TIDMOCDO
RNS Number : 1826Z
Ocado Group PLC
13 September 2022
OCADO GROUP PLC
13 September 2022
Ocado Retail Q3 Trading Statement
Strong customer growth as consumers seek value online;
cost-of-living crisis weighing on customer spend
Ocado Retail Ltd ("Ocado"), a joint venture between Ocado Group
plc ("Ocado Group") and Marks & Spencer Group plc ("M&S"),
today announces its trading statement for the 13 weeks to 28th
August 2022
Highlights
-- Q3 sales of GBP532m, were up 2.7% compared with the same
quarter last year (and 42% up on Q3 FY19 pre-COVID, excluding
Fetch), a significant improvement versus the decline in Q2, and
with even stronger growth expected in Q4
-- Record numbers of new customers are now shopping at Ocado.
Active customer numbers grew 23% year-on-year to 946,000, driving
an increase in average orders per week of 10.7%
-- While customers and orders have grown, consumers are shopping
smaller baskets and seeking value-for-money items as they respond
to inflationary pressures
-- As a result, the value of the average basket was down by 6%
in the period, to GBP116, with a greater decline experienced later
in the quarter during the peak summer holiday season
-- Cost headwinds (predominantly energy and dry ice) are likely to weigh on profitability in Q4
-- We continue our efforts to help our customers keep their food
bills low including investment in price and expansion of the
value-for-money own label range
-- Notwithstanding positive customer growth, the accelerating
trading down and smaller baskets, particularly over the last few
weeks, mean that we now expect to see a small sales decline in FY22
and close to break-even EBITDA
Key financials
13 weeks 13 weeks Growth(4)
Q3 2022 Q3 2021
========== ========== ==========
Retail Revenue(1) GBP531.5m GBP517.5m 2.7%
========== ========== ==========
Average orders
per week(2) 374,000 338,000 10.7%
========== ========== ==========
Tim Steiner, Chairman of Ocado Retail, said:
"We remain focussed on providing Ocado Retail customers with the
best possible value to help them navigate the cost of living
crisis, and are encouraged by the positive underlying trends in the
business which underline the value of Ocado's differentiated
proposition to customers.
Our online grocery model, which creates efficiency through
advanced technology, offers customers a combination of competitive
prices, the widest ranges, and industry-leading service. As we have
seen in Q3, customer numbers are sharply up as consumers either
switch from other providers or try online grocery for the first
time; underlying productivity in fulfilment and the last mile
continues to improve; and the new CEO of Ocado Retail, Hannah
Gibson, brings fresh vision and energy to the business. As consumer
spending stabilises, we expect Ocado Retail will again deliver
attractive and accelerating growth in sales and a strong recovery
in profitability.
For all these reasons, we are optimistic for the future even
while recognising the challenges that higher energy bills and other
inflationary pressures are creating for our customers today."
Channel shift and customer acquisition
Channel shift from bricks and mortar retailing to online remains
an important feature of the food retail industry in the UK,
evidenced by the ability of Ocado to attract new customers, many of
whom shopped online for the first time through the COVID
period.
Record customer numbers reflect the efforts Ocado has made to
promote its brand through television and radio advertising combined
with renewed vigour in below-the-line marketing to drive traffic to
Ocado.com.
In the last twelve months Ocado Retail has grown the active
customer base by 23% to 946k. Customer acquisition continues to
trend at record rates. With a fast-growing customer base, the
business should see an outsized benefit as and when customer
spending stabilises.
The trading environment and cost headwinds
The impact of energy prices and other inflationary pressures has
led to customers trading down and putting fewer items in their
basket as they manage total cash spend.
Against a backdrop of reported double digit food price inflation
for the market as a whole, Ocado Retail has been working closely
with suppliers to provide value for customers during this
challenging time. The business has grown the Ocado own-label range,
a 750 strong selection of entry level priced goods, by 75 products,
and continues to ensure that the core range of anchor products
remains in line, or below, pricing represented at our larger UK
competitors. These initiatives come in addition to the ongoing
popularity of the M&S own-label which continues to make up
around 30% of the customer basket.
Ocado's average selling price has increased by 5% year on year,
which is the net of a 7% inflationary increase in food price offset
by a 2% decrease related to customers choosing lower priced
alternative products.
In addition to trading down, customers are adding fewer items to
their baskets. Average eaches (individual stocking keeping units)
per basket during the quarter was 45, down 10% compared with the
same quarter last year, and now in line with pre-pandemic shopping
patterns.
