Online electrical goods seller AO has warned its profits will sink this year as it faces falling sales and customers canceling warranties on its products to save money amid the cost-of-living crisis.
It said underlying earnings would be just £8m for the year to March 31, 2022, down from £64m last year, reflecting higher costs from a driver shortage, additional marketing expenses in Germany , as well as lower sales and warranty cancellations. Sales fell 6% to £1.6bn for the year, but remain 52% above pre-COVID-19 levels.
The company said it had noted “warranty write-offs higher than average historical trends” in March, as customers “responded to rising cost of living.”
It said the latest trading figures indicated the trend was continuing, which could force a reduction in the value of its insurance contract that would have a “material impact on full-year earnings.”
The company also said its additional cash had been reduced since March, when it stood at £50m, and continued to review its business in Germany, where competition “remains intense” leading to higher costs.
AO said it was delaying reporting its full-year results for up to two months due to complex calculations, particularly given its German trade review.
AO shares fell more than 20% to 69 pence on Friday morning as the company said consumer demand for electrical goods had “progressively weakened”, which was exacerbated by the supply chain outage. global supply and product availability.
There was also concern about future performance. AO said: “In light of volatile market conditions, inflationary cost pressures and logistical challenges in the supply chain, coupled with the rising cost of living for consumers, we remain cautious about our revenue and earnings prospects. short term”.
The warning comes after Sainsbury’s, the owner of Argos, warned this week that it expected sales of general merchandise items such as televisions, computers and washing machines to fall this year as consumers became more cautious. He also highlighted production and port delays in China, where the Covid pandemic has led to a series of city-wide lockdowns.
AO’s share price also came under pressure as John Roberts, the group’s founder and chief executive, announced plans to sell £5m worth of shares, or around 5% of his holding, over the next year. .
Andrew Wade, an analyst at Jefferies, said he did not expect earnings to pick up in the next year. He said that AO had missed its profit expectations by more than a quarter.
Figures for the year to March indicated that UK sales fell by around 15% in the past six months, it added, which was “clearly a disappointing trend”. However, he noted that AO continued to have a larger share of the shrinking market.