June 5, 2018 / 6:54 AM / 6 months ago

UK's AO World downbeat on white goods prospects

LONDON (Reuters) - British online electricals retailer AO World (AO.L) does not anticipate a tough trading environment for white goods, such as fridges and washing machines, improving any time soon, it said on Tuesday.

AO said sales of major domestic appliances, its biggest market in the UK, have been on the wane since the Brexit vote in June 2016 and in particular have reflected pressure on secondary housing transactions.

“As housing transactions drop the number of white goods that are sold into the market drop,” said Chief Executive Steve Caunce.

“We plan for it to be tough this year for sure,” he said.

Last week larger rival Dixons Carphone (DC.L) warned on profit. However, it mainly blamed that on people spending less on computers, noting that sales of white goods were holding up.

Further clouding the consumer picture two surveys published on Tuesday showed that British shoppers raised their spending in May after a snowbound start to the year.

Shares in AO fell sharply last week on Dixons’ profit alert but rose as much as 4.9 percent on Tuesday on relief it did not warn on profit, taking gains for the year to 41 percent and valuing the business at up to 736 million pounds ($984.6 million).

“The mid-term investment thesis...rests on how quickly AO can break even in Europe and a UK recovery,” said analysts at Jefferies, reiterating their “hold” rating.

AO, which operates in the UK, Germany and the Netherlands, reported a wider full-year loss mainly reflecting trading losses from its European operations but said it was on track to make that business profitable by 2021.

For the year to March 31 the group made a loss before interest, tax, depreciation and amortisation of 3.4 million pounds.

That compared to analysts’ average forecast of a 4 million pounds loss and a loss of 2.1 million pounds in 2016-17.

Revenue rose 13.6 percent to 796.8 million pounds.

Core profit in the UK business fell 7 percent to 22.6 million pounds, reflecting higher marketing costs in the first half, while losses in Europe narrowed by 2 percent to 26.0 million pounds as AO continued to invest in expansion.

“Our European operations continue to build scale and confidence as we remain on track to achieve our FY21 profitable run-rate objective,” said Caunce.

AO said its new financial year had started well in both the UK and Europe, with UK revenue growth returning to double-digit levels.

Reporting by James Davey, Editing by Paul Sandle

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