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Stock Watch

Ocado share price: Q3 hit by higher costs and fire disruption

Ocado share price: Ocado delivery vans in a parking lot

It’s not been a great year so far for the Ocado share price. The company is among the top-10 worst performing FTSE 100 stocks year-to-date, down over 17%, although it’s still well up on where it started 2020, pre pandemic.

That suggests that any further progress in terms of gains for the Ocado share price could well be hard-won. There is no doubt the company has made great strides in boosting capacity, very much to the detriment of returning a profit. Ocado has also made some great deals, the most recent deal (finalised a year ago this month) with Marks and Spencer being the most notable. 

Ocado share price creeps up on Tesco

At the start of this year, Ocado’s share price almost put it within touching distance of Tesco, the UK’s number one food retailer, despite full-year revenues that were a mere fraction of Tesco’s £58bn, at £2.3bn.

Whether this comparison prompted a reassessment is a moot point. However, like most companies that have done well from the pandemic, the declines are probably down to an expectation that an easing of restrictions and reopening of the UK economy would prompt a slowdown in revenues, and that certainly appears to be the case as far as this morning’s Q3 numbers are concerned.

Q3 revenue for the retail unit fell 10.6%, compared to the big pandemic-induced jump of 54% we saw in the same quarter last year. Ccustomer orders have continued to rise, with orders per week increasing by 22%, although the average basket size remained steady at £124.

Q3 results impacted by Erith fire 

The quarter was also impacted by the fire at the Erith fulfilment centre in mid-August. Revenues fell by 19% in the weeks afterwards due to the loss of capacity, and it's estimated the fre cost the business around £35m in revenue.

On the plus side, increased capacity at Hatfield and Dordon, the reopening of the Andover facility, and the new centre at Purfleet has helped mitigate the problems at Erith, although operating losses due to the fire have been estimated to be around £10m.  

The company is also seeing increased costs as a result of higher wages, which look set to add another £5m to the cost base, which will inevitably hit full-year EBITDA.

Revenues for Q3 came in at £517.5m, which when added to the £1.3bn in revenues in the first half, still puts Ocado on course to beat last year’s total revenue number of £2.3bn, especially with the addition of Purfleet and Andover. The return to normal at the Erith centre in November should also help.  

Over the next few quarters, Ocado says it expects to continue to see strong revenue growth as it benefits from the increased capacity from Bristol, Andover and Purfleet, as well as the new Bicester facility, which is due to open shortly. The company has said it intends to add further capacity in a new facility in Luton, so that total capacity can rise to 700,000 orders per week. 

The Ocado share price opened at 1,780p this morning, folliwng the company's Q3 results.


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