Thursday 22 August 2019

AO World swings to loss as investments and UK conditions drag on performance

The company said it booked a pre-tax loss of £9.6 million for the six months to September 30.

AO World results
AO World results

By Kalyeena Makortoff, Press Association City Reporter

Retailer AO World has warned full-year profits will come in near the lower end of expectations after swinging to a half-year loss amid higher investments and tough UK trading conditions.

The company said it booked a pre-tax loss of £9.6 million for the six months to September 30, having reported a profit of £2.3 million in the same period a year earlier.

It said half-year losses were “largely a reflection of concentration and increase” in its UK marketing spend in the first quarter as well as investments to help scale up and expand its European business.

But the company also reiterated that it faced “particularly challenging” UK trading conditions at the start of the financial year, having seen volumes drop amid “a fall in consumer confidence associated with the Brexit process”.

The change in UK stamp duty also hit the business, resulting in fewer customers shopping for new home appliances.

AO World cautioned that while it expects to deliver full-year underlying operating profit within its target range, those figures would be “towards the lower end”.

Chief executive Steve Caunce said: “We are broadly on track with our plans for the year as a whole – with the positive impact of improving sales growth through the first half of the year combined with the first half biased phasing of our marketing spend – in spite of the challenging UK market conditions.”

But the company is poised for further pain in the UK.

“All economic indicators point to no respite in the challenging market conditions in the short term and there are widespread reports of a poor outlook in housing transactions,” the company said in its trading update.

Shares fell 2% after the firm’s interim results.

Revenue for the half-year rose to £368 million, up from £324.7 million a year earlier, with its UK operations still managing to notch up a 7.4% rise in sales to £316.8 million.

AO World said UK revenue growth was driven by good customer service which resulted in repeat purchases, as well as higher brand awareness, TV advertising and “sales from new categories”.

But the UK’s rise was outshone by revenue growth in Europe, rising 72.9% to £51.2 million, adding that it was “firmly embedding” itself in  markets including Germany and the Netherlands.

AO World said: “The improved sales momentum we saw in the second quarter against the first has continued into the second half of the year as we head towards our peak sales period.

“Whilst we continue to anticipate uncertainty in the macroeconomic environment, we remain focussed on delivering value for all our stakeholders.”

It added: “We are now firmly established in our new territories with huge growth potential in these markets.”

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