Company Reports

Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, reported a first-quarter trading update for the 13 weeks to March 3, 2024, with retail revenue up 10.6%, including volume growth up 8.1% and the average sales price, or ASP, up 2.2%. The ASP was lower than market inflation, reflecting the online grocer's efforts toward value perception. Ocado Retail's good performance was driven by: 1) customer growth of 6.4% to 1,018,000, 2) growth in average orders per week of 8.4% to 414,000, and 3) the average basket value increased by 2.1%—in turn due to the higher ASP (lower than inflation) with a slightly lower basket size at 45 items per order (down 0.2%). The company maintained 2024 guidance: it expects Ocado Retail to grow at a high-single-digit rate versus 8% in our model and EBITDA margin to be around 2.5%.

Ocado Group reported fiscal 2023 results, with group revenue up 9.9% and group EBITDA of GBP 51.6 million broadly in line with expectations. Ocado Retail's good performance (revenue up 7%) was driven by: 1) good customer growth of 5.9% to 998,000; 2) growth in average orders per week of 4% to 393,000; and 3) the average basket value increasing 2.7%—in turn due to 7.9% higher average selling price, offset by smaller basket sizes (down 4.5% to 44 items). Segment profitability was EBITDA-positive at GBP 10 million with progress expected driven by efficiencies and operational leverage toward a mid-single-digit EBITDA margin in the midterm (5% in our model by fiscal 2025).

Ocado Group offers exposure in one of retail's largest and most dynamic segments: global online food retailing. We think that the Ocado Smart Platform is well positioned to become one of the most sought-after online grocery fulfillment solutions for big brick-and-mortar grocers predominantly in developed markets as online penetration advances.

Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, reported a fourth-quarter trading update for the 13 weeks to Nov. 26, 2023, with retail revenue up 10.9% (versus 5% in the first half and 7.2% in the third quarter) including volume growth up 4.8% and the average sales price up 5.4%. The ASP was lower than market inflation, reflecting the online grocer's efforts toward value perception. Ocado Retail's good performance was driven by: (1) customer growth of 5.9% to 998,000, (2) growth in average orders per week of 6.3% to 407,000, and (3) the average basket value increased by 3.8%—in turn due to the 5.4% higher ASP (lower than inflation) with a flat basket size at 44 items per order, which was stable sequentially. The company maintained 2024 guidance: it expects Ocado Retail to grow at a mid-single-digit rate versus 5% in our model and EBITDA to be positive, mainly driven by improved capacity utilization.

Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, reported a third-quarter trading update for the 13 weeks to Aug. 27, 2023, with retail revenue up 7.2% (versus 5% in the first half) and a return to positive volume growth in the last month of the quarter. Ocado Retail's good performance was driven by: 1) customer growth of 1.5% to 961,000; 2) growth in average orders per week of 1.9% to 381,000; and 3) the average basket value increasing 4.2%—in turn due to 8.4% higher average selling price (lower than inflation), offset by smaller basket sizes (at 44 items per order, stable sequentially). The company maintained 2023 guidance, expecting Ocado Retail to grow at a mid-single-digit rate (versus 5% in our model) and be marginally positive, mainly driven by a second-half return to volume growth and improved capacity utilization.

Ocado Group reported fiscal 2023 half-year results, with group revenue up 9% and group EBITDA of GBP 17 million both ahead of expectations. Ocado Retail's good performance (revenue up 5% in line with our full-year estimates) was driven by: 1) solid customer growth of 10.6% to 959,000; 2) growth in average orders per week of 4% to 392,000; and 3) the average basket value increasing 1.5%—in turn due to 8.4% higher average selling price, offset by smaller basket sizes (down 6.3% to 45 items, stabilized at 44 items over the last quarter) and lower frequency of orders due to the U.K.'s cost of living crisis. Segment profitability was EBITDA-positive in each month of the second quarter, with the firm expecting this to continue as capacity utilization of the customer fulfillment centers, or CFCs, improves, materializing into an expectation of marginally EBITDA-positive in the full year (in line with our GBP 6-million retail EBITDA forecast).

