- Share initially fall more than 10%
- Shoppers visiting and spending less
- Retail business seen ‘marginally positive’ this year
Online grocery retail firm Ocado (OCDO) delivered a disappointing update for the fourth quarter despite a notable increase in the number of customers using its platform.
The shares dived as much as 11% to 718p in early trading before recovering to settle down 6% at 761p, negating yesterday’s 5% rally.
SHOPPERS SPENDING LESS
For the 13 weeks to the end of November, Ocado Retail - the joint venture operated by Ocado and Marks & Spencer (MKS) - reported revenues of £549 million, a change of just 0.3% on the same period the previous year and below analysts' forecasts.
This virtually flat performance came in spite of record grocery price inflation and a 12.9% increase in the number of active customers using its Ocado.com website.
The firm blamed a slowdown in average orders to 382,000 per week, just 1.9% above the same period in 2021, and a 1.3% fall in the average basket value to £117 as customers shopped less frequently and bought fewer non-essential items.
For the full year to November, sales also missed market estimates falling 3.8% to £2.2 billion as shoppers made fewer visits to the website and added fewer items to the basket each time they visited.
On a positive note, the firm said sales in the five days leading up to Christmas were up 15% to a new record and included the highest level of orders ever recorded in a single day.
PROFIT AT THE END OF THE TUNNEL
For the current year, the group expects a weaker first half due to lower basket sizes and an improvement in the second half as the like-for-like comparisons become easier.
As a result, retail revenues are seen growing by mid-single digits while EBITDA (earnings before interest, taxes, depreciation and amortization) should be ‘marginally positive’ by the end of November.
Yet, as Charles Stanley chief investment commentator Garry White points out, the issue for investors is whether Ocado is a barely profitable supermarket or a barely-profitable technology company.
‘The company’s management have been arguing for years that the company should be priced as a technology stock - and last year the market did exactly that - rerating its shares in line with other growth shares’, says White, noting Ocado was the worst performer in the FTSE 100 index losing 62% of its market value.
What does seem clear is the shares have become much more volatile over the last year, with daily moves of 5% or more now commonplace, to the extent that Stockopedia classifies the stock as ‘speculative’ meaning it is amongst the riskiest in its database.
