AO World’s profits almost triple despite declining sales

AO World’s annual profits have soared as price increases helped the group offset lower revenues to achieve higher margins.

The online electronics retailer revealed that adjusted pre-tax profits rose 186 percent to £34.3 million in the year ended March, well ahead of expectations of £28 million to £33 million.

The Bolton-based company increased gross margins by 2.5 percentage points to 23.4 percent by raising prices and eliminating ‘non-core’ channels and loss-making sales.

However, this contributed to the FTSE 250 company’s total turnover falling by around £100m, or 8.7 per cent, to £1bn.

Sales were further impacted by cost of living pressures affecting consumer demand in the electrical goods sector, and challenging conditions in the new mobile phone market.

AO said “fierce” competition to attract mobile customers led to it offering “unsustainable discounts” in a bid to gain market share.

Nevertheless, the company touted an “outstanding earnings performance,” with CEO and founder John Roberts calling it “a testament to the success of our strategic pivot to a focus on profits and cash generation.”

He added: ‘We are now a much simpler and more efficient business, performing better than ever for customers, with excellent and sustainable unit economics.’

AO’s profits over the past two years were hit hard by declining sales and consumers ending their warranties earlier than normal to save money.

The group also faced supply chain issues, labour shortages and Britons returning to buying household appliances in stores after Covid-19 restrictions ended.

Under a turnaround plan, the company closed numerous offices, halted operations in Germany, reduced cashback incentives, started imposing delivery charges and launched a £40m fundraising to improve its balance sheet.

This has not exactly revived AO shares, which have fallen by around three quarters since their peak of over 430p in January 2021.

AO World shares were up 1.8 percent at 115p early Wednesday afternoon.

For the coming year, AO expects double-digit revenue growth and £36 million to £41 million in adjusted pre-tax profits.

Julie Palmer, partner at Begbies Traynor, said good weather, energy price caps and moderating inflation mean there is “some cautious optimism for consumers.”

She added that the extended summer sports calendar, including the Paris Olympics and the European Football Championship, “could encourage fans to upgrade their setups at home, which could mean even more good news.”

John Roberts started AO in 2000 after a friend bet him £1 in a pub that he couldn’t set up his own business.

The products the company sells include laptops, televisions, fridge freezers, washing machines, smart doorbells and vacuum cleaners.