The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
The gap between current capacity and capacity being built out versus sales and forecast sales is huge. It has been a big miscalculation and Ocado are committed to building out these facilities and cannot uturn without large costs. Its a huge issue that will crimp Ocado retails profitability for a long time to come..
It's widely known that at Ocado retail "The gap between capacity and the actual level of sales at Ocado is enormous."
https://www.theguardian.com/business/nils-pratley-on-finance/2023/feb/28/the-long-term-seems-to-be-getting-longer-for-online-grocer-ocado
The cost of servicing, maintaining this excess capacity, which is in the wrong geographic areas is huge. Meanwhile in other areas of the country Ocado retail still has no presence...
Ocado retail can't afford to expand currently. They've overexpanded in the South of the UK creating excess capacity whilst leaving large areas of the UK without an Ocado presence, Scotland for example. The capacity has been built in the wrong places, creating ongoing cost. It will be a big drag on profitability for many months to come..
Another set of ordinary, underperforming results from Ocado retail. Revenue trailing inflation. Average basket size of items in a typical Ocado retail order falls again..
Ocado retail has cancelled plans to build any further CFCs. It has built overcapacity in areas of the country where it was already present. More underperformance to come from Ocado retail imo. Recently they have been swallowing some inflation costs at Ocado retail instead of passing them on to the customer. This drives up customer orders but eats into profitability...
UK trading conditions have been extremely poor however Ocado retail management have compounded these issues by poor management decisions. Choosing to go for huge expansion in currently served Ocado retail markets rather than expand into new ones in the UK has been a very costly decision. It has left Ocado with no presence in some large areas of the UK, Scotland for example. Currently there are no further funds to expand into those areas leaving Ocado to miss out on these lucrative markets.
It has also left Ocado retail with huge over capacity in its stronghold areas as basket sizes have dropped, orders have not risen to fill the new capacity. CFCs operating at below capacity, incurring large servicing, maintenance costs.
Next Tuesday will confirm further underperformance at Ocado retail leading the shares again lower...
You are the king of wishful thinking chilting, as below lol
https://youtu.be/XBZUz4C6kqk
Dow futures now down 326pts...
"A decisive end to the Banking Crisis could be on the cards by Monday morning"
This banking crisis is bigger than Credit Suisses troubles. Many regional banks in the US have slumped dramatically. Issues at other banks likely to emerge..
FTSE futures as I speak pointing to a modest 20pt rise for the FTSE 100 on Monday. Personally I believe Ocado shares have further to fall. Ocado retail trading statement is on the 28th March. Extremely likely to report more of the same, reduced basket sizes, lower sales guidance, customers switching to cheaper product lines...
Mapper is right if you look at your info closer chilting. Current shorters such as Whale Rock are still overall at a loss re their historic Ocado short trades.
Shorters lost out hugely in the Ocado share price boom years. Continually being burnt and helping the share price propel upwards.
Shorts are part of the ecosystem. To focus on them detracts from an investigation of the real issues...
- Ocado retail and Kroger halting CFC expansion.
- Ocado retail racking up ongoing losses.
- Rising costs across the business.
- Shoppers moving away from big basket shopping - Ocados tech is focussed around big basket shops.
Above are just some of the huge issues driving Ocados share price down. Shorts get blown away when performance rises. On this occasion though I can see shorts continuing their recent profitable run..
I don't see Ocados today's price/market cap as attractive. If Kroger are rethinking their Ocado CFC development then there's a very good chance Ocados other clients are wanting to do the same. I see less chance of new contracts being signed and less chance of existing customers ordering more CFCs. Couple that with the current macro storm of inflation and now SVB related issues and it adds up to a stock to be avoided in my view.
Later on down the line maybe there will be value. Currently though there are too many negatives related to the company itself and the macroeconomic environment around it...
Marc135,
Since the cost of living crisis has unfolded, at roughly the start of the Ukraine war I observed that some large flaws were opening up in the Ocado business model. The primary ones are Ocado retail overexpansion set against reduced rates of online grocery growth. Customers have been reducing basket sizes, shifting lines to cheaper goods. These trends are very detrimental to the Ocado business model. Ocado retail prioritized the wrong geographic areas for expansion.
This trend in Ocado retail is now playing out around the world. Kroger are pausing Ocado CFC development. They haven't outlined as to why but the read across is that customers there are reducing basket sizes etc. Robotics will play an increased part in grocery delivery in the future but I believe the large CFC model Ocado have developed will be usurped by competing technology.
I am not invested in Ocado and have no plans to invest. My outlook for the stock is negative.
Yes, SVB problem was large amount of assets tied up in bonds which had lost value as interest rates rose. Credit downgrade dented investor confidence causing a speedy increase in withdrawals from depositors. SVB forced to sell bond assets at a loss to finance the outflows.
On the UK side of SVB HSBC have negotiated a sensible deal that suits both sides. It will increase their relationship with the UK government who have thanked them for stepping in. It's absolutely not deal of the century. Good business, yes.
Since Ocados annual results were issued 2 weeks ago the Ocado share price has fallen 43%. They were a very poor set of results. It continues to undermine confidence in the company. Today's moves are mostly about the macro yes but with such poor results recently issued there is little to inspire anyone to go long Ocado shares..