AO World returns to profit after cost-cutting drive and staff cuts

AO World has swung to an annual profit on the back of a cost-cutting drive, with the retailer forecasting a return to sales growth in the year ahead.

The online electricals retailer posted a pre-tax profit of £7.6million for the year to 31 March, against a loss of £10.5million the previous year. 

However, dwindling demand for white goods and weak shopper confidence resulted in revenue slumping 17 per cent to £1.4billion.

Upbeat: AO World boss John Roberts is ‘confident’ the group will enjoy sales growth soon

‘Confident’ it will start enjoying sales growth by the end of the current fiscal year, the group told investors on Wednesday it will also soon start ‘prudently’ investing in the business again. 

As part of its cost-cutting drive, the group undertook a ‘significant’ reduction in its workforce, primarily affecting senior and middle managers.

It also shut certain offices and moved to remote working across some areas of the business.

The group issued a number of profit warnings last year and launched a £40million fundraising round in a bid to boost its balance sheet. 

AO also closed its operations in Germany and plans to make cost savings of at least £30million this year. 

Unprofitable lines of products have been scrapped and delivery charges have been introduced to reduce costs for the business.

Boss John Roberts said: ‘We’ve rationalised relevant ranges and raised the bar of what we’re willing to accept in our supply chains. Inevitably these actions have cumulatively reduced sales, but we believe the best businesses are often defined by what they decide not to do, rather than always just chasing every opportunity.’

AO World shares rose today and were up 0.52 per cent or 0.42p to 81.27p this morning, having risen over 70 per cent in the last year.  

Mr Roberts added: ‘The significant improvement in our profit performance speaks for itself and has been achieved by focusing on our core strengths and simplifying our operations.’

‘Looking ahead, we intend to continue with this focus whilst also retaining the flexibility to drive growth through disciplined investment at the right pace and at the right time.’

In June, Mike Ashley’s Frasers Group took an 18.9 per cent stake in AO World in a £75million deal involving buying out shares held by Odey Asset Management. Frasers said the duo had been in talks over the potential partnership for two years.

Last month, Michael Murray, chief executive of Frasers, said: ‘Frasers has long admired what John and the AO team have built, and we are delighted to have the opportunity to form a supportive, strategic partnership.

‘Through this investment, Frasers will benefit from AO’s valuable knowhow in electricals and two-man delivery, helping us to drive growth in our bulk equipment and homeware ranges.’

Richard Hunter, head of markets at Interactive Investor, said: ‘Changing horses in midstream is no mean feat at the best of times, but AO World is showing signs that its decisive recent actions are beginning to take hold.

‘The group’s decision to exit the German business, remove its non-core channels and loss-making sales were difficult but necessary decisions. 

‘To add to the challenge, these came at a time of weakening consumer sentiment as well as a slight shift back to offline white good purchases by potential customers. As such, revenues saw a decline of 17 per cent for the year, but that is only part of the story.’

He added: ‘AO World has now done much of the heavy lifting which was required to revitalise the business, and the next phase is one where the company will be concentrating on growth, cash generation and profit.’

On AO’s share price, Hunter, said: ‘The speed, decisiveness and relative early success of its actions have had a positive impact on the AO World share price, which has risen by 45 per cent over the last year, as compared to a hike of 6 per cent for the wider FTSE All-Share index. 

‘However, the gulf between the current price and the heady highs of January 2021 when the company was trading at levels of over 430p is marked and may not be recovered for many years, if ever. 

‘That being said, AO World is in a revised form and the market consensus of the shares of a buy is perhaps recognition that the company is now a rather different and developing prospect.’