21st Jul 2015 11:17
LONDON (Alliance News) - AO World PLC Tuesday said that it is on track with its long-term strategic progress as it delivered positive trading in the first few months of its new financial year, saying it continued to build brand awareness and is planning to expand its services in Europe.
Shares in the online domestic appliances retailer were trading up 8.7% at 130.13 pence midday Tuesday, the best performer in the FTSE 250, after it issued an encouraging trading update for the first part of its new financial year, following a difficult prior year which saw its pretax loss miss expectations.
AO World said that sales in the period from April 1 to date continue to "build satisfactorily" in Germany, where it has entered into a ten-year lease for a new European distribution facility in Bergheim near Cologne, expecting to take occupation during the first half of the financial year 2017. The property will replace two of its existing sites and will facilitate expansion into countries surrounding Germany, the company said.
Meanwhile in the UK, AO World said revenue grew 6.5% in the three months to June 30, with orders up 13.9%, while AO.com experienced revenue growth of 11.2%. It had warned in February that sales growth in the first quarter would be "muted", but on Tuesday said it had a strong start to trading in July and is encouraged by the indications of growth in housing transactions and disposable income in the broader market.
"We are mindful of recent volatility and intense competitive activity in the market. However, our customer loyalty continues to increase and we see this coming through in repeat business. The business is operating efficiently and we continue to expect the business model to deliver as expected for the full year," the company said in a statement.
AO World added that it has partnered up with British advertising agency Karmarama, which will head up its creative initiative moving forward.
Back in June, AO World revealed that it made a pretax loss in the year to March 31 of GBP2.9 million, and while this was better than the GBP7.6 million loss it made the year before, it missed both its earlier financial expectations and revised analyst estimates.
It had issued a profit warning in February following a slowdown in sales growth in the fourth quarter, but then in June posted results even lower than the revised analyst expectations. The profit warning had come after analysts at broker Panmure Gordon initiated coverage on the company with a price target half its price at the time. Michael Stewart, an analyst at Panmure, said that while AO World is a "high-quality e-commerce business", it is "grossly overvalued". At the time, AO World shares were trading at 306.44 pence.
Since then, and following the profit warning and weak full-year results, AO World's share price has fallen below that level. Even including its rise on Tuesday, shares in the company are down 54% since the start of the year.
Despite the more encouraging update on Tuesday, analysts said that the 6.5% sales growth in the UK was lower than their estimates. Shore Capital had predicted a 12% rise, while Numis forecast a 10% increase, although Numis said it expects UK growth to reaccelerate as comparatives soften.
Numis said, however, that the overall outcome was better than anticipated, given the competition AO World is facing from rival retailer Currys Digital, which was evident in the increase in AO World's marketing spend. An increase in price competition led to a 7% fall in the average selling price of AO World's products, Numis noted.
Numis lowered its 2016 earnings before interest, tax, depreciation and amortisation estimates to GBP18.5 million from GBP20.3 million and suggested that although it expects UK growth to accelerate as compatibles soften and audio visual sales increase, it sees potential for Currys to disrupt market share.
"Overall, while there must remain some downside risk to forecasts given the competitive nature of the market, this update is better than the market appears to have feared and, after a weak run in the shares, we retain our positive stance," Numis said in a note.
AO World will release its half-year results for the six months ending September 30 on November 24.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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