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Ocado Retail Fourth Quarter Results – What The Analysts Said

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Ocado Retail Fourth Quarter Results – What The Analysts Said

Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, has reported a 10.9% increase in revenue in the fourth quarter of its financial year (to 26 November), with Hannah Gibson, the online grocer's chief executive, stating that the retailer made "significant progress" during 2023.

Here's how leading industry analysts from GlobalData, AJ Bell, Shore Capital and Bernstein viewed its performance.

Eleanor Simpson-Gould, GlobalData

“Despite 2023 being a year plagued by record high food inflation rates and a dramatic shift in customers trading down both in price and retailer, Ocado has weathered the storm. Q4’s retail revenue growth of 10.9% is a drastic improvement, albeit against a very low comparative in Q4 FY2022 (+0.3%), exceeding UK food & grocery sector growth of 7.9% for Q4, however Ocado’s Q4 sales have been outpaced by Tesco’s online sales (+11.5% for the 19 weeks ending 6 January 2024).

"Undoubtedly, Ocado’s winning partnership with Marks & Spencer has been a critical element in Ocado’s year of growth bolstering the online grocer’s extensive range portfolio. However, it is Ocado’s return to positive EBITDA growth which is the shining light in this latest result announcement.

"Following capital investments in new fulfilment capabilities, including moving operations from its original Hatfield to improved Luton site has awarded the online grocer flexibility to drive down fixed costs and improving order fulfilment, during a year of unprecedented overhead cost concerns for retailers.

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“The ‘Perfect Execution Programme’ must achieve another year of strong growth to prove the successes achieved in FY2023 are durable and long-standing operating improvements to further improve Ocado’s profitability. With online sales improving at Tesco, value, customer satisfaction and range are key battlegrounds in which Ocado must remain agile.”

Russ Mould, AJ Bell

“News that Ocado Retail enjoyed a record Christmas is eye-catching but partly reflects the impact of inflation. The significant news is that the company is confident it delivered on guidance for a return to positive earnings in the financial year just gone.

“Online groceries are here to stay. However, whether or not the service can be as profitable as it was during the pandemic is open to question. The economics of delivering a weekly shop to someone’s door are highly dependent on the amount they’re ordering as the costs of doing so don’t really fluctuate too much. Although minimum basket sizes can be implemented, with smaller orders incurring more onerous fees.

“When it comes to the wider Ocado business, if it is ever to recapture the excitement which propelled it to the highs seen at the height of COVID, it needs to demonstrate it can deliver on a model of offering a one-stop shop solution for supermarkets looking to build out their web-based offering and make this profitable.”

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Clive Black, Shore Capital

"Pleasingly, set against favourable multi-year comparatives, Ocado Retail trading momentum improved with Q4 sales growth of 10.9%, in-line with secondary market data, albeit up only 7% over a 4-day Christmas period. EBITDA to November 2024 is guided to a journey of better things.

"As for the wider group, which comprised domestic and international logistics and solutions, mystery and intrigue persists in an economic environment where the end of the zero interest rate policy means that the money tree for endless speculative capital expenditure has come to an end."

William Woods, Bernstein

"Ocado Retail updated Q4 performance this morning where strong Q4 trading led to revenue being +4% above consensus at £609.4m and Christmas (post-period) was strong. Guidance on positive EBITDA for the full year 2023 was re-iterated, as volume is now fully back to positive growing +4.8% YoY, but the tone is slightly more positive going from 'marginally positive' to 'positive'. Ocado also guided to FY24 revenue growth of mid-high-single digit revenue growth, broadly in line with current consensus (+8% but off a lower FY23 base).

"However, we are slightly disappointed at the commentary around FY24 EBITDA which only guides to ‘increasing efficiencies and demonstrating operational leverage’ ‘on the journey towards high mid-single digit EBITDA margin in the mid-term’.

"Given our expectations of volume recovery and continued efficiencies through higher CFC utilisation with better tech (e.g. Luton vs. Hatfield), we think the commentary is conservative but also fluffy and frustrating. Consensus expectations currently sit at 2.6% EBITDA margins for FY24 and the lack of clarity on FY24 margin may overshadow the strong top line growth."

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