Ocado Group PLC Falls Despite Profitable First Half

Online grocer Ocado Group PLC (LON: OCDO) isn’t immune to “subdued and cautious” consumer spending.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 1 July, 2014 9:04 am BST

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The online grocer Ocado (LSE: OCDO) has delivered a £7.5m pre-tax profit in the six months to 18 May, principally due to the tie-up with Morrisons, and the firm remains on track to deliver its first annual profit after 14 years in business.

Ocado’s sales grew 15% to £442m in the period driven by an increase in the number of loyal customers. Despite a reduction in overall marketing costs, Ocado grew customers from 360,000 to just shy of 400,000. The majority of Ocado’s sales come from customers who have a Smart Pass — a membership scheme which gives discounts on everyday brands.

The Morrisons agreement contributed £20.3m in gross sales after the first orders were delivered at the beginning of January. Ocado said Morrisons online business continues to “ramp in line with expectations”. The success so far paves the way for similar deals in the future.

Tim Steiner, Odado’s chief executive, commented:

“The online grocery market continued to outperform the traditional bricks and mortar supermarkets, with the overall rate of growth currently impacted by subdued and cautious consumer spending.”

Moreover, the leading supermarket groups have placed a significant emphasis on price in recent months, primarily to counter the threat from the discount stores. Ocado will continue to assess price developments in the market.

Shares of Ocado fell by almost 6% to 350p in early trade on the cautious trading outlook. While online grocery shopping is expanding faster than the total market, the rate of growth is slowing.