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Monday, December 6, 2021

Fridge magnate’s warning means a bleak Christmas lies ahead

And no wonder. It’s the second time that forecasts have been sharply downgraded since the beginning of October, giving the impression of a company that suddenly finds itself in the middle of a mounting crisis.

Warnings of “meaningful supply chain challenges” and “poor availability” just weeks before Christmas will send shockwaves through the high street.

None of these issues are exactly new to UK businesses, which raises questions about whether AO World is simply managing them less adroitly than others.

Then again, it’s unrealistic to think that a purveyor of white goods from Greater Manchester can do a huge amount to mitigate global semiconductor shortages, lorry driver scarcity, spiralling shipping costs, and a spike in raw material prices. Only the really big corporate beasts like Tesco have emerged unscathed.

Yet there are several snippets from AO World’s results that will cause panic among fellow retailers as the crucial festive trading period looms large. The first is the sense that its troubles are getting worse not better, in spite of the Bank of England sticking doggedly to its “transitory” inflation line.

Comparative trading is bad enough. Having posted £18m profit at the half-stage last year, it has racked up a £10m pre-tax loss this time around. That’s easier to overlook – the pandemic-fuelled buying boom that turbocharged sales last year was always going to be a one-off.

Even if you buy the argument that lockdown accelerated the structural shift in shopping habits, such levels were never going to be sustainable once the high street reopened.

But it’s the swift change in fortunes that will stoke concern. After revising full-year profit forecasts down to between £35m and £50m just eight weeks ago, compared to a bottom line of £64m the previous financial year, it has torn up the numbers a second time.

Profits are now expected to be between £10m and £20m, a hefty shortfall in a short space of time, even taking into account the extraordinary macro-economic circumstances.

Rivals will also be spooked by the type of goods it is struggling to get hold of – not so much the boring kitchen appliances like microwaves and food mixers that the chain is best known for but high margin, hi-tech electronics that fly off the shelves during Black Friday and in the run-up to Christmas – iPhones, PlayStations and Microsoft’s Xbox.

And a warning that it expects such pressures to last into the second half of the financial year will cause yet more alarm.

As for Roberts, any angst he might have will no doubt be calmed by the £86m he pocketed when the business went public, and a 23pc stake worth nearly £140m even at today’s diminished valuations. If things get even worse, he could always follow the example of the Prime Minister and hide in a fridge until it’s all blown over.

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