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Ocado Raises Earnings Outlook Again On Strong Trading

Published on Dec 10 2020 8:17 AM in Technology tagged: Featured Post / UK / Ocado / Ocado Group / World News

Ocado Raises Earnings Outlook Again On Strong Trading

British online supermarket Ocado Group raised its annual earnings forecast for the second time in two months, as the COVID-19 pandemic continued to generate huge demand for home delivery.

Ocado forecast earnings before interest, tax, depreciation and amortisation (EBITDA) of 'over £70 million' (€77 million), compared to a previous forecast of 'over £60 million'. EBITDA in 2018-19 was £43.3 million.

The group, whose shares have soared 82% this year, said revenue at its retail joint venture with Marks & Spencer rose 34.9% to £579.6 million in its fourth quarter to Nov. 29.

Growth moderated from 52% in the third quarter, which Ocado said reflected the seasonality of the quarter.

Average orders per week rose 3% to 360,000, and average order size was £133.

'Good Progress'

"We continue to make good progress bringing even greater choice, quality, and value to our customers following the switchover to M&S at the beginning of September," commented Melanie Smith, Ocado Retail's chief executive. "At Ocado Retail we are constantly looking to raise the bar even further and the addition of M&S products to our grocery ranges has enhanced what was already the widest choice of products available online.

Despite exceptional demand during the period, we have high rates of on-time customer delivery and low rates of substitutions. This, together with our commitment to competitive prices and the freshest produce available, all delivered in a way that minimises handling and maximises hygiene, has strengthened our credentials as the UK online grocery market leader in terms of customer experience

Marks & Spencer

In September, the Ocado Retail venture switched from using Waitrose to M&S products.

'Customers continue to embrace the full M&S range with the biggest selling lines coming from everyday essentials in the M&S fresh categories,' Ocado said.

Ocado said sales and earnings growth in the 2020-21 financial year would be determined by the extent to which it returns to a "normalised" trading week and when planned additional capacity goes live.

It plans to open three new warehouses in 2021, which will ultimately provide 40% more capacity.

Business Model

The group's capital-intensive and centralised fulfilment model has restricted its ability to quickly increase its capacity during the pandemic.

In contrast, Britain's big four grocers - market leader Tesco, Sainsbury's, Asda and Morrisons - were quickly able to adapt their predominantly store-pick models to boost capacity, enabling them to deliver faster growth and win share of the online market.

Online grocery shopping has doubled its share of the UK market to nearly 14% since the start of the pandemic and Ocado reckons it could reach 30% over the next few years.

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.

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