Bloomberg News

Ocado Slips to First-Half Loss on Fees for Morrison Deal (2)

July 02, 2013

Ocado Group Plc Chief Executive Officer Tim Steiner

Ocado Group Plc Chief Executive Officer Tim Steiner said, the company will start expanding its second distribution center “straight away” to ensure capacity of about 190,000 orders a week to service both Morrison and Ocado customers. Photographer: Chris Ratcliffe/Bloomberg

Ocado Group Plc, (OCDO) the U.K.’s largest Internet-only grocer, posted a first-half loss on costs to open a new warehouse and fees associated with a deal to bring William Morrison Supermarkets Plc (MRW) online.

The pretax loss was 3.8 million pounds ($5.8 million) in the six months ended May 19, Hatfield, England-based Ocado said today in a statement. That compared with a profit of 181,000 pounds a year earlier. Excluding one-time items, the loss was 1 million pounds, compared with the median estimate in a Bloomberg survey of three analysts for a loss of 1.9 million pounds.

The loss put a brake on Ocado’s surging share price, which has more than tripled this year on optimism that the company will be able to strike more deals like its 25-year accord with Morrison. The stock fell as much as 6.3 percent in London today.

“Having signed its first partner, Ocado has made a sizeable step toward being a profitable business, but the group still has plenty left to do, not least show its latest technology can work as the group expects and that it can get Morrison online relatively painlessly,” said Andrew Gwynn, an analyst at Exane BNP Paribas in London. “Accordingly, we expect the near-term story of Ocado will be a little slower.”

As well as operating its own online food-delivery service, Ocado is trying to license its warehouse-processing and Web technology to domestic and foreign retailers. The company has a grocery-exclusive deal with Morrison and is free to form joint ventures with grocers outside the U.K. and other retailers in the U.K, Chief Executive Officer Tim Steiner said May 17.

Amazon Talk

Ocado has had approaches from parties who are “very interested in our operational platform and expertise” and conversations are ongoing, Steiner told journalists on a conference call today. The company’s main focus is on “executing the transaction with Morrison,” he said.

Amazon.com Inc. (AMZN:US), the world’s largest online retailer, should buy or form a joint venture with Ocado to improve its grocery business, Cantor Fitzgerald analysts said June 18.

Steiner declined to comment on takeover speculation and said the company has not had any approaches.

Ocado shares fell 3 percent to 302.9 pence at 1:17 p.m.

One-time costs to open the new distribution center in central England and professional fees in relation to the Morrison deal totaled 2.8 million pounds, Chief Financial Officer Duncan Tatton-Brown said. Of that, 1.3 million pounds was spent on accountants and lawyers to close the Morrison deal.

Higher Revenue

Ocado’s adjusted pretax loss was 1 million pounds in the first half, while earnings before interest, tax, depreciation and amortization rose 29 percent to 19.2 million pounds. Revenue increased 16 percent to 355.9 million pounds.

The company will start expanding its second distribution center “straight away” to ensure capacity of about 190,000 orders a week to service both Morrison and Ocado customers, Steiner said. Ocado currently fulfils about 150,000 orders a week and with its half of the expanded facility, that will increase to about 245,000 orders.

Steiner said Ocado expects to continue growing “broadly in line” with the online grocery market.

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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