Ocado shares surge as grocer swings to H1 profit

UK online supermarket Ocado held annual guidance after swinging to a core profit in its first half and said its retail earnings would be “marginally positive” for the full year.

The company, which runs an online grocery joint venture with Marks & Spencer, on Tuesday posted a core profit of £16.6m compared with a loss of £13.6m a year earlier. Shares in the firm, which spiked last month on rumours of a possible bid from online giant Amazon, surged again in early London trade.

On a pre-tax basis. losses widened to £289m, up by almost £80m, with exceptional costs of £77m, including those relating to the closure of its Hatfield distribution centre earlier in the year. Half-year revenue rose 9% to £1.4bn.

Retail sales grew 5% over the period to £1.2bn, while revenue from its logistics technology operations rose 60% to just under £200m.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said pressure on Ocado’s overall margins "is significant, especially because of efforts to improve its relationship with Marks & Spencer, which is damaging the bottom line".

"Ocado’s shares have lifted on news that costs are under control for now, with runaway capital expenditure a thorn in the group’s side when it comes to the construction of its high-tech customer fulfilment centres."

"The current economic environment makes it more difficult to entice grocery chains to sign up to Ocado’s fulfilment systems – with supermarket margins already being squeezed as they walk the tightrope between higher costs and not alienating their core customers with unreasonable price hikes."

Reporting by Frank Prenesti for Sharecast.com