While ASP was up 5%, lower eaches in the basket, down 10%,
resulted in a 6% decline in the value of the average basket, from
GBP123 to GBP116. This was offset by a 10.7% growth in customer
transactions, resulting in sales growth in the period of 2.7%.
Ocado is not immune to the impact of inflationary pressures on
the cost base. With respect to energy, the cost of electricity is
around three times what it was in the prior year with fuel costs
for the year also expected to be around 15% higher. At similar
levels of use, this represents a GBP20-25m increase to the FY22
cost base compared with that of FY21. At the same time, largely as
a result of knock-on effects of the energy crisis, the price of dry
ice has sharply increased, adding a potential GBP15-20m in
annualised cost compared with FY21. The business is exploring
alternatives to dry ice. These impacts are expected to further
weigh on profitability in the fourth quarter.
Ramping capacity
The Bicester customer fulfilment centre is now open, adding 30k
orders per week at maximum capacity. New sites opened in FY21
continue to ramp up. The opening of four CFCs since the beginning
of 2021 will ultimately bring total capacity for Ocado Retail of
around 600,000 orders per week. With the 374,000 orders per week in
Q3, this leaves Ocado Retail with capacity to add over 200,000
orders per week to meet expected future strong demand for the
service. This growth capacity, however, represents a cost to the
business in the short term.
The Zoom facility opened in Canning Town town earlier in the
year is ramping in line with plan, with strong feedback from
customers, and a new site in Leyton, East London, successfully
opened in early September. Two further sites are planned for other
UK cities in the next 6 months.
Outlook
In Q4, we expect a combination of continued strong growth in
customer numbers and orders to result in mid-single digit sales
growth for the quarter. This Q4 growth in revenue is not, however,
expected to be sufficient to generate full-year growth
year-over-year and we now expect to see a small sales decline in
FY22 and close to break-even EBITDA.
In the medium term, Ocado is confident, in the light of strong
customer acquisition and continued improvements to underlying
productivity, that sales and EBITDA margin will recover strongly.
This will be driven by growing customer numbers, orders, ongoing
cost discipline and as we fill the available capacity. These
dynamics underpin a recovery to high-mid single digit EBITDA
margins in the mid-term.
Ocado Group, on behalf of the joint-venture, will be hosting an
analyst conference call at 7.30am today. Please use participant
number: +44 (0)330 165 4012 and confirmation code: 8476357. A
replay facility will be available through an on demand link for 90
days following the announcement.
Contacts
-- Stephen Daintith, Chief Financial Officer, Ocado Group plc, on 01707 228 000
-- David Shriver, Director of Communications, Ocado Group plc, on 01707 228 000
-- Fraser Ramzan, Head of Investor Relations, Marks and Spencer Group plc, on 0203884 7080
-- Martin Robinson at Tulchan Communications on 020 7353 4200
About Ocado Retail
Online supermarket Ocado.com was established in 2000 and is one
of Britain's leading online retailers, now a 50:50 joint venture
between Ocado Group and Marks & Spencer Group plc. Covering
geographies comprising over 74% of UK households, every shopping
bag is carefully packed in one of seven distribution centres using
market leading software and technology. Shopping is then delivered
directly to customers using a network of regional spokes in
brightly-coloured vans. With award-winning mobile apps, Ocado
Retail delivers over 50,000 products, including big-name brands, a
range of Ocado own brand products and a non-food selection.
Thoughtful service features such as colour-coded bags, digital
receipts provided in date order, reminder texts with your driver's
name, along with convenient hourly delivery slots complementing
award-winning customer service on email, phone and social
media.
Notes
1. Retail revenue comprises revenues from Ocado.com and Ocado
Zoom and excludes revenues from Fetch in current and prior
periods
2. Average orders per week refers to results of Ocado.com.
3. Average basket size refers to results of Ocado.com.
4. Growth percentage calculated on a rounded basis.
5. The figures used in this announcement are unaudited.
6. A copy of this trading update is available on www.ocadogroup.com and www.corporate.marksandspencer.com.
Cautionary statement
Certain statements made in this announcement are forward-looking
statements. Such statements are based on current expectations and
assumptions and are subject to a number of risks and uncertainties
that could cause actual events or results to differ materially from
any expected future events or results expressed or implied in these
forward-looking statements. Persons receiving this announcement
should not place undue reliance on forward-looking statements.
Unless otherwise required by applicable law, regulation or
accounting standard, Ocado does not undertake to update or revise
any forward-looking statements, whether as a result of new
information, future developments or otherwise.
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END
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