Ocado sales jump in pandemic but investment in international business slows earnings growth
Online supermarket Ocado reported a jump in revenue due to a surge in demand for home food delivery services in the pandemic, but said investment in its international technology business offset growth.
Group revenue increased 32.7 per cent to £2.33bn, up from £1.76bn last year, driven by 35.3 per cent growth in its retail revenue during the pandemic.
There was a £31 increase in the average basket size from £106 to £137during the period.
Revenue in its international solutions business was £16.6m following the launch of its first customer fulfillment centres in Toronto and Paris.
Earnings before interest, tax, depreciation and amortization was £73.1m, up from £43.3m in 2019, due to higher revenues in the UK retail business.
However this was offset by increased investment in global growth, including a hiring spree to support international relationships, technology resources to help scale and improve the platform, and infrastructure investments.
The firm’s share price dipped 2.95 per cent following the update.
Ocado also booked Covid-19 related costs such as frontline worker bonuses and additional safety measures.
Amisha Chohan, equity research analyst at Quilter Cheviot, said: “A £30m increase in technology investment to meet the surging demand for online shopping has driven the share price lower today, however we believe that Ocado remains well-positioned to capitalise from the permanent shift to online grocery shopping.
“We expect online penetration to increase in the medium term, with the UK seeing an increase of 14 per cent over the last year.”
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, added: “The business case hinges on a very different story to the delivery vans scurrying around the country.”
“Development of these Customer Fulfilment Centres means capital expenditure plans for 2021 have rocketed outside what the market was expecting,” she said.
“Spending on overseas Customer Fulfilment Centres almost tripled last year – over half of which went on deals in North America.
“The addressable market is huge, especially with the long-term shift to online shopping having been accelerated. But the levels of profitability and investment needed are still disappointing.
“The important thing now is getting a fair few new Solutions contracts inked, and soon.”