AO shares fall 20% amid revenue, profit caution

Shares of Bolton-based online electrical retailer AO World plc fell as much as 20% on Friday after it said it remains “cautious” about its revenue and profit outlook in the near term and revealed higher warranty cancellations as customers responded to the escalating cost of living crisis.

The Bolton company said customer demand progressively weakened in the second half of its financial year, compounded by global supply chain disruption which affected product availability in certain categories. 

AO also said: “Due to the expected timetable for the ongoing strategic review in Germany, together with the resulting complexity in the year end close process, the group now expects to announce its full year results to 31 March 2022 six to eight weeks later than planned.  

“The expected date will be communicated in due course.”

Further, AO said CEO John Roberts will dispose of a small proportion of his 22% equity holding in AO on an annual basis.

“Since the group’s IPO in 2014, our founder and chief executive, John Roberts, has maintained his shareholding and increased it with selected share purchases,” said AO.

“John has now decided that he will dispose of a small proportion of his equity holding on an annual basis.

“Whilst there will be no certainty on any disposal, it is expected that John will dispose of c. £5m in shares during this financial year, representing c. 5% of his total shareholding of 107m shares.”

AJ Bell investment director Russ Mould said: “Online white goods seller AO World saw lots of demand during the pandemic but that has now begun to dry up, supply chain issues are dogging the company and the deterioration in consumers’ finances means order cancellations are going up.

“Worst of all for the company’s credibility, full year results are set to be delayed because of a strategic review of its German business. This is never taken as a good sign by the market.”

In a trading update for the 12 months to March 31, 2022, AO said estimated group revenues for the full year  are expected to be £1.557 billion.

“On a year-on-year basis, group revenues declined c. 6% against the exceptionally strong prior year comparatives resulting from the robust growth in online purchasing during the Covid-related government restrictions in 2020/21,” said the company.

“On a two-year basis group revenues increased 52%, reflecting the ongoing structural shift to online retailing.

“The online share of the UK major domestic appliances (MDA) market continued to grow, increasing to 54% vs 43% pre-Covid …

“UK revenues remained resilient in H1 despite the constraints of driver challenges and ongoing supply chain shortages.

“During H2, while driver issues had eased, customer demand progressively weakened across the sector, compounded by global supply chain disruption which affected product availability in certain categories. 

“On a two-year comparative basis, UK revenues grew strongly, increasing 52%.

“In Germany, revenue growth was constrained by post-Covid shifts in consumer behaviour and an increase in online competition, as customers returned to stores to a greater degree than anticipated. 

“This was compounded by our decisive actions to minimise cash losses in this business. Revenues declined 12% versus FY21 but grew 54% on a two-year comparative basis.

“Group adjusted EBITDA is expected to be c. £8m, reflecting the impact of lower sales volumes and higher costs incurred in our UK logistics operations; driver shortages across the industry in H1; and significantly higher marketing costs in Germany. 

“In March, we were notified of higher warranty cancellations than average historical trends as customers responded to the escalating cost of living.

“We experienced a similar reaction following the first Covid lockdown period, which proved to be a temporary consumer adjustment.

“While the picture has subsequently improved, data received subsequent to this trading update and prior to the full year results announcement scheduled for later this summer could result in a reassessment of the carrying value of the contract asset, which could lead to a material impact on FY22 profits.”

On the strategic review of its German business, AO said: “The strategic review is continuing, and a number of options remain under consideration by the board. 

“We hope to announce a more detailed update on this process in the near future.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.