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The article is anchoring on Kroger as representative of the whole business. Kroger's failure was primarily a market-fit problem, low-density American suburban geography was structurally wrong for centralized CFC fulfilment. Treating it as proof that the entire model is broken ignores that Ocado Retail is the fastest-growing grocer in the UK, that Coles achieved near-perfect order rates with zero substitutions in its first 120,000 orders, that Bon Preu has expanded from in-store fulfilment to ordering a full CFC, that Aeon has ordered a third CFC in Japan, and that Lotte has gone live in Korea. The narrative selectively weights the failures and ignores the evidence of the model working in appropriate markets.

This, from the Kroger CEO in the earnings call last night, is the reason for the drop:

"I mean, we’re using our stores very heavily now to fulfill E Commerce orders every day. So, you know, it’s. It’s really not much of a change in that regard. We are taking a hard look at some of our automated facilities. But, you know, we had a very strong quarter in both E Commerce sales as well as profitability. And significantly, this quarter was the first time that delivery sales passed store pickup sales.... You know, the bulk of our E-Commerce is done by stores today., and we adjust volumes all the time. I think new store openings will help us as well, but really not a lot of work. We think it’s a kind of a. An asset light delivery possibility. And it also allows us to get deliveries to customers within, you know, a couple hours time"

So it seems Kroger are looking to scale back their engagement with Ocado. The question now is whether the failures at Kroger are reflective of failures in the Ocado Solutions platform in general. I personally think not, and according to Brittain Ladd: "Kroger has failed miserably to take full-advantage of everything Ocado has to offer. For example, Ocado allowed Kroger to make too many decisions related to strategy and location of the CFCs, and it has harmed the relationship." So this shouldn't say anything for Ocado's success in other markets.

The exclusivity arrangement also comes to an end this year. Earlier in the year Tim Steiner said "I expect in the long term we will see a significant number of warehouses and modules live in the U.S...I still believe that the U.S. is an enormous opportunity for the group and at some point in the future we'll look back and go 'wasn't it challenging for a few years' and we'll see enormous growth" - Referring generically to the US as a market, not to the Kroger partnership. I think this is why they called out the following point in the half year report this year: "Our current exclusivity terms are expected to roll off in multiple markets towards the end of this year, and we will start ramping up commercial conversations across global regions"

Make your own mind up I guess - I think the risk reward at these prices offers the long term investor an attractive entry point.

Hopefully this competition focuses minds at Kroger...if you want to retain the fastest growing part of your business then it's time to invest in it

The short story has been obvious for the past few years - the online demand spike during Covid saw big supply capacity build outs across the board, but demand has fallen back to its pre-Covid trendline. This obviously causes a pause in further CAPEX which has hurt Ocado Solutions...combined with rising inflation/cost of living forcing consumers towards discounters.

This is all correct in the short term and has allowed shorters to control the share price, but none of those things are long term problems and should correct over time. This allows a sort of symbiotic relationship between short sellers who can profit in the short term, and long term buy and hold investors who can pick up these shares at discount prices.

As well as the JPM comment, the major shareholders (Nicholas Roditi, Lingotto) are also upping their stakes, which is a big vote of confidence. This is the big point that's still under appreciated:

"Ocado can now initiate new partnerships with 2-3 modules, versus 6+ modules two years ago, thereby reducing risk for clients,"

With the ending of exclusivity contracts this year, this fact could well come into play in getting new customers for the Solutions business

My God this forum is a toilet

"shareholders "own" less of the assets, the more the debt goes up"

This is not accurate, you have to consider double entry bookkeeping. Taking out debt creates a new liability, that's true, but you also get an asset (cash) of equal value on the asset line. Therefore issuing debt has 0 impact on the value of equity. What matters is whether the return you can generate on the capital is higher than the cost of captial

Lol, the article describes the complete opposite of what you think it does. It literally says LCs are a guarantee of payment. You're misunderstanding which party has which role in the transaction.

