AO World lifts profit guidance as electrical retailer’s recovery plan shows early signs of success
- AO World has struggled with weaker trade amidst the cost-of-living crisis
- The group’s annual adjusted earnings are now anticipated to be £30m-£40m
- Numis and Jefferies have enhanced their profit estimate for the retailer to £35m
AO World has upgraded its earnings guidance amid early signs of success for the online retailer’s turnaround plan.
Adjusted earnings are now expected to be £30million to £40million for the year ending March 2023, an increase of £10million on the company’s previous forecast.
Having seen sales skyrocket during the height of the pandemic, trading went into reverse at the white goods seller as cash-strapped consumers became more reluctant to purchase big-ticket items.
Upgrade: AO World said its adjusted earnings are now expected to be £30million to £40million for the year ending March 2023, an increase of £10million on its previous outlook
AO World has also been affected by wage hikes amid labour shortages, higher warehousing and administration costs, and the end of lockdown restrictions bringing customers back to stores.
This caused the Bolton-based business, which sells everything from dishwashers to vacuum cleaners and fridge freezers, to slump from a £17.1million profit in the 2021 financial year to a £30.1million loss in 2022.
Problems have been exacerbated by a larger-than-average volume of warranty cancellations and a third-party credit insurer reducing its cover, which is a potentially serious impediment to its cash flow.
As a result, the firm launched a £40million fundraising round, closed its operations in Germany in order 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 sought to lower costs across a vast swathe of the business, which included job cuts to senior and middle management.
AO World said these measures are ‘gaining traction’, with earnings for this fiscal year now anticipated to be ahead of prior expectations.
Revenues for the three months ending December were also in line with management forecasts, although they fell by 17.2 per cent from the equivalent period in 2021.
The group added: ‘We remain cautiously optimistic and yet mindful of the continuing macroeconomic uncertainty and tough consumer environment, whilst also taking into account both the extent to which these and inflationary pressures can impact our contract assets.’
Brokers Numis and Jefferies have both enhanced their underlying earnings estimate for the retailer to £35million and reiterated their buy recommendation on AO World stock.
Analysts at Jefferies further said: ‘We continue to see a good opportunity to own a business with a strong customer proposition, a bolstered balance sheet, and a successfully shifted profit-centric strategy.’
AO World shares were up 3 per cent to 71.7p on Tuesday morning, meaning their value has risen by over half in the past six months, albeit they remain slightly below pre-pandemic levels.
Rival firm Marks Electrical also revealed a record quarterly result today, buoyed by sales surging by a third to £29.8million in the final three months of last year.
It said trading was bolstered by solid performances across all product categories, particularly energy-efficient laundry appliances, televisions and refrigerators.