Ocado Retail (a 50% joint venture with Marks & Spencer) reported a first-quarter trading update with sales up 3.4%. The top-line performance was largely in line with expectations as the company had previously guided to mid-single-digit revenue growth for the year, with "an improving trajectory during the year reflecting a return to volume growth as the challenging comparison to larger volume basket shopping behaviors that remained in early 2022 fades." Top-line performance was supported by continuous additions of new customers (up 13.8% year on year to 951,000), which was not enough to meaningfully move the number of average orders per week (up 3.6%) as frequency of orders fell, offsetting the benefit. Basket sizes have now stabilized at GBP 124, up 0.2% year on year and approaching prepandemic levels, with customers adding a lower number of items per basket (8.3% lower to 45 items from 49 before) in response to a higher cost of living and inflationary pressures (8.3% increase in average selling price per-basket item for Ocado Retail in the quarter, lower than peers with Kantar reporting a record 16.7% grocery price inflation for the period). The company reiterated guidance for mid-single-digit revenue growth and marginally positive EBITDA (versus 5% retail revenue growth and 0.25% retail EBITDA margin in our model). Lower profitability is also a function of deleveraging with new capacity coming online (four new customer fulfillment centers have opened since the beginning of 2021) during a period of declining demand. We maintain our GBX 1,550 fair value estimate for Ocado. As a pure online grocer, Ocado Retail is not as optimally positioned to weather an inflationary/recessionary environment as its brick-and-mortar peers. That said, we believe shares are cheap based on our favorable long-term outlook, which, in turn, is driven by long-term structural opportunities in online grocery and the group's innovative solutions platform.

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.

Ocado Group offers exposure in one of retail's largest and most dynamic segments: global online food retailing. We think that the Ocado Smart Platform is well positioned to become one of the most sought-after online grocery fulfilment solutions for big brick-and-mortar grocers predominantly in developed markets as online penetration advances.

Ocado Retail (50% joint venture with Marks & Spencer) reported a fourth-quarter trading update with sales up 0.3% (up 40% compared with the precoronavirus period) for a total revenue number in fiscal 2022 of GBP 2.2 billion versus GBP 2.23 billion in our model. The top-line performance was disappointing as the company had previously guided to mid-single-digit revenue growth for the fourth quarter. Top-line performance was driven by continuous additions of new customers (up 12.9% year on year to 940,000), which was not enough to boost the number of average orders per week (up 1.9%) as frequency of orders fell, offsetting the benefit. Basket sizes continue to fall though at a lower pace (at GBP 117, down 1.3% and approaching prepandemic levels) with customers adding a lower number of items per basket (8.3% lower to 45 items) in response to a higher cost of living and inflationary pressures (7.6% increase in average selling price per-basket item for Ocado Retail in the quarter, lower than peers). The company reiterated guidance for fiscal 2022 EBITDA close to break-even (versus GBP 2 million in our model). Ocado introduced fresh fiscal 2023 guidance for mid-single-digit revenue growth and marginally positive EBITDA (versus 5% retail revenue growth and 0.25% retail EBITDA margin in our refreshed model). Lower profitability is also a function of deleveraging with new capacity coming online (four new customer fulfilment centers have opened since the beginning of 2021) during a period of slowing/declining demand. As a result, intraday, shares were down as low as 6% on Jan. 17, pricing in management's cautious growth/inflation outlook and a sizable top-line miss for the quarter, reflecting low visibility in the short term. We have trimmed our GBX 1,600 fair value estimate to GBX 1,550 for Ocado after incorporating the aforementioned growth and cost headwinds, which more than offset the time value of money.

