REG - Ocado Group PLC - Trading Statement

OcadoAnnouncement

13/09/2022 07:00

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RNS Number : 1826Z  Ocado Group PLC  13 September 2022

 

OCADO GROUP PLC

 

13 September 2022

Ocado Retail Q3 Trading Statement

Strong customer growth as consumers seek value online; cost-of-living crisis
weighing on customer spend

Ocado Retail Ltd ("Ocado"), a joint venture between Ocado Group plc ("Ocado
Group") and Marks & Spencer Group plc ("M&S"), today announces its
trading statement for the 13 weeks to 28th August 2022

 

Highlights

 

●    Q3 sales of £532m, were up 2.7% compared with the same quarter last
year (and 42% up on Q3 FY19 pre-COVID, excluding Fetch), a significant
improvement versus the decline in Q2, and with even stronger growth expected
in Q4

●    Record numbers of new customers are now shopping at Ocado. Active
customer numbers grew 23% year-on-year to 946,000, driving an increase in
average orders per week of 10.7%

●    While customers and orders have grown, consumers are shopping
smaller baskets and seeking value-for-money items as they respond to
inflationary pressures

●    As a result, the value of the average basket was down by 6% in the
period, to £116, with a greater decline experienced later in the quarter
during the peak summer holiday season

●    Cost headwinds (predominantly energy and dry ice) are likely to
weigh on profitability in Q4

●    We continue our efforts to help our customers keep their food bills
low including investment in price and expansion of the value-for-money own
label range

●    Notwithstanding positive customer growth, the accelerating trading
down and smaller baskets, particularly over the last few weeks, mean that we
now expect to see a small sales decline in FY22 and close to break-even EBITDA

 

 

Key financials

 

                             13 weeks  13 weeks  Growth(4)

                             Q3 2022   Q3 2021

 Retail Revenue(1)           £531.5m   £517.5m   2.7%
 Average orders per week(2)  374,000   338,000   10.7%

 

 

Tim Steiner, Chairman of Ocado Retail, said:

"We remain focussed on providing Ocado Retail customers with the best possible
value to help them navigate the cost of living crisis, and are encouraged by
the positive underlying trends in the business which underline the value of
Ocado's differentiated proposition to customers.

Our online grocery model, which creates efficiency through advanced
technology, offers customers a combination of competitive prices, the widest
ranges, and industry-leading service. As we have seen in Q3, customer numbers
are sharply up as consumers either switch from other providers or try online
grocery for the first time; underlying productivity in fulfilment and the last
mile continues to improve; and the new CEO of Ocado Retail, Hannah Gibson,
brings fresh vision and energy to the business. As consumer spending
stabilises, we expect Ocado Retail will again deliver attractive and
accelerating growth in sales and a strong recovery in profitability.

For all these reasons, we are optimistic for the future even while recognising
the challenges that higher energy bills and other inflationary pressures are
creating for our customers today."

Channel shift and customer acquisition

 

Channel shift from bricks and mortar retailing to online remains an important
feature of the food retail industry in the UK, evidenced by the ability of
Ocado to attract new customers, many of whom shopped online for the first time
through the COVID period.

 

Record customer numbers reflect the efforts Ocado has made to promote its
brand through television and radio advertising combined with renewed vigour in
below-the-line marketing to drive traffic to Ocado.com.

 

In the last twelve months Ocado Retail has grown the active customer base by
23% to 946k. Customer acquisition continues to trend at record rates. With a
fast-growing customer base, the business should see an outsized benefit as and
when customer spending stabilises.

 

The trading environment and cost headwinds

 

The impact of energy prices and other inflationary pressures has led to
customers trading down and putting fewer items in their basket as they manage
total cash spend.

 

Against a backdrop of reported double digit food price inflation for the
market as a whole, Ocado Retail has been working closely with suppliers to
provide value for customers during this challenging time. The business has
grown the Ocado own-label range, a 750 strong selection of entry level priced
goods, by 75 products, and continues to ensure that the core range of anchor
products remains in line, or below, pricing represented at our larger UK
competitors. These initiatives come in addition to the ongoing popularity of
the M&S own-label which continues to make up around 30% of the customer
basket.

 

Ocado's average selling price has increased by 5% year on year, which is the
net of a 7% inflationary increase in food price offset by a 2% decrease
related to customers choosing lower priced alternative products.

 

In addition to trading down, customers are adding fewer items to their
baskets. Average eaches (individual stocking keeping units) per basket during
the quarter was 45, down 10% compared with the same quarter last year, and now
in line with pre-pandemic shopping patterns.

