Ocado Retail eyes return to ‘marginal’ profitability in 2023

Ocado Group and Marks & Spencer delivery joint venture Ocado Retail has recommitted itself to a return to profitability in 2023. 

The firm expects to post ‘marginally positive’ 2023 earnings, compared to a £4million loss in the year to 28 February, reflecting ‘mid-single digit’ revenue growth with an ‘improving trajectory’ and a return to shopping basket volume growth.

But Ocado Retail also expects to see losses in the first half of the year before later improving ‘as a return to volume growth supports improved capacity utilisation and reduced costs relative to sales’.

Ocado Group shares fell by around 6 per cent to 425.3p by midday Tuesday, while M&S shares added 1.4 per cent to 157.2p. 

Keep on trucking: Ocado Retail expects to return to profit after a £4m loss last year 

Hannah Gibson, Ocado Retail’s chief executive, said the group had continued to attract more customers ‘by investing in great value’.

Ocado Retail’s active customers are up 13.8 per cent year-on-year to 951,000 as of the end of the group’s first quarter, while average selling prices rose 8.3 per cent.

Revenues in the 13 weeks to 26 February hit £584million, up from £565million at the same time last year, as average orders per week grew 3.6 per cent.

But the group’s average basket value was flat over the period as the average number of items bought fell 7.5 per cent to 45.

Ocado Retail also reported improved service levels, with on-time delivery and order accuracy now back to pre-pandemic levels.

Gibson added: ‘While the trading environment remains challenging, we expect to build momentum through the second half of the year, as we improve our proposition, grow our customer base, and no longer lap Covid shopping behaviours. This solid 2023 performance will enable us to return to sales growth and profitability.’ 

Ocado becomes target for short sellers 

Ocado Group has recently become among the biggest London-listed targets of short sellers after posting a pre-tax loss of £500.8million for 2022, which was around £100million more than analysts were forecasting.

Over the past two years, the firm’s shares have also lost more than 80 per cent of their value as the Covid-induced boom in digital grocery purchases has petered out.

Mark Crouch, analyst at eToro, said: ‘Ocado Retail is making decent progress on attracting new customers, but it’s clear that people are beginning to tighten their belts in the face of rising prices.

‘It’s clear then that even Ocado’s customers, who tend to be wealthier, are beginning to feel the everyday financial pressures that come with rising inflation.

‘With the overall inflation picture set to improve as we enter the second half of the year, it will be interesting to see if basket values and volumes recover. We suspect that they might.’

Julie Palmer, partner at Begbies Traynor, added: ‘Ocado is trying to turn around the perception that it’s too expensive an option in these tough times with the launch of a price matching scheme benchmarked against Tesco, but getting the message across is proving hard work.

‘Although revenue and customer numbers edged up in the first quarter, the strain on shoppers was shown in the average value of each order remaining flat, while the number of items in each delivery dropped, highlighting that individual items’ price labels are rising fast.

‘Ocado customers are spending the same amount to buy less – not a good place for a business to be in a hyper-competitive market with cash-strapped shoppers where Ocado is seen as the expensive option.’

This post first appeared on Dailymail.co.uk