British online electronics and electrical retailer AO World closed its 2024 financial year with a 280% hike in earnings per share, delivering gains for investors despite revenue sliding by 9% to £1,039 billion ($1,314 billion).
AO’s stock ended the week at £1.12, almost 40% up on a year ago, with earnings per share of £4.29 versus £1.13 a year ago. The company released its annual results (for the 12 months ending March 31) on Wednesday, but the stock has been steadily rising over the past year in response to a strategy focused on profitability.
AO’s founder and CEO, John Roberts, said in a statement: “We have made good progress on our profit performance in FY24. We are now a much simpler, more efficient business with excellent and sustainable unit economics.”
Adjusted profit before tax rose by over 180% to £34.3 million ($43.4 million) even as revenue declined due to a decision to remove non-core channels and loss-making sales last year. Having done that, AO is confident it can now generate double-digit revenue growth in FY25 alongside another hike in profit to £41 million.
One of AO’s key strategic aims has been to increase customer satisfaction scores as a way to drive sales. “During the year we passed the milestone of 500,000 Trustpilot reviews, with an increased score of 4.8 out of 5. This ranks AO as the leading and most trusted U.K. retailer for the combination of volume and quality,” said Roberts.
There have been challenges, however. AO’s mobile business made a loss in FY24. This encouraged the company to strengthen its market position through the acquisition of the IP rights to two websites: Affordable Mobiles and Buy Mobiles, so that it has additional channels from which to scale up in a very competitive market.
Strategic transition
Commenting on the AO performance, Oliver Maddison, a retail analyst at data company GlobalData, said: “AO World is in a transition phase in its progression towards its business objectives focusing on profitable sales and significant efficiency savings, particularly warehousing and administrative costs. It sought to rationalize operations, including through an increased use of third-party providers.”
AO’s expectation of strong revenue growth in FY25 is build on anticipated higher consumer spending on technology. This may be optimistic given that GlobalData forecasts online electricals retail spending in the U.K. will increase by just 0.4% this year.
Also, AO’s larger rival Currys is stepping up its campaign to build revenue using a similar strategy. The U.K. technology market leader took a hit from falling consumer demand for electricals in recent years but is also likely to see a recovery as incomes and consumer confidence improve, according to Maddison.
The company has also focused on delivering profitable sales, with adjusted profit before tax up by 10% to £118 million in the year to April 27, 2024 (and announced the day after AO’s results). This was despite group sales declining by 4% to £8.5 billion (of which the Nordics accounted for £3.8 billion).
On AO’s future path, Maddison commented: “To improve its chances in gaining market share, AO must address its lack of cut-through with consumers aged 16-34, who are less likely to purchase from AO than any of the UK’s top six electricals retailers, according to GlobalData’s 2023 How Britain Shops survey.
“To do this, AO must continue to expand in areas with the highest penetration among young consumers (such as personal care electricals and portable audio), orient its marketing budget away from TV ads towards alternative media such as streaming, and invest in its delivery infrastructure to achieve cheaper and faster order fulfillment.”
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