Ocado cuts sales targets as cost of living crisis bites

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Sharecast News | 25 May, 2022

Updated : 09:44

Ocado Retail blamed the cost of living crisis on Wednesday as it cut annual sales targets, sending shares in the online retailer lower.

Issuing an update to coincide with Marks & Spencer’s full-year results, Ocado Retail - a 50:50 joint venture owned by the high street retailer and Ocado Group - said it had continued to win new customers and grow market share since the start of the second quarter.

But it added that the trading environment had "deteriorated" since its last update in March, hit by the cost of living crisis and the removal of Covid-19 restrictions, which has seen people return to offices and shopping in-store.

Rising food inflation, meanwhile, meant customers were ordering one or two fewer items per shop, with the value of the average basket now 9% lower year-on-year. As a result, revenues in the first two months of the second quarter, to 25 April, were down 8%.

The firm warned: "Given expectations that the effects of the cost of living crisis will intensify with a further rise in utility prices anticipated in the autumn, Ocado Retail now expects that sales growth in the 2022 full year, while positive, will nonetheless be in the low single digits rather than around 10%, to which we guided previously."

The earnings before interest, tax, depreciation and amortisation margin is also likely to be "low single digit", it added.

As at 0930 BST, shares in Ocado were off 4% at 735.0p.

Clive Black, analyst at Shore Capital, said: "The Ocado statement is another notable step down for the business from the hyperbole of the pandemic, when folks were locked in their homes and some people suggested that a new digital age was born.

"Alas, post-pandemic, normalisation has been more powerful that the technophiles contemplated and structural de-ratings have ensued.

"A perfect storm emerges for Ocado Retail of pandemic normalisation, cost inflation and immature capacity/capital, which means structurally weaker margins in a competitive sector.

"Going into a consumer recession, admittedly one where we had felt that Ocado’s customer base would be quite resilient, this further downward guidance is a real concern and an ongoing worry until better performance can be confirmed."

Numis retained its ‘buy’ recommendation on the stock, but noted: "We’ve lowered our forecast for Ocado Retail EBITDA, from £85m to £45m, equivalent to around 2% margin."

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