Ocado Loss Unexpectedly Narrows as Customer Numbers Advance

Ocado Group Plc, the U.K.’s largest Internet-only grocer, unexpectedly reported a narrower full-year loss as customer numbers soared ahead of the opening of a new distribution center that will double capacity.

The pretax loss was 0.6 million pounds ($0.9 million) in the year ended Dec. 2, compared with 2.4 million pounds a year earlier, the Hatfield, England-based company said today in a statement. The average of nine analyst estimates compiled by Bloomberg was for a deficit of 3.9 million pounds.

Ocado rose as much as 11 percent to 115.7 pence in London trading, extending its gain this year to 34 percent. Last month’s appointment of former Marks & Spencer Group Plc boss Stuart Rose as chairman and an extension of its debt facility in November have eased concern over the company’s viability following doubts over the time it will take to realize a profit.

The opening of a second distribution center later this month “will be key as proof of concept, reducing capacity constraints, and for driving sales growth, profitability and cash generation,” Rudolf Dreyer, an analyst at Goldman Sachs Group Inc., said in a note to clients.

The new warehouse, located at Dordon in central England, started receiving its first inventory last week and remains on budget, with total spending of 155 million pounds, Ocado said.

More Capacity

The company plans to start a marketing “uberpush” to potential customers in the Midlands, the U.K. region in which the distribution center is located, Chief Executive Officer Tim Steiner said in an interview.

The new center “will give us significant additional capacity to grow into,” Steiner said. Ocado’s ability to grow faster has been constrained by a shortage of space at the customer fulfilment center in Hatfield, southern England.

While the opening will free up space at the existing Hatfield site which could be used to increase Ocado’s business in London, “the rest of the U.K. is of growing importance,” Steiner said. Last year, 45 percent of new customers came from outside its traditional London and South East of England base.

Sales gained 14 percent in the six weeks ended Jan. 6, the online retailer said Jan. 15, trailing the 25 percent growth for U.K. Internet food sales in December, according to data from the Office for National Statistics. That was less than the 20 percent growth predicted by Steiner at the start of last year.

Full-year revenue at Ocado increased to 678.6 million pounds from 598.3 million pounds a year earlier, it said today. The number of active customers rose to 355,000 as of Dec. 2 from 298,000 at the beginning of the financial year.

Takeover Speculation

Ocado shares were up 7.6 percent at 111.8 pence as of 10:53 a.m. Even after the recent share price gains, Ocado stock still trades below the 180 pence at which it was sold in a 2010 initial public offering.

According to Philip Dorgan, an analyst at Panmure Gordon in London, the main question for investors is whether Ocado’s assets are attractive to Marks & Spencer or William Morrison Supermarkets Plc, both of which lack an online food offer.

Talk of a takeover is “speculation,” Steiner said. Rose wasn’t appointed to sell the business, he said, referring to the new chairman’s mergers & acquisition track record.

Before it's here, it's on the Bloomberg Terminal.