AO World warns of product shortages this Christmas

Online electricals retailer AO World has warned Xbox and Playstation games devices, and iPhones could be in short supply this Christmas.

A global shortage of computer chips has hit availability of such items.

AO warned that these shortages as well as supply chain problems in the festive trading period would hit its profits.

The retailer saw sales soar during lockdown, but that runaway growth has been halted by higher labour and transport costs.

AO warned that the key festive trading period would be "significantly softer" than anticipated.

On Tuesday, the firm posted a half-year pre-tax loss of £10m, down from an £18m profit in the six months last year.

That sent AO's share price crashing by about 25% initially on Tuesday, although it had recovered slightly to stand about 15% lower by late morning.

The nationwide lorry driver shortage that has hit many companies remains a problem, AO said.

It had recruited about 500 new drivers to help beat labour shortages, but said it was still seeing "meaningful supply chain challenges", product shortages and higher costs of transport and freight.

"At the start of our financial year in April, we planned for continued revenue growth and built up our cost base accordingly," AO said.

"However, since then, growth in the UK has been impacted by the nationwide shortage of delivery drivers and the ongoing disruption in the global supply chain, and the German online market has seen significantly increased competition.

"As we now look to the second half, we continue to see meaningful supply chain challenges with poor availability in certain categories, particularly in our newer products where we have less scale, experience and leverage."

In addition, shipping costs, the cost of materials and consumer price inflation "remain challenging uncertainties", the company said.

Many companies - from toy, food and clothes retailers to furniture giant Ikea - have warned of labour shortages, higher costs and disruption to supplies.

At the weekend, technology retailers warned that they may have insufficient stock to meet Black Friday demand due to delays in the supply chain.

AO World, which sells a diverse range of electrical goods, including laptops, washing machines, and mobile phones, said the "all-important" festive period would be far tougher than it anticipated just a few weeks ago.

It expects underlying profits for the year to March of between £10m-£20m compared with a previous forecast of between £35m-£50m issued in October. Profits last year nearly tripled to £64m.

Richard Hunter, head of markets at online share broker Interactive Investor, called AO's problems a "white-knuckle ride".

In addition to supply problems and staff shortages in the UK, he pointed to issues overseas. "The group's foray into the German market is not only in the early stages of establishing the brand, but is also being faced by significantly increased competition," he said.

The fall in AO's share price, which now stands at about 105p, will prove continuing disappointment for staff, who in 2020 were offered a generous bonus scheme.

Employees would share £140m if the price hit £9.41 by 2025, and £240m if it went to £12.55. AO's highest closing price is about £4.30, reached in January.

In October, the government introduced special temporary work visas to attract more foreign workers to the UK.