Ocado has posted a half-a-billion loss after a “challenging” year that saw revenues in its retail division fall as shoppers returned to stores after the pandemic and made cuts backs amid the cost of living crisis.
Pre-tax losses widened from £176.9m to £500.8m over the year to 27 November 2022, against analysts’ forecasts of a £399m loss. The figure was also impacted by losses from its operations overseas, as well as higher finance and depreciation charges.
Revenues in Ocado Retail, its joint venture with Marks & Spencer, fell by 3.8% to £2.20bn, despite record sales over Christmas. The unit’s EBITDA also slipped from a profit of £150.4m to a loss of £4.0m
Boosted by its International Solutions division, total group sales edged up 0.6% to £2.51bn as Ocado expanded its technology partnerships with various overseas retailers.
In the UK, customers ordered fewer items as booming demand driven by the pandemic subsidised. The average basket size fell to 46 items in 2022 from 52 in 2021, taking the average value to £118 from £129.
However, shoppers were attracted by discount vouchers, and Ocado’s active customer numbers increased 13% to 940,000.
As with other grocery retailers, Ocado has been grappling with higher cost inflation from its suppliers. It raised its average selling price by 4.5% last year to £2.55.
“Over the last year, every company has had its business model tested by a combination of macro-economic and geopolitical headwinds,” said Tim Steiner, Ocado’s Chief Executive.
“Ocado Retail has shown its resilience against a backdrop of higher costs and smaller baskets, reflecting the Covid unwind and the UK cost of living crisis, by growing customer numbers and increasing online market share. As the Covid unwind fades and customer growth continues, the business will start to recover the fixed costs of recent capacity commitments.”
Looking ahead to the outcome of the current financial year, Ocado Group is forecasting mid-single-digit revenue growth for Ocado Retail with a marginally positive EBITDA.
Despite a recent retreat, Steiner said he was convinced online penetration of the country’s grocery market will increase in the future.
Online grocery’s share of the total grocery market in the UK was about 7% before the pandemic. It peaked at about 15% during the height of the crisis and has since eased to about 11%.
“I just absolutely don’t believe we’re going to stick at this level, and also anyway, we’re acquiring market share from our competitors and will continue to do so,” Steiner told reporters this morning.
“What we’re back into is the channel shift that we were engaged in for the first 20 years of our existence until we hit the pandemic.”
Shares in Ocado fell by over 9% in early trading today, extending losses over the last year to nearly 60%.
Clive Black, an analyst at Shore Capital and house broker to M&S, said the results were “truly dismal”.
“One day in a distant time zone, the Ocado Group may be surrounded by the words, meaningful sequential pre-tax profits … but one cannot yet see the rainbow, never mind any pot of gold,” he said.
NAM Implications:
- Whilst Ocado Retail may represent a route to credibility re selling on its tech/fulfilment expertise…
- …to other retailers wanting to fast-track their online development…
- …making a profit in online retail has to be a pre-requisite.
- With potential retail partners becoming more impatient for actual profits…
- …as times become more uncertain.
