Ocado Retail aims to return to ‘marginal’ profitability in 2023, despite expected losses in the first half of the year
- M&S joint venture expects ‘marginally positive’ earnings for 2023
- It posted a loss of £4 million last year, while the Ocado group’s losses exceeded £500 million
Ocado Group and Marks & Spencer supply joint venture Ocado Retail has re-committed to a return to profitability in 2023.
The company expects to post ‘marginally positive’ revenues for 2023, compared to a loss of £4m in the year to February 28, reflecting ‘mid-single digit’ sales growth with an ‘improving trajectory’ and a return to volume growth in the shopping cart.
But Ocado Retail also expects to see losses in the first half of the year and improve later “as a return to volume growth supports improved capacity utilization and lower costs relative to sales.”
Ocado Group Shares fell about 6 percent to 425.3 p on Tuesday afternoon, while M&S shares added 1.4 percent to 157.2p.
Keep driving: Ocado Retail expects to return to profit after losing £4 million last year
Hannah Gibson, CEO of Ocado Retail, said the group had been able to attract more customers “by investing in great value.”
Ocado Retail’s active customer base increased 13.8 percent year-on-year to 951,000 at the end of the group’s first quarter, while average selling prices increased 8.3 percent.
Sales in the 13 weeks to 26 February were £584 million, up from £565 million at the same time last year as average orders per week increased by 3.6 per cent.
But the group’s average basket value remained flat over the period, as the average number of items purchased fell 7.5 percent 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 in the second half of the year, as we improve our proposition, expand our customer base and no longer outperform Covid shopping. This solid performance in 2023 will enable us to return to revenue growth and profitability.”
Ocado becomes a target for short sellers
Ocado Group has recently become one of London’s biggest short seller targets after posting a pre-tax loss of £500.8 million for 2022, which was about £100 million more than analysts had predicted.
In the past two years, the company’s shares have also lost more than 80 percent of their value as the Covid-induced boom in digital grocery buying has fizzled out.
Mark Crouch, analyst at eToro, said: ‘Ocado Retail is making decent progress in attracting new customers, but it is clear that people are starting to tighten their belts in the face of rising prices.
So it’s clear that even Ocado’s customers, who are generally wealthier, are beginning to feel the day-to-day financial pressures associated with rising inflation.
With the overall inflation picture expected 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 so.’
Julie Palmer, partner at Begbies Traynor added: ‘Ocado is trying to reverse the perception that it is an overpriced option in these difficult times with the launch of a price matching scheme compared to Tesco, but it is proving hard work to get the message across to bring. .
While sales and customer numbers increased slightly in the first quarter, pressure on shoppers was evidenced by the average value of each order remaining flat, while the number of items in each delivery fell, highlighting that the price labels of individual items rise quickly.
“Ocado customers spend the same amount to buy less – not a good place for a company to be in a hyper-competitive market with tight customers where Ocado is seen as the expensive option.”