Covid costs hit AO shares despite 67% sales growth

Shares of Bolton-based online electrical retailer AO World plc fell about 5% on Tuesday after it issued a trading update for its third quarter to December 31, 2020, showing it has incurred “significantly higher costs” as it negotiates “some of the operational challenges of working in a Covid compliant environment.”

Nonetheless, AO World said it experienced its strongest ever peak trading period over Black Friday and Christmas. 

“In the three months to 31 December 2020 we recorded year on year UK revenue growth of 67.2% to £457.3m and of 77.4% to €73.6m in Germany,” said AO World.

We are continuing to invest in our infrastructure to deliver these higher levels of revenue including additional staff in warehouses, vehicles and drivers.

“We have incurred significantly higher costs as we negotiate some of the operational challenges of working in a Covid compliant environment, particularly in the reverse supply chain.

“We have also seen a slightly increased rate of cancellation of individual consumers’ long term contracts in mobile and warranties, driven by Covid impacts on customers behavior.

We are delighted with how our investments in infrastructure and corresponding planning for the structural market changes have played out, although there remain some Covid created imbalances in supply and demand in some categories … “

AO World shares have soared more than 300% in the past 12 months.

AO Founder and chief executive John Roberts said: “I believe we’ve seen ten years of change in ten months, and experienced our strongest ever peak trading period.

“We backed ourselves by investing early in warehouses, vehicles, stock and people.

“This not only set us up to satisfy customer demand for electricals for the current crisis but also for the longer term, as the structural shift to online becomes a permanent feature of the market in the UK and Germany.

“One of our biggest achievements this period is to have our German business profitable throughout Q3.

“Our confidence in those investments has been rewarded by these exceptional levels of sales.

“We’ve seen how the short-term costs translate into a fantastic opportunity to drive lifetime value for millions more customers.”