Ocado Retail posts flat fourth-quarter sales

Ocado Retail - a 50:50 joint venture between Ocado and Marks & Spencer - posted more or less flat fourth-quarter sales on Tuesday, with the average basket size down as shoppers bought less.

Fourth-quarter retail revenues nudged up just 0.3% versus the same quarter a year earlier, coming in below the company’s guidance for mid-single digit sales growth.

Average orders per week on Ocado.com were up 1.9% year-on-year, with 940,000 active customers at the end of the fourth quarter, up 12.9% on the year. This was offset by the fact that customers shopped less than before the pandemic and in response to the cost-of-living crisis, Ocado said.

Meanwhile, the average basket value was down 1.3% on the same period a year earlier, to £117. A 7.6% increase in the average selling price per basket item - the lowest price inflation of all major supermarkets - was offset by a 8.3% drop in average items per basket.

Ocado said the JV’s full-year performance was in line with expectations, with revenues of £2.2bn, down 3.8% on the year but up around 40% versus FY19.

The company said FY23 had started "strongly", with record Christmas sales, ahead 15% over the five days before Christmas.

Hannah Gibson, chief executive of Ocado Retail, said: "The year ahead will set us up to deliver strong sales and profit growth over the mid-term. In 2023 we will continue to strengthen and improve our leading customer proposition, including investing in value to help customers manage cost of living pressures, while keeping tight control of our costs.

"While the current market environment is challenging for everyone, I am very excited in the future for Ocado Retail."

For the full year, Ocado said it expects close to break-even EBITDA, in line with guidance. It said headwinds related to inflationary costs, capacity investments to support future growth and higher marketing costs continued to weigh on profitability.

At 1515 GMT, the shares were down 8.8% at 736.60p.

Russ Mould, investment director at AJ Bell, said: "A 2023 recovery in the shares of online groceries firm Ocado was snuffed out after the company reported sales growth which was dwarfed by inflation and by the performance of traditional supermarkets and offered an uninspiring forecast for the rest of the year.

"While Ocado is winning new customers, people are buying less. This has an outsized impact on online deliveries which cost roughly the same to make whether the order is two potatoes and a block of cheese or a full weekly shop.

"Even with tiered charging based on how much you order, shrinking basket sizes are still likely to have a material impact on margins. Ocado is also at a premium price point which isn’t exactly aligned to the pressures on household budgets in the UK."