AO World narrows losses in 'tough' macro environment
Online electrical goods retailer AO World was under the cosh on Tuesday as it reported a narrowing of its losses in the first half but struck a cautious note on the UK major domestic appliances (MDA) market.
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In the six months to 30 September, group adjusted earnings before interest, taxes, depreciation and amortisation losses narrowed to £5.4m from £6.3m in the same period a year ago as revenue grew 9.9% to £404.2m against a "tough" macro environment in the UK and Europe and a declining UK MDA market.
AO website sales in the UK were up 4.2% in the half to £294.3m, while total UK revenue was 5.7% higher at £334.8m. In Europe, revenue increased 35% to €78.4m, with the second-quarter sales growth rates impacted by changes to the company's Germany driver operating model.
Chief executive officer Steve Caunce said that while the company's core UK and Germany MDA markets have been challenging, the UK market was becoming tougher than expected. Still, AO managed to maintain its market share in the category in the UK and grow it in Germany.
"While we faced some operational challenges with our driver model in Germany which had an effect on our second quarter we expect to return to our targeted growth levels in Germany over the next few months," said Caunce.
"Our peak trading period began on 9 November with the launch of our biggest ever Black Friday and I remain confident of achieving long-term sustainable growth across the group. We expect full year results to fall within the range of board expectations, albeit more second half weighted than previously anticipated."
Numis, which rates the stock at 'buy', said: "In our view, AO’s UK challenges relate almost entirely to the downturn in the white goods market, which has resulted in the loss of high incremental margin revenue, fierce MDA price competition, and the need for investment in other growth areas.
"While the challenging backdrop suggests few short term share price catalysts, we retain confidence in AO’s model, believing that its standout customer proposition, commitment to service, and development of competency-based income streams, will deliver long term value."
At 1315 GMT, the shares were down 7.4% to 115p.