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AO World sinks as it reports first half loss amid “tougher than expected” UK appliance sales

The electricals retailer reported an underlying loss for the period of £5.4mln, narrower than the £6.3mln a loss a year ago, while revenues grew 9.9% to £404.2mln
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Full year results were expected to be “more second half weighted than previously anticipated”

Shares in AO World PLC (LON:AO.) sank in mid-morning deals Tuesday as it reported a first-half loss amid lower than expected sales of large domestic appliances.

The electricals retailer reported an underlying loss for the period of £5.4mln, narrower than the £6.3mln a loss a year ago, while revenues grew 9.9% to £404.2mln.

READ: AO World slips as it acquires Mobile Phones Direct but says full year trading will be “more second half weighted”

AO’s chief executive, Steve Caunce, said that while the company’s core major domestic appliances (MDA) markets in the UK and Germany had been “challenging”, the UK MDA segment had become “tougher than expected”.

In its divisions, the firm reported its UK adjusted underlying earnings (EBITDA) had fallen to £6.9mln £7.4mln as a result of the MDA decline, while its European business reported a narrowed EBITDA loss of €13.8mln from €15.6mln previously, helped by improvements in product margin and leverage in logistics and overheads.

He added that the firm expected full-year results to fall within the expected range as it entered its peak trading period on 9 November but added that they would be “more second-half weighted than previously anticipated”.

AO also aid that entering the second half its stock days may increase in the short to medium term as it sought to soften any potential disruption to its supply chains caused by Brexit.

“Disappointing” results but signs of hope in less MDA exposure

In a note to clients, analysts at City broker Peel Hunt said the results were “disappointing” amid the declining MDA market that was outside the firm’s control but retained its 'Hold' rating on the stock due to AO’s expansion into new categories and verticals that was reducing its exposure to MDA.

A recent example of the push to diversify was AO’s offer for Mobile Phones Direct, an online phone retailer, earlier this month for £38.1mln.

The news of the purchase received a mixed response, with analysts from broker Shore Capital at the time saying they could not see how the acquisition would be earnings enhancing.

Shares were down 6.1% at 116.6p.

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