28th Feb 2023 17:55
(Alliance News) - Ocado Group PLC on Tuesday reported a widened pretax loss in its most recently ended financial year, as cost of living pressure in the UK hurt grocery basket values.
Russ Mould, investment director at AJ Bell, said the results were "as appetising as a bucket of sick."
Ocado posted a pretax loss of GBP500.8 million in the year that ended November 27, stretching from GBP176.9 million the year prior.
The online grocer and warehouse technology firm said group revenue amounted to GBP2.51 billion, up 0.6%, from GBP2.50 billion. Revenue fell short of the consensus of GBP2.54 billion, however.
Retail revenue alone, dropped 3.8% to GBP2.20 billion. Ocado and FTSE 250-listed Marks & Spencer PLC team for the equally-owned Ocado Retail arm.
Russ Mould said the retail joint venture with Marks & Spencer looks "stuck in the mud."
"Consumers are pulling back from doing big shops which is problematic for Ocado. It's more cost and time efficient to fill a van with a big customer order than lots of little ones, so the shift in shopping behaviour creates a headwind," he said.
Ocado Chief Executive Officer Tim Steiner was more optimistic: "Ocado Retail, our UK JV with M&S, has shown its resilience against a backdrop of higher costs and smaller baskets, reflecting the Covid unwind and the UK cost of living crisis."
Customer numbers increased by 13% to 940,000 from 832,000 a year earlier. There was a 5.6% increase in average orders per week to 377,000. However, the average basket value fell 8.5% to GBP118.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said Ocado was "in the eye of the cost-of-living storm" because its offering isn't synonymous with "being the best value".
"It's a higher-end option," Lund-Yates explained, "without the same benefits of enticing people in with tangible, physical goods like M&S or Waitrose can. "
"Supermarkets are battling to compete in this environment, with a rapid race to the bottom in full swing. There has also been a marked, potentially permanent, change in buying behaviour, with sales of own-branded products rising 13.2% this month, while branded products are up 4.6%," she continued.
Lund-Yates said Ocado's proposition and brand mean it could struggle to compete in this bargain-hunting environment.
Revenue at Ocado's warehouse technology units improved, however.
UK Solutions & Logistics yearly revenue rose 13% to GBP802.7 million, while at International Solutions, it more than doubled to GBP147.8 million from GBP66.6 million.
Richard Hunter, head of markets at interactive investor, cautioned that the Solutions business, "on which most of the group's hopes for future growth and profitability is pinned", has yet to "deliver on a sufficient scale to appease investors".
Further, heavy investment into the technology "required to drive the group's unique appeal", according to Hunter, continues to drain resources.
"Ocado's unique technology has excited investors and to some extent continues to do so. However, patience has been wearing thin with the increasing danger of it becoming regarded as a perennial "jam tomorrow" stock," he said.
Shares in Ocado closed down 11% at 558.36 pence in London on Tuesday. Over the past 12-months, the stock is down 58%.
For the current financial year, Ocado expects mid-single-digit growth in its Retail unit. It is an outcome that will reflect "a return to volume growth as the challenging comparison to larger volume basket shopping behaviours that remained in early 2022 fades," it said.
It expects to be earnings before interest, tax, depreciation, and amortisation positive in Technology Solutions, and "marginally positive" in Ocado Retail.
For financial 2022, it swung to a group Ebitda loss of GBP74.1 million, from GBP61.0 million profit.
Its retail Ebitda loss amounted to GBP4.0 million, swinging from GBP150.4 million profit, while its UK Solutions & Logistics Ebitda weakened slightly to GBP67.2 million from GBP68.5 million. At International Solutions, its Ebitda loss narrowed to GBP113.2 million from GBP119.3 million.
Shore Capital said: "One day in a distant time zone the Ocado Group may be surrounded by the words, meaningful sequential pre-tax profits, who knows, it may even pay corporation tax, but one cannot yet see the rainbow, never mind any pot of gold."
"The 2022 results underscore to us a very long-standing view on our behalf that Ocado is an organisation that has lots of research & development, considerable innovation, but simply is incapable of making any form of positive economic contribution," Shore concluded.
By Heather Rydings, Alliance News senior economics reporter
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