Surge in sales tapers at AO World but retailer is still plugged in to brisk business
Q1 2021 hedge fund letters, conferences and more
AO World's Sales Decline
"Electrical retailer AO World PLC (LON:AO) says it’s still plugged in to brisk business, but the surge in sales it saw as people hunkered down at home during the pandemic have tailed off.
The 62% rise in revenue to £1.6 billion over the year to the end of March is a very hard act to follow, particularly as bigger ticket items like chest freezers and gaming set-ups made up the bulk of sales items which aren’t likely to be replaced for a few years.
It is still targeting double digit growth this year, which is not to be sniffed at, and has grown its customer base by an impressive 2 million over the past year. However, the reopening of department store and retail park competitors is likely to be a headwind over the coming months and keeping prices low in this competitive environment could eat into margins.
The company is targeting longer-term growth, by planning to extend its reach beyond the UK and Germany, to another three countries within the next five years. Building the brand will take considerable investment, with the company allocating at least £60 million initially to upscale marketing and support systems.
However, the company recognises that it can’t rest on its laurels in an increasingly saturated UK electricals market. It has big ambitions for global expansion, and with the world consumer turning digital, it is well placed to capitalise on this trend with its well-established online platform and supplier network. Demand for digital and electrical goods is unlikely to wane as working from home becomes the norm for at least part of the week, in many parts of the globe. It’s not just IT equipment which will be sought after, but as the kitchen at home becomes the canteen, white goods are likely to suffer more wear and tear and may need replacing more quickly. The company is also tapping into demand for repairs with its ongoing service packages which provide extra revenue streams. Investment in its recycling centres, including a plastics plant have added to costs, but over the longer term establishing its green credentials will also pay off for the company as consumers become even more environmentally conscious."
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