Kroger are the buyer (applicant). Ocado are the seller (beneficiary). Read it again with this in mind and see if the scales fall away from your eyes.

"If it were money in the bank for Ocado, and not a loan that they have to pay back, they'd have made it very clear."

Are you posting in bad faith or are you a moron? Letter of Credit is literally a defined term

Ocado have collected $152m as payment for services rendered to Kroger. The term "credit" is a bit misleading, this is just money to Ocado, not any kind of debt instrument

Ocado Solutions charges customers a % of the sales conducted through their modules. A typical module has a sales capacity of £70m per year, so Ocado would take fees of around £3.5m per module. Direct operating costs per module run around £1.2m, so in a properly mature module, Ocado should take £2.3m per module. More modules = more profit in the long term, but they start off loss making due to the CAPEX (~£9.8m per module) and they collect a lower upfront fee before "go live" when the sales actually start.

You can find the detail in here (or google Ocado Group Cash Flow Seminar if you don't want to follow a link) https://cdn.prod.website-files.com/667974bf1bf45146cf81ef1f/66c45ef9e7652c8024735964_66c34a39460694af04f35cad_a6f0686c-91dd-47e2-8d02-adaa340ad1d9.pdf

120 modules should be "live" and I expect 17 modules to end their CAPEx cycle, so Solutions EBITDA £96m is my prediction. All depending on when in the year these things happened.

Ocado has signed up 13 partners internationally, many of whom are market leaders in large grocery markets. It has 120 live modules as of last year, with an order backlog of an additional 112 modules.

Assuming no additional orders, once the capex phase has come to an end Ocado should be generating £290m in recurring profit (fees minus operating costs). At a 10% discount rate that's over £7 per share in NPV (just the Solutions business, not including retail).

With the entire company sitting at £3 per share, you already have a very negative view baked into the current price. What happens if the current capacity pauses come to an end...or if they manage to sign up new partners...or the profit generation of the current modules starts showing up in the accounts because the capex cycle comes to an end. Being short at these prices seems dangerous to me, unless your thesis is the company goes bust.

There's a cash flow seminar on the Ocado IR page which guided that 5% of sales capacity is the typical ongoing fee (I have it as 1 CFC = £350m sales capacity, so £17.5m)

As of 1st September 24:

Revenue: +13.78% YoY

EBITDA: +241.51% YoY

Operating Loss: -73.69% YoY

Customers do love short shelf lives and substitutions

Right, so you are just a troll then. Pointless trying to engage. Goodbye.

Alright, I'll take you on good faith and assume you're not just a troll...if you doubt management's numbers you just model it out and see if the numbers match what is actually going on in the business.

Using their own numbers, each module represents £70m of sales capacity. Slide 25 lays out the economic profile of a typical module:

That means you'd get £2.8m in upfont fees per module ordered. (4% of sales capacity). There were 9 modules in this phase of the cycle in 2023, plus 12 more in the "year 0" phase (which is split between upfront fees and recurring fees). This means approx. £58.8m of upfront fees for 2023.

For live modules you get £3.5m per module in recurring fees (5% of sales capacity). Again, in 2023 we had 12 modules at year 0 (50-50 upfront and recurring fees), plus 38 modules at year1/2, totalling £367.5.

Add those two numbers up and you get £426.3m in Solutions revenue for 2023 according to the model. Actual reported revenue was £429.0 - meaning our model's prediction was out by 0.63%.

This is all just plugging in the numbers management give us, and mapping out the module timeline based on what is stated in the annual reports. Unless you think the accounts are fraudulent then the numbers given in the seminar are genuinely representative of the typical module economics.

You've done 2.5 years of analysis and you couldn't find this document?

https://ocadogroup.com/media/orupbjw3/cash-flow-seminar-2022.pdf

Slide 25 onwards

Management have stated that the fees are based on sales capacity of the module. 4% of sales capacity as upfront fees, then 5% on an ongoing basis once the module is live. With OSP this should go up to 5.5%