Ocado raises its expected profit forecast again

Ocado has upped its profit forecast for the second time in a few weeks after tougher lockdown restrictions spurred people to buy a record amount of groceries online.

The group’s retail revenues shot up by almost £150million to £579.6million in the three months to late November as it also benefited from starting to sell Marks & Spencer products in early Autumn.

The partnership, which was announced in February 2019, is continuing to generate strong sales as shoppers stocked up on M&S fresh everyday essential categories, Ocado said.

Ocado began selling M&S products in September after signing a partnership with them in 2019

Thanks to the strong performance, Ocado has raised its expected earnings before interest, tax, depreciation and amortisation (EBITDA) to £70million for the 2020 financial year, from £60million last month and £40million just before that.

In spite of the impressive results, its share price ended the day down 7.2 per cent at £21.59, although it has still grown by 71 per cent since the beginning of the year.

An average of 360,000 weekly orders was placed with the Hatfield-based company, which was only 10,000 higher than in the same reporting period in 2019; however, each purchase’s average size was more than £28 larger.

Chief executive Melanie Smith stated: ‘Despite exceptional demand during the period, we have high rates of on-time customer delivery and low rates of substitutions.

‘This, together with our commitment to competitive prices and the freshest produce available, all delivered in a way that minimises handling and maximises hygiene, has strengthened our credentials as the online grocery market leader in terms of customer experience.’

She added that the firm expects three new warehouses to start operating in the UK in 2021, adding about 40 per cent to its existing capacity.

Ocado’s sales are likely to receive an even further boost in the run-up to Christmas. Market research agency Kantar has estimated that sales could reach £12billion this month

‘We look forward to being able to offer more slots to existing customers while welcoming new customers to Ocado and showing them what we can offer.’

Sales are likely to receive an even further boost in the run-up to Christmas when consumer spending increases. Market research agency Kantar has estimated that sales could reach £12billion this month.

On Tuesday, the organisation revealed that Ocado’s grocery market share rose by 0.3 percentage points to 1.7 per cent last month. It also recorded the biggest increase in sales of any grocer of 38 per cent.

November was especially strong for supermarkets because England entered a second national lockdown and Britons were prevented from eating at hospitality venues like pubs and restaurants.

Even before the national lockdown began though, grocers received an uplift from the three-tier system of restrictions the government introduced in mid-October, as well as Wales implementing a fortnight-long lockdown from October 23.

A record-breaking number of Britons bought their food on the web in both the last two full calendar months, with around six million consumers purchasing their shopping digitally.

A record number of supermarket sales were made online in both October and November

Julie Palmer, a partner at corporate restructuring specialist Begbies Traynor, stated that she expects the firm to continue to gain from the migration to buying food and drink online:

‘Looking ahead, the prospects for online grocers appear particularly bright, with latest Kantar figures showing more than 6 million households bought groceries online in November, the highest number on record.

‘Online grocery retail is very much here to stay, and investors will be increasingly confident the company is well-placed to take advantage of the trend towards consumers filling their trolleys at home rather than in store.’