By Geoffrey Smith
Investing.com -- Shares in AO World (LON:AO) soared on Tuesday after the online electronics retailer raised its profit guidance for the year ending in March.
AO World said it now expects underlying earnings before interest, taxes, depreciation and amortization to be in a range between £37.5 million and £45 million (£1=$1.208) for the year, as it reaps the benefit of prior cost-cutting actions and profits from what it called a "continued resilient underlying customer base".
These two factors combined to allow AO World to generate significantly better margins than it dared to hope when it issued its last guidance in January, immediately after the key Christmas trading period. That January update had triggered a 25% slide in the share price in the weeks that followed.
"The steps we have taken to simplify the business and become more efficient have outperformed expectations and been delivered quicker than expected," AO World said in a statement, adding that it was confident that margins would stay where they are for the last five weeks of the fiscal year.
The midpoint of the new guidance range, at £41.25M, is up nearly 18% from the midpoint of the old £30M -£40M range.
AO World shareholders have had a wild ride over the last three years. Its online-only business model and its focus on consumer electronics allowed it to boom during the early phase of the pandemic, tempting it into an expensive and ill-judged expansion into Germany. It was forced into a humbling retreat from Europe's largest market as the boom cooled and it struggled to gain a footing in a highly competitive retail environment.
Its key U.K. market has also slowed sharply as consumer spending has reverted back to its pre-pandemic pattern, with the slowdown made worse by the sharp rise in inflation that has squeezed disposable income. The company said revenue in the U.K. was down just under 18% year-on-year as of the third quarter.
By 05:20 ET (10:20 GMT), AO World stock was up 22%, testing the level it had closed at on the eve of its January update.