AO World warns on profits as customers cut back on spending

Shares in UK online electrical goods seller AO World plunged on Friday after the company issued a profits warning as it faced falling sales and warranty cancellations by customers looking to save cash during the cost of living crisis.

In a trading statement, the company said underlying profits would slump to £8m in the year March 31, down from £64m in 2021.

AO World also attributed the fall to higher costs from driver shortages and extra marketing spending in Germany. Sales fell 6% to £1.6bn but were still 52% ahead of pre-Covid levels.

“In March, we were notified of higher warranty cancellations than average historical trends as customers responded to the escalating cost of living,” the company said.

It added that latest figures indicated the trend was continuing, potentially forcing a writedown of the value of its insurance contract leading to a “material impact on full-year profits”.

The company also said its available cash had "reduced" since the £50m it held end of March, and it continued to review its German business.

“Competition in the German online market has remained intense, with digital marketing costs increasing significantly as a result, despite online penetration returning to pre-pandemic levels,” it said.

Full-year results will be delayed for up to two months because of the complex calculations, particularly given its German business review, AO said.

“In view of the volatile market conditions, inflationary cost pressures and logistical challenges in the supply chain, together with the escalating cost of living for consumers, we remain cautious about our revenue and profit outlook in the near term.”