AO World bullish despite reopening of rival shops as sales surge 88%

Online electricals retailer AO World has said it expects to deliver bumper profits over the year ahead despite the reopening of high street rivals, as it revealed an 88% surge in UK sales.

The impressive performance over its final quarter helped group revenues jump by 62% to £1.66 billion in the year to March 31 as the pandemic saw it gain more than two million new customers.

It now expects annual underlying earnings to surge to between £63 million and £72 million, up from £19.6 million the previous year, despite extra costs relating to the pandemic.

And AO World founder and chief executive John Roberts insisted the company’s rapid growth will continue in spite of increasing competition from bricks-and-mortar rivals after the reopening of non-essential shops this week.

He revealed that, in the past week, AO’s sales have risen by 25%, which comes on top of soaring sales from a year earlier and as shops have reopened across the UK.

He said: “I believe that these market dynamics will stick and, whilst there is inevitable uncertainty, the direction of travel is firmly with AO and the business model we have spent more than 20 years building.

“I expect that we will continue to be a double-digit growth business in the year ahead, even now as we lap the tough comparatives from last year with physical stores open.”

He told the PA news agency that the switch to online is set to be permanent even after the pandemic.

“When you find a better way of doing something, why would you go back to the old way that wasn’t as good?” he said.

“There are some things where physical retail provides a good experience – I don’t think electricals is one of them.”

The group’s German operation also saw strong trading, with full-year revenues up by 77%, and is set to deliver a full-year profit after finally clawing its way out of the red in the third quarter – a milestone for the division, which has been loss-making since its launch in 2014.

AO World said Government coronavirus support has either been repaid or not claimed.

But the Bolton-based group added that it expects to book a charge of around £15 million due to customers cancelling long-term mobile and warranty contracts as they change their spending behaviour amid the pandemic.

It has also faced steep costs from making its operations Covid-19 compliant, particularly for goods returned by customers.

Shares in the firm dropped in January after it warned that these expenses would be “significantly higher”, which overshadowed a record performance over Black Friday and Christmas.

In its latest update, the group reassured investors that its annual earnings remained in line with market expectations despite the extra expenses, sending shares up 2% on Thursday.

Retail expert Andrew Wade, at Jefferies, said the update revealed “another outstanding top-line performance” from AO World.