Over £ 200million wiped out AO World’s value due to supply chain issues | AO World
More than £ 200million has been wiped off AO World’s stock market value after the online retailer blamed driver shortages and supply chain problems for below-expected profits.
The warning sparked a steep drop, with investors fearing a reversal of fortunes for the electrical retailer – one of the star players in the pandemic when online shopping exploded – as supply disruptions caused by shortages of truck drivers and parts and materials are reverberating.
Shares fell 23%, making it the first drop on the FTSE 250 as investors reacted to missed sell targets in the UK and Germany in the six months ending in late September. The warning also weighed on rival Currys, which fell 8%, making it the second biggest pullback in the UK-focused index.
Bolton-based AO said growth in the UK had slowed due to a “nationwide shortage of delivery drivers and continued disruption of the global supply chain”.
The company said: “Difficult market dynamics in the UK and Germany resulted in lower than expected volumes, which affected operating leverage, particularly in the second quarter. “As we continue to see industry-wide issues related to continued supply chain disruption, we have implemented measures to help mitigate these challenges in our logistics operations. “
AO expects profits for this fiscal year to be between £ 35 million and £ 50million, a sharp drop from the pandemic-fueled buying boom that took profits to £ 64million over the course of the retailer’s previous year, and fell short of the city’s expectations of £ 51million. Before the coronavirus pandemic, the company was making a profit of around £ 22million.
So far, AO had been a winner in the pandemic as the public massively embraced online shopping as stores remained closed during closings.
“It’s amazing how much fortunes can change in the space of a year,” said Russ Mold, chief investment officer at AJ Bell. “Online operators were the envy of the retail world as the pandemic set in. Now, being an online operator means having to deal with a shortage of drivers to get the goods to the customer. Selling online is more complicated than you might think.
Despite Friday’s massive sell-off, AO shares were still 160% higher than at the end of February 2020, shortly before the pandemic was declared.
AO tried to allay investor concerns that the peak retail season until Christmas – known as the ‘Golden Quarter’ for retailers – could be affected, saying it was ” well positioned to meet customers’ demand for this period.
“Selling refrigerators, televisions and washing machines online is a low-margin business and success depends on achieving high sales volumes,” Bell said. “With increasing cost pressures and disappointing sales volumes, AO faces great pressure on its profits. “