Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, has reported a 11.6% increase in customer orders in the first quarter of its financial year, however revenue was down 5.7%.
"The last quarter has been encouraging for Ocado Retail despite the clearly evident challenges the industry and consumers are facing," commented Melanie Smith, Ocado Retail chief executive.
Here's how leading industry analysts viewed its performance:
Russ Mould, AJ Bell
“For the most part it’s been pretty tough going for Ocado since the heady days in September 2020 when it reached all-time highs of close to £30 per share. Back then it had been a beneficiary of lockdown and the enforced need to do grocery shopping online.
“This was seen as a big driver, not only for its own groceries service but also for its solutions platform sold to global supermarkets lacking their own viable internet-based offering. However, that excitement gave way to mounting disappointment as the company failed to sign up new clients, ironically blaming the pandemic restrictions which had helped act as a calling card for its services in the first place.
“Whether it was a ready excuse or genuine obstacle, Ocado’s argument was that being unable to easily fly around the world made it tricky to ink deals.
“More recently, Ocado has had some more positive headlines, notably winning convincingly the latest leg of its court battle with Autostore and signing a new agreement with an existing client to provide its platform solution in Poland.
“Today’s trading update covers the UK-based Ocado Retail arm – now a joint venture with Marks & Spencer. While this venture has been a success for both parties, the pressure on margins from rising inflation looks to be a growing issue and will not help Ocado at group level given the solutions business remains heavily loss-making.”
William Woods, Bernstein
"Ocado Retail released their Q1 results today with a disappointing -5.7% decline in retail revenue YoY (vs. overall market decline of -4%) driven by a -15% decline in basket sizes (resetting post-pandemic) whilst orders grew +12% as a result of strong customer acquisition and greater capacity.
"This was in the context of the overall market declining -4% but Ocado was a disproportionate beneficiary during the pandemic of significantly larger basket sizes. Customer numbers look good at +31% to 835k active customers.
"In terms of guidance, management have struck a cautious tone on their previous retail revenue guide of +10-15%, bringing it down to +10% YoY whilst they will end the year with high-teens revenue growth due to new capacity. EBITDA guidance was maintained but management said that energy costs may also impact EBITDA, which will be offset by cost reduction measures. This will likely spook some but we would expect management to be able to mitigate the worst of these effects."
Clive Black, Shore Capital
"Ocado Retail speaks to evolving market conditions and particularly the inflationary environment, understandably. It calls out the 'significant increases in raw materials and product cost prices, energy, utilities and dry ice', as adding headwinds for the industry and the business, stating that it is raising 'certain retail prices'.
"Combined with weaker pandemic conditioned demand, Ocado Retail also states that predicting the FY22 out-turn is more difficult, something that we sense other grocers are facing into as well.
"Amidst this context, and with rising capacity, Ocado Retail expects revenue growth to build towards 20% by the FY22 year-end, with full year turnover growth of c. 10%. More cautionary tones are set for FY22 EBITDA margins, given the comments about energy costs in particular and the Ukrainian related uncertainty, suggesting downside risk to us even with cost mitigation strategies."
Barclays European Food Retail Equity Research
"[Ocado's] Q1 sales growth fell several percentage points short of our expectations and, judging by the fact that Ocado has reduced its FY22 Retail sales expectations (from ‘mid teens’ to ‘closer to 10%’), they presumably fell somewhat short of the company’s own plan. Ocado seems to be expecting some pressure on the FY22 Retail EBITDA outcome too – although it thinks it can make savings elsewhere such that the group EBITDA number remains deliverable.
In our valuation of Ocado, the Retail business accounts for a relatively small part of the total value – International Solutions is the clear majority – but the incremental newsflow today is clearly negative for sentiment."
© 2022 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
