Ocado sales growth accelerates
Online British supermarket Ocado posted an acceleration in sales growth in its second quarter, raising hopes it has got to grips with bottlenecks at its distribution centre that led to a string of profit downgrades last year.
Shares in Ocado, whose range includes products supplied by upmarket grocer Waitrose jumped 6.8 per cent on Wednesday after it said sales in the 12 weeks to May 13 were likely to be 13 percent higher.
That compared with 10.9 per cent growth in the first quarter.
Ocado shares have lost nearly half of their value since floating at 180 pence in July 2010. But they have increased 20 percent over the past three months as the performance of its customer fulfilment centre at Hatfield, north of London, has improved, operating at record levels in the second quarter.
Ocado, founded in 2000 by three former Goldman Sachs bankers, has polarised opinion like few other market debutants.
Fans point to rapid growth in online grocery sales and to its high customer service ratings, but sceptics think its model of filling orders from a central depot will never be as profitable as online operations at established grocers, which mostly pick orders in store.
They also fear Ocado will face growing competition from Waitrose itself, which has started selling groceries online in Ocado’s heartlands in and around London.
Earlier this month Waitrose extended its price match guarantee on branded grocery goods with industry leader Tesco and offered free delivery on all online grocery orders of £50 or more.
Analysts noted that Ocado benefited in its second quarter from new highly automated picking machinery at Hatfield going live, enabling the firm to replace low productivity trolley-picking operations, build its product range and increase capacity.
Numis Securities analyst Andrew Wade believes the group will reach a sales growth exit rate of over 20 percent by the end of the fourth quarter, averaging over 15 per cent growth through the year.
Maintaining his buy recommendation, he sees the operational launch of Ocado’s second distribution centre at Dordon in central England in the first quarter of 2013 as “game-changing”.
However, sceptics remain. Long term Ocado bear Philip Dorgan, analyst at Panmure Gordon, reckons the group is losing market share online as competitors, such as Wal-Mart’s Asda and Sainsbury, are growing faster.
“We believe that Ocado will continue to struggle to make money … We think that Ocado isn’t special and that the shares are too high,” he said.
Separately on Wednesday, official data showed British retail sales fell at their fastest monthly pace in more than two years in April, after a record drop in fuel sales and a weather-related drop in clothing sales.