Ocado Rises As Dip in Quarterly Revenue Masks Strong Underlying Picture

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Ocado Rises As Dip in Quarterly Revenue Masks Strong Underlying Picture

By Samuel Indyk

Investing.com – Shares in Ocado (LON: OCDO ) rose on Tuesday after the  online grocery company reported strong underlying demand in the past three months for its U.K. delivery service, despite a fading tailwind from the pandemic.

Ocado Retail, a 50:50 joint venture between Ocado Group and Marks & Spencer (OTC: MAKSY ), recorded a 3.9% drop in revenue from a year earlier in the three months through November, as customers bought less for home consumption as a result of returning to the office.

However, average orders.were up 8.5% as the company continued to gain customers and market share. The number of active customers increased by 22% to 832,000 during the period.

Revenue was still up 32% from the same period in 2019 at 548 million pounds ($724 million). 

The group, which had been a pandemic winner in 2020, has seen shares decline by around 28% year-to-date.

The joint venture said sales growth was hurt by labor shortages, with headcount falling early in the quarter at Ocado Logistics. However, following the end of the U.K. government’s furlough scheme, it said vacancies are returning to "more normal levels."

It added that it is suffering cost inflation due to higher gas and power prices and shortages of dry ice. Dry ice, essential for much fresh food storage, is produced mainly as a byproduct of ammonia production, but the U.K.'s biggest factories shut temporarily in October as the sirge in prices for natural gas - the biggest input in ammonia production - made them uneconomic. 

“We are very encouraged by the underlying trends which are driving growth in our business,” said Ocado Retail Chairman Tim Steiner. “Hundreds of thousands of U.K. consumers have tried online grocery over the last eighteen months and the vast majority are continuing to shop online and are not going back to physical stores.”

Ocado Retail said it expects to return to revenue growth of around 15% in 2022, at the top of the historic pre-Covid range of 10%-15%.

Despite the positive outlook for the Ocado Retail business, much of the focus for investors is on the company’s Solutions business which is not covered in this trading update. Ocado Solutions currently partners with grocery retailers around the world including Kroger (NYSE: KR ) in the US, Coles in Australia, and Casino in France.

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