Ocado sees ‘clear pathway’ to returning retail arm to profit

It said there was a “clear pathway” to continue driving underlying earnings at the division.

Retail revenues rose by 5 per cent to £1.2bn as average price inflation of 8.4 per cent was offset by smaller basket sizes – down 6.3 per cent at 45 items – and fewer orders per week as shoppers reduced their spending in the face of soaring cost pressures.

It insisted its increase in average selling prices was below the wider UK grocery inflation at 12.8 per cent, according to industry data from Nielsen.

Ocado said it had begun to see the declines in basket sizes stabilise at 44 items over the second quarter.

Overall across the group, which also includes its international logistics and robotic warehouse operation, Ocado reported widening pre-tax losses of £289.5m in the first half, against losses of £211.3m a year ago, including one-off costs of closing its Hatfield warehouse.

It said on an underlying earning basis, it swung to a £16.6m profit against losses of £13.6m a year earlier.

Tim Steiner, Ocado chief executive, said: “In the UK, Ocado Logistics had a steady, profitable first half and Ocado Retail is making good progress, with a return to profitability in the second quarter.

“Our operations in the UK remain an important demonstration of the potential for our international ambitions as we seek to transform the economics of online grocery and expand into the wider automated storage and retrieval solutions market.”

Richard Hunter, Head of Markets at interactive investor, commented: “Ocado continues to make somewhat laboured progress, with increasing revenues unable to prevent another loss for the period.

"Depreciation and exceptional items were the main culprits in widening the pre-tax loss for the half year to £289m from a previous £211m, a deterioration of 37 per cent.

"There were also mixed performances over the two quarters from the most recognisable parts of the business, namely the technology solutions business which houses the Ocado Smart Platform (OSP) and is seen as the engine of growth, and retail which compromises the 50 per cent joint venture with Marks & Spencer.”

Mr Hunter added: “With regards to future growth, it has long been the case that herein lies the rub. The scale and capability of the group’s cutting-edge robotic technology is rightly much admired, but has yet to deliver profitability on anything like a sustainable basis. In the meantime, Ocado has become something of a perennial ‘jam tomorrow’ stock, which investors have abandoned after patience wore thin.”

"Since its peak in September 2020 at over £28, the shares have seen a decline of 79 per cent and it will take some considerable effort for the group to reverse the entrenched cynicism of potential investors.”