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AO says strategic focus on profitability is paying off – despite a 17% fall in third-quarter sales

Image courtesy of AO World

AO says its strategic focus on profitability is paying off, and it is raising its full-year profit expectations – despite a 17% fall in third-quarter sales. 

AO World, parent company of electricals pureplay, says in an unscheduled third-quarter trading update today that it now expects its full-year adjusted earnings before interest, tax and one-off costs (EBITDA) to come in at between £30m and £40m. That’s ahead of previous expectations of between £20m and £30m. 

The increase to its forecast comes as the retailer focuses on more profitable sales and reduces its costs under the leadership of its returning founder, John Roberts. UK sales for the third quarter of its financial year – to December 31 2022 – were 17.2% lower than a year earlier. “However,” says the retailer in today’s trading update, “the actions taken by the business to reduce costs and improve margins, as described in our interim results in November are gaining traction, and profitability is now running ahead of our previous expectations.”

Laser focus’ to profits and cash

In November, the retailer said it was taking a “laser focus” to profits and cash when selling – deciding to continue to operate only profitable sales channels and to sell products only at a profit. So far that strategy has meant closing its German business – after digital marketing costs in the market continued to rise even as shoppers returned in-store to buy – ending a trial with Tesco and closing its housebuilding sector business. It now charges for delivery on all of its orders and has cut back on warehousing space.

The November update came as the retailer reported first-half revenues that were also 17% down on a year earlier, and a pre-tax loss of £12m. At the time it said it expected adjusted EBITDA to come in at between £20m and £30m – a forecast that has now been raised once more.

Looking ahead, AO World says in today’s trading update: “We remain cautiously optimistic and yet mindful of the continuing macroeconomic uncertainty and tough consumer environment, whilst also taking into account both the extent to which these and inflationary pressures can impact our contract assets.”

AO is ranked Top500 in RXUK Top500 research

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