Higher Losses for Ocado in Fiscal 2022 Due to Grocery Headwinds; Back to Positive EBITDA in 2023

Ocado Group reported fiscal 2022 results with group revenue marginally up 0.6%, driven by Ocado Retail (revenue down 3.8% versus down 2.5% in our model, reflecting the unwinding of coronavirus shopping behavior and accelerated by the cost-of-living crisis in the U.K.) that more than offset strong growth coming from the solutions business (U.K. solutions and logistics up 13% and international solutions up 122%). Ocado Retail's revenue decline was the result of a lower number of units purchased per basket (to 46 from 52 in 2021, an 11.5% decline), which only partially recovered from the impact of a 4.5% increase in average selling prices (inflation-driven), resulting in smaller average baskets (to GBP 118 from GBP 129 in 2021, an 8.5% decline). On the positive side, active customers continued to grow to 940,000 (up 13%) with the fourth-quarter exit showing stronger conversion to maturity. On international solutions, 12 sites and 38 live modules are now live across partners, up from 4 and 12 respectively in fiscal 2021. On underlying efficiency, units picked per hour, a metric that reflects efficiency in fulfillment centers, improved to 175 from 170 at mature sites, with the average for all Ocado Smart Platform sites now at 184. Drops per van per week, a metric that reflects last-mile delivery efficiency, has declined to 176 from 177, partially reflecting a decision taken by the company to maintain surplus vans to mitigate supply uncertainty (deliveries per van per shift improved by 10% in the first half, but the company didn't provide a number for the full year). A group EBITDA loss of GBP 74.1 million compares with a profit of GBP 61 million in 2021 and primarily reflects lower scale and cost inflation in Ocado Retail (to GBP 4 million loss from GBP 150.4 million profit in fiscal 2021), with the other two segments reporting largely unchanged EBITDA numbers versus 2021. We maintain our GBX 1,550 fair value estimate and no moat rating for Ocado.