Shares in AO World fell over 12 per cent this morning after the online retailer warned it faced ‘significantly’ higher costs to ensure its operations were Covid compliant.
The company said it faces higher warehouse, vehicle and driver costs, adding that the cost to the business of customer returns was also on the up.
The retailer also warned there had been a slight increase in the cancellation of mobile contracts and warranties ‘driven by Covid impacts on customers behaviour.’
Costs: Shares in AO World f ell over 12 per cent this morning after the online retailer warned it faced ‘significantly’ higher costs
But, the group enjoyed strong revenue growth in the third quarter amid strong demand for electrical goods in the run up to Christmas.
The Bolton-headquartered group posted a 67.2 per cent hike in UK sales over the three months to 31 December to £457.3million.
In November, AO World announced that its sales jumped by 53.2 per cent to £717million in the first half to 30 September, as high street rivals temporarily closed stores during the period.
The jump in revenues helped the business move back into the black with an £18.3million pre-tax profit, against a loss of £5.9million the year before.
AO World hired another 1,500 people last year as it ramped up operations to meet surging sales.
Summing up the pace of change in the retail sector triggered by the pandemic, AO World boss John Roberts, said: ‘I believe we’ve seen 10 years of change in 10 months, and experienced our strongest ever peak trading period.’
He added: ‘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.’
He’s in charge: AO World boss John Roberts
The group said its German arm remained profitable throughout its third quarter after seeing revenues jump 77.4 per cent higher, marking a milestone for the division which has been loss-making since launch in 2014.
Shares in AO World fell over 12 per cent this morning and are currently down 5.03 per cent or 19p to 358.50p.
A year ago the share price was 80.40p. While the company’s share price took a hit today, the stock had a stellar year in 2020 after the firm saw its stock market value more than quadruple.
Russ Mould, investment director at AO World, said: ‘Today’s update from web-based white goods seller AO World is a reminder that while online retailers are better placed during the pandemic, there are still material costs to bear.
‘Given electrical goods retailers with physical stores have been closed for long periods it is no surprise that AO World has enjoyed strong trading momentum.’
He added: ‘Despite the unprecedented sales momentum it sounds like it will be a different story in terms of profitability as AO counts the cost of ramping up warehousing and delivery capacity as well as handling returns, all the while remaining Covid compliant.
‘A key question for investors to weigh is the extent to which these costs and benefits are a one-off. Will the structural changes accelerated by the pandemic continue to support growing market share for the business? Or will shoppers decide they’ll ‘AO let’s go’ somewhere else once we have returned to a measure of a normality?
‘And with the investment in its infrastructure and processes made, will costs start to come down again?
‘AO will certainly find the current financial year a hard act to follow in terms of sales growth and there will be plenty of attention on its trading through the course of 2021 to see if the position carved out through the coronavirus crisis can be sustained.’