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Technology

Ocado Raises Earnings Outlook Again On Strong Trading

By Steve Wynne-Jones
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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.

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'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.

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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.

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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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