AO World earnings nearly treble regardless of falling gross sales

AO World’s annual profits have soared as price hikes helped the group compensate for lower revenues to achieve higher margins. 

The online electronics retailer revealed adjusted pre-tax profits climbed by 186 per cent to £34.3million in the year ending March, far above its guidance of between £28million and £33million.

The Bolton-based business boosted gross margins by 2.5 percentage points to 23.4 per cent through raising prices and getting rid of ‘non-core’ channels and loss-making sales. 

Delivery: Online electronics retailer AO World revealed adjusted pre-tax profits climbed by 186 per cent to £34.3million in the year ending March

However, this contributed to the FTSE 250 firm’s overall turnover declining by about £100million, or 8.7 per cent, to £1billion.

Revenue was further affected by cost-of-living pressures hitting consumer demand in the electrical goods sector and challenging conditions in the new contract mobile phone market.

AO said the ‘intense’ competition to attract mobile customers led to them offering ‘unsustainable discounts’ to try and gain market share.

Nonetheless, the company hailed an ‘outstanding profit performance,’ with its chief executive and founder, John Roberts, calling it ‘a testament to the success of our strategic pivot to focusing on profit and cash generation’.

He added: ‘We are now a much simpler, more efficient business and are performing better than ever for customers, with excellent and sustainable unit economics.’

AO’s profits over the previous two years were severely impacted by tumbling sales and consumers ending warranties earlier than usual to save money.

The group was also hit by supply chain snags, labour shortages and Britons returning to buy white goods in stores following the end of Covid-19 restrictions.

Under a turnaround plan, the firm closed numerous offices, shut down operations in Germany, reduced cashback incentives, began imposing delivery charges, and launched a £40million fundraising to enhance its balance sheet. 

This has failed to significantly revive AO’s shares, which have plummeted by around three-quarters from their peak of more than 430p in January 2021.

AO World shares were 1.8 per cent up at 115p on early Wednesday afternoon.

For the upcoming year, AO expects to achieve double-digit revenue growth and £36million to £41million in adjusted pre-tax profits.

Julie Palmer, partner at Begbies Traynor, said the good weather, energy price caps, and moderating inflation means there is ‘some cautious optimism out there for the consumer.’

She added that the extensive summer sports calendar, including the Paris Olympics and European Football Championship, ‘could encourage fans to consider upgrading their setup at home, which could spell further good news.’

John Roberts started AO in 2000 after a friend bet him £1 in a pub that he could not set up his own business.

Among the products sold by the company are laptops, televisions, fridge freezers, washing machines, smart doorbells and vacuum cleaners.