28th Mar 2023 12:05
(Alliance News) - Ocado Group PLC on Tuesday proved its retail joint venture with Marks & Spencers Group PLC could hold its own in the UK's supermarket wars, though investors continue to fret about its premium positioning amid an increasingly cost-sensitive consumer base.
"Ocado's retail arm is in a difficult position. While the cost-of-living crisis rumbles on, being a more premium name in the sector comes with immediate challenges," said Hargreaves Lansdown's Sophie Lund-Yates, adding: "However, the group seems to be doing well with the tools at its disposal."
In the 13 weeks to February 26, the online grocer and warehouse technology firm said retail revenue was up 3.4% year-on-year to GBP583.7 million from GBP564.7 million, as average selling prices rose 8.3% to GBP2.75 from GBP2.54.
Average customer numbers grew 14% to 951,000 from 835,000 the year before, while average basket values edged up 0.2% to GBP124, but average basket sizes fell 7.5% to 45 from 49.
"Although the number of items people are buying per-shop is dropping, which is to be expected as post-Covid shopping habits normalise, this is being successfully offset by higher prices. The price hikes are below the overall rate of food inflation, which suggests this is being well-managed," said HL's Lund Yates.
According to Kantar, grocery price inflation hit another record high of 17.5% in the 12 weeks to March 19. The trend was also seen in figures from the British Retail Consortium show shop inflation spiking to a record 8.9% in March, with food inflation at 15% and fresh food inflation at 17%.
Ocado's 8.3% increase to average selling price is below those hefty rates of inflation.
In an encouraging sign, Kantar figures also showed the premium supermarket managed to hold on to its market share. In the 12 weeks to March 19, Ocado's market share stayed flat at 1.8%, while Waitrose, Co-Op, Tesco, Sainsbury's, Asda and Morrisons saw their market share edge lower.
Lidl, Aldi and Iceland saw market share gains, as consumers looked for bargains.
"The proposition clearly remains attractive with customer retention looking stable – no mean feat in the current, highly competitive market," HL's Lund-Yates continued.
"There are of course challenges to consider, not least that competition is still attempting to gnaw away at market share. A true understanding of Ocado Retail's attractiveness can't be painted until inflation subsides and the fog clears," she added.
Meanwhile, Ocado left guidance unchanged from the end of February, expecting mid-single digit growth in revenue, and "marginally" positive earnings before interest, tax, depreciation and amortisation.
Last month, the FTSE-100 company reported revenue of GBP2.51 billion for the year ended on November 27, up 0.6% from GBP2.50 billion the year before. It swung to a negative Ebitda of GBP74.1 million from positive earnings of GBP61.0 million.
"There is little to excite investors in terms of any further measured progress for the Retail part of the business. In addition, it is the Solutions business (which is not directly included in this update) which has tended to provide the vast majority of share price volatility," said interactive investor's Richard Hunter.
Shares in Ocado were down 4.8% to 430.40 pence each in London on Tuesday around midday. The stock is down 61% in the past 12 months.
"The share price performance has reflected patience wearing thin with the group as a whole, where the Solutions arm has yet to live up to its billing," ii's Hunter added.
By Elizabeth Winter, Alliance News senior markets reporter
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