AO World raises profit forecast despite ‘summer of Morecambe and Wise’

AO World has improved its profit outlook despite bad weather causing a “summer of Morecambe and Wise” for group sales.

The appliance retailer now expects to earn between £39m and £44m in adjusted pre-tax profits this financial year, having previously estimated between £36m and £41m.

The Bolton-based company saw its pre-tax profits rise 30 per cent to £17m during the six months to September, boosted by a focus on costs and efficiency.

This was despite its turnover growing just 6 per cent to £512m due in part to lower mobile revenues and subdued demand for refrigeration products in its consumer retail division.

John Roberts, who founded AO World in 2000, said: ‘We have had a period of summer sales in Morecambe and Wise; all the right volumes, but not in the right categories.

‘Wet summer weather meant we sold fewer refrigerators and air conditioning units and more dryers than we had planned.

“Overall, our team did a fantastic job to achieve a satisfactory draw.”

Roberts added: “Our laser focus on costs and efficiency remains, ensuring, as planned, profits grow faster than sales thanks to the growth we have achieved.”

AO World’s results come as it waits to receive approval for its £10m acquisition of second-hand electronics retailer MusicMagpie.

The Financial Conduct Authority and MusicMagpie shareholders have given their consent, but AO World still needs court approval before finalizing the acquisition.

MusicMagpie sells everything from textbooks to laptops, smartwatches, mobile phones and Xbox consoles and offers subscription services that allow Brits to rent electronics.

It listed at a valuation of more than £200m in London three years ago but has since plunged by more than 90 per cent following the end of Covid-related restrictions, cost of living pressures and massive competition in the used products market.

Telecommunications giant BT Group and Footasylum owner Aurelius considered buying the company last year before pulling out without explanation.

AO World believes the acquisition of MusicMagpie will improve sharing options for its customers and mitigate risks arising from the shift towards “sustainability and repair” in the consumer technology market.

Dan Coatsworth, investment analyst at AJ Bell, said: “The market will be watching closely whether (the acquisition) is a step too far outside its comfort zone, or an opportunity to bring its logistics capabilities to the table to help make of this business a real asset.”

Roberts founded AO World a few months after a close friend bet him £1 in a pub that he could start a business.

The company enjoyed considerable growth during the early part of the pandemic thanks to strict trading restrictions that led more people to get their electrical goods and appliances online.

However, it ran into trouble when sales began to slow as stores reopened and rising inflation made customers more cautious about purchasing big-ticket items.

AO World has since returned to profitability after embarking on a turnaround plan, which included cutting senior and middle management positions, closing its business in Germany and launching a £40 fundraising round millions.

AO World shares They were down 1.5 per cent at 108 pence at midday on Tuesday, although they are still up around 29 per cent in the last 12 months.