Online electricals retailer AO World (AO.) sparks up 2.2% or 3.4p to 156p as the Bolton-headquartered company reports near-14% sales growth for the year to March and says the new financial year has started well in both the UK and Europe.

Shares in the online washing machines, computers and televisions purveyor rallied strongly following a reassuring April pre-close update, before sliding back on a negative read-across from Dixons Carphone’s (DC.) profit warning last week.

But there’s renewed optimism among investors today as CEO Steve Caunce flags a resilient domestic showing in the face of a weaker UK electricals market and frail consumer confidence.


Annual results from the European internet electricals specialist reveal total sales up 13.6% to £796.8m. Investors are responding positively to news AO’s UK growth ‘continued to be resilient against a backdrop of a weaker UK electricals market and strong comparables’, with Caunce also flagging a ‘particularly pleasing second half performance despite lower group marketing spend’.

AO World’s sponsorship of ITV’s (ITV) Britain’s Got Talent in the first half of the year was designed to build brand awareness in the UK rather than directly drive sales. ‘While the initiative generated incremental traffic to our site over the period, it fell short of our expectations,’ explains the company.

Also expanding in Germany and the Netherlands, AO World posts near-55% growth in European revenue to €131.2m, although the European operations remain in heavily in the red amid hefty investment spend.

AO World insists its Europe operations are on track to achieve ‘a profitable run-rate during full year 2021’. Yet scrutiny of the accompanying notes reveals that by run-rate, ‘we mean achieving a positive adjusted EBITDA for the Europe segment in at least one month of the financial year ending 31 March 2021’, so still 'jam tomorrow' and no guarantee that sustainable profitability is coming on the continent, yet.

ao worldAO World’s annual loss before tax also deepened from £7m to £13.5m due to ongoing losses in Europe and a 25.4% slump in UK operating profit, reflecting margin-crimping, cut-throat price competition and marketing spend.

‘In the UK we have maintained market share in our core UK MDA (Major Domestic Appliances) business in a very competitive market and have performed well in the second half of the year with limited marketing expenditure demonstrating the asset of our customer base as it repeats and recommends AO,’ insists Caunce.

He adds: ‘The new financial year has started well in both the UK and Europe, with UK revenue growth returning to double-digit levels against prior year. Whilst we remain cautious on outlook given economic and competitive pressures on the UK electricals market we are confident of achieving our stated goals of future growth in the years ahead.’


Russ Mould, AJ Bell investment director, comments: ‘Investors are clearly willing to focus on AO World’s double-digit sales growth achieved in the year to 31 March judging by how the share price is rising today. However, if that’s the headline good news, there are plenty of negative issues behind it.

The company is still unable to derive a profit despite the increase in sales. Losses widened year-on-year due to investment in European expansion and weak pricing in the UK.

The spend in Europe is another reminder that just because a retailer operates online it does mean it is spared any costs of doing business. Management are also cautious on the outlook amid strong competition and economic uncertainty.'

Numis Securities’ Andrew Wade, with a 250p price target, insists: ‘AO continues to build on its outstanding fundamental customer proposition, adding categories, countries and tech improvements - NPS (Net Promoter Score) scores remain high (circa 80%) and repeat customer metrics are strong across all territories. Set alongside a strongly developing EU operation and a potential improvement in the UK competitive environment, we retain our positive stance on the shares.'

Wade is ‘firmly of the view that AO has a best-in-class EU operation which has now gathered sufficient scale and momentum that investors should be considering how much it is worth, not whether it will work.'

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Issue Date: 05 Jun 2018