Advertisement

Online retailer AO sees revenue surge as demand rise during COVID-19 pandemic

AO distribution centre in Crewe, Cheshire, Britain. Photo: Carl Recine/Reuters
AO distribution centre in Crewe, Cheshire, Britain. Photo: Carl Recine/Reuters

Online electrical retailer AO World (AO.L) saw revenue leap over 50% to £717m ($970.57m) compared with the same period in 2019 as demand for its products soared during the COVID-19 pandemic.

Strong revenue growth was largely driven by sustained demand in Germany and the UK, the company said in its half-year report published on Tuesday.

Group profit before tax also increased to £18.3m from a loss of £5.9m compared with the same period last year.

Despite the positive earnings report, shares slumped and were down 6% at around 1.45pm London time on Tuesday.

“This has been a half year like no other,” said AO founder and chief executive John Roberts. “I believe our market has changed as a result, forever. Online is now the dominant retail channel for customers and manufacturers alike and I am delighted by how our AOers have risen to the challenge of this structural shift in behaviour.”

The online retailer benefited as many high street competitors struggled to transition quickly following two nationwide lockdowns due to the coronavirus pandemic.

The company said it saw a “step change” in the market during this financial reporting period.

"We have taken huge strides forward on our commitment to fix all the fundamentals of our European business and we now have a profitable platform from which to accelerate our growth in Germany and beyond, said Roberts.

READ MORE: UK spending review: What to expect from Rishi Sunak's speech

The lockdown measures were a “major catalyst” for the business to show off the benefits of good customer service and competitive pricing, said Russ Mould, investment director at AJ Bell.

Despite news of AO World's positive earnings announcement on Tuesday, shares have continued to trade lower.
Despite news of AO World's positive earnings announcement on Tuesday, shares have continued to trade lower.

“For years, AO has insisted it was on a path to profit and that strong levels of revenue growth would eventually tip the business into positive earnings,” said Mould.

“For most of the time, the market cast doubt over its ability to hit the profit goal, saying it was a highly competitive industry and AO’s German operations were holding the business back.”

Despite the recent demand gains, it’s not clear that the business’ growth is sustainable.

“AO has been one of the biggest lockdown beneficiaries, but what happens when those restrictions ease and more people spend less time at home?” asked Mould.

“A key sales tailwind could disappear, meaning AO will have to work hard to keep the customers it won during lockdown by encouraging them to buy other goods, as well as find ways to recruit more customers. That won’t be easy.”

WATCH: What are the lockdown rules for winter?