Ocado’s shares are taking a beating this afternoon, with investors appearing unimpressed by group revenue and international expansion.
Despite the online retailer reporting that group revenue was up 7.2 per cent to £2.5bn for the full year, shares plummeted as much as ten per cent this morning.
It comes after Ocado, which is a 50:50 joint venture with Marks & Spencer, announced that profit may be undermined by its international growth.
Ocado opened five new customer Fulfilment Centres, including the first two in the US, and is set to invest £30m more than analysts expected in its international tech business.
Sales growth were driven by an increase in customer numbers of 22.4 per cent, to 832,000, driving an increase in orders of 11.9 per cent, to 357,000, offset by a reduction in basket size of 5.8 per cent to £129.
The UK firm also noted that growth in orders, whilst positive, was constrained in the second half of last year due to the ongoing labour shortages.
It also reported a fire in one of its fulfilment centres in July, which further strained capacity.
Tim Steiner, chief exec at Ocado, said: “The past year has further reinforced that demand for online grocery is here to stay. In the majority of mature markets, the fastest growing channel is online and to truly win here food retailers need to deliver the best offer with the best economics across all customer missions.”
“Over the last twenty years Ocado Group has been a pioneer in the development of online grocery retailing. With the innovations to the Ocado Smart Platform announced in January 2022, we have again re-set the bar, demonstrating decisively that an online grocery service powered by OSP is able to offer what the customer wants with the economics the retailer needs”.
Roberto Rivero, market analyst at Admirals, echoed this optimism:”Following Ocado’s announcements throughout 2021 we knew total revenue would come close to that of 2020, but the fact that they have exceeded it is really impressive. Since the pandemic, online retailers have felt pressure to maintain the same high level of sales. Yet, this result in 2021 just shows that Covid-19 may have shifted consumer behaviour online for the long term.”
“However, shareholders will be discouraged that Ocado is still a loss-making company, having recorded a loss for the fourth consecutive year. This is mostly due to continued high capital expenditure, which neared £700m in 2021 up from £526 million the previous year. This may be rewarding in the future,yet some shareholders will be concerned that, after almost 22 years, the company remains unable to convert high annual investment into reliable profit”, he added.
Rising inflation and higher interest rates will also hit Ocado’s ability to make a profit in 2022, with a heightened cost of borrowing.
Shares were down just over ten per cent at midday to 1263.44p.