Covid related costs have risen but sales growth in both the UK and Germany remains rapid.
Third-quarter trading to 31 December
- UK revenue growth of 67.2% to £457.3 million
- German revenue growth of 77.4% to €73.6 million (£65.5 million)
Chief executive John Roberts said:
"I believe we've seen 10 years of change in 10 months, and experienced our strongest ever peak trading period.
"We backed ourselves by investing early in warehouses, vehicles, stock and people. This not only set us up to satisfy customer demand for electricals for the current crisis but also for the longer term, as the structural shift to online becomes a permanent feature of the market in the UK and Germany. One of our biggest achievements this period is to have our German business profitable throughout Q3.
"Now that customers have experienced a better, digital-first way to shop for electricals, I believe the majority will never look back. We intend to cement that change by raising the bar on our service and proposition in ways that only AO can deliver.”
Online electrical retailer AO World (LSE:AO.) reported its strongest ever peak trading period, with UK and German sales jumping by 67% and 77% respectively. The sales surge comes as consumers work and school from home under the global pandemic.
However, the Bolton headquartered company also flagged significantly higher Covid related costs, plus a small uptick in the rate of cancelled mobile phone contracts and product warranties, given pandemic related saving and spending behaviour.
AO World shares fell by more than 5% in UK trading, although that still leaves them up by more than 300% over the last year. Shares for bricks and clicks electrical retailer Dixons Carphone (LSE:DC.) are down a little more than 10% over the last year. Shares for online mammoth Amazon (NASDAQ:AMZN) are up by around 66%.
AO has continued to invest in its infrastructure, investment which includes additional staff at its warehouses along with vehicles and drivers. Founded in 2000, AO has set itself the mission to become the global destination for electricals, launching its German business in October 2014.
It previously bought its own logistics operation to give full control and also offers both installation and old goods recycling services. AO enhanced its mobile phone offering in 2018, buying Mobile Phones direct limited.
In late November, the online retailer reported a first-half pre-tax profit to the end of September of £18.3 million, up from a prior year interim loss of £5.9 million. Full-year results to the end of March are scheduled for 16 June.
Online electrical retailer AO sells items ranging from kitchen white goods to TVs and toasters. It employs around 3,000 staff across the UK and Germany. Its home UK market currently generates the lion’s share of revenues, with the newer German business accounting for around 13% of sales. Product sales account for nearly 80% of overall group revenue, with commissions on product protection plans and customer finance helping to generate a further 14%. The balance is split between service sales, third-party logistics and old product recycling offer.
For investors, uncertainties relating to both the pandemic and current UK port operational challenges should not be forgotten. Unlike rival Dixons, AO is also yet to pay a dividend and a forward price/earnings ratio in the 40’s is comfortably above Dixons at less than 15.
But a reported move by its German business into third-quarter profit is clearly good news. The tailwind from the pandemic is strong, and potential to expand further overseas still beckons. In all, and while the shares are clearly not obviously cheap compared to some rivals, investors focused on long-term growth potential are likely to remain undeterred.
- Strong sales momentum
- Potential to expand overseas
- Not yet paying a dividend
- Increased mobile phone contract cancellations
The average rating of stock market analysts:
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