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Ocado delivers mixed results

 
David Madden
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George Osborne Vists's Ocado Customer Fulfilment Centre
Ocado deliver mixed results (Source: Getty)

Ocado revealed a mixed set of first-half results.

Revenue rose by 12.1 per cent to £799 million, while EBITDA slipped by 13.9 per cent to £38.9 million. When you factor in depreciation, amortisation, impairments and net finance costs the company swung to a loss of £9 million. The CFO expects the full-year pre-tax loss to be greater than the market estimate.

Customer acquisition helped average orders per week jump by 11.9 per cent on a year-on-year basis, and that fed into the double digit increase in revenue. The average basket size dipped by 0.2 per cent to £108.18. Despite the relatively soft start to the year, the company anticipates revenue growth to be 10-15 per cent this year, and the company expects earnings to improve in the second-half.

The total capital expenditure guidance for this year remains unchanged at £210 million. Ocado remains committed to expanding their business, especially in light of the partnership agreements that we achieved in the past year.

The company’s first-quarter numbers were respectable, although the message was a little downbeat. Revenue for the period rose by 11.7 per cent, which was at the lower end of the current guidance of between 10 per cent and 15 per cent. It is worth noting that last year’s growth rate was 12.4 per cent. The average weekly order rate increased by 11.1 per cent, but the average order value slipped by 0.4 per cent. Ocado won’t want to be going down the route of increased deliveries for smaller orders, as profitability is likely to be eroded. The company was hit by ‘the beast from the east’ but it still managed to exceed its weekly delivery average. If the firm can grind out a decent set of delivery numbers during those harsh conditions, it says a lot about the business performance.

The company’s promotion to the FTSE 100 last month has given the stock a financial and branding boost. Funds that actively track the performance of the British equity benchmark will need to hold the stock, which will lift demand. From a psychological point of view, being elevated to the top tier index sends out the right message. The market capitalisation of the company is comfortably above that of Marks and Spencer, and is narrowly ahead of Morrisons.

Ocado spent a long time seeking international partners, and the group managed to line up three partnerships within nine months. France’s Casino, Sobeys of Canada and Kroger in the US. The announcements sent the share price flying as investors now have high hopes for the company. Stockbroking firm Peel Hunt described the group as the Microsoft of retail.

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