AO World plunges 20% as supply chain disruption hits growth

·3-min read
AO distribution centre in Crewe, Cheshire, Britain
AO World joins a string of companies that have warned that supply chains are being hit due to shortages. Photo: Carl Recine/Reuters

AO World lost more than a fifth of its value on Friday after it revealed the ongoing supply chain disruptions had affected growth in the first half of the year.

The online electrical retailer said it now expects full-year earnings before interest, tax, depreciation and amortisation (EBITDA) of between £35m ($47m) and £50m, compared with the £64m it posted last year.

Total sales rose by 5% in the six month to 30 September, and revenues in the UK increased by around 6% and 3% in Germany, the company said.

However, it highlighted that 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”.

“Whilst 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 World said in a brief statement.

Shares were down 22.5% in London in noon trade, hitting their lowest level in more than a year.

AO World slipped more than 20% on Friday on the back of the news. Chart: Yahoo Finance
AO World slipped more than 20% on Friday on the back of the news. Chart: Yahoo Finance

In July, the retailer, which sells goods such as washing machines, printers, laptops, and fridges online, said it had benefited from a surge in demand for electronics and home appliances during the pandemic.

At the time it said it was optimistic that it could deliver double-digit growth this fiscal year.

It has now implemented measures to help mitigate challenges in its logistics operations, joining a string of companies that have warned that supply chains are being hit due to shortages.

The Road Haulage Association (RHA) recently reported that there is a shortage of around 100,000 drivers, warning that the situation had reached a “crisis point” with critical supply chains failing.

It said that many drivers had gone back to their home countries, either due to uncertainty over new Brexit rules, or because of the UK's COVID-related lockdown restrictions.

Read more: Halfords bike sales hit by supply chain disruption

The British government has since introduced 5,000 temporary visas for more HGV drivers amid a heavy backlog of people looking to take driving tests, but many in the sector are calling on more to be done.

“It’s astonishing how fortunes can change in the matter of a year. AO was struggling, then hit the ground running with considerable success, and now it is back to darker times again," AJ Bell investment director Russ Mould said.

“Online operators were the envy of the retail world as the pandemic took hold, many already having a proven platform capable of meeting extra demand.

“Now being an online operator means having to contend with shortages of drivers to get the goods to the customer, as AO has found out."

Watch: Staff shortages and supply disruption threaten to derail recovery - BCC

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