AO World has reported a significant surge in profits, more than doubling its pre-tax earnings, as the company defended its acquisition of online trade-in platform MusicMagpie. The electrical retailer saw rising profits and revenue, announcing that MusicMagpie is now "run rate profitable" following its £35m acquisition in December 2024.
MusicMagpie turnaround
MusicMagpie, which had been recording a £6m loss and citing a challenging economic environment before the acquisition, added £3.5m in advertising costs, £7.3m in warehouse fees, and £11m in administrative spending to AO World's balance sheet in the year to March. However, AO World credited its new acquisition with driving the majority of its 181% surge in revenue within the second-hand commerce market, reaching £120m.
The FTSE 250 retailer revived MusicMagpie by withdrawing from its loss-making US operations and consolidating its warehouse network, according to a report by City AM.
Cost-saving measures
AO World revealed it has outsourced most of its inbound sales operations to a third-party firm in South Africa to avoid "ongoing inflationary pressure, and particularly rising employment costs." This initiative maintained service quality and delivered savings of £2m this year, with anticipated annual savings of £4m in future years.
Retailers have intensified pressure on the government over increases to national insurance contributions and minimum wages, cautioning that escalating employment costs risk aggravating the youth unemployment crisis.
Financial performance
Pre-tax profit across the AO World group surged by 145% to £51m, while turnover rose 11% to £1.3bn. The group recorded total liquidity of £201m at the financial year end, with profit conversion to cash generating free cash flow of £66m, up 152% year-on-year.
AO World unveiled a new £10m special dividend alongside a separate £10m share buyback programme, underlining its strong cash generation over the past year.
Trust and reputation
The firm celebrated its status as the UK's "most trusted electrical retailer" after becoming the first retailer worldwide to surpass one million Trustpilot reviews, maintaining a 4.9-star rating.
AO's founder and chief executive, John Roberts, said: "In a category as demanding as ours, that trust is hard-won and almost impossible to copy. It sits nowhere on our balance sheet, yet it's among the most valuable things we own."
Mobile business restructuring
The group said it is responding to declining demand for phone contracts by restructuring its post-pay mobile business. This division had been loss-making, but AO said it is now profitable.
The retailer said it is confident in its ability to grow revenue but acknowledged the uncertainty created by geopolitical volatility, cost inflation, shifts in consumer demand, and rapid technological change.
Market reaction
Chris Beauchamp, chief market analyst at stockbroker IG, said AO World is "swimming in cash" and well placed to capitalise should inflation start to ease in the months ahead. "A turnaround in its debt position and a surge in pre-tax profit is great news for shareholders, and news of more largesse in the form of dividends and buybacks should provide the fuel for a further recovery in the shares after a tough first half of 2026," he added.
AO World, established as Appliances Online in 2000 and headquartered in Bolton, saw its shares climb 2.6% to 98.5p on Wednesday.
