AO World posts above-forecast profits

(Sharecast News) - Online electricals retailer AO World posted above-forecast profits and a jump in sales on Wednesday, despite weakness in its mobile phone division. Like-for-like group revenue grew 7% in the year to 31 March to £1.11bn, driven by a 12% uplift at its core retail business, to £832m. As a result, adjusted pre-tax profits came in at £45m, a 32% improvement.

AO had previously guided for full-year profits in the range of £39m to £44m.

Including musicMagpie, group revenues rose 9% to £1.14bn, also slightly ahead of the group's forecast range of between £1.09bn to £1.13bn. Adjusted pre-tax profits were 27% higher at £21m.

AO acquired the electricals re-commerce specialist late last year in a £10m deal.

Statutory pre-tax profits fell 40%, however, to £20.6m, weighed down by higher costs and goodwill impairment relating to its struggling mobile business. Revenues in the division fell 11% to £94.4m.

AO acknowledged that the unit's performance was "materially" behind expectations.

It continued: "We continue to review our strategy in this area, and will not continue to fund material losses going forward."

Founder and chief executive John Roberts said he was pleased with the group's overall performance, noting that sales growth had been supported by in its Five Star customer membership programme.

Repeat customers, who are cheaper for retailers to acquire and tend to spend more, now account for over 60% of orders.

Looking to the current year, AO said: "Despite the wider macroeconomic challenges, particularly employment cost increases, our objectives remain unchanged and we are confident in our ability to continue to grow revenue, alongside group adjusted pre-tax profits of £40m to £50m." It did not update on current trading.

Richard Hunter, head of markets at Interactive Investor, said: "At first glance, the numbers show real progress.

"Less positively, the mobile business risks becoming something of a thorn in the side. Revenues...[declined] 11.2% as consumer demand softened and a lack of handset innovation drove up acquisition costs.

"AO is now fully-focused on cash and profit generation, underpinned by its core UK sales of major domestic appliances, where the group is squeezing its advantages wherever possible, while also considering other appliance avenues of growth."

Russ Mould, investment director at AJ Bell, said: "The mobile arm [is] acting as an anchor on the business. The market is in decline and competition is fierce. It's not bad enough for AO to want to exit completely, yet don't be surprised to see the company slim down its offer.

"Costs are another headwind for AO and they're only going to get worse.

"The balance of good and bad news explains why the shares haven't budged despite the impressive profit growth."

As at 0915 BST, shares in the FTSE 250 firm were down 4% at 96.56p.