Ocado shares tumble on lower sales and rising energy costs

Ocado shares tumbled 11.8% to 700.6p in early morning trading on Tuesday, after the online retailer highlighted a 6% fall in the average customer basket to £116 in its pre-close trading update for FY 2022.

The company noted customer orders had risen, with a 23% active customer growth to 946,00 year-on-year and a 10.7% average weekly orders increase.

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Ocado confirmed a 2.3% Q3 sales rise to £532 million quarter-on-quarter, representing a “significant improvement” against its Q2 decline, with stronger growth projected in Q4.

However, the group mentioned consumers tended to seek value-for-money items and buy smaller baskets in response to the cost of living crisis.

The company mentioned a greater decline in the quarter during the peak summer holiday season.

Meanwhile, the group commented cost headwinds including energy and dry ice were likely to eat into Q4 profitability, with the expense of dry ice expected to add £15-£20 million in annualised costs against FY 2021. Ocado said it was currently exploring alternatives to dry ice.

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Energy costs were projected to triple year-on-year, alongside a 15% rise in fuel expenses, potentially adding £20-£25 million to the firm’s FY 2022 cost base year-on-year.

Ocado reported an expected small sales decline in FY 2022 and a close to break-even EBITDA.

Ocado Retail highlighted a 23% active customer base rise to 946,000, with the firm projecting an “outsized benefit” if customer spending stabilises.

“We remain focussed on providing Ocado Retail customers with the best possible value to help them navigate the cost of living crisis, and are encouraged by the positive underlying trends in the business which underline the value of Ocado’s differentiated proposition to customers,” said Ocado Retail chairman Tim Steiner.

“Our online grocery model, which creates efficiency through advanced technology, offers customers a combination of competitive prices, the widest ranges, and industry-leading service. As we have seen in Q3, customer numbers are sharply up as consumers either switch from other providers or try online grocery for the first time; underlying productivity in fulfilment and the last mile continues to improve; and the new CEO of Ocado Retail, Hannah Gibson, brings fresh vision and energy to the business. As consumer spending stabilises, we expect Ocado Retail will again deliver attractive and accelerating growth in sales and a strong recovery in profitability.”

“For all these reasons, we are optimistic for the future even while recognising the challenges that higher energy bills and other inflationary pressures are creating for our customers today.”

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