Supermarket and technology group Ocado Group was the FTSE 100’s second-biggest riser on Tuesday as it announced a return to profit in the first half.
At 657.8p per share the Ocado share price was 13% more expensive on the day.
Revenues rose 9% to £1.37 billion during the six months to May, it said. This was driven by a 5% sales increase at its core retail operation to £1.18 billion. Revenue at its technology solutions arm, meanwhile, advanced 59% year on year to £198.2 million.
This meant that Ocado flipped back into profit for its first fiscal half with positive EBITDA of £16.6 million. It recorded an EBITDA loss of £13.6 million a year earlier.
“Strong Operational Execution”
The FTSE firm said its Technology Solutions arm had delivered “strong operational execution” during the first half. The business opened two customer fulfilment centres — including one for AOEN, Japan’s largest food retailer — as well as six new modules in the period.
Ocado said that its new customer fulfilment centres “were delivered on time and on budget,” adding that “our equipment is performing well and the sites have started ramping up their capacity according to plan.” Support costs meanwhile dropped by £12 million year on year, to £89 million.
The business now operates 25 sites and 105 live modules, it said. It predicted that one further fulfilment centre will be opened this year, though it added that the ribbon cutting on two new sites for Coles in Australia are currently review.
At its retail division, Ocado said that first-half sales were boosted by growth in active customer numbers. These increased 10.6% year on year to 959,000. Meanwhile, average orders per week rose 4% in the period to 392,000, and the average basket value rose 1.5% thanks to price hikes. Average selling prices were up 8.4% from a year earlier.
However, average basket sizes dropped 6.3% in the first half to 45 items. But Ocado noted that the number of items per basket stabilised in the last quarter at 44 items.
“Good Progress”
Chief executive Tim Steiner commented that “Ocado Group has made good progress over the last six months,” adding that “Technology Solutions has continued to deliver our industry-leading Ocado Smart Platform around the world.”
He said that “retail is making good progress” and noted that “our operations in the UK remain an important demonstration of the potential for our international ambitions.”
Ocado reiterated its full-year guidance following its positive first half. It expects retail revenues to rise by mid-single-digit percentages and for EBITDA to enjoy marginal growth. Technology sales are tipped to rise by 40% and EBITDA is also expected to rise year on year.
What The City Says
Analyst Sophie Lund-Yates of Hargreaves Lansdown noted that “Ocado has returned to profit in its retail business on an EBITDA level, thanks in part to efforts to cut prices which has helped coax shoppers back.”
She noted, however, that “pressure on Ocado’s overall margins is significant, especially because of efforts to improve its relationship with Marks & Spencer, which is damaging the bottom line.”
FTSE 250-listed Marks & Spencer paid Ocado £750m four years ago to become joint owner of the grocer’s retail division.
Lund-Yates added that “the current economic environment makes it more difficult to entice grocery chains to sign up to Ocado’s techy fulfilment systems,” though she commented that “recent progress shouldn’t be knocked.”
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