Bloomberg News

Ocado Surges as Christmas Sales Increase on Own-Label Items

January 12, 2012

(Updates with closing share price starting in first paragraph.)

Jan. 12 (Bloomberg) -- Ocado Group Plc, the U.K.’s largest online-only grocer, surged 33 percent in London trading as revenue accelerated in the Christmas season led by sales of its own-label items.

Sales rose 16 percent to 59 million pounds ($90.5 million) in the four weeks ended Dec. 25, the Hatfield, England-based retailer said in a statement today. That compares with a 10.8 percent increase in the fourth quarter.

The shares rose 18.55 pence to 74 pence in London, the biggest gain since the initial public offering in July 2010. Ocado has dropped 59 percent since the IPO, valuing the company at 413.3 million pounds.

Ocado said sales of its lower-priced own-label lines rose 88 percent. Last month it forecast full-year profit would be less than analysts’ estimates, hurt by capacity constraints at its Hatfield distribution center and the employment of extra staff to boost order fulfillment.

“Ocado reported an encouraging Christmas trading update,” JPMorgan Cazenove analyst Paul Diamond said in a report. He has a “neutral” recommendation. “The operating model isn’t broken but simply behind schedule,” he said. “We have higher conviction on the business’ ability to ramp up growth once capacity improvements are made in the coming months.”

The retailer, which is mostly supplied by grocer Waitrose Ltd., also has had to contend with increased promotions at competitors such as the J Sainsbury Plc Brand Match campaign and Tesco Plc’s Big Price Drop.

Encouraging December

“This was encouraging trading for December as a whole and particularly the seven days to Christmas,” Chief Financial Officer Andrew Bracey said in the statement.

Last month, Ocado said earnings before interest, taxes, depreciation and amortization were 27.5 million pounds to 28.5 million pounds in the year ended Nov. 27. The company is scheduled to report full results Jan. 31.

Christmas sales “are extremely strong, stronger than anyone else,” Bracey said in a phone interview. “We are seeing our customers being slightly more cautious. Own-label sales are nearly 90 percent up, but we’re also seeing our customers treat themselves more,” with products like the Daylesford Organic range surging over 150 percent, he said. “So we’re seeing a bit of polarization in the customers’ behavior.”

The executive said analysts are expecting sales growth “will get up to 20 percent” at the end of the year, though he forecast the revenue increase in the first quarter will be “in line” with the 11 percent growth of the earlier period.

--Editors: Thomas Mulier, Tom Lavell

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

To contact the editor responsible for this story: Sara Marley at smarley1@bloomberg.net


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