More than £200m has been wiped off the stock market value of AO World after the online retailer blamed driver shortages and supply chain problems for lower than expected profits.
The warning prompted a sharp sell-off, with investors fearing a reversal of fortunes for the electric goods retailer – one of the star performers of the pandemic when online shopping boomed – as supply disruptions caused by shortages of lorry drivers and parts and materials ripple through.
Shares fell 23%, making it the top faller on the FTSE 250, as investors reacted to sales target misses in the UK and Germany in the six months to the end of September. The warning also weighed on its rival Currys, which fell 8%, making it the second biggest faller on the UK-focused index.
Bolton-based AO said UK growth had slowed because of a “nationwide shortage of delivery drivers and ongoing disruption in the global supply chain”.
The company said: “The challenging market dynamics in both the UK and Germany resulted in lower volumes than expected, which affected operational leverage, particularly in the second quarter. “While we continue to see industry-wide issues relating to ongoing supply chain disruption, we have implemented measures to help mitigate these challenges in our logistics operations.”
AO expects profits this financial year to be between £35m and £50m, a sharp drop from the pandemic-fuelled buying boom that drove profits to £64m in the retailer’s previous financial year, and below City expectations of £51m. Before the coronavirus pandemic the company was making about £22m in profit.
Until now, AO had been a pandemic winner as the public embraced online shopping en masse while stores remained shut during lockdowns.
“It’s astonishing how fortunes can change in the matter of a year,” said Russ Mould, the investment director at AJ Bell. “Online operators were the envy of the retail world as the pandemic took hold. Now being an online operator means having to contend with shortages of drivers to get the goods to the customer. Online retail is more complicated than you might have thought.”
Despite the sharp sell-off on Friday, AO’s shares were still more than 160% higher than at the end of February 2020, shortly before the pandemic was declared.
AO attempted to assuage investor concerns that the peak retail season running up to Christmas – known as the “golden quarter” for retailers – may be affected, saying it is “well-placed to meet customer demand” for that period.
“Selling fridges, TV and washing machines online is a low-margin business and success is down to achieving high sales volumes,” Bell said. “With cost pressures intensifying and sales volumes disappointing, AO faces a big squeeze on profits.”