Ocado announced a partnership between its solutions business and Lotte Shopping, one of the largest retailers in South Korea, which operates department stores, hypermarkets, supermarkets, and e-commerce brands with more than 1,000 stores nationwide and revenue of around GBP 9.5 billion. Under the conditions of the deal, Lotte has committed to six customer fulfillment centers in order to develop a nationwide fulfillment network by 2028, with the first CFC due to go live in 2025. Lotte will also use Ocado's in-store fulfillment software capabilities starting in 2024. According to the release and subsequent conference call, the fee structure agreement is similar to those with other international partners, with the partner paying certain fees up front and during the development phase and then ongoing fees linked to sales and installed capacity within each CFC. The partnership is exclusive (similar to other international partnerships) on the basis of an agreed schedule of CFC capacity and longer-term market share targets. The agreement with Lotte is the first such partnership for Ocado since the Aeon deal in 2019.

Ocado Group offers exposure in one of retail's largest and most dynamic segments: global online food retailing. We think that the Ocado Smart Platform is well positioned to become one of the most sought-after online grocery fulfilment solutions for big brick-and-mortar grocers predominantly in developed markets as online penetration advances.

Ocado Retail reported a third-quarter trading update with sales up 2.7% (up 42% compared with the prepandemic period) driven by a strong increase in new customers (up 23% to 946,000), which in turn boosted the number of average orders per week by 10.7%. This nonetheless was partially offset by smaller baskets (at GBP 116 down 6%, approaching prepandemic levels) and noticeable downtrading (average selling price increased by 5% composed of 7% inflation and negative 2% decrease due to customers buying lower-priced products), as customers are seeking value-for-money items in response to the rising cost of living in the U.K. In addition to downtrading, the average number of items per basket during the quarter was 45, down 10% versus a year ago. The company called out cost pressures (energy and dry ice), which now expect to weigh on profitability in the fourth quarter. The grocer expects the added burden from higher energy costs to be GBP 20 million to GBP 25 million (at fiscal-year 2021 consumption levels) and GBP 15 million-GBP 20 million for dry ice (used to keep food fresh in transit). Hence, Ocado downgraded its full-year guidance for the business to a "small sales decline and close to breakeven EBITDA" versus previous guidance of positive low single digits for both. Lower profitability is also a function of deleveraging with new capacity coming online (four new CFCs opened since the beginning of 2021) during a period of slowing/declining demand. Growth guidance implies mid-single-digit growth in the fourth quarter. As a result, in intraday trading, shares were down as low as 12% on Sept. 13, pricing in management's cautious growth/inflation outlook and a second profit warning for the year. We expect to reduce our GBX 1,870 fair value estimate for Ocado by a low-double-digit percentage after incorporating the aforementioned growth and cost headwinds.

Ocado Group reported first-half results with group revenue down 4%, driven by Ocado Retail (revenue down 8%, reflecting tough comps and the rising cost of living in the U.K.) that more than offset strong growth coming from the solutions business (U.K. solutions and logistics up 10.7% and international solutions up 120%). Ocado Retail's revenue decline was also a function of smaller average baskets (to GBP 120 from GBP 138 in first-half 2021, a 15% decline), which was only partially recovered by the impact of a 3% increase in average selling prices. On the positive side, active customers grew to 867,000 (up 12%) with the net promoter score for ocado.com outperforming other online grocery sites by 25 percentage points. On solutions, 18 sites including two microsites are now live across six partners and five countries out of the 58 customer fullfillment centers already announced. The firm said despite ongoing challenges in global supply chains all projects have been delivered on time and on budget with partners reporting leading customer satisfaction metrics. On underlying efficiency, units picked per hour, a metric that reflects efficiency within fulfillment centers, improved to 174 from 172 at mature sites, with Andover and Purfleet consistently achieving above 200. Drops per van per week, a metric that reflects last-mile delivery efficiency, has declined to 177 from 183, reflecting a decision taken by the company to maintain surplus vans to mitigate supply uncertainty (deliveries per van per shift improved by 10%). Group EBITDA loss of GBP14 million compares with a profit of GBP 61 million in first-half 2021 and primarily reflects lower scale and high-cost inflation in Ocado Retail (GBP 72 million EBITDA reduction), which was partly offset by the release of management's long-term incentive provisions. The company reiterated 2022 guidance and said it continues to target further solutions deals. We maintain our GBX 1,870 fair value estimate and no moat rating.

Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, reported a first-quarter trading update with revenue down 5.7% (up 31.7% versus first-quarter 2020). Within this, customer orders per week were up 11.6% (higher than 9% growth in the fourth quarter) while the average basket fell 15% to GBP 124, reflecting a gradual normalization of consumer behavior as people return to more in-office working and out-of-home food occasions. This compares with a 4% fall in sales for the U.K. grocery market overall, implying market share losses for Ocado despite a strong increase in active customers to 835,000 (31% increase). On capacity rollout, new facilities at Andover and Purfleet are operating at 25,000 opw and 40,000 opw respectively, out of an expected total at maturity of 60,000 and 85,000. New capacity is coming online in second-half 2022 and first-half 2023 with the opening of Bicester CFC (30,000 opw) and Luton CFC (65,000 opw) respectively. Ocado Zoom, the firm's on-demand solution, expects to add a second site in London in second-quarter 2022 with new sites planned in second-half 2022. Ocado called out the combination of inflation pressures (4.3% in February, "the fastest rate of increase since 2013") and post-coronavirus grocery spending declines as particularly challenging. As a result, Ocado downgraded fiscal 2022 revenue growth guidance to "closer to 10%" from "strong midteens retail revenue growth" previously, as expected gains driven by capacity rollouts and higher investments of about GBP 50 million to support growth (higher Ocado smart platform fees, marketing spending, and labor shortages) will be partially offset by a weaker overall market and significantly higher uncertainties over inflation due to the war in Ukraine. As a result, in intraday trading, shares were down as low as 9% on March 17, pricing in management's cautious growth/inflation outlook. We don't expect to make material changes to our GBX 1,870 fair value estimate for Ocado.

We don't expect to change our fair value estimates for our European food value chain coverage list due to the recent Russia-Ukraine conflict.

Ocado reported fiscal 2021 results, with group revenue at GBP 2.5 billion and EBITDA at GBP 61 million broadly in line with company-compiled consensus. Ocado Retail (joint venture with Marks & Spencer) and the U.K. solutions and logistics segments reported higher EBITDA in fiscal 2021 at GBP 150.4 million and GBP 68.5 million respectively, with the international solutions segment posting a GBP 119.3 million loss. On guidance, management expects Ocado Retail to return to strong midteens revenue growth in 2022 but the surprise (downside) was capital expenditure (GBP 800 million in fiscal 2022 versus 680 million in our model, largely due to a ramp-up of international CFCs) and EBITDA, and more specifically the international solutions business with Ocado now expecting EBITDA to be flat versus 2021 (GBP 119.3 million EBITDA loss versus GBP 80 million loss for company-compiled consensus) as "higher-margin contribution due to revenue growth will be offset by increased investments in platform development and engineering costs" required to support new CFCs in the early stages of launch. Ocado previously hosted an event (Ocado Re:Imagined) showcasing its industry-leading online grocery technology, highlighting six new developments partners will be able to benefit from including better economics. Although these new features look promising to us (units per hour, a measure of CFC productivity expected to reach and exceed 300 from a current target of 200 and 170 in fiscal 2021, time for installation and testing to shrink to five months, from 10 months among others) and reflects Ocado's unique drive for innovation in the online grocery segment, we believe it's early days and don't include these in our forecasts (new series 600 robots at preproduction phase). We expect to reduce our GBX 1,870 Ocado fair value estimate by a high-single-digit percentage after incorporating fiscal 2022 guidance (lower EBITDA for international business and higher capital expenditure) in our model.

Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, reported a fourth-quarter trading update with revenue down 3.9% (up 31.6% versus 2019). Within this, customer orders per week were up 9% while the average basket fell 12% to GBP 118 (still up 13% versus 2019). The number of orders were affected by labour shortages and the guided temporary reduction in capacity at the Erith customer fulfilment center, or CFC, and helped by the strong increase in active customers to 832,000 (a 22% increase). The average basket, on the other hand, was mostly affected by the normalisation of customer behaviour as people return to the office and spend less time at home. On capacity rollout, the Erith CFC has returned to prefire live peak-day capacity levels while the new facilities at Andover and Purfleet are operating at 25,000 and 35,000 opw out of an expected total at maturity of 60,000 and 85,000 respectively, with the cadence of ramp-up being the fastest recorded to date, according to Ocado. New capacity is coming online in second-half 2022 and first-half 2023 with the opening of Bicester CFC (30,000 opw) and Luton CFC (65,000 opw) respectively. Ocado Zoom, the firm's on-demand solution, expects to add a second site in London in second-quarter 2022 with a further three sites planned in second-half 2022. As a reminder, Ocado Zoom sites generate about GBP 20 million revenue and can offer up to 10,000 stock-keeping units. Guidance for fiscal 2021 is unchanged. For fiscal 2022, Ocado expects strong midteens retail revenue growth, driven by capacity rollouts and higher investments of around GBP 50 million to support growth (higher Ocado smart platform fees, marketing spending, and labour shortages). The company also stated its "ambition for EBITDA margin to rebuild toward 2021 levels (6.5%) following a significant year of investment in 2022." We don't expect to make material changes to our GBX 1,870 Ocado fair value estimate. Shares trade in 3-star territory.

From its humble beginnings as one of the first niche online grocers to its current status as a technology powerhouse and online retail disrupter, Ocado Group offers unique exposure in one of retail's largest and most dynamic segments: global online food retailing. We believe that Ocado Smart Platform, or OSP, is well positioned to become one of the most sought-after online grocery fulfilment solutions for large brick-and-mortar grocers as online penetration increases in developed markets.

Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, reported a third-quarter trading update with revenue down 10.60% (versus up 54% in third-quarter 2020). This is a mixed performance, primarily skewed by the fire at the Erith customer fulfillment centre, or CFC, on July 16. Over the first six weeks of the quarter (prefire), the firm's revenue was down 1.80%, largely in line with expectations (up 38% versus the same quarter in fiscal 2019). The fire at Erith CFC resulted in less than 1% of the grid being damaged with orders starting to be fulfilled from the site within a week. As a result, over the remaining seven weeks of the quarter (post-fire), revenue declined 19% due to cancelled orders and reduced capacity, with a net total estimated loss of 300,000 orders or about GBP 35 million revenue. In terms of capacity, when fully ramped, this is going to be over 600,000 orders per week (including increased capacity in Hatfield and Dordon and new capacity in Andover and Purfleet). With regard to bottom-line effects, operating losses caused by the fire are estimated at GBP 10 million whereas another GBP 10 million in fixed asset write-offs will be recorded as exceptional items (insurance proceeds will be treated as exceptional income in turn). Ocado also reported higher costs of labour, particularly large goods vehicles and delivery drivers, which it expects should have up to GBP 5 million impact on full-year numbers, but this is rather a sectorwide headwind. With the easing of social distancing restrictions meaning fewer meals consumed at home, basket sizes in the third quarter declined further in value by about 12% (1.4% order growth) as they continue to move toward precoronavirus levels. On capacity, Ocado announced it intends to increase it even further with an additional CFC opening in Luton (65,000 orders per week) in 2022-23. We don't expect to make material changes to our GBX 1,870 Ocado fair value estimate. Shares trade in 3-star territory.