nline white goods retailer AO World lost nearly a fifth of its value today after warning that the cost of living crisis was prompting more customers to cancel warranties and announcing that its founder would start selling shares for the first time.
AO, which sells fridges and washing machines, told investors it could face a “material” hit to profits this year if it is forced to reassess the value of insurance packages sold alongside its products.
That may be likely after March saw “higher warranty cancellations than average historical trends as customers responded to the escalating cost of living.” AO is hoping it will be a temporary blip.
In the same update, AO said founder and CEO John Roberts will start offloading shares for the first time since taking the company public in 2014. This year he is expected to sell stock worth £5 million, or 5% of his holding, with annual divestments following thereafter.
AO today also reported lower than expected sales and profits numbers for the year just finished and was downbeat on its prospects for the year ahead, adding to the wall of worry facing investors.
Sales for the 12 months ended March 31 were down 6% at £1.5 billion. AO had told investors to brace for a 5% drop.
Earnings before tax, interest and other costs were just £8 million as driver shortages, rising marketing costs in Germany and logistics issues hit margins. AO had forecast earnings of between £10 million and £20 million.
On the year ahead. the company said: “In view of the volatile market conditions, inflationary cost pressures and logistical challenges in the supply chain, together with the escalating cost of living for consumers, we remain cautious about our revenue and profit outlook in the near term.
“In the coming year, we will focus on cash generation to strengthen the balance sheet whilst optimising our cost base to align with the expected lower levels of revenues.”
Detailed full year results were delayed as a review of AO’s struggling German business continues. The company is expected to opt for a sale or closure of the division, which would mark its final retreat from Europe.
Shares sunk 17.3p, or 19.7%, to 70.1p. The stock is down 75% over the last 12 months.
Analysts at Davy called the update “disappointing” and said the outcome of the review of the German business would be key.