Electrical retailer AO World enhances full-year earnings outlook

AO World has improved its earnings forecast amid early signs of success for the online retailer’s turnaround plan.

Adjusted profit is now expected to be £30m to £40m for the year ending March 2023, a £10m increase over the company’s previous forecast.

After seeing sales skyrocket during the height of the pandemic, trade at the white goods retailer declined as cash-strapped consumers became more reluctant to buy bulky items.

AO World has also been hit by wage increases amid labor shortages, higher warehousing and handling costs and the end of lockdown restrictions driving customers back to stores.

This caused the Bolton-based company, which sells everything from dishwashers to vacuum cleaners and fridges, to fall from a profit of £17.1m in FY 2021 to a loss of £30.1m in 2022.

The problems have been exacerbated by higher-than-average guarantee cancellations and a third-party credit insurer that has reduced its coverage, posing a potentially serious drag on cash flow.

As a result, the company launched a £40 million fundraising round, closed its operations in Germany to focus on the UK and ended an in-store trial with supermarket giant Tesco.

It also stopped selling unprofitable items, introduced delivery charges and tried to cut costs across much of the company, including cutting senior and middle management jobs.

AO World said these measures are “gaining popularity” and earnings for this fiscal year are expected to exceed previous expectations.

Revenues for the three months ended December were also in line with management forecasts, although they were down 17.2 percent from the same period in 2021.

The group added: “We remain cautiously optimistic while remaining mindful of the ongoing macroeconomic uncertainty and difficult consumer environment, while also considering the extent to which these pressures and inflation may affect our contract assets.”

Brokers Numis and Jefferies have both raised their estimate of underlying profit for the retailer to £35m and reiterated their buy advice for AO World shares.

Analysts at Jefferies went on to say, “We continue to see a good opportunity to own a company with a strong customer proposition, a strengthened balance sheet and a successfully modified profit-oriented strategy.”

AO World Stocks were up 3 percent on Tuesday morning to 71.7 pence, meaning their value has risen by more than half over the past six months, although they remain slightly below pre-pandemic levels.

Rival firm Marks Electrical also announced a record quarterly result today, supported by a revenue increase of a third to £29.8 million in the last three months of last year.

It said trade was supported by solid performance across all product categories, particularly energy-efficient laundry appliances, televisions and refrigerators.