Yahoo Finance FTSE: AO World swings to £37m loss as consumers cut spending
Online electricals retailer AO World (AO.L) has crashed to an annual loss after it was hit by the dual impact of rising costs and declining sales.
The firm posted a £37m ($44.6m) pre-tax loss for the year to 31 March, falling from a £20m profit in the previous year.
It said the poor performance was partly driven by headwinds from global supply chain disruption, labour shortages and cost of living pressures impacting consumer sentiment.
Profitability was also hamstrung by increased staff costs as the company sought to resolve driver shortages.
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Electricals retailers in the UK are facing the heat of a worsening cost of living crisis that has crushed consumer confidence and hit spending, raising uncertainty about their sales outlook amid efforts to generate cash and contain rising costs.
“The past 12 months has been a turbulent time for business and for retail in particular, and AO hasn’t been immune to those effects," founder and chief executive officer John Roberts said.
“Looking ahead, we certainly have more volatility to navigate, but the core fundamentals of our business remain strong."
Shares in the company have tumbled more than 80% over the past year after a series of profit warnings. Still, AO World shares rose in early morning trading on Thursday, up 12.4% to 45.17p.
"AO World has endured a torrid year, buffeted by the economic headwinds which have blown across the retail sector, as well as labour shortages and supply chain disruptions," Richard Hunter, head of markets at Interactive Investor, said.
"The stock was also hit earlier this year by reports of credit insurance being closed to its suppliers and the company subsequently entered a fundraising exercise of £40m in an effort to shore up the balance sheet.
"The company now enters into a new phase after a bruising time. Over the last year, the shares have declined by 82%, as compared to a marginal 0.6% gain for the FTSE All-Share index (^FTAS), and the market consensus of the shares as a hold reflects a wait and see approach as the company attempts a revival.
"In the meantime, vague bid speculation has not materialised into anything concrete, although the suspicion remains that potential suitors may still be running the slide rule over the company.”
AO said it is making a “strategic pivot” over the new financial year, with a focus on returning to profit growth.
"We entered the new financial year with a period of strategic realignment, and a focus on cash and profit generation," Roberts said.
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The company started its turnaround plan with a £40m fundraising round last month in a bid to strengthen its balance sheet amid fears of a cash crunch.
AO also confirmed plans to close its German operation as part of the shake-up, which it said on Thursday will cost “no more than £5m”.
It comes after revenues in the German business slid by 16% over the year to March.
Total revenues across the whole group declined by 6% to £1.55bn against the same period last year as it failed to keep up with stronger sales during the first year of the pandemic.
Its UK operation witnessed a 5% decline in sales to £1.37bn for the year.
