LONDON (ShareCast) - (ShareCast News) - White goods retailer AO World remained a 'sell' for broker Shore Capital on Tuesday ahead of first-quarter results later in the week, amid wider concerns about big-ticket discretionary spending for the UK consumer.
Management took a cautious tone around current trading during the recent full year results, and ShoreCap believes the first quarter is likely to have been challenging when results are unveiled on Thursday.

Analyst George Mensah predicted sales growth may have slowed to 4% during the first quarter, with a 1% growth rate estimate in UK sales overall.

"Underpinning our assumption is the comparative headwind created by prior to the commencement of higher stamp duty charges as well as possible benign sales growth in audio-visual, with the comparative quarter in calendar-year 2016 benefitting from two significant sporting events," Mensah said, also noting recent commentary from John Lewis about sales of big ticket items remaining under pressure compared to the prior year.

Organic growth in Europe still remains strong, the analyst reckoned, estimating roughly 25% sales growth, after management took the decision earlier in the year to tone down above the line marketing in Germany and the Netherlands.

"Given our wider concerns about big-ticket discretionary spending for the UK consumer, we believe it prudent to be cautious around the categories in which AO World operates in domestically.

"With UK gross margin under pressure from the higher sales growth in lower margin product categories and input cost pressure from suppliers, whilst the European business still immature and offsetting UK earnings, we believe AO is a business that still faces challenges from a financial perspective (albeit bolstered by a recent capital raise)."

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