Marks & Spencer business boom as Ocado sales soar – so why have shares just plunged 8%? – Express

Marks & Spencer business boom as Ocado sales soar – so why have shares just plunged 8%? – Express

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Ocado revealed its sales had risen 4.6 percent to reach a total of £2.3bn with revenue up 7.2 percent at £2.5bn. The company has benefited considerably from the shift to online sales during the pandemic, which it now shares with M&S with the retailer taking a 50 percent stake in Ocado’s UK online shopping arm. Orders continued to grow despite disruption from a fire at one of its fulfilment centres and staffing shortages. Despite the easing of Covid restrictions Ocado has high hopes for online sales to remain strong, pointing to predictions for the online share of the grocery market to grow from 12 percent to 18 percent by 2025.

Ocado CEO Tim Steiner said: “The past year has further reinforced that demand for online grocery is here to stay.
In the majority of mature markets, the fastest growing channel is online and to truly win here food retailers need to deliver the best offer with the best economics across all customer missions.
“The innovation that is powering the development of the unique and proprietary Ocado Smart Platform is focused on providing an unequalled customer experience through ground-breaking technology which leads to an unrivalled low cost operation.”
Ocado has been making major investments in technology, particularly robotics which is key to operating its warehouses.
The company has acquired Kindred, an AI robotics company, which develops sophisticated piece-picking robots for ecommerce which it is hoped will boost efficiency.
Such investment has taken a toll on overall profits though with investment offsetting the increase in revenue to leave the company with an overall loss.
Although describing the joint venture with M&S as a “major success”, AJ Bell Investment Director Russ Mould warned Ocado had developed a “reputation for being all talk and no profit.”
He explained: “Years into the future, Ocado could be sitting pretty, lapping up a healthy stream of cash from partners using its technology.

“But for now, it’s all about spending to help set up operations and to make its technology as efficient and clever as possible.
“Its capital expenditure represents a big chunk of revenue, and it is growing fast, unlike its sales.”
Ocado’s share price fell over eight percent this morning following concern from investors over the lack of profit.
The company has said it predicts a return to strong “mid-teens” revenue growth in 2022 however spend on investment is also set to increase.

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Chris Beckett, Head of Equity Research at Quilter, commented: “Ocado’s 2022 guidance includes increased costs set to support long term growth and higher capital expenditure that will more than halve the £1.5bn cash balance.
“Ultimately, this is a growth stock that needs new orders to justify the valuation.
“This will likely come, but timing remains uncertain.”
While online sales have continued to show strength consumer spending more generally may prove an obstacle as shoppers face rising prices and a squeeze on the cost of living this year.
Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown, warned “more premium options like M&S and Ocado food may find themselves rubbed off shopping lists.”

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