Shares plunge 15% as online retailer warns of lower sales
Online retailer AO World is preparing for revenues to be even lower in 2022 after revealing a 6% drop in income.
It has warned that “volatile market conditions, inflationary cost pressures and logistical challenges in the supply chain, together with the escalating cost of living for consumers” will affect its performance.
“We remain cautious about our revenue and profit outlook in the near term,” the company said.
“In the coming year, we will focus on cash generation to strengthen the balance sheet whilst optimising our cost base to align with the expected lower levels of revenues.”
AO’s share price dropped 15% on opening this morning, continuing a torrid 15 months that has seen more than 80% wiped off the company’s value from its peak at the start of 2021.
The Bolton-based online electricals retailer will delay release of its annual results by up to eight weeks as its continues a strategic review of its German business.
Founder and chief executive, John Roberts, has also announced he will dispose of around £5m of stock, which is about five per cent of the 107 million shares he owns in the business he took to the market in 2014.
The group released a trading update for the year to March 31, 2022, that revealed it expects estimated group revenues of £1.557bn, a six per cent decline compared with the previous year, comprising a five per cent fall in UK revenues, and a 12% fall in revenues at it German business.
In January this year AO announced a strategic review of the German business.
The group has suffered a shift in consumer trends, following its exceptionally strong period two years ago when strict lockdowns led to a surge in online orders.
However, now, the easing of lockdowns and the cost of living crisis has resulted in a sharp change in consumer spending. This is compounded by the shortage of delivery drivers and supply chain issues.
Today’s update shows that group adjusted EBITDA is expected to be around £8m, reflecting the impact of lower sales volumes and higher costs incurred in the UK logistics operations, driver shortages across the industry in the first half and significantly higher marketing costs in Germany.
In March, the group was notified of higher warranty cancellations than average historical trends as customers responded to the escalating cost of living.
It experienced a similar reaction following the first COVID lockdown period, which, it said, proved to be a temporary consumer adjustment. And while the picture has subsequently improved, data received subsequent to this trading update and prior to the full year results announcement scheduled for later this summer could result in a reassessment of the carrying value of the contract asset, which could lead to a material impact on 2022 profits, it said.
Available liquidity as at March 31, 2022, was approximately £50m and, given the current factors and the seasonality of cash flows, liquidity has since reduced. However, AO expects that this situation will improve as it move into quarter. The group’s revolving credit facility of £80m was extended and now expires in April 2024. Net debt at the end of the financial year was £32.8m.
The company added: “Despite the current market challenges, we remain confident in AO’s long term prospects given the inherent resilience of our business model, the quality of our customer proposition and the ongoing structural shift to online.”
