic partnership.
“Through this investment, Frasers will benefit from AO’s valuable know-how in power and two-person delivery, enabling us to drive growth in our bulk equipment and home goods business.”
Richard Hunter, Head of Markets at Interactive Investor, said: ‘Switching horses in the midstream is no mean feat at the best of times, but AO World is showing signs that its decisive recent actions are starting to take effect.
“The group’s decision to exit the German operations, cut the non-core channels and loss-making sales were difficult but necessary decisions.
To add to the challenge, these came at a time of weakening consumer confidence and a slight shift back to offline white goods purchases by potential customers. As such, sales fell 17 percent this year, but that’s only part of the story.”
He added: “AO World has now done much of the heavy lifting needed to revitalize the business, and the next phase is one where the business will focus on growth, cash generation and profit .’
On AO’s share price, Hunter said: ‘The speed, decisiveness and relatively early success of his actions have positively impacted AO World’s share price, which has risen 45 percent over the past year, compared to a 6-year increase. percent for the broader FTSE All-Share index.
However, the gap between the current price and the heady highs of January 2021, when the company traded at levels above 430 pence, is clear and may not be repaired for many years, if ever.
“That said, AO World is in a revised shape and the market consensus of the shares of a purchase is perhaps an admission that the company is now a rather different and evolving prospect.”