Ocado Group Plc (OCDO), the unprofitable U.K. online grocer, named former Marks & Spencer Group Plc (MKS) boss Stuart Rose as its new chairman, adding weight to its leadership to help dispel doubts over the future viability of the business.
Rose, 63, will join as a non-executive director on March 11 and will succeed Michael Grade as chairman after the annual shareholder meeting on May 10, the Hatfield, England-based retailer said today, boosting the shares as much as 8.3 percent.
Rose stepped down as chief executive officer of Marks & Spencer in 2011 after seven years at the helm of the U.K.’s biggest clothing retailer, where he fended off a bid by billionaire Philip Green. He joins Ocado as the Internet grocer seeks to double capacity with a second distribution center and to revive sales growth that has fallen behind the online businesses of competitors such as Tesco Plc and J Sainsbury Plc.
“His appointment for us doesn’t change the fundamental problem for Ocado, namely that their business model doesn’t work,” Clive Black, an analyst at Shore Capital, said by phone. “The cost of competing and the cost of fulfilment are just too high, hence it makes meagre cash flows and no earnings, never mind dividends.” Black has a sell recommendation on the stock.
Ocado, which hasn’t reported an annual profit since listing on the stock exchange, ended doubts over its immediate survival in November by prolonging a 100 million-pound ($159 million) debt facility and selling 35.8 million-pounds of shares. The company reported 14 percent sales growth in the six weeks ended Jan. 6, trailing Tesco’s 18 percent gain in online food sales over Christmas and Sainsbury’s growth of more than 15 percent.
Ocado rose as much as 7.85 pence to 102.9 pence in London trading, the highest intraday price since June 26.
Rose “has the potential to bring much-needed esteem” to the company, Shore Capital’s Black said in a note.
Alongside Ocado, Rose has taken on posts at companies including private-equity firm Bridgepoint Capital Ltd. and South African retailer Woolworths Holdings Ltd. (WHL) since leaving Marks & Spencer, where he began his retailing career in 1971.
The executive has also run the home-furnishings division of Debenhams Plc department stores and been CEO of fashion retailer Arcadia Group and food wholesaler Booker Group Plc.
“I have been very impressed at the impact and progress Ocado has made,” Rose said in the statement. “As retail goes through a fundamental shift into the digital world, I believe Ocado’s model and the high standards of customer service it provides will see it emerge as a powerful online player.”
The shares were up 4.9 percent at 99.75 pence as of 10:14 a.m., below the 180 pence at which they were sold to the public in July 2010. The stock has gained 15 percent this year, partly because of bid speculation, according to Panmure Gordon analyst Philip Dorgan. William Morrison Supermarket Plc’s gap in online food is “an obvious home,” Dorgan said, though he added that “a deal at current prices is very unlikely.”
While Rose was at Marks & Spencer, he may have looked at Ocado with regards to a possible tie-up to sell food online, Espirito Santo analyst Caroline Gulliver said by e-mail.
Rose will face a similar challenge at Ocado to that he had at Marks & Spencer, according to Gulliver, namely “how to make selling online profitable while at the same time protecting return on capital and leveraging existing assets.”
The online retailer also said today that board member Wendy Becker is stepping down with immediate effect.
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