Electrical retailer AO World swings to loss as costs mount and demand weakens

Electrical retailer AO World has swung to a full-year loss and warned of slower sales, blaming product shortages, rising costs and weakening consumer demand.

The London-listed group posted a £37mn loss for the 12 months to March 31, down 87 per cent from a £20mn profit in the previous financial year. Revenues fell 6.2 per cent to £1.6bn.

AO blamed driver shortages and global supply chain inefficiencies in the first half of the financial year and weaker customer demand in the second half caused by soaring inflation, rising interest rates and higher energy costs.

Founder and chief executive John Roberts said that despite the volatility, the “core fundamentals of the business remain strong”.

UK consumer spending rose in July but has failed to match the pace of inflation, which this week topped 10 per cent for the first time in four decades.

The British Retail Consortium said the small rise in the annual value of sales “masked a much larger drop in volumes once inflation is accounted for”.

Fellow electrical retailer Currys last month cut its profit forecast and warned of stalling online growth as UK consumers reduced spending in the face of higher inflation.

AO had been a pandemic winner, with sales booming in the UK and Germany in 2020 thanks to the shift to online shopping, but driver shortages and supply chain disruptions started to bite in 2021. AO issued successive profit warnings, causing shares to plunge 80 per cent over the past year.

The white goods retailer in June shut its German division, which accounted for 10 per cent of total revenue, after customers switched to pre-Covid shopping behaviours more quickly than expected.

The company on Thursday estimated the closure costs of the German business would be no more than £5mn.

Group shares rose as much as 15 per cent in early London trading on Thursday. Danni Hewson, financial analyst at AJ Bell, attributed the uptick to AO’s clarity around the cost of its German exit. “The company was also remarkably upbeat, although that may simply be AO putting on a brave face despite a multitude of problems in the background,” he said.

The retailer said last month it would strengthen its finances with a £40mn fundraising after losing more than a quarter of its value in July following reports that a leading credit insurer had cut its cover for suppliers.

AO’s profits have historically suffered from its efforts to replicate its UK success in Europe. The group closed down its Dutch arm in 2019 in order to focus on improving profitability in Germany and expanding in the UK.

Since its exit from the German business, the retailer said it was now focusing on its core UK market.