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Ocado Retail: results not enough to reverse steady decline in stock price

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Ocado Retail [LON:OCDO], the joint venture with Marks & Spencer, saw revenue rise 3.4% in the first quarter to £583.7m. The increase reflects a 7.5% drop in the number of items per basket, offset by an 8.3% increase in average prices. This meant average basket value was flat at £124.

There was a 13.8% increase in active customers, to 951,000, reflecting new customer growth and more customers shopping with Ocado for longer. Ocado Retail’s sales were ahead of expectations, with strong customer growth and a stable average basket value. Management reiterated guidance for the full year.

The Armchair Trader went short Ocado on 10 March at 462p. Based on x10 leverage using a Contract for Difference, the trade is up over 80%. Ocado shares were trading at 426p at time of writing. Ocado stock rallied initially on the news of the results on Tuesday but was followed by some aggressive selling activity going into lunchtime. Ocado shares are down 22% on the month.

“We believe Ocado will be a structural winner in online grocery, through its best-in-class technology and ability to offer grocery partners a solution that addresses all shopping missions with compelling economics that allow partners to grow online sales and win profitable market share,” said stockbroker Killik. “We are placing our rating Under Review.”


Retail revenue increased 3.4% versus the prior year to £583.7m, versus consensus expectations for flat growth. Average orders per week of 381,000 were up 3.6% and active customers were up 13.8% to 951,000.

There is no change to guidance from Killik, with revenue expected to grow at mid-single digits, and EBITDA to be marginally positive in FY23.

Ocado said it was offering more M&S products and acknowledged the current trading environment was “challenging”. Guidance from Hargreaves Lansdown remains unchanged as well, including mid-single digit revenue growth for the year.

Ocado’s retail arm in a difficult position

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, added: “Ocado’s retail arm is in a difficult position. While the cost-of-living crisis rumbles on, being a more premium name in the sector comes with immediate challenges. However, the group seems to be doing well with the tools at its disposal.”

Although the number of items people are buying per-shop is dropping, which is to be expected as post-Covid shopping habits normalise, this is being successfully offset by higher prices, Lund-Yates explained. “The price hikes are below the overall rate of food inflation, which suggests this is being well-managed. The proposition clearly remains attractive with customer retention looking stable – no mean feat in the current, highly competitive market,” she said.

There are of course challenges to consider, not least that competition is still attempting to gnaw away at market share. A true understanding of Ocado Retail’s attractiveness can’t be painted until inflation subsides and the fog clears.

Several hedge funds are now also short Ocado stock. This despite what looks on the surface like a fairly decent balance sheet. Investors remain worried about the hit the company took in 2022 registering a pre-tax loss of £501m, which was a hefty one to swallow.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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