AO World hikes earnings outlook as overhaul pays off

The retailer said it expects full-year pre-tax profits of between £28 million and £33 million, compared with previous guidance of £28 million.

Online electricals retailer AO World has revealed it is to close its German business after eight years and focus on its UK operations (Alamy/PA)

Online electricals retailer AO World has hiked its full-year earnings outlook in spite of falling sales as cost-cutting actions bear fruit.

The group revealed it returned to profit in its first half, with pre-tax profits of £13 million in the six months to September 30 against losses of £12 million a year earlier.

Actions to cut costs and strip out unprofitable sales impacted revenues, which fell 12% to £482 million in the half-year.

But despite this, AO World said it now expects full-year pre-tax profits of between £28 million and £33 million, compared with previous guidance of £28 million.

Sales in 2023-24 will remain lower, however, at around 10%, according to the group.

AO World said: “Whilst mindful of the ongoing cost-of-living crisis and geopolitical events that give rise to uncertainty and volatility, we continue to optimise for profit outturn and are increasing our profit before tax expectations.”

Founder and chief executive John Roberts told the PA news agency the hit to sales was “self-inflicted” but the group expects to return to sales growth in 2024.

“The vast majority of our sales reduction is down to the actions we’re taking,” he said.

The company started its turnaround plan with a £40 million fundraising round last summer in a bid to strengthen its balance sheet amid fears of a cash crunch.

AO has since closed its loss-making German operation as part of the shake-up and has launched action to save at least £30 million a year by 2023-24.

The firm has also ditched unprofitable products while introducing delivery charges and cutting cashback incentives to reduce the cost of sales.

As part of its overhaul, it made cuts in its workforce, particularly affecting senior and middle managers, while it also closed a number of offices and moved to remote working across some areas of the group.

Mr Roberts said the firm will begin reintroducing some of the smaller electrical items it stripped out over the next 12 months after changes in its supply chain to cut costs.

Its bottom line has also been boosted by a drop in half-year warehousing costs to £25.5 million from £31.3 million a year ago.

Mr Roberts said he is “naturally cautious” over the outlook, given consumer spending pressures and the conflict in Gaza.

He said it is a “mixed picture” for consumer confidence, with essential white goods demand holding up but spending on other areas, such as mobile phones, being impacted.

The group’s mobile business has been suffering as a result of falling sales as the spending squeeze hits that area hard, although Mr Roberts said he sees a “clear” path to profitability ahead.

The results come after Mike Ashley’s Frasers Group became AO’s biggest shareholder in the summer, with a 22.1% stake.

Mr Roberts said there are “things we’re discussing” following the strategic partnership between the pair, but refused to be drawn on the talks and said they are in “no great rush to do anything”.