Ocado Group [OCDO] has shrugged off concerns about its profitability, following a full-year pre-tax loss in its last financial year of £44.4m, which was announced earlier in 2019. The Ocado share price has done likewise, having had a stellar year overall to date.
Rising sales have boosted investors’ expectations on future profit growth, with the latest fillip being a new joint venture deal with Marks & Spencer [MKS]. This appears to have prompted Ocado to offload its beauty business, Marie Claire, to high-street clothing retailer Next for £8m, as it looks to reorientate its business towards food retail.
Ocado share price flying high in 2019
The M&S move has helped the Ocado share price jump over 50% so far this year, making it one of the best performers on the FTSE 350 index in 2019. Ocado shares also received a significant boost in March, reaching an all-time high, after the group announced that it had struck a deal with the Australian supermarket Coles. This was the fifth joint venture that Ocado have agreed in less than two years, and provides further testament to the success of its business model globally.
Ocado overcomes unexpected setback
However, despite its performance this year – Ocado's share price reached a new high of 1,435p in April – the shares have struggled since hitting those record peaks, largely over concern about the effects of a serious fire. The fire – at its high-tech Andover distribution centre in February – lasted four days, putting hundreds of jobs at risk, and could yet impact its ability to meet its longer-term growth targets. Nevertheless, Ocado’s share price was still only subject to a temporary blip at the time, falling by 15% before then swiftly recovering by the end of February to 1,034p.
UK’s fastest growing supermarket
Ocado is just one player affected by a wider slowdown in the UK’s supermarket sector. By 29 May, outlets such as Morrisons [MRW] and Sainsbury’s [SBRY] dropped close to one-year lows, according to research firm Kantar Worldpanel, while shares in Tesco (TSCO) also fell away.
Looking at sales percentages across one-, three- and five-year periods, Ocado has experienced a much higher and steadier sales percentage growth than rivals such as Sainsbury’s and Morrisons. Indeed, the latest Kantar data showed that Ocado was the UK’s fastest growing supermarket in the 12 weeks to June 2019, with sales rising by 11.3%. In February, management said they were confident of achieving retail revenue growth of between 10% and 15% this year.
So the key question investors and analysts will be asking is, will this positive outlook be maintained in its six-month update, or will the forward guidance have to be adjusted to the downside?
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