November 20, 2018 / 8:06 AM / a year ago

UPDATE 2-Online retailer AO World hit as Britons curb spending

* UK sales growth slows in second quarter

* Says maintains market share in core market

* May increase stock levels after Brexit

* Shares fall as much as 13 pct (Adds details, CEO, analyst comment, shares)

By James Davey

LONDON, Nov 20 (Reuters) - UK online electricals retailer AO World reported another first-half loss and slower sales growth, sending its shares tumbling, after Britons reined in spending on fridges and washing machines.

Shares in AO, already down 29 percent over the last six months, fell as much as 13 percent on Tuesday after the group reported UK sales growth had slowed to 5.7 percent for its first half to Sept. 30.

As UK sales grew 8 percent in the first quarter, the first half figure implied second quarter growth of about 3.4 percent, analysts said.

“The pace of growth has slowed significantly in Q2, impacted by a tough macro environment that is unlikely to change whilst Brexit concerns dominate and competitors remain aggressive,” said analysts at Jefferies.

AO said uncertainty about the terms of Britain’s departure from the European Union next March means the company might have to increase its inventory levels.

Jefferies analysts estimated that the UK major domestic appliances (MDA) market as a whole fell about 2 percent in the first half.

“While our core UK and Germany MDA markets have been challenging, with the UK MDA market becoming tougher than expected, we take encouragement that we are at least maintaining market share in this core category in the UK and growing significantly in Germany,” said AO’s Chief Executive Steve Caunce.

He noted that AO was performing well in newer categories, such as televisions and computing.

British retail sales overall rose at the slowest pace in six months in October, data showed last week, while companies such as Sainsbury’s have cautioned on the outlook for general merchandise and clothing.

AO reported a first-half adjusted loss before interest, tax, depreciation and amortisation (EBITDA) of 5.4 million pounds versus a loss of 6.3 million pounds in the same period last year. The company reiterated the guidance it gave earlier this month, when it announced the purchase of Mobile Phones Direct.

The group is profitable in Britain - by far its biggest market - and has a target to make its European operations profitable by 2021.


In the first half AO on average maintained 35 days’ of stock in the UK. It said stock days may need to increase ahead of or around the time of Britain’s departure from the EU to mitigate any friction in the supply chain that Brexit may cause.

“We’ve got capacity in our network to be able to fluctuate our inventory levels,” AO’s finance chief Mark Higgins said. said.

$1 = 0.7783 pounds Reporting by James Davey; editing by Kate Holton and Susan Fenton

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