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Unfortunately Ocado are tied to Kroger in the US, their contract does not allow them to partner with any other US grocers.
Now that Kroger's demand for Ocados tech is stalling it puts Ocado in a bind.
One of the elephants in Ocados room is Kroger halting commissioning new Ocado CFCs. Kroger being Ocados largest client.
Some may look upon this as reverting to a positive in the future, merger gets agreed and Kroger commission more CFCs etc. I however see a large risk of the Kroger/ Ocado partnership altering or slowing down to Ocados detriment. Kroger partners with Ocado for online deliveries - true. Kroger/Albertson also has large online delivery partnerships with Instacart, Shipt, Uber, Doordash amongst others. All of these companies are heavily utilizing technology and developing automation. Likely IMO that Kroger will slow their rollout of Ocado CFCs and utilize other partners more going forward in a bid to control costs and develop a quicker online delivery response...
If you're impressed by management speak then yes the latest Ocado results were impressive. If however you are a shrewd investor who digs deeper to research then the losses become a focal point, the reality becomes clear and the results lose their lustre..
Edtheeuph
From the Ocado reimagined product launch in Jan 2022:
"partners ordering standard-sized CFCs today for delivery in H2 2023 will have the following features enabled: 600 Series bots; the 600 grid and Optimised Site Design; Automated Frameload; On-grid Robotic Pick; Ocado Swift Router; and Ocado Flex."
New style Ocado reimagined CFCs have been available for order for a while now. The speed up of new partners signing up to Ocados solutions has not materialised. .
The price target drops today are reflecting the great concern over Ocados losses. Masked this time to an extent by the one off positive Auto store cash flow.
Kroger halting commissioning more CFCs, Coles CFC delays in Australia. Ocado retail running at only 75% capacity and a legal battle threatening to open up with M&S.
Plenty of issues that are leading to the downside share drop continuing..
I believe the £67mill loss is an accounting adjustment to reflect the different accounting method used. Not part of the M&S fee that is still to be paid.
If you Google IFRS 13 fair value you'll get more information surrounding it.
Waccybaccy,
The autostore income is included in the accounts as a net adjustment figure. This positive is eaten into by other costs as below:
"6. Net adjusting items* of £23.9m primarily relate to £186.5m income from the agreement reached with AutoStore to settle IP patent legal cases under which AutoStore will pay the Group £200.0m in instalments over two years, £(67.0)m change in IFRS 13 fair value relating to the revaluation of the M&S contingent consideration and related costs, £(32.2)m UK network capacity review, £(27.4)m costs in relation to the Zoom by Ocado strategy and capacity review, and organisational restructuring costs of £(15.5)m. Other adjusting items* include costs associated with Finance, IT and HR systems transformation, acquisition costs of 6RS and litigation costs."
"Does this mean that, without the settlement from AutoStore, they would have lost more money than they did in FY22?
Correct Sharketmare. The scale of the loss is again the big drawback to Ocados share price..
From the results:
New OSP partner signed
We are pleased to have signed a new partnership with Panda Retail Company ("Panda") in the Kingdom of Saudi Arabia to support their ambitious growth goals in a rapidly developing market for grocery e-commerce. Under the partnership, Ocado will support Panda to serve customers online via a network of manual CFCs and stores across the market using the Ocado In-Store Fulfilment solution, underpinned by the end-to-end capabilities of OSP.
If shorters were closing positions the share price would rise as they would need to buy shares. The opposite is happening today, the share price is falling again. Continued understandable expectation of a negative surprise tomorrow driving the fall today IMO...
Ocado will not, cannot, walk away from Marks and Spencer's. M&S own half of Ocado retail. The 2 companies are very intertwined re Ocado retail. Its in both companies interests to work hard on resolving the many issues..
The reality of Ocados current trading is being grasped by the market.
M&S withholding their payment to Ocado is a very poor advertisement for the Ocado grocery shopping model. Ocado retail still has large capacity overhang, Ocado retails warehouses are operating at 75% capacity. Average basket sizes have been reducing over an extended period. No new Ocado retail CFCs are being built for the next few years.
Overseas - Kroger has halted commissioning new Ocado CFCs and Cole's in Australia have delayed their Ocado CFC go live by a year.
It points to profits coming further down the line than expected putting pressure on Ocados finances. New contract signings re grocery have slowed, understandably given the underperformance of Ocado retails own operations.
I expect the Ocado management to be positive this week in presenting their results. I also expect though that the market will see through the empty words, note the ramping up of costs and extend Ocados current depressed share price..
Edtheeuph,
You were asking where my figure of Ocado retail operating at 75% capacity came from? This figure was reiterated again today by Ocado management. The below is from Reuters today..
"LONDON, Jan 16 (Reuters) - British online supermarket Ocado Retail is operating at about 75% of its capacity and does not expect to open any new robotic warehouses in the UK for two to three years, its boss said on Tuesday.
Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, did not have enough capacity to meet consumer demand at the height of the COVID-19 pandemic. Now, by contrast, surplus capacity represents a short-term cost to the business."
Very average results from Ocado retail today. When taking food inflation into account the figures look very mediocre. As outlined previously Ocado retail are trying to fill their excess capacity by reducing food prices. This though reduces margin and leads to the below, as taken from the results release today.
"Revenue growth is likely to be impacted by lower growth in average selling price however, as we invest in value".
Thus the flat line reaction to the results today by the market..
My expectations are that costs are still weighing heavily on Ocados retails operations. Sales have been increasing. However this sales increase is being driven by the lowering of prices, eating into Ocado retails margin. With Ocado retails CFCs currently running at 75% capacity it results in a very high current fixed cost for Ocado retail operations..
There will be high volatility in Ocado shares (as there has been for many years) until the company becomes profitable. Latest estimates are that will be in 2026. Until then the wide spectrum of market views ensures lots of friction in the share price. IMO there's more downside to come caused by the dysfunction in Ocados current operations, as previously outlined, leading to a lack of further new grocery solutions signups..