AO World has reported a more-than-doubling of profit as it stood by its acquisition of online trade-in platform Music Magpie, which had been dragging on growth.

The electrical retailer reported growing profit and revenue and said that Music Magpie is now “run rate profitable”. 

The second-hand online marketplace had been turning a £6m loss and bemoaning a “challenging” economic environment when it was snapped up by AO World for £35m in December 2024.

Music Magpie added £3.5m in advertising costs, £7.3m in warehouse fees and £11m in administrative spending to its new owner’s balance sheet in the year to March. But AO World said its new acquisition was responsible for “the majority” of its 181 per cent jump in revenue in the second-hand commerce market, to £120m.

The FTSE 250 retailer’s turnaround of Music Magpie was engineered through the exit from its loss-making US operations and the consolidation of its warehouse footprint, it said.

AO shifts operations to South Africa to dodge employment costs

AO said it has outsourced most of its inbound sales operations to a third-party firm in South Africa to dodge “ongoing inflationary pressure, and particularly rising employment costs”.

Retailers have ramped up pressure on the government in recent weeks over its hikes to national insurance contributions and minimum wages, warning that higher employment costs risk worsening the youth unemployment crisis.

This move “maintained service quality” and saved the retailer £2m this year and is expected to produce annual savings of £4m in the coming years, it said.

Profit before tax across the AO World group jumped by 145 per cent to £51m, while revenue climbed 11 per cent to £1.3bn.

The group achieved total liquidity of £201m at the year’s end, with profit converted to cash resulting in free cash flow of £66m, up 152 per cent from the year prior.

Retailer notes cost inflation and Iran war uncertainty

AO World announced a new £10m special dividend and a separate £10m share buyback programme, reflecting its “strong cash generation” over the past year.

The firm toasted its position as the UK’s “most trusted electrical retailer” after becoming the first retailer globally to exceed one million Trustpilot reviews, with 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.”

The group said it is adapting to dwindling demand for phone contracts by overhauling its post-pay mobile business. This arm had been loss-making, but AO said on Wednesday that it is now profitable.

The retailer said it is “confident in its ability to grow revenue,” but noted the uncertainty posed by “geopolitical volatility, cost inflation, shifts in consumer demand and rapid technological change”.

Chris Beauchamp, chief market analyst at stock broker IG, said AO World is “swimming in cash” and is well positioned to benefit if inflation begins to tail off in the coming months.

“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, founded as Appliances Online in 2000, is based in Bolton. Its share price closed at 96p on Tuesday and has dropped one per cent in the last year.