Yahoo Finance FTSE 100: Ocado sales up on rising prices but customers buy less
Shopping baskets are getting smaller at Ocado (OCDO.L) as customers pare back their order budgets amid price rises.
The group said its retail arm, which is run as a joint venture with Marks & Spencer (MKS.L), delivered a 3.4% rise in revenues to £583.7m ($718m) over the 13 weeks to 26 February.
Average basket sizes fell 7.5% to 45 items, offset by an 8.3% surge in average selling prices amid surging food inflation.
Still, average orders per week at Ocado.com improved to 381,000, up 3.6% year-on-year,
The number of active customers reached 951,000 at the end of the quarter, up 13.8% year-on-year.
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Hannah Gibson, Ocado Retail chief executive, said: “While the trading environment remains challenging, we expect to build momentum through the second half of the year as we improve our proposition, grow our customer base, and no longer lap COVID shopping behaviours.
“This solid 2023 performance will enable us to return to sales growth and profitability.”
Ocado stuck to its full-year guidance, reiterating it expects the retail business to remain loss making in its first half, but hopes to swing out of the red by the year end as sales growth recovers, leaving it with marginal underlying earnings growth for the full year.
Chris Beckett, head of equity research at Quilter Cheviot, said: “Ocado Retail delivered slightly weaker than expected sales in Q1 as renewed customer growth was offset by customers buying fewer items. In fact, average order value was flat and given how high food inflation has been, it is surprising to see it struggle to boost revenue in a time of elevated prices.
“Management believe sales growth should improve as we go through the year. It is hoping that as inflation is expected to fall sharply, consumer confidence will return as cost of living struggles potentially fade and should therefore see improved sales. It will also have easier comparatives following a weak end of 2022 and beginning of this year.
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“Ultimately, the joint venture with M&S is only about 10% of the overall group’s valuation. What is seen as more important is the success of the international technology business.
“Indeed, you just have to look at the partnership with Kroger (KR) in the USA and the fact it is pausing new Customer Fulfilment Centres while they refine the operating model. This is far more important to the long term valuation of Ocado and the present valuation of the group is discounting little immediate success.”
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