News Column

Ocado Swings To Interim Pretax Profit Boosted By Morrisons Tie-Up

July 1, 2014

Rowena Harris-Doughty



LONDON (Alliance News) - Online grocery retailer Ocado Group PLC Tuesday said it swung to a pretax profit in the first half of its financial year, driven by strong sales growth boosted by its tie-up with Wm Morrison Supermarkets PLC.


The online retailer posted a pretax profit of GBP7.5 million for the 24 weeks to May 18, compared with a GBP3.8 million loss in recorded a year earlier.


Gross retail sales in the first half of the year, rose 16%, with sales growth driven by an increase in average orders per week and in the number of customers, which it said partially offset a slight decline in the average order size. Whilst strong, sales growth slowed in the second quarter from the first quarter.


"We are seeing a similar pattern to other retailers. We have seen some volatility in sales growth, but we are growing ahead of what we are seeing in the market, and we are confident of outperforming the market," Chief Executive Tim Steiner told journalists Tuesday.


Revenue grew by 21% to GBP429.7 million from GBP355.9 million.


Ocado said it expects its retail business to grow broadly in line, if not slightly ahead, of the online grocery market.


"The online grocery market continued to outperform the traditional bricks and mortar supermarkets, with the overall rate of growth currently impacted by subdued and cautious consumer spending. At the same time, Ocado outperformed its key online grocery competitors," Steiner said in the company's statement.


Average orders per week increased to 161,000 in the period, up from 139,000 last year, while the average order size was GBP114.43, slightly down on the GBP114.90 recorded the prior year.


Earnings before net finance cost, taxation, depreciation, amortisation, impairment and exceptional items, a measure closely watched by analysts and investors, increased to GBP34.3 million, up from GBP19.2 million the prior year.


Ocado said the Morrisons deal added GBP20.3 million to gross sales in the period and and contributed around GBP8.5 million to its EBITDA.


Ocado said its comfortable with achieving current market expectations of an EBITDA range of between GBP70 million and GBP76 million for the full financial year.


"The first half of the year was very busy for us as we continued to improve our proposition to customers, including the further expansion of our range and improvements to the user interface. Our specialist online pet store, Fetch, is growing at a significant pace as are sales of our Ocado own-label range.


The UK online grocery distribution business has yet to make its first statutory annual profit and has been subject to a lot of scepticism over the years about the future of the company and its growth trajectory.


"In terms of forecasts, despite the solid first half, we lower our EBITDA estimate, from GBP75 million to GBP71 million, to reflect the more challenging trading environment, a more second half-weighted marketing spend, increased IT headcount, and some investment in strategic initiatives," said analysts at Numis in a research note Tuesday.


Ocado said it has secured a site in Andover to build a smaller third customer fulfilment centre, roughly a third of the size of its Dordon fulfilment centre. It said that building work should start in the fourth quarter, with the facility expected to open at the end of 2015.


"We expect to spend around GBP30 million on the site this year, and a total of GBP80 million till completion," said Chief Financial Officer Duncan Tatton-Brown.


"We are encouraged by the solid first-half result, a stronger top-line exit rate, and progress on customer fulfilment centre 3; we continue to see huge long-term potential," said Numis analysts.


Ocado shares were down 4.8% early Tuesday, trading at 353.50 pence.







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Source: Alliance News


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