Lockdown grocery revenues boost Ocado first half

The company on Tuesday said revenue for the six months to May 31 increased 27.2% to £1.02bn. Retail core earnings almost doubled to £45.7m from £24.4 a year earlier. There was no change to the full year outlook, with retail revenue growth still too uncertain to predict.

Group core earnings fell 36% to £19.8m, reflecting increased costs from investment in Ocado’s International Solutions business, which also contributed to a loss before tax of £40.6m, narrowed from £147.4m in 2019.

Fees invoiced to international grocers using Ocado's online delivery technology soared 58% to £73.7m as it rolled out new sites overseas including Paris and Toronto. Despite the pandemic the company opened its first two customer fulfilment centres abroad, for Casino in France and Sobeys in Canada, while ramping up capacity in the UK.

Ocado shad £2.3bn of cash on the balance sheet after the £1bn the company raised recently on the capital markets.

"We are confident that accelerated growth in the online channel will continue, leading to a permanent redrawing of the landscape of the grocery industry worldwide," said chief executive Tim Steiner.

Retail revenue for the period rose to £1.02bn, up from £803.2m a year ago as the UK spent the second quarter under lockdown.

"As a result of COVID-19 we have seen years of growth in the online grocery market condensed into a matter of months; and we won't be going back" Steiner said.

He added that this would mean more demand for the Ocado platform from current and new supermarket clients. In the UK, online penetration of the grocery market had nearly doubled in a few months, while in the US, by late June monthly online grocery sales had reached six times their levels of the previous August.

"We believe that this channel is sustainable," Steiner added because many customers who switched to online during the crisis continued to do so post-lockdown, including 56% in China. In the UK, 30% said they would order more groceries online and in the US, 90%.

Interactive investor head of markets Richard Hunter, said Ocado shares had risen by 78% over the last year, as compared to a decline of 18% for the wider FTSE100.

"Over the last three years, the shares have had a stratospheric ascent of over 620%. Inevitably this performance heightens the bar for expectations and at some point Ocado will need to shake off its status as a “jam tomorrow” stock. In the meantime, the market consensus of the shares as a hold is perhaps reflective that the shares remain up with events for now, until the next stage of Ocado’s transformation becomes evident," he said.