AO World third quarter sales soar, but warns on rising costs

Electrical retailer AO World posted a 67% rise in UK third quarter revenues as locked consumers bought more goods online during the coronavirus pandemic, but the company also warned on "significantly higher" rising costs.

The company on Tuesday said UK revenue rose to £457.3m in the three months ended December 31. 2020 as it experienced its strongest peak trading period over Black Friday and the run up to Christmas. In Germany sales were up 77.4% to €73.6m.

AO founder and chief executive John Roberts said: "I believe we've seen 10 years of change in 10 months, and experienced our strongest ever peak trading period.”

Roberts said AO World had incurred “significantly higher costs as we negotiate some of the operational challenges of working in a Covid compliant environment, particularly in the reverse supply chain”.

“We have incurred We have also seen a slightly increased rate of cancellation of individual consumers' long term contracts in mobile and warranties, driven by Covid impacts on customers behaviour.”

Roberts said investments in warehouse capacity ahead of the UK's exit from the European Union had also been in preparation of a potential shift in how consumers shopped for electrical goods.

"The majority will never look back. We intend to cement that change," he said.

Analysts at brokerage Shore Capital which also highlighted the benefit of being online as other electrical retailers had to close their physical stores under lockdown rules, but noted higher costs and the creation of higher comparatives for future trading periods.

"This is AO World’s moment to shine given that the online market has seen a structural shift that could be permanent by consumers," they said in a note to clients.

"We note the outlook statement but also highlight both the increased Covid operating costs and infrastructure developments to further increase capacity. AO World has had a great run and clearly is another Covid winner and whilst the sales momentum continues, we also note the increased operating costs."

"The big challenge will be whether the revenue momentum can continue during (the first quarter of) 2022 given the tough comparatives that the business will start cycling."