- Third quarter sales were 24 per cent lower in Germany
- UK sales slipped by 12 per cent
AO World (AO.) is putting its German business under review, saying it had been “significantly impacted by a number of recent material changes” in the local market.
The online electrical equipment retailer said competition in Germany had intensified at the same time as online penetration rates slipped back to pre-pandemic levels. Digital marketing costs also increased.
Given that it expects these trends to continue “for the foreseeable future”, it is weighing up a range of options for the German business, whose revenue for the three months to December 31 fell 24 per cent year-on-year. UK revenue in the period was also 12 per cent lower.
The company's shares were trading 2 per cent lower at 105p per share, having lost almost two-thirds of its value over the past 12-months. AO World has struggled with supply chain challenges and driver shortages, which have hit sales.
Peel Hunt suggests cash remains its biggest challenge, though, given that the earnings margin it is generating is below 3 per cent.
“AO needs to focus on its strategic priorities, in our view, with the wider European expansion now in question,” the broker said.
Things certainly don’t look pretty for the company at the moment and, with economies reopening across Europe, it's difficult to see how it is going to generate significant growth. Downgrade to sell.
Last IC View: Hold, 107p, 23 Nov 2021
