Ocado share price rises as it delivers steady sales growth but eyes sterling currency movements
Grocery delivery company Ocado reported increased sales but said it remains vulnerable to changing price pressures and currency movements.
Shares rose by more than 1.5 per cent at the open before paring some gains.
The figures
Gross retail sales grew by 13.1 per cent in the quarter to February, matching last quarter’s growth to reach £352.4m.
Total sales for the group, which includes its deal to deliver for Morrisons, rose slightly faster to £384.7m, a 13.3 per cent increase year-on-year.
Average orders per week grew 16.7 per cent year-on-year to 252,000 in the first quarter as new customer were added and existing Ocado customers upped their rate.
However, average order size fell by 1.6 per cent to £110.84, but Ocado insisted this was a slower rate of decline than in previous quarters. The company said this fall was driven by a “reduction in multi-buy promotions” as well as a loyalty scheme which is aimed at boosting customer retention.
Ocado said the number of orders being picked at Andover, the newest customer fulfilment centre (CFC), increased in line with expectations, although did not give any further detail.
Why it's interesting
Ocado sits at the intersection of two highly competitive industries: logistics and groceries. Given that high level of rivalry the company’s fortunes over the next year will be highly dependent on how it reacts to the expected slowdown in consumer spending as inflation increases.
The devaluation of sterling since the EU referendum has played havoc with margins. Ocado’s chief financial officer has already warned it will raise prices in response, although he also said the company was better placed to deal with currency movements because of its rate of growth.
Ocado’s chief executive said that change in “market pricing dynamics” is becoming visible. If other retailers start raising prices the competitive pressure on Ocado could also lessen.
What Ocado said
Tim Steiner, Ocado's chief executive, said: "We are pleased with the steady progress and growth achieved in the period, as shoppers continue to embrace our proposition for online shopping.
He said the company will "continue to grow ahead of the online grocery market, and substantially ahead of the market overall."
While the market remains very competitive, there are the first signs of a change in market pricing dynamics coming through. However, it remains too early to predict how this will unfold throughout the year, and in particular is dependent on any future currency movements.
In short
Ocado seems to be delivering the goods so far, but whether that trend continues will depend on whether it can outflank competitors as consumer spending gets squeezed.