Retail

Electricals retailer AO boosts profit guidance


Electricals retailer AO has reported a sharp fall in sales but upgraded its full-year profit forecast despite concerns about the impact of the UK’s cost of living crisis on sales of big-ticket items such as electrical goods.

In an unscheduled trading update, the Bolton-based company increased its forecast for full-year earnings before interest, tax, depreciation and amortisation to £30mn-£40mn, from £20mn-£30mn previously.

Revenue during the three months to the end of December in its core UK market was down 17 per cent on the same period last year but this was in line with forecasts, the company said. It has changed strategy to focus on profitability rather than sales growth, ending a trial supplying housebuilders with electrical goods and closing its concessions in Tesco hypermarkets.

“Actions taken by the business to reduce costs and improve margins . . . are gaining traction,” the company said. Its shares rose 6 per cent in early trading on Tuesday.

Separately Marks Electrical, a smaller online retailer focused on domestic appliances, said on Tuesday that its sales were up 33 per cent to £29mn in the three months to the end of December. Its shares rose almost 4 per cent.

The British Retail Consortium has reported that household appliances were the fastest-growing category of retail sales in December, though the growth was driven by higher prices rather than increased volumes.

“Consumers shunned big-ticket technology purchases in December, opting for energy efficient household appliances and Christmas mainstays of clothes and beauty items,” said Paul Martin, UK head of retail at KPMG.

Last month Alex Baldock, chief executive of electricals market leader Currys, said that while UK consumers were becoming more cautious, they were still prepared to spend on appliances that could save them money.

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These range from energy-efficient washing machines and fridge-freezers to smaller items such as smart thermostats and air fryers.

Last July AO had to raise £40mn of new capital after insurers withdrew cover against the risk of default to its suppliers. At the same time it set itself a target for a cash profit margin of 5 per cent, which house broker Numis expects it to reach in the year to March 2025.

Greetings card specialist Card Factory also published a trading update on Tuesday. It said same-store sales rose 7.1 per cent in the 11 months to the end of December driven by customers returning to stores following the end of pandemic restrictions.

It now expects full-year ebitda to be “at least £106mn” against market consensus of £96.9mn and said it was “encouraged” by trading momentum. Its shares rose 3 per cent in early trading.

Last July the company had to raise £40mn of new capital after insurers withdrew cover against the risk of default to its suppliers. It also set itself a target for a cash profit margin of 5 per cent, which house broker Numis expects them to reach in the year to March 2025.

 

Jefferies analyst Andrew Wade said the upgrade was likely driven by cost savings in logistics stemming from “more pragmatic” growth, better pricing including charging for delivery, and under-promising on cost reductions.



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