AO World shares plunge on peak trading woes and annual profit warning

The group said it has already had to increase prices by 10% to 12% over the past three to six months to offset soaring costs.

Holly Williams
Tuesday 23 November 2021 13:48
Online electricals retailer AO World has warned over annual results and said product shortages, price hikes and consumer belt-tightening are set to hit peak festive trading (AO.com/PA)
Online electricals retailer AO World has warned over annual results and said product shortages, price hikes and consumer belt-tightening are set to hit peak festive trading (AO.com/PA)

Online electricals retailer AO World has warned over annual results and said product shortages, price hikes and consumer belt-tightening are set to hit peak festive trading.

The group’s shares plummeted by nearly 30% at one stage on the alert as it laid bare the impact of the UK’s lorry driver crisis and global supply issues on half-year figures.

AO World sank to a £10 million pre-tax loss in the six months to September 30 against profits of £18 million a year ago.

Underlying earnings slumped to £5 million from £28 million a year earlier.

The group said it has already had to increase prices by 10% to 12% over the past three to six months to offset soaring costs of freight, staff costs and warehousing.

But boss John Roberts cautioned there will be more price pain “to come” as the supply crisis and rocketing inflation show no sign of easing yet.

As we now look to the second half, we continue to see meaningful supply chain challenges with poor availability in certain categories

AO World

The group said key Christmas trading is now expected to be “significantly softer” than expected, which is set to leave full-year revenues either flat or down 5%, and group underlying earnings in the range of £10 million to £20 million.

AO World had guided in early October that revenue growth in the second half would be in line with the first half rate of 6% and forecast underlying earnings of £35 million to £50 million for the whole year.

As well as easing consumer demand due in part to wider cost pressures faced by households, the group is also battling amid global shortages of key Christmas products, such as Xbox and PlayStation 5 games consoles and iPhones.

AO World has recruited around 500 new drivers to help it overcome the labour shortages but said it was still seeing supply chain disruption, product shortages and higher costs of transport and freight.

“As we now look to the second half, we continue to see meaningful supply chain challenges with poor availability in certain categories, particularly in our newer products where we have less scale, experience and leverage,” the group said.

Sales growth over its first half pulled back sharply to 6%.

It said that with the boost from price hikes stripped out, sales have been falling in recent weeks compared with a year earlier.

Mr Roberts said inflation pressures are not set to ease yet, with prices expected to rise further.

He said: “My personal view is that’s not the end of the road – I believe there will be more to come.

“We’re operating in a volatile and uncertain world.”

Richard Hunter, head of markets at Interactive Investor, said the “white-knuckle ride continues” for AO World investors, with shares having tumbled by nearly 80% since the start of the year, even before Tuesday’s falls.

He said the group was in a “parlous position” but added there was optimism over the longer term view.

He said: “The undeniable shift towards online shopping, allied to the absence of a store portfolio cost drag, both provide opportunities for the business.

“At the same time, the group’s international aspirations remain intact.”

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