AO World boss is latest to warn of price rises after budget

AO World is the latest retailer to warn of price rises after what its boss described as an “inflationary” budget.
The online electricals group estimates that its wage bill will go up by about £4 million due to the increase in employers’ national insurance contributions and by about another £4 million with next April’s minimum wage rise.
John Roberts, AO World chief executive, said the budget was “unquestionably inflationary. You cannot increase the input cost to the materiality that the budget did and that not flow through to pricing. Prices will go up across the whole spectrum of retail.”
Roberts, who founded AO in 2000 following a £1 bet with a friend, said the increase to national insurance contributions would disproportionately “hurt those on the lowest incomes the most”. He said that the “the extra money they’ll get [from an increase in the minimum wages] won’t go as far” because increased costs to businesses will “drive inflation”.
His warning came as AO World increased its annual earnings outlook after underlying pre-tax profits rose by 30 per cent to £17 million in the first half, on revenues 6 per cent higher at £512 million.
The upgrade came despite challenging weather over the summer, which saw a shift from the normal seasonal demand for fridges and air conditioning units towards tumble dryers.
Roberts said AO had experienced a “Morecambe and Wise summer sales period; all the right volumes, but not necessarily in the right order or the right categories”.
He said the company was feeling positive about consumer sentiment in the run-up to Christmas, “which is why we’ve upgraded our guidance for sales and profit”.
AO expects adjusted pre-tax profit between £39 million and £44 million for the year to March 31, up by at least 14 per cent from £34.3 million. It had previously expected adjusted pre-tax profit of between £36 million and £41 million.
AO, which stands for Appliances Online, sells more than £1 billion of electrical goods, from fridge freezers and washing machines to televisions and laptops.
Like most online retailers, the Bolton-based FTSE 250 business suffered declines in its sales and shares as the pandemic eased and bricks-and-mortar shops reopened, putting an end to the online lockdown boom. It was then hit by dampened consumer demand and supply chain problems caused by the cost of living crisis.
A plan to take £25 million of “grit out of the machine” helped the business to return to profit last year. It closed its troubled German division, cut jobs, tightened its control of advertising and marketing costs, introduced charges on all deliveries and shelved a trial of outlets in Tesco shops. It also claimed to have fixed its loss-making mobile phone business.
Roberts said the company’s “pivot to profitability” was on track and that “if the business keeps growing and we keep being obsessively focused on our cost base, then it is just a matter of time before we get to our medium-term 5 per cent pre-tax profit margin target. [That would] probably make us the most profitable electricals retailer in the world.”
Peel Hunt analysts said: “AO’s pivot to profit is largely done, although we are still seeing the impact, particularly in mobile, driving group margins higher as the group homes in on the profitable core to base future growth on.”
Earlier this year Roberts called on the government to give businesses the power to fix the “broken” apprenticeship levy system. He said he wanted to pull together a group of business leaders to create their own framework because the existing scheme “doesn’t work”.
Roberts said his calls had been ignored by the new government. “I haven’t seen one initiative that will make things better within the apprentice levy,” he said. “What I have seen is a huge amount of debt that the next generation is going to get saddled with.”
He said he had written to Sir Keir Starmer about reforms to the levy and “he wrote back to“tell me that they were interested, [but] we’ve had zero follow-up”.
Shares in AO closed down 0.7 per cent, or ¾p, to 108¾p. The stock has risen by about 29 per cent over the past year.