AO reports ‘strong start’ to the year

Online electrical retailer AO has reported a “strong start” to its current financial year, with eight per cent sales growth in the UK in the three months to the end of June.

The firm, which has its head office in Bolton, said performance tailed off in June as consumer confidence weakened, but expected to deliver its “long-term” strategic plan and meet full-year targets as it cuts down on marketing spend.

AO shares were up almost two per cent at 11am to trade at 147p in London.

AO said: “We remain confident in the delivery of the plan we set out at our capital markets day in February 2017.”

Its European business has continued to outperform the UK, with sales growth in Germany and Holland up 46.2 per cent in constant currency terms, but it is only expected to become profitable in 2021.

Zoe Mills, retail analyst at data firm GlobalData, said AO would benefit from the continued growth in online shopping, but that its current reliance on major kitchen appliances could hold it back.

Steve Caunce
Steve Caunce is the chief executive of the loss-making e-tailer

‘‘Given that the UK electricals market is forecast to grow by 1.1 per cent in 2018, AO World’s outperformance highlights that the online pure-play is set to see further market share growth this year.

“It continues to resonate with the UK consumer by consistently offering a high level of customer service alongside an impressive delivery proposition. The popularity of the World Cup this summer is also likely to have positively influenced sales, with many consumers updating their televisions in preparation for the event that started in June.

“Nevertheless, AO World is too reliant on the major kitchen appliances (MKA) category, which is forecast to underperform the overall electricals market in 2018.”

GlobalData estimates that AO holds a 14.4 per cent share of the MKA market, making it the second largest player after Dixons Carphone.

But the fall in housing transactions and the decline in overall consumer confidence is having a negative effect on big-ticket home items.

“AO World must continue to diversify its product proposition if it is to compete with the leading electricals’ retailers in this market, such as Dixons Carphone and Amazon.

“The next natural step for the retailer is to move into personal care electricals, with this being the only electricals category remaining that it does not currently operate in. The addition of this product area would drive sales of cheaper and more accessible electricals, such as electric toothbrushes and hair dryers,” Ms Mills added.

She also said AO must reduce its deficit in its European arm through cost-saving measures, particularly as revenue growth in this market is beginning to slow.”

AO will report its half-year results on 20 November 2018.