- Record annual profits
- Mobile business drags on earnings
- Flat profits forecast this year
Online electricals retailer AO World (AO.) delivered an impressive surge in annual profits driven by outstanding customer service, growth in its membership scheme and a focus on cost-cutting and restructuring.
Backed by Mike Ashley’s Frasers (FRAS), the Bolton-headquartered white goods seller said it remains confident of growing sales again this year.
However, the shares were down 3.7% at 97.1p in early dealings as AO World guided to broadly flat profits for the new financial year and reported a poor performance in its mobile business, which is operating in a declining market and seeing significant competition.
MARGIN MOMENTUM
In recent years, AO World has regained its spark by re-focusing on driving profitability.
Results for the year ended 31 March 2025 revealed a 32% rise in adjusted pre-tax profits to a record £45 million, ahead of the £43 million called for by consensus and above the top end of management’s previously-upgraded £39 million to £44 million guidance range.
Group revenue grew 9% to £1.138 billion, reflecting a return to growth in the core retail business and a £30 million revenue contribution from the recently-acquired musicMagpie, which has strengthened AO World’s offering in the electricals market.
Growth was driven by the expansion of AO World’s Five Star membership scheme as well as a broadening of the product range beyond the Major Domestic Appliance category that AO is best known for.
The major negative was the disappointing performance of the mobile business, which dragged on group profits as the post-pay connection market declined further and the shift in customer preference towards disaggregation of mobile contracts persisted.
FLAT PROFITS FLAGGED
Despite leaning into macroeconomic challenges including employment cost increases, AO World remains ‘confident’ it can grow revenues in the current financial year, although the retailer guided to broadly flat full-year 2026 adjusted pre-tax profits in the £40 million to £50 million range.
Begbies Traynor’s (BEG:AIM) Julie Palmer said the musicMagpie acquisition is ‘a bold move for the retailer as it looks to broaden its product range and capture the rebound in electrical sales following the post-pandemic slowdown.’
Palmer warned: ‘There is of course a danger that AO World puts its foot on the accelerator too quickly. Last summer, the sporting calendar was such that there was huge demand for home entertainment setups, and the environment for discretionary spending this year is far more precarious. The real test for AO World lies in demonstrating its ability to deliver growth for a sustained period after some false starts, but for now, there are some clear positive signs that it may soon be back in the ascendence.’
REDISCOVERING ITS SPARK
AJ Bell investment director Russ Mould commented: ‘AO has rediscovered its spark, hoovering up a significant number of new customers and growing profits fast. At face value, everything looks good until you dig into the numbers. The mobile arm continues to be problematic and that’s acting as an anchor on the business. The mobile market is in decline and competition is fierce. It’s not bad enough for AO to want to exit completely, yet don’t be surprised to see the company slim down its offer.’
Mould added: ‘Costs are another headwind for AO and they’re only going to get worse. Furthermore, potential legislative changes could create more problems if retailers are forced to take back a customer’s old electrical product for free when they deliver a new one. Companies like AO typically charge a fee to remove old white goods, so taking away that revenue stream would be negative for earnings.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
