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Ocado Maintains Sales Growth as Online Grocery Orders Increase After IPO
Ocado Group Plc, the U.K. online grocer whose shares have slumped since July’s initial public offering, said sales growth was little changed in the third quarter as customers spent less on an average transaction.
Gross revenue rose 30 percent to 126.5 million pounds ($194 million) in the 12 weeks ended Aug. 8, the Hatfield, England- based retailer said today. Sales for the first 36 weeks of the fiscal year grew by a similar amount. The average order size fell to 113.59 pounds in the quarter from 114.73 a year earlier.
Ocado dropped as much as 5.7 percent to 148 pence in London trading, 18 percent below the 180 pence IPO price. Sales growth may slow toward the end of the year, Chief Financial Officer Andrew Bracey said on a conference call. Ocado plans to buy a second warehouse and is adding mobile applications and an own- brand label to tap demand for groceries online.
“Given that the group has to engage in material capital investment to sustain its sales growth and has yet to demonstrate profitability on an already considerable sales base, we continue to harbor reservations about the valuation of Ocado stock,” Darren Shirley, an analyst at Shore Capital in Liverpool, England, said in a note. He has a “sell” rating.
The grocery delivery company hasn’t made an operating profit in its 10-year history and proceeded with the IPO after cutting the offer price from as much as 275 pence.
Delivery Pass
Sales growth will probably be “a little lower” toward the end of the year, Bracey said on the call. “I don’t expect it to move that much,” he added.
Customers were encouraged to spend more frequently by a 9.99-pound delivery pass, offering unlimited deliveries for orders of more than 40 pounds, Chief Executive Officer Tim Steiner said today on a conference call. The program was the cause of the decline in the average basket size, he said.
“We’re not seeing a significant change in the basket size, we haven’t seen one for about two years,” Steiner added. The 30 percent sales growth came from new customers and existing shoppers spending more frequently, he said.
Steiner dismissed the threat of increased competition in London from Tesco Plc and Wal-Mart Store Inc.’s Asda. “Tesco and Asda have both been fully servicing London for nine or 10 years. We don’t think anything is changing there.”
A new service offering filleted fish and thin-cut steaks now accounts for 1 percent of Ocado’s sales. The online grocer is also adding 250 to 300 new own-label products by the end of 2010 to compete with products such as J Sainsbury Plc’s mid- priced ‘Standard’ line, Steiner said.
Margins have been “stable,” the company said.
To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.
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