AO World warns of supply chain hitches and challenging markets in UK and Germany

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AO World PLC (LSE:AO.) (LSE:AO.) shares tumbled on Friday as it became the latest company to warn of supply chain hitches, while also bemoaning “challenging market dynamics” in both the UK and Germany.


As a result sales volumes for the online electricals retailer grew much less than expected and affected operational leverage in the past quarter.


Revenue growth slowed to 5% for the six months to end-September, compared to 62% in its previous full year to March, saying UK growth was “impacted by the nationwide shortage of delivery drivers and ongoing disruption in the global supply chain”.


Management said they have put new logistics measures in place to help mitigate the supply chain issues but revenue growth in the second half of the year is expected to be similar to the first.


Full-year underlying earnings (adjusted EBITDA) were therefore guided to come in around GBP35-50mln, compared to GBP64mln in the past year and the City analysts consensus forecast of around GBP54mln.


Profits are expected to be “more heavily weighted than usual towards the second half of the year driven by the peak trading period”.


The shares tumbled 22% to 169p, the lowest since July last year.


Back in summer, noted broker Peel Hunt, AO’s management was confident of hitting double-digit growth rates and coming through the tough comparatives of the initial lockdown.


“Supply chain issues have likely played a part, with AO not running the usual level of promotions or events due to concerns over fulfilment. Stock levels are currently good and the business is well placed for peak.”


They added: “Ultimately, AO has struggled to push on from the stunning levels of growth last year, with two-year LFL running at an impressive 66%. The medium-term opportunity remains significant, but we suspect the shares will now be holding fire ahead of the key peak trading period over the next few months.”

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