UK’s AO World raises outlook after return to profit

By James Davey

LONDON (Reuters) -British online consumer electricals retailer AO World raised its expectations for the full year after returning to profit in the first half as reduced costs and improved margins offset a fall in sales in a tough market for discretionary spending.

In the UK, though inflation is falling, borrowing costs are high, the housing market is slowing and there is pressure on so called big-ticket expenditure.

AO, a seller of washing machines, fridge freezers, cookers, TVs, laptops and mobile phones, said on Tuesday it now expected a full year 2023/24 pretax profit of 28 million pounds to 33 million pounds ($35-$41 million), up from previous guidance of around 28 million pounds.

But it expects its full-year revenue to fall by about 10%, after a first-half decline of 12% to 482 million pounds that reflected the closure of AO’s business in Germany, the removal of lower value products from its range and the introduction of delivery charges.

“As we go into the first quarter calendar year (2024) we expect to be back to (revenue) growth and for our next full financial year (2024/25) we expect to be back into double digit growth,” founder and CEO John Roberts told Reuters in an interview.

Shares in AO, 21% of which are owned by Mike Ashley’s Frasers Group, were flat in morning trading. They are up 59% this year.

Roberts noted the mobile phone market was down 20% year on year, negatively impacting AO’s ability to hit network volume targets for 2023.

That will have a “single digit” millions of pounds profit drag on the 2023/24 year and is absorbed within the upgrade.

Roberts said AO’s participation in Black Friday promotions is “pretty flat” versus last year. Deals include 50 pounds off Ninja air fryers and 200 pounds off Vax floor care products.

“Thinking through a consumer spending squeeze lens it’s about how you make those discretionary purchases ever more affordable for customers before Christmas,” he said.

($1 = 0.8025 pounds)

(Reporting by James Davey; editing by Kate Holton, Sarah Young and Jason Neely)