 

While ASP was up 5%, lower eaches in the basket, down 10%, resulted in a 6%
decline in the value of the average basket, from £123 to £116. This was
offset by a 10.7% growth in customer transactions, resulting in sales growth
in the period of 2.7%.

 

Ocado is not immune to the impact of inflationary pressures on the cost base.
With respect to energy, the cost of electricity is around three times what it
was in the prior year with fuel costs for the year also expected to be around
15% higher. At similar levels of use, this represents a £20-25m increase to
the FY22 cost base compared with that of FY21. At the same time, largely as a
result of knock-on effects of the energy crisis, the price of dry ice has
sharply increased, adding a potential £15-20m in annualised cost compared
with FY21. The business is exploring alternatives to dry ice.  These impacts
are expected to further weigh on profitability in the fourth quarter.

 

Ramping capacity

 

The Bicester customer fulfilment centre is now open, adding 30k orders per
week at maximum capacity. New sites opened in FY21 continue to ramp up. The
opening of four CFCs since the beginning of 2021 will ultimately bring total
capacity for Ocado Retail of around 600,000 orders per week. With the 374,000
orders per week in Q3, this leaves Ocado Retail with capacity to add over
200,000 orders per week to meet expected future strong demand for the service.
This growth capacity, however, represents a cost to the business in the short
term.

 

The Zoom facility opened in Canning Town town earlier in the year is ramping
in line with plan, with strong feedback from customers, and a new site in
Leyton, East London, successfully opened in early September. Two further sites
are planned for other UK cities in the next 6 months.

 

Outlook

 

In Q4, we expect a combination of continued strong growth in customer numbers
and orders to result in mid-single digit sales growth for the quarter. This Q4
growth in revenue is not, however, expected to be sufficient to generate
full-year growth year-over-year and we now expect to see a small sales decline
in FY22 and close to break-even EBITDA.

 

In the medium term, Ocado is confident, in the light of strong customer
acquisition and continued improvements to underlying productivity, that sales
and EBITDA margin will recover strongly. This will be driven by growing
customer numbers, orders, ongoing cost discipline and as we fill the available
capacity.  These dynamics underpin a recovery to high-mid single digit EBITDA
margins in the mid-term.

 

 

 

 

Ocado Group, on behalf of the joint-venture, will be hosting an analyst
conference call at 7.30am today. Please use participant number: +44 (0)330 165
4012 and confirmation code: 8476357. A replay facility will be available
through an on demand link for 90 days following the announcement.

 

Contacts

●     Stephen Daintith, Chief Financial Officer, Ocado Group plc, on
01707 228 000

●     David Shriver, Director of Communications, Ocado Group plc, on
01707 228 000

●     Fraser Ramzan, Head of Investor Relations, Marks and Spencer Group
plc, on 0203884 7080

●     Martin Robinson at Tulchan Communications on 020 7353 4200

 

About Ocado Retail

 

Online supermarket Ocado.com was established in 2000 and is one of Britain's
leading online retailers, now a 50:50 joint venture between Ocado Group and
Marks & Spencer Group plc. Covering geographies comprising over 74% of UK
households, every shopping bag is carefully packed in one of seven
distribution centres using market leading software and technology. Shopping is
then delivered directly to customers using a network of regional spokes in
brightly-coloured vans. With award-winning mobile apps, Ocado Retail delivers
over 50,000 products, including big-name brands, a range of Ocado own brand
products and a non-food selection. Thoughtful service features such as
colour-coded bags, digital receipts provided in date order, reminder texts
with your driver's name, along with convenient hourly delivery slots
complementing award-winning customer service on email, phone and social media.

 

Notes

1.         Retail revenue comprises revenues from Ocado.com and Ocado
Zoom and excludes revenues from Fetch in current and prior periods

2.         Average orders per week refers to results of Ocado.com.

3.         Average basket size refers to results of Ocado.com.

4.         Growth percentage calculated on a rounded basis.

5.         The figures used in this announcement are unaudited.

6.         A copy of this trading update is available on
www.ocadogroup.com (http://www.ocadogroup.com) and
www.corporate.marksandspencer.com.

 

Cautionary statement

Certain statements made in this announcement are forward-looking statements.
Such statements are based on current expectations and assumptions and are
subject to a number of risks and uncertainties that could cause actual events
or results to differ materially from any expected future events or results
expressed or implied in these forward-looking statements. Persons receiving
this announcement should not place undue reliance on forward-looking
statements. Unless otherwise required by applicable law, regulation or
accounting standard, Ocado does not undertake to update or revise any
forward-looking statements, whether as a result of new information, future
developments or otherwise.

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