FTSE 100: Ocado shares fall as basket sizes fall and prices rise

LONDON, UNITED KINGDOM - 2022/03/17: An Ocado delivery van seen in London. (Photo by Dinendra Haria/SOPA Images/LightRocket via Getty Images)
Ocado customers purchased on average 8.3% fewer items in each order in the fourth quarter, according to the retailer's latest trading update. Photo: Dinendra Haria/SOPA Images/LightRocket via Getty

Ocado Group (OCDO.L) shares fell in early Tuesday trading after the retailer forecasted a decline in earnings from its joint venture with Marks & Spencer (MKS.L) as consumer spending contracts.

The company that calls itself "the world's largest dedicated online grocery retailer" said that it expects earnings to fall and customers’ basket sizes to shrink in the first half of 2023.

Revenue for the online grocery retailer rose only 0.3% in the fourth quarter, which was below a predicted mid-single digit sales growth.

Ocado shares fell over 10% in early Tuesday trade to 722p, down 86p in the past 24 hours.

Customers purchased on average 8.3% fewer items in each order, compared to a year before, revealing a trend of shoppers returning to pre-pandemic habits of visiting physical stores.

Ocado said that a better second half “is expected to underpin a strong recovery in 2024” and it expects sales and margins “will recover strongly” in the medium term.

Richard Hunter, head of markets at Interactive Investor, said: "Revenues climbed by just 0.3% in the quarter, although average orders per week grew by 1.9%.

"Active customers also grew by 12.9% year on year to 940,000, although tellingly this also represents a marginal drop from the 946,000 reported at the third-quarter update.

"However, the average basket size declined by 1.3%, prices rose, although Ocado points out that the amount of cost inflation passed on to the customer was the lowest among its competitors, but the number of items bought declined.

Read more: UK wages rising at near record pace but real pay remains below inflation

"The group has yet to turn a sustained profit, and the competitive pressure on the retail business is unlikely to abate.

"Meanwhile, frustration has long been in evidence for the Solutions part of the group to make a meaningful contribution, even if a steady direction of travel is at last being established with further partnerships.

"In the meantime, the stock may have become the perennial “jam tomorrow” play and the volatility of the share price shows widely differing reactions to prospects."

Watch: Ocado earnings weighed down by tech investment