It hasn’t been a good year so far for the Ocado share price, which is among the top 10 worst performing FTSE100 shares for the year so far, down more than 17%, although ‘it is still well at the level where it started in 2020, before the pandemic.
This suggests that any further progress in terms of stock price gains may well be hard earned. There is no doubt that the company has made great strides in increasing its capacity, at the expense of profitability, and has also done good deals, the most recent agreement with Marks and Spencer being the most notable. , and who passed their first birthday earlier this month.
At the start of this year, Ocado’s share price put it almost a short distance from Tesco, the UK’s number one grocery retailer, despite annual earnings that were only a fraction of the 58 billion pounds from Tesco, to 2.3 billion pounds.
Whether that comparison prompted a reassessment is a moot point, but like most companies that have weathered the pandemic well, the declines are likely down from the expectation that restrictions are eased and the US reopened. UK economy would lead to slower revenues, and that certainly appears to be the case with regard to this morning’s third quarter numbers.
The retail unit’s third-quarter revenue fell 10.6%, compared to the large pandemic-induced jump of 54% we saw in the same quarter last year, although Customer orders continued to rise, with weekly orders increasing 22%, although the average basket size remained stable at Â£ 124.
The quarter was also affected by the fire at Erith’s distribution center in mid-August, which saw revenues drop 19% in the weeks that followed due to the loss of capacity, and which, it is estimated to have cost the company around Â£ 35million in revenue. .
On the plus side, increased capacity at Hatfield and Dordon, the reopening of the Andover facility and the new center at Purfleet helped alleviate the problems at Erith, although operating losses from the fire were estimated at around Â£ 10million.
The company is also experiencing cost escalation due to rising wages which is expected to add an additional Â£ 5million to the cost base which will inevitably affect full year EBITDA.
Third quarter revenue was Â£ 517.5million which, added to the Â£ 1.3 billion in first half revenue, still puts Ocado on track to beat total revenue Â£ 2.3bn from last year, especially with the addition of Purfleet and Andover, while Erith’s center back to normal in November is also expected to help.
Over the next few quarters, Ocado expects to continue to experience strong revenue growth as it benefits from increased capacity at Bristol, Andover and Purfleet as well as the new Bicester facility which is expected to open shortly. The company has announced plans to add capacity at a new factory in Luton, so that total capacity can reach 700,000 orders per week.