Online retailer reports continuation of trading momentum

AO World

Trading momentum has continued for Bolton-based online electrical retailer, AO World, it confirmed ahead of its annual general meeting today.

In a trading update it said the momentum announced at the time of the preliminary results in July has continued and the significant change in demand for AO’s products and services has been maintained.

As a result, in the four months ended July 31, it has recorded strong year-on-year revenue growth in the UK of 58.9% to £401.3m, and of 91.5% to €74.3m in Germany.

Operationally, the business continues to support customers at a time when social distancing and continued changes to official COVID-19 guidance become the new normal.

It has made investments to strengthen its teams and infrastructure to ensure the business remains resilient and that it maintains high levels of customer service during ongoing periods of strong demand.

The demand for AO’s products and services has been sustained since competitor stores started to reopen at the beginning of July.

This, it said, reaffirms its belief that this is a structural shift in demand where customers have found a better way to shop the electricals category. Consequently, it is investing in its capacity and capability to serve customers ever more in the AO way.

It said: “We remain cognisant of the significant level of economic and customer uncertainty driven by both COVID-19 and the prospect of Brexit in December and the impact this may have on demand for electricals in the medium-term.

“We look forward to updating further in our interim results currently scheduled for release in November 2020.”

Russ Mould, investment director at Manchester-based investment platform, AJ Bell, said: “It’s been quite a year for AO thanks to strong demand for fridges, freezers and other electrical items during lockdown.

“The sales momentum appears to have continued with AO issuing yet another bullish trading update. That’s given its share price another leg up, meaning the stock has risen 135% year-to-date.

“While encouraging to see rapid revenue growth, profit is what really matters and there is no mention of it in the latest update.

“In July, full-year results to the end of March showed that the business still wasn’t making money. It reported a £3.8m operating loss, albeit narrowed from the previous year’s £13m loss.

“This year’s share price rally would suggest the market has become more confident about AO’s ability to start generating a profit at the group level.

“Its proposition is good: Selling a wide range of items online and offering superior levels of customer service. However, this is still a highly competitive market and AO cannot afford to undercut rivals by a large amount.

“Obtaining commission from a partner selling insurance is an important driver of earnings for AO, yet this is a sensitive area.

“Customers may have been happy with the ordering and delivery service, but their opinion of the brand, and, therefore, willingness to buy again, can easily be soured by AO’s representatives giving the hard sell on warranties.

“AO faces the hard test later this year if its 2020 sales boom has been a one-off driven by people spending a lot of time at home and wanting to ensure their mod cons are up to scratch.

“As people return to offices to work and spend less time at home, one has to wonder if sales growth starts to moderate.”