AO World turnaround strategy bears fruit as profit guidance hiked

AO World has delivered a strong turnaround in profitability in the first half of 2023-24, upgrading its full-year profit guidance to £28-33 million.

AO World shares were over 4% in very early trade on Tuesday.

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Revenue declined 12% to £482 million as the company removed unprofitable sales, but adjusted EBITDA surged over 200% to £27 million, achieving a 5.6% margin.

Key drivers of the profit surge were gross margin improvement to 23.5%, tight control of advertising, warehousing and admin costs, and overall operational efficiencies.

This enabled AO to move from a £12 million loss in the first half last year to a £13 million profit this time. The company also generated improved cash flow, reaching a net cash position of £16 million compared to prior-year net debt of £19 million.

AO’s profit strategy has focused on eliminating non-core, low-margin sales, right-sizing the cost base, and optimising margins. As the online segment continues growing across electrical categories like TVs and laptops, AO plans to deepen its presence by leveraging its customer base of over 290,000 new customers added in the first half.

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Investors were pleased with the success of AO’s strategic pivot as it provides a platform to achieve its medium-term goals of 10-20% sales growth, 3-5% profit margins, and cash generation.

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