Ocado Group lifted its full-year profit outlook as the UK online supermarket operator continues to benefit from the pandemic-led shift to online shopping and increased demand for home delivery.
In a business update, Ocado (OCDO) said that it now expects full year EBITDA to be over £70 million, up from a previous forecast of over £60 million. In the fourth quarter ended November 29, revenues at the online retailer’s arm, Ocado Retail, which is a 50:50 joint venture between Ocado Group and Marks & Spencer, increased 35% to £579.6 million year-on-year, fueled by strong demand for online grocery. The growth rate moderated from 52% in Q3, which was the result of the seasonality of the quarter, the company said.
Meanwhile, average orders per week grew 3% to 360,000 and average order size was £133.
“Customers continue to embrace the full M&S range with the biggest selling lines coming from everyday essentials in the M&S fresh categories,” Ocado stated.
Ocado Retail delivers over 50,000 products, including big-name brands, a range of M&S and Ocado own brand products and a growing non-food selection.
“Despite exceptional demand during the period, we have high rates of on-time customer delivery and low rates of substitutions,” said Ocado Retail CEO Melanie Smith. “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 UK online grocery market leader in terms of customer experience.”
Smith added that the company’s plan is to open three new warehouses in 2021, which will add 40% more capacity to its business.
“Rates of sales and EBITDA growth in FY21 will be determined by the extent to which Ocado Retail returns to a “normalised” trading week and the timing of when the planned additional capacity goes live,” the company said.
However, shares dropped 6.6% following the update in what looks like some profit-taking after the stock surged 70% this year. From the Street, the stock scores a cautiously optimistic Moderate Buy analyst consensus based on 3 Buys versus 4 Holds. (See OCDO stock analysis on TipRanks)
Looking ahead, the average analyst price target stands at 2,448.99p and implies 14% upside potential over the coming 12 months.
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