- Record Christmas performance
- Basket size falls
Ocado (OCDO) shares gained 7 per cent on the news that its retail joint venture with Marks & Spencer (MKS) had posted positive annual cash profits on the back of record Christmas trading. But it wasn’t all festive cheer, as Ocado Retail warned about the impact of lower food price inflation on revenue growth prospects, and shoppers bought fewer items.
The venture’s fourth-quarter update for the 13 weeks to 26 November was a relatively robust one, with consensus-beating revenue growth and cost efficiencies driving Ebitda back into the black after a loss in 2022.
And after strong festive updates from listed grocery peers last week, it will be a relief for shareholders to hear that Ocado Retail “hit its highest ever level of sales over the peak Christmas trading period”. However, revenue growth of 7 per cent in the four days before Christmas can’t be described as mind-blowing.
Nearly all the venture’s key financial drivers were in growth on a year-on-year basis in the final quarter. Retail revenue rose 10.9 per cent to £609mn, above the 7 per cent expected by the market, aided by volume growth of 4.8 per cent and a 5.4 per cent increase in average selling price.
On the demand side of things, average customer numbers were up 5.9 per cent. However, average basket size fell 1.6 per cent. The venture will hope that its Tesco price-matching scheme will help draw in customers in the battle for grocery value.
For the full year, retail revenue was up 7 per cent to £2.36bn. Volumes contracted by 0.9 per cent, impacted by pandemic unwinding and consumer spending pressures.
Looking ahead, management guided for mid-to-high single-digits revenue growth and a volume uplift. But it flagged that the revenue trajectory would be impacted by “lower growth in average selling price” as food price inflation continues to ease.
There was no update from Ocado on the technology solutions part of its business, its key differentiator. The business has cut capex as it continues to struggle to achieve statutory profitability.
Last IC view: Sell, 652p, 18 Jul 2023
