Ocado Q1 revenue drops, warns on inflation

(Sharecast News) - Ocado's retail revenue fell in the first quarter of 2022 as the online grocer warned about uncertainty caused by the rising cost of living.

Revenue fell 5.7% in the 13 weeks to the end of February as customer orders rose 11.6%. The average basket size at the business, a joint venture with Marks & Spencer, fell 15%.

Ocado said the figures reflected a return to more normal shopping patterns as pandemic restrictions were eased and people returned to work. Revenue was 31.7% higher than two years earlier before the pandemic hit.

The FTSE 100 group said food price inflation and the effect on demand caused by the rising cost of living were hard to predict. Ocado said the price of raw materials, products, energy and dry ice created added to cost pressures in the first quarter.

As a result, revenue growth for the full year is likely to be close to 10% despite, supported by increased capacity, and profit margins will be squeezed, Ocado said.

Melanie Smith, Ocado Retail's chief executive, said: "Given that we are comparing a post-lockdown quarter this year with a lockdown quarter last year, this has meant that sales were down 5.7% in the quarter, not helped by the softening market overall, with smaller baskets offsetting the increase in the number of customer transactions in the quarter."

Shares of Ocado fell 5.3% to £11.42 at 08:26 GMT. The shares are down 27% so far in 2022.

Ocado's retail business boomed in the pandemic as shoppers went online during lockdowns. The group's main source of growth is meant to be its technology "solutions" division, which helps other retailers launch or improve their online and logistics operations but high hopes have given way to patchy progress.

"The retail business continues to ramp up fulfilment capacity, but in the meantime is facing the headwinds which are being seen across many sectors ... at a time when the cost of living is reaching alarming levels for many," Richard Hunter, head of markets at Interactive Investor, said. "The negative reaction to a statement which only covers the retail arm is further proof a growing lack of support from investors for the group as a whole."