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Ocado shares slip despite prospect of maiden annual profit Ocado delivers profits, but sales fall as Asda gains from price wars
(about 11 hours later)
Ocado is finally on track to hit an annual profit for the first time in its 14-year history despite a slip in recent sales. Ocado is feeling the impact of Britain’s supermarket price war, with slowing sales in the last few months.
The City was less than impressed by the sales slowdown, which sent shares down 3.5%. It comes as high street rival Asda emerged as the big winner among its peers following heavy discounting.
The online grocer has started to feel the effects of a price war on the high street and admitted shoppers are spending less while inflation falls. The revelation sent shares in the online grocer down 4.4 per cent to 355p, even though the company posted its first first-half profit and the chief executive, Tim Steiner, confirmed it is on course to record an annual profit for the first time in its 14-year history.
However, it is benefiting from its £210 million link-up with Morrisons and saw its sales up £12.7 million as a result of the deal, adding to total sales up 15.6% to £442.4 million in the six months to May 18. It made a first-half profit of £7.5 million. The shares lost 10p to 358p. Mr Steiner said: “It wasn’t our focus to hit an [annual] profit, but it appears we will, which I’m sure will upset a few people because they won’t be able to call us the loss-making grocer any more.”
Chief executive Tim Steiner said: “It wasn’t our focus to hit an [annual] profit, but it appears we will, which I’m sure will upset a few people because they won’t be able to call us the loss-making grocer any more.” However, the speed of sales growth nearly halved in the three months to 18 May compared with the first three months of the year, and the company remained cautious on the future speed.
He said it would have made a profit with or without the Morrisons deal. The second warehouse in Dordon, Warwickshire, which it shares with Morrisons, is performing more efficiently than its original site in Hatfield and Mr Steiner also revealed plans for a third smaller warehouse. Sales for the six months to 18 May were up 15.6 per cent to £442.4m, while pre-tax profits hit £7.5m compared with a £1m loss a year ago.
Clive Black at Shore Capital remained unconvinced. He said: “We do not see the business as a disrupter in the UK grocery market because it is irrelevant within the £175 billion industry.” The company continued to benefit from its £210m link-up with Morrisons, adding £12.7m to its revenues from the deal, although Mr Steiner insisted Ocado would have made a profit even without the joint venture.
He also revealed its second warehouse in Dordon, Warwickshire, which it shares with Morrisons, is performing more efficiently than the original site in Hatfield, Hertfordshire.
A third warehouse will also be opened in Andover, Hampshire, at a cost of £80m.
However, the new site will be considerably smaller than its others, with Mr Steiner explaining that the new focus was to open smaller sites that could be as economically viable as larger ones.
Clive Black at Shore Capital, remained unconvinced. He said: “We do not see the business as a disrupter in the UK grocery market because it is irrelevant within the £175bn industry.”
Meanwhile, Asda has emerged as the major winner from the recent price war among the big four supermarkets, with signs that the Walmart-owned grocer’s early start on cost-cutting is stealing customers away from rivals Tesco and Morrisons.
The supermarket pledged last year to spend £1bn over the next five years to cutting prices, and launched massive reductions to tackle the rise of discounters Aldi and Lidl.
It saw sales jump 3.6 per cent in the 12 weeks to 22 June, according to Kantar Worldpanel.
By comparison, Tesco and Morrisons launched their own price cuts in only the last few months. However, their sales fell 1.9 per cent and 3.8 per cent respectively.
Ocado is also being hit by the cuts because of its price promise to match Tesco, although bosses insist it will continue to grow faster than its rivals.
In the last 12 weeks, sales at Sainsbury’s grew 3 per cent but Asda’s impressive rise sees it start to cement its position as second-biggest retailer behind Tesco, despite signs Sainsbury’s was catching up.