raised its profit guidance for the third time this year, as continued Covid-19 restrictions in the U.K. boosted online-shopping sales in the company’s grocery arm.
Shares in Ocado fell 6% in London trading, one of the largest fallers on the FTSE 100, as analysts eyed the more closely watched robotics segment of the company’s business.
The back story. Ocado is an online-only supermarket, using robots in warehouses to facilitate grocery delivery, as well as providing robotics and logistics solutions for other companies. It has joined with
in the U.S., where it will run 20 automated fulfillment centers for the retailer.
Last year, storied British grocer
Marks & Spencer
paid Ocado £750 million ($1 billion) for half of Ocado’s retail business, which is now run as a joint venture. While Ocado has historically made up only a small share of the cutthroat British grocery sector, its high-tech warehouses and the coronavirus-induced online-shopping boom have helped drive up its market capitalization to make it Britain’s most valuable retailer.
Plus:Amazon’s Robotics Deals Have Paid Off, and One Investor Thinks Ocado’s May As Well
What’s new. Ocado raised its full-year profit guidance on Thursday, the third time this year, as it reported quarterly results for the 13 weeks to Nov. 29. The company said that increased lockdowns in the U.K. since early November contributed to a strong performance, and would help boost the company’s yearly adjusted earnings to more than £70 million. Last month, the company said it expected to bring in more than £60 million in 2020.
Ocado Retail reported revenue growth of 35% in the quarter compared with last year, to £580 million, with an average order size of £133. The number of average orders a week grew 3%, to 360,000.
“With three new warehouses opening in 2021 which will ultimately give us 40% more capacity to our business, we look forward to being able to offer more slots to existing customers while welcoming new customers to Ocado and showing them what we can offer,” said Melanie Smith, Ocado Retail’s chief executive.
Also read:Pfizer’s Vaccine News Moved European Stocks Sharply. Here Are the Sectors to Watch.
Looking ahead. The drop in Ocado’s share price on Thursday seems counterintuitive, considering the upbeat trading update. However, there are two key factors putting pressure on Ocado’s shares.
The first is that the retail business itself isn’t the driving force behind Ocado’s share price. That would be the robotics and warehousing business, which is where the company has positioned itself for growth.
The second is that while the Covid-19 pandemic has brought in a steady stream of revenue for retail, it isn’t bound to last. The U.K. was the first country to begin vaccinating against Covid-19, meaning that the end to strict social-distancing measures is in sight, even if it is months away. Ocado is among the “stay-at-home economy” shares that have taken a hit from positive vaccine news.