Electricals retailer AO has upgraded its full year profit guidance despite concerns about the impact of the UK’s cost of living crisis on sales of big-ticket, discretionary items such as electrical goods.
In an unscheduled trading update, the Bolton-based company said it remained “cautiously optimistic” after increasing its forecast for full-year earnings before interest, tax, depreciation and amortisation to £30-40mn, from £20-30mn previously.
Last July the company had to raise £40mn of new capital after insurers withdrew cover against the risk of default to its suppliers. At the same time it switched to a strategy of focusing on profits rather than sales growth, setting itself a target for a cash profit margin of 5 per cent.
On Tuesday it said that revenue growth during the three months to end-December in its core UK market remained in line with forecasts but was down 17 per cent on last year. But it said “actions taken by the business to reduce costs and improve margins . . . are gaining traction”.
Jefferies analyst Andrew Wade said the upgrade was likely driven by cost savings in logistics stemming from “more pragmatic” growth, better pricing and under-promising on cost reductions.
AO shares rose 6 per cent in early trading on Tuesday.
Marks Electrical, another online retailer, said its sales had increased by 33 per cent in the same three-month period, to £29mn. The Aim-traded company did not formally upgrade its profit or sales guidance though house broker Panmure added £0.1mn to its full-year forecasts.