Ocado Group Plc shares fell as the online grocer struggles with a dip in post-pandemic e-commerce spending and consumers return to brick-and-mortar stores.
(Bloomberg) — Ocado Group Plc shares fell as the online grocer struggles with a dip in post-pandemic e-commerce spending and consumers return to brick-and-mortar stores.
Ocado said Tuesday that it expects earnings from its joint venture with Marks & Spencer Group Plc to fall in the first half of fiscal 2023 as customers reduce their purchase sizes. Revenue growth was flat in the fourth quarter, below Ocado’s prediction of mid-single digit sales growth.
The stock fell as much as 11%. The shares are trading below pre-pandemic levels after riding a boom in e-commerce that proved to be short-lived. Ocado was the worst performer in the FTSE-100 Index last year.
Shoppers are placing smaller food orders as they’re under pressure from prices rising on groceries, energy and fuel. Like mainstream grocers Tesco Plc and J Sainsbury Plc, Ocado has had to contend with higher costs for energy and labor while also investing in trying to keep prices competitive.
Ocado said that there has been a 7.6% increase in the average selling price per item, given inflationary pressures.
Customers are shopping less frequently online as habits normalize following Covid lockdowns. The average purchase at Ocado is £117 ($143), down 1.3% from a year earlier.
The company forecast that the difficult comparisons from pandemic shopping will end in the second half of this year, allowing it to predict sales growth and marginally positive Ebitda for the full year.
“We expect the Covid unwind to play out at some point mid-year, and then we will revert back to pre-Covid basket levels,” Ocado Retail Chief Executive Officer Hannah Gibson said on a call.
Food inflation climbed to a new high last month, leading consumers to spend a record £12 billion on groceries even as sales by volume fell. More than 90% of British consumers are feeling concerned about the cost of food, and they’re buying more own-brand goods and cooking in larger amounts to try to tackle higher costs, according to data from Barclays.
–With assistance from Joe Easton.
(Updates with CEO quote in penultimate paragraph)
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