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AO World falters as it warns founder’s recent return will see it swing to a loss this year

John Roberts has restructured the management team, which, along with an onerous contract in Germany, will cost AO £2.5mln this year

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Annual revenue is expected to grow 13%, although that won’t be reflected in the bottom line

White goods retailer AO World PLC (LON:AO.) has warned that it will swing to a loss this year following the recent return of its founder.

John Roberts was re-appointed as AO’s chief executive back in January after the firm parted company with Steve Caunce, who oversaw a 30% drop in the company’s share price during his two-year tenure.

READ: AO World founder to resume CEO role

Roberts immediately set about restructuring the management team which, along with a loss-making contract in Germany that AO can’t get out of, will cost the Bolton-based group around £2.5mln this year.

These one-off costs are in addition to other charges related to the £32.5mln acquisition of Mobile Phones Direct at the end of last year.

As a result, adjusted underlying earnings (EBITDA) will likely be at the “lower end of market expectations”, AO said.

According to company-compiled consensus, City analysts had been forecasting anything from a £0.4mln underlying loss to a £2.0mln profit.

AO expects to report group revenue of around £900mln when it publishes its full-year results in June, up 13% year-on-year.

Revenues likely to be higher, though

“Over the last eight weeks we have created a mindset shift from the numbers delivered in FY19; we are setting about realising our opportunities with pace and energy,” said returning CEO Roberts.

“I look forward to updating more fully in early June on how we are accelerating our plans to grow while leveraging the infrastructure we have invested in.”

AO expects to report revenue of around £900mln for the year to the end of March when it publishes its annual results in June.

That would be 13% higher than what it generated in its last financial year, with the growth driven by a solid performance in its core UK business and a surge in orders in its smaller European business.

People aren’t spending on big-ticket items

Analysts at Peel Hunt, who have the stock as a ‘hold’, cut their price target to 105p (from 135p) to reflect this morning’s update.

They also lowered their underlying earnings forecasts for the next three years by around a third.

Peel Hunt now expects an underlying loss of £0.5mln this year, before returning to an underlying profit of £6.6mln and £16.1mln in 2020 and 2021 respectively.

“The tough consumer environment has yet to abate, and we continue to be concerned with consumer confidence in major purchases.”

Shares fell 7.3% on Thursday morning to 89.9p.

--Adds analyst comment and share price--

Quick facts: AO World PLC

Price: 141 GBX

Market: LSE
Market Cap: £673.89 m

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