17th Jan 2023 14:40
(Alliance News) - Ocado Group PLC on Tuesday said Ocado Retail, its joint venture with high-street retailer Marks & Spencer Group PLC, saw sales inch up in the business's final financial quarter.
However, analysts and investors alike were disappointed by the update, with Ocado down 9.3% at 732.60 pence on Tuesday afternoon in London. The stock price has halved over the past 12 months.
"Another year, another loss and another trading deficit is on the cards for 2023 from Ocado Retail," commented Russ Mould, investment director at AJ Bell.
Ocado Retail said revenue was GBP549.4 million in the the 13 weeks to November 27, up 0.3% against the same period in the previous year.
Average orders in the period were up 1.9% to 382,000, while average basket value fell 1.3% to GBP117, as price inflation was offset by fewer items.
Full-year revenue totalled GBP2.2 billion, representing a 3.8% decline against the year prior's figure of GBP2.3 billion, though Ocado noted it was up 40% against financial 2019.
Richard Hunter at interactive investor said the figures showed signs of "measured but bumpy progress", but cautioned that Ocado has yet to turn a sustained profit.
Sophie Lund-Yates at Hargreaves Lansdown echoed Hunter's caution: "Before any champagne can be popped though, it's important to understand that the strong performance masks more troubling trends. Customers are increasingly swapping to lower-price products and the number of items bought per-shop has fallen. All in, that's making margin progression more difficult.
"The alternative way to look at that is to say Ocado can't increase prices as far as its nearest rivals, because it's already on the expensive side, giving it a smaller lever to pull when inflation spikes," she said.
Ocado Retail expects to be close to break-even earnings before interest, tax, depreciation and amortisation in financial 2022.
Looking further ahead to financial 2023, it expects "marginally positive" Ebitda on mid-single-digit percentage revenue growth.
AJ Bell's Mould dubbed the outlook "uninspiring."
"Pointing to a strong rebound in 2024 requires investors to take a lot on trust, and it doesn't look like the market is willing to extend Ocado this courtesy," he said.
Mould explained that investors have long since become bored of "profitless prosperity", whereby firms claim to be "winning the war for customers" but then "consistently" fail to turn those new users into profit.
This failure is a key issue for the AJ Bell analyst, as it has an "outsized impact" on online deliveries which cost roughly the same to make "whether the order is two potatoes and a block of cheese or a full weekly shop."
"Ocado is also at a premium price point which isn't exactly aligned to the pressures on household budgets in the UK," he added.
Ocado Retail pointed to a strong start to its 2023 financial year to sure up investor sentiment towards its promise of "strong sales and profit growth" over the mid-term.
It reported record Christmas sales, up 15% over the five days leading up to Christmas. Orders were up 13% over the same period, which included its highest level of orders ever recorded in a single day.
Analysts at Shore Capital were unimpressed, calling the five-day trading statement "ludicrous and meaningless".
"We believe it is simply a business that struggles to prove that it can make money."
"Inflation is here for longer and so the probability of elevated base rates, which means there is not the free money to play around in non-profit making concepts for ever and a day," the capital markets firm said.
ii's Hunter said the stock may have become a "perennial 'jam tomorrow' play", with the volatility in its share price showing widely differing reactions to its prospects.
"On balance, the market consensus of the shares as a hold is reflective that for the moment, the jury remains out," he concluded.
By Heather Rydings, Alliance News senior economics reporter
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