The online electrical goods seller AO has warned that its profits will dive this year as it faces falling sales and customers cancelling warranties on its products to save money amid the cost of living crisis. It said underlying profits would be only £8m for the year to 31 March 2022, down from £64m last year, reflecting higher costs from driver shortages, extra marketing spending in Germany as well as lower sales and warranty cancellations. Sales fell 6% to £1.6bn in the year but remain 52% ahead of pre-Covid levels. The company said it had noticed “higher warranty cancellations than average historical trends” in March as customers “responded to the escalating cost of living”. It said the latest trading figures indicated the trend was continuing, potentially forcing a writedown of the value of its insurance contract leading to a “material impact on full-year profits”. The company also said its spare cash had shrunk since March, when it stood at £50m, and it continued to review its German business where competition “remained intense”, leading to higher costs. AO said it was delaying the reporting of its full-year results for up to two months because of the complex calculations, particularly given its German business review. Shares in AO dived more than 20% to 69p on Friday morning, as the company said consumer demand for electrical goods had “progressively weakened”, which was compounded by global supply chain disruption and affecting product availability. There was also concern about future performance. AO said: “In view of the volatile market conditions, inflationary cost pressures and logistical challenges in the supply chain, together with the escalating cost of living for consumers, we remain cautious about our revenue and profit outlook in the near term.” The warning comes after Sainsbury’s, the owner of Argos, warned this week that it expected sales of general merchandise items such as TVs, computers and washing machines to fall this year as consumers grew more cautious. It also highlighted production and port delays in China, where the Covid pandemic has led to a string of city-wide lockdowns. AO’s share price also came under pressure as John Roberts, the group’s founder and chief executive, announced plans to sell £5m shares, or about 5% of his holding, over the coming year. Andrew Wade, an analyst at Jefferies, said he was not expecting profits to recover in the year ahead. He said AO had missed his profit expectations by more than a quarter. The figures for the year to March indicated that sales in the UK fell by about 15% in the final six months, he added, which was “clearly a disappointing trend”. However, he noted that AO continued to take a larger share of the shrinking market.