Ocado raises earnings forecast again

Online supermarket Ocado Group raised its annual earnings forecast for the second time in two months on Thursday as the COVID-19 pandemic continued to generate huge demand for home delivery.

Ocado forecast earnings before interest, tax, depreciation and amortisation (EBITDA) of “over 70 million pounds”versus a previous forecast of “over 60 million pounds”. EBITDA in 2018-19 was £43.3 million.

The group, whose shares have soared 82 per cent this year, said revenue at its retail joint venture with Marks & Spencer rose 34.9 per cent to £579.6 million in its fourth quarter to 29 November.

Growth moderated from 52 per cent in the third quarter, which Ocado said reflected the seasonality of the quarter.

Average orders per week rose 3 per cent to 360,000, and average order size was £133.

In September, the Ocado Retail venture switched from using Waitrose to M&S products.

“Customers continue to embrace the full M&S range with the biggest selling lines coming from everyday essentials in the M&S fresh categories,” Ocado said.

Ocado said sales and earnings growth in the 2020-21 financial year would be determined by the extent to which it returns to a “normalised” trading week and when planned additional capacity goes live.

It plans to open three new warehouses in 2021, which will ultimately provide 40 per cent more capacity.

The group’s capital-intensive and centralised fulfilment model has restricted its ability to quickly increase its capacity during the pandemic.

In contrast, Britain’s big four grocers – market leader Tesco, Sainsbury’s, Asda and Morrisons – were quickly able to adapt their predominantly store-pick models to boost capacity, enabling them to deliver faster growth and win share of the online market.

Online grocery shopping has doubled its share of the UK market to nearly 14 per cent since the start of the pandemic and Ocado reckons it could reach 30 per cent over the next few years.