Ocado shares are taking a dive with concerns the recovery from the pandemic will dent demand for the grocery delivery service.
Ocado shares have sunk 44% over the last year. On Thursday, Ocado shares again dropped sharply after company reduced their forecasted revenue growth from the mid teens to 10%.
In their latest results, Ocado stated their average basket size has reduced by 15% to £124 like for like. As consumers return to physical retail shopping, their spending online is falling, which is a big problem for Ocado’s service.
This of course isn’t anything new; Ocado has been suffering ever since people gained more freedom after the first lockdown.
Their latest results reflect this, and so does the Ocado share price.
“For the most part it’s been pretty tough going for Ocado since the heady days in September 2020 when it reached all-time highs of close to £30 per share,” said Russ Mould, Investment Director, AJ Bell.
“Back then it had been a beneficiary of lockdown and the enforced need to do grocery shopping online.”
“However, that excitement gave way to mounting disappointment as the company failed to sign up new clients, ironically blaming the pandemic restrictions which had helped act as a calling card for its services in the first place.”
Ocado’s Results
In their recent report, the company reported group revenue growth of 7.2% to £2.4bn with their retail division contributing £2.2bn in 2021.
Ocado also has provides technology solutions to companies in the UK and globally which had revenues of £710m and £66m in 2021.
However, the company’s expenses increased as distribution and administrative costs rose by 20% to £976m in 2021, contributing to the 48% hike in pre-tax loss to £219m.
Capital expenditure saw a rise from £525m to £680m in 2021 as the company continued to invest in technology for Ocado’s smart platform and new customer fulfilment centres.
The company’s costs have increased 12% associated with distribution to $536m in 2021. The order intake of Ocado is not rising at an equal pace with costs, leaving room for investor concern.
On Thursday, the joint venture between Ocado and Marks and Spencers raised concerns rising fuel costs could curtail spending on higher end groceries. Consumer spending is expected to reduce as clients migrate to more affordable options which is bad news for Ocado shares.
“UK-based Ocado Retail arm – now a joint venture with Marks & Spencer has been a success for both parties, the pressure on margins from rising inflation looks to be a growing issue and will not help Ocado at group level given the solutions business remains heavily loss-making,” said Russ Mould.
Ocado does not pay any dividend as the company hasn’t generate enough profit to warrant one, so it’s difficult to make an argument for holding and waiting for recovery given the soggy revenue outlook.
Expect further disappointment from the Ocado share price.
