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LONDON (Alliance News) - Ocado Group PLC shares rose on Tuesday morning after the company said it swung to its first ever annual profit on the back of surging revenue over the year, driven by increased total sales and a higher number of customers which offset a fall in the average price of a shopping basket.
Shares in the online grocery delivery service rose 3.3% to 429.00 pence on Tuesday, one of the best performers in the FTSE 250, after it said its statutory pretax profit for the 52 weeks to November 30 was GBP7.2 million, compared to a GBP12.5 million loss posted a year earlier. It is the first time Ocado has posted an annual pretax profit since it was founded in 2000.
The company said its revenue for the year rose 20% to GBP948.9 million from GBP792.1 million in 2013, while gross sales increased 15% to GBP972.4 million from GBP843 million.
Active customer numbers rose over the year, increasing to 453,000 from 385,000, despite more restrained growth in Ocado's marketing spend year-on-year. Ocado said average orders per week rose to 167,000 from 143,000.
The rise in customers and average order volume offset a slight fall in the average cost of a basket of shopping in the period, down to GBP112.25 from GBP113.53. The average basket price was brought lower by the impact of standalone orders made from its kitchen and dining site Sizzle and from its pet store Fetch.
Revenue from the Sizzle and Fetch businesses rose 52% year-on-year, Ocado said.
During the year, the company started its contract with Wm Morrison Supermarkets PLC to handle the FTSE 100 grocer's online delivery service. The deal started in July, and Ocado said it was ramping up smoothly, saying it contributed GBP45.1 million in revenue in the financial year.
Ocado added that it is in ongoing talks with multiple potential international partners to further expand the platform business, though it cautioned that it expects to book costs of around GBP5 million from developing its third-party service platform and from negotiating further agreements.
"Channel shift towards online grocery shopping continued during the period. While the broader grocery market was characterised by intense competition with minimal growth in the segment, declining supermarket store sales, competitive price activity and cautious consumer spending, we continued to grow ahead of the online grocery market and significantly ahead of the market overall," said Ocado Chief Executive Officer Tim Steiner.
"Overall, we are well equipped to continue to lead the online grocery revolution, in the UK and overseas, as increasing numbers of customers shift away from traditional forms of retailing. We are confident that we have significant opportunities for growth in sales and shareholder value," Steiner added.
Broker Numis said it is confident Ocado will sign up a customer for its Smart Platform this year, therefore growing its online grocery fulfilment business beyond the existing deal with Morrisons.
Numis added it is very encouraged by the progress on the modular solution being tested by Ocado. The modular system involves extremely dense storage, rapid retrieval, and fast picking of single items.
Moreover, Numis analyst Andrew Wade believes that Ocado "is uniquely positioned to leverage its market-leading intellectual property to support Ocado Retail and develop partnerships with global grocery retailers looking for the best online grocery fulfilment solution".
Numis keeps Ocado's rating at Buy and holds its price target at 500 pence.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
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