AO World hikes earnings outlook again as cost-cutting bears fruit

Online electricals retailer AO World has hiked it annual earnings outlook for the third time in just over three months as it said cost-cutting efforts were paying off.

The Bolton-based group said its profitability has seen a better-than-expected improvement as it drives cost savings thanks to a “resilient” customer base.

AO World said price increases across mobiles have also been slightly higher than forecast.

It expects underlying earnings to be in the range of £37.5 million to £45 million for the full year, up from the £30 million to £40 million guided for last month.

The group had already increased earnings guidance in November and again in January as its turnaround plan to strip out costs has been bearing fruit.

AO World said: “The steps we have taken to simplify the business and become more efficient have outperformed expectations and been delivered quicker than expected.”

“Margin improvement initiatives coupled with a continued resilient underlying customer base has driven higher retail gross margins than previously expected and we anticipate that this will continue for the remaining five weeks of the financial year,” it added.

It comes after AO World slumped to a £12 million loss in its first half, with shares hammered last year following a series of profit warnings as the cost crisis hit consumer spending on white goods, and due to labour shortages and supply chain disruption.

The company started its turnaround plan with a £40 million fundraising round last summer in a bid to strengthen its balance sheet amid fears of a cash crunch.

AO has closed its loss-making German operation as part of the shake-up and has launched action to save at least £30 million a year by 2023-24 – including by recently axing senior and middle management jobs.

The firm has also ditched unprofitable products while introducing delivery charges and cutting cashback incentives to reduce the cost of sales.