Outlook downgrades Ocado share price (OCDO Stock)

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Earlier this month, Ocado’s share price hit a 4-year low on pessimism that management would be able to paint a narrative that involves the prospect of making a profit, as it struggled with the multiple challenges of rising raw material, energy and product costs.

A few months ago, following these challenges, Ocado said it would have to raise prices to offset these increased overheads, as it seeks to maintain its margins, but with consumer wallets being so tight, it It’s not immediately obvious that this will offset the higher costs of doing business.

Those doubts were confirmed this morning after Ocado reported a 2.7% rise in third-quarter sales, but said fourth-quarter sales were likely to be hit by headwinds from energy costs, which would in due course weigh on profitability, sending stocks sharply lower and back to lows. from the beginning of this month.

The number of customers increased by 23% to 946,000, while retail revenue reached £531.5 million. The average number of orders per week increased by 10.7% to 374,000.

Average basket size was lower, however, down 6% from £123 to £116 as customers opted for cheaper items.

Ocado’s joint venture with Marks & Spencer is now expected to see a slight decline in full-year 2022 sales, with core profits expected to break even. This drop also had an impact on the M&S share price, which also fell in early trade.

Despite these challenges, the company is adding additional capacity, with the Bicester distribution center now fully open, adding 30,000 orders per week to its maximum capacity.

Canning Town is also increasing production with a new site in Leyton also opening earlier this month.

Today’s downgrade to the fourth quarter outlook shouldn’t have come as too much of a surprise given management’s warnings earlier this year, but the reality that the company may struggle to reach the balance on EBITDA was not well received.

That said, we haven’t fallen below the lows this month, and with stocks already the worst performers on the FTSE100 this year, it could be argued that much of the bad news could already be in price.

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