Supply chain woes rock AO World’s profits, says GlobalData

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Following today’s release of AO World’s figures for H1 FY2021/22; Kate Ormrod, principal retail analyst at GlobalData, a leading data and analytics company, offers her view: “AO World was crowned a winner over lockdown last year, with full-year revenue surpassing £1bn for the first time, but it is coming unstuck in FY2021/22, with its second profit warning in as many months, causing its share price to plummet by 24% this morning. Its 6.0% revenue growth in H1, to reach £759.6m in sales, is still decent given its outperformance last year, affording it 67.0% growth on a two-year basis, however this is expected to fall away to between flat and -5% by the end of the year. Indeed, with revised full year group adjusted EBITDA guidance of between £10m and £20m, down from the £35m-£50m range given at the start of last month, AO World is now expecting peak trading to be a dud owing to the devastating effects of the supply chain crisis and product shortages.

“The online pureplay notes an improvement in repeat purchasing rates post COVID-19, though having added over two million customers in FY2020/21 across the UK and Germany, AO World has a much wider pool of shoppers to engage with meaning there is further opportunity it simply must exploit. While its proposition and wide assortment are appealing, product availability is key in electricals as brand and model preference invariably outweigh retailer preference, encouraging switching. AO World has warned of poor availability in its newer categories in which it has reduced clout, such as computers & tablets and audio visual, ultimately limiting its slice of Christmas gifting spend. Though its supply chain challenges are not unique, the strength of the competition from the likes of Amazon, Argos, Currys and John Lewis & Partners puts AO World under further pressure.

“Maintaining momentum post COVID-19 was always going to be a tall order for AO World, but its reduced scale compared to rivals has meant it will bear the brunt of supply chain issues, kiboshing its growth potential in the short term. While AO World has plans to expand its European presence and double its revenue within five years, all eyes must be on steadying the ship first.”