AO World earnings seen at lower end of expectations, £15m spent on stockpiling

Online electrical goods retailer AO World warned on the Thursday that its full-year adjusted earnings were likely to come in at the lower end of market expectations, as it announced that it has spent £15m on Brexit stockpiling.

In a update for the year to 31 March 2019, the company said its full-year performance should fall within the range of current market forecasts, with group revenue expected to be up around 13% on the year at £900m.

However, adjusted earnings before interest, tax, depreciation and amortisation excluding exceptional costs are expected to come in at the lower end of forecasts for a loss of £0.4m to a £2m profit.

The group, which re-appointed founder John Roberts as its chief executive officer back in January, said it expects to take a £2.5m hit from management restructuring and charges for a loss-making contract in Germany. These costs are in addition to previously disclosed one-off costs incurred in connection with the acquisition of Mobile Phones Direct in December last year and exceptional share-based payment charges.

UK revenue for FY19 is expected to be up 9.8% on the year at around £748m, while European revenue is expected to rise 32.3% to €174m.

AO said the integration of its mobile acquisition MPD is on track and progress to plan. In addition, it said that as part of its Brexit contingency planning, it upped its usual core fast moving inventory levels by around £15m during the last quarter of FY19.

John Roberts said: "Over the last eight weeks we have created a mindset shift from the numbers delivered in FY19; we are setting about realising our opportunities with pace and energy. I am delighted by the reaction of AO'ers and their passion for our future. We have already announced that we are testing a genuinely disruptive rental proposition. We have also expanded categories further into garden and DIY ready for the season and we are accelerating AO Mobile to launch later this year in readiness for peak trading.

"I am delighted to once again have the privilege to lead the business and excited by the scale of value creation that lies ahead of us for the benefit of all stakeholders. I look forward to updating more fully in early June on how we are accelerating our plans to grow while leveraging the infrastructure we have invested in."

Shore Capital analyst Greg Lawless said the update will reassure the market that trading performance is in line with consensus forecasts.

"That said, the company remains loss-making and will incur further exceptional costs of £2.5m in FY19 from charges for a loss making contract that the company is unable to terminate in Germany, in addition to the exceptional charges incurred with the acquisition of Mobile Phones Direct.

"In our view, AO World is at a critical phase in its development. We have been highlighting for some time that the company remains sub-scale, despite the investment thesis at the time of the IPO back in 2014, that it would disrupt the UK white goods market. In our view, the UK electrical market has become even more competitive. We continue to be impressed with both the infrastructure and service-led culture that management has built."

At 0945 BST, the shares were down 8.4% at 88.90p.