Ocado Retail Shares Soar Following Positive Q3 Trading Update

Shares of Ocado Retail experienced a significant increase today following the release of its trading update, rising by 14.3% at 4:02 ET (0802 GMT).

The joint venture between Ocado Group plc and Marks & Spencer Group plc reported a 15.5% year-on-year growth in retail revenue, reaching £658 million for the 13-week period ending September 1.

Analysts at Barclays noted that this growth indicates a positive trend for the Retail business, especially as it shows potential for acceleration after navigating challenging conditions during the pandemic and the cost-of-living crisis that affected its international partners utilizing Ocado’s Customer Fulfillment Center (CFC) solution.

Total item volumes grew by 15.4%, while the average number of weekly orders rose by 14.7%, totaling 437,000. The active customer base also increased by 10.3%, reaching 1.06 million compared to the previous year. This success can be attributed to enhanced slot availability and improved service, which have been instrumental in attracting and retaining customers.

Despite a slight decline in average selling prices of 0.4%, the average basket value remained stable at £120.97, and the number of items per basket increased by 0.7% to 44. This demonstrates Ocado’s ability to attract customers while maintaining a competitive pricing strategy, especially considering the UK’s grocery inflation rate of 2.0%.

Due to its robust performance in Q3, Ocado Retail has raised its full-year revenue guidance. The company now expects low double-digit percentage growth for FY24, up from the previous estimate of mid to high single-digit growth.

Analysts at RBC Capital Markets maintain that while Ocado Retail is likely to sustain its momentum, there are risks regarding its mid-term Technology Solutions targets. The guidance for FY24 EBITDA margin remains unchanged at approximately 2.5%, excluding annual fees of £33 million for Hatfield.

As Ocado Retail continues to pursue its strategic initiatives, the upgraded revenue forecast reflects optimism about its capacity to maintain strong growth for the remainder of the year. With a growing customer base, enhanced service offerings, and strong technological support, Ocado is well-positioned to further expand its market share in the competitive UK grocery sector.