The City is used to taking a nuanced view on Ocado, and this week was a similar story with the boost of an important legal victory weighed against sales growth failing to meet expectations.
Ocado initially surged to the top of the FTSE 100 risers on Wednesday as news broke of a legal ruling in its favour against Norway’s AutoStore. Following AutoStore’s legal action against Ocado for manufacturing and selling technology that it alleged infringed on its patents, the International Trade Commission ruled three of the four AutoStore patents in question were invalid, and a fourth had not been infringed.
But some of the lustre had come off the share price rally by Thursday as the market absorbed the implications of Ocado’s fourth-quarter retail sales falling below City expectations.
Ocado Retail sales fell 4% in its fourth quarter to £547.8m. Customer orders per week were up 9% versus the prior year, driven by a 22% increase in active customers to 832,000. However, the value of the average basket fell 12% to £118 as customer behaviours continued to normalise with the end of Covid restrictions.
Ocado said sales were held back by labour shortages as headcount decreased across its delivery and CFC roles. However vacancies “are returning to more normal levels”.
It added that it was experiencing cost inflation due to nationwide utility price increases and dry ice shortages, though these were being mitigated through various cost management measures.
Bernstein said the twin announcements represented “a mixed news day” for the group, but suggested the US ITC ruling in favour of Ocado was the “much more important” of the two, given it removed any fears of a US import ban and “protects the all-important Kroger deal”.
AJ Bell called the trademark news “a massive relief”, though it noted: “Increased staff costs, investing in marketing and technology and startup costs associated with new warehouses mean increased losses in the near term, and a further delay in that elusive move into the black.”
The broker suggested the food delivery arm was not necessarily part of Ocado’s “grand plan” to focus on automation technology and it could look to “the food delivery business altogether”, with joint venture partner Marks & Spencer the obvious candidate.
“The deal has plugged a big strategic hole for [M&S]. Whether they can get delivery to actually turn a profit could then be the next big issue for investors to consider.”
Ratings agency Moody’s also pointed to Ocado’s longer term growth plans – as it opens more CFCs to ramp up capacity – as a limit on growth across the rest of the sector.
“The capacity ramp up makes Ocado’s revenue guidance in the mid-teens sound either conservative or underwhelming,” it said. “Either way, Ocado will clearly continue to chip away at the market share of the other grocers, especially of those with a presence in the larger metropolitan areas served by Ocado’s lorries.”
Ocado shares closed up 5.5% on Wednesday at 1,678p, having hit a high of 1,765p in the process, but fell back 2.6% on Thursday to 1,635p. The shares remain 28% down year on year having hit an all-time high of 2,886p in February.