22nd Nov 2022 14:37
(Alliance News) - Investors on Tuesday welcomed interim results from AO World PLC that showed signs that the embattled retailer's fortunes may be turning around.
Shares in AO World were 15% higher at 60.30 pence each in London on Tuesday afternoon, though the stock remains down over 50% in the past year.
The headline numbers weren't all that pretty.
In the six months that ended September 30, AO's pretax loss widened to GBP11.6 million from GBP4.3 million in the same period last year.
The Bolton, England-based online electrics retailer said adjusted earnings before interest, tax, depreciation and amortisation fell 11% to GBP9 million from GBP19 million.
Revenue dropped 17% to GBP546.3 million from GBP660.6 million last year. AO said the whole of the major domestic appliance market dropped 11% year on year, while the online market fell 18%.
"AO World was a pandemic winner whose fortunes have taken an alarming turn since, but these results hint that the company may have bottomed out and is ready to recover," said AJ Bell's Russ Mould.
AO said the results represented "solid progress" in the plan to pivot the business to focus on profit and cash generation.
As part of this effort, AO said it has simplified its UK business and closed its German operation with "minimal cash impact" to the wider group. It estimates the cash costs to be "around zero" compared with a cash hit of GBP15 million it had previously forecast.
"AO World's decision to change tack will not result in overnight success, but the early indications are that the company has made the right choices," said interactive investor's Richard Hunter, noting the firm's German exit.
Hunter also noted "non-core and less profitable lines have been shelved, including some third party tie-ups where the relationship was not progressing as expected".
AO World said for the 2023 financial year are forecast to be within the existing guidance range, while adjusted Ebitda is now expected to be around the top end of previous guidance, between GBP20 million and GBP30 million.
The company noted that it is "not immune to the challenging and uncertain consumer environment" but will continue to keep a close focus on cost reductions.
Whilst the numbers are "messy", Mould considered: "Management guidance is notably robust, with full-year earnings expected at the top end of expectations. Though it's important to note this is largely being driven by cost-cutting, rather than any inherent strength in the business."
ii's Hunter added: "Against such a parlous backdrop, the group is squeezing its advantages wherever possible. Alongside its core retailing business, AO World offers ancillary services such as the installation of new products and the recycling of old ones, in an overall addressable market in the UK which the company believes to be in excess of GBP23 billion."
However, Hunter noted that, given the cost of living crisis in the UK, consumers are "increasingly battening down the hatches", such that discretionary spending on AO's products are likely to become "the exception rather than the norm".
On the other hand, AJ Bell's Mould noted that, while consumers may be inclined to delay purchases of new appliances where possible, "to some extent if your washing machine or fridge freezer breaks down, a replacement is a non-discretionary item".
By Elizabeth Winter; [email protected] and Chris Dorrell; [email protected]
Copyright 2022 Alliance News Limited. All Rights Reserved.
Related Shares:
Ao World