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Ocado full-year profits to beat expectations on retail boom

The group expects full-year cash profits of £40m, well above analysts’ estimates
Ocado full-year profits to beat expectations on retail boom

Ocado’s (OCDO) partnership with Marks & Spencer (M&S) appears to be paying off, just two weeks in. Indeed, enthusiasm for the supermarket’s products has lifted the average Ocado basket size by five items, and 98 per cent of Ocado customers are already buying M&S goods. Good news, on the back of a third quarter that saw Ocado’s retail sales soar by more than a half to £587m – buoyed by continued appetite for online shopping.

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Average orders per week rose by almost a tenth to 345,000 over the 13 weeks to August. This was underpinned by demand from existing customers, and the website’s “phased reopening” to new people. Meanwhile, Ocado’s average order size has returned to a more normal £141 since the peak of the Covid-19 crisis – but that figure remains above pre-virus levels.

True, Ocado is not immune to the uncertainty surrounding coronavirus – from how long distancing restrictions will last, to whether further lockdowns will ensue. But the group pointed to its retail business’s strong trading during the first nine months of the year, and its operational leverage – reflecting the extent to which rises in revenue translate into profits. Management expects full-year cash profits for the overall company of at least £40m – significantly higher than the median consensus forecast of £26m. Analysts at Numis have taken their forecast to £42m, but note that further upgrades may ensue, should current demand levels continue.

At the half-year mark, Ocado argued that the “channel shift” to online grocery purchasing was sustainable – with survey data suggesting that almost a third of UK consumers would order more of their groceries this way post-pandemic. Ocado also revealed at the time that its tech business was picking up the pace – with a rise of more than a half in fees invoiced to its international solutions partners.

The M&S deal was first announced in February 2019, and launched at the beginning of this month. M&S agreed to pay up to £750m for half of Ocado’s retail business – in turn, replacing the incumbent grocer Waitrose on the Ocado platform. The transition means that 4,400 M&S food products are now available via Ocado, replacing roughly 4,000 Waitrose goods. Ocado noted that these new products reflect the trends that its customers are “most excited about” – including M&S’s plant kitchen, organic and ‘made without’ ranges. M&S is also offering home and lifestyle goods through Ocado.