AO World lifts full-year profit outlook

(Sharecast News) - Online electricals retailer AO World said on Friday that it expects full-year profit to be around the top end of its guidance range as it continues to see positive traction from its initiatives to cut costs and improve margins.

In its trading update in February, AO guided to adjusted EBITDA of £37.5m to £45m for the year to the end of March 2023.

The company said that the potential adverse effects from trading risks, continuing macroeconomic uncertainty and tough consumer environment that it anticipated in February have not materialised to the extent it had envisaged.

AO also said that its £80m revolving credit facility has been renewed with HSBC, NatWest, and Barclays, extending to April 2026. At the period end it expects to be holding a modest net funds position on a pre IFRS16 basis, reflecting an improvement of around £20m from its interim position at September 2022.

Chief executive and founder John Roberts said: "We are encouraged by the work undertaken to pivot the business during the financial year 2023. AO enters the new financial year with net funds on the balance sheet, a robust trajectory, and full confidence in our ability to deliver on our medium-term profit guidance of 5% adjusted EBITDA.

"We anticipate that our progress in improving both operational cost efficiencies and margin in FY23 will continue through the next 12 months and beyond."

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: "This is a serious achievement given how tough the landscape is for bigger-ticket items at the moment, and speaks volumes on the group's efforts to improve its proposition and cost profile.

"Ultimately there is still some way to go before margins are truly comfortable, but that's a tough ask in today's world when price is largely the only differentiator on where people choose to buy electrical items and white goods."

Russ Mould, investment director at AJ Bell, said: "After a rollercoaster of a time around the pandemic when initially the company enjoyed huge share price gains before crashing back down to earth, investors will be pleased with AO World's latest update.

"The company is making tangible progress in reducing costs and this latest update has to be chalked up as a serious achievement given how tough it is to sell larger ticket items right now."