Ocado Group Plc gained after the UK company said its online grocery joint-venture with Marks & Spencer Group Plc should return to profit this year, helped by efficiency measures and cost-cutting.
(Bloomberg) — Ocado Group Plc gained after the UK company said its online grocery joint-venture with Marks & Spencer Group Plc should return to profit this year, helped by efficiency measures and cost-cutting.
The venture, Ocado Retail, was profitable at an Ebitda level in the second quarter and should be marginally positive this year, the company reported Tuesday. Ocado reported a total pretax loss of £289.5 million ($379 million) in the 26 weeks through May 28.
The stock rose as much as 5.5% in early trading in London.
The British company sees its future as a maker of automated warehouses for supermarkets around the world, but most of its revenue currently comes from the online grocery business it shares with M&S. Ocado Retail has struggled to boost market share as shoppers returned to stores after the pandemic and shifted away to discount grocers to save money.
Ocado has been keeping a lid on costs at the venture and boosting efficiency. The company is closing its oldest customer-fulfillment center, which is in Hatfield, England.
The company was founded in 2000 by three former Goldman Sachs Group Inc. bankers, including Chief Executive Officer Tim Steiner. It is seeking to become the top global provider of automated online grocery-fulfilment technology and partners with retailers worldwide from Kroger Co. in the US to Coles Group Ltd. in Australia.
Turning the UK venture around is important as Steiner said it’s a demonstration of what Ocado’s warehouse technology can do.
At the warehouse technology business, Ocado said it’s facing delays opening two customer-fulfillment centers for Coles. They were previously scheduled for the second half.
Ocado shares have lost two-thirds of their value over the past two years. The last time the company was profitable at a pretax level was seven years ago.
While Ocado’s grocery-delivery technology is industry-leading, the company’s mid-term target for Ebitda of £750 million appears ambitious, Richard Chamberlain, an analyst at RBC Europe wrote in a note. “Moreover, given risk of additional financing, an uncertain recovery at Ocado Retail, downside risk to group estimates, a lower probability of further game-changing international deals and a relatively rich valuation, we retain our underperform rating.”
(Updates with delays with Coles orders in seventh paragraph)
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