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Ocado maintains double-digit sales growth as prices start to rise
March 14, 2017 / 7:29 AM / 6 months ago

Ocado maintains double-digit sales growth as prices start to rise

An Ocado truck returns to the Ocado depot in Hatfield, southern England July 21, 2010. REUTERS/Suzanne Plunkett/File Photo

LONDON (Reuters) - British online supermarket Ocado (OCDO.L) maintained double-digit sales growth in its latest quarter as the industry started to push through higher prices to take account of the weaker pound, it said on Tuesday.

Britain’s grocery industry is having to deal with rising import costs as the pound has fallen 12 percent against the euro and 18 percent against the U.S. dollar since Britain voted in June to leave the European Union.

The intensely competitive nature of Britain’s food market has made it hard for grocers to pass on all those increased costs to consumers, but shoppers are now starting to feel the impact.

“This is the first time for a sustained period we’ve seen some selling price inflation,” Ocado’s Chief Financial Officer Duncan Tatton-Brown told reporters on Tuesday.

“The industry has taken some time to pass the prices on but that’s starting to happen in a small way,” he said.

Last week Morrisons (MRW.L), Britain’s No. 4 supermarket, warned more expensive food imports were creating uncertainties, while industry data showed food inflation has doubled in a month.

Ocado shares were up 5 percent at 271 pence at 1107 GMT, after it forecast continued growth ahead of the online grocery market, and substantially ahead of the market overall. That offset investor concerns about the company’s failure to secure a promised overseas deal.

As Ocado’s policy is to follow the major players in the UK grocery market on price, including No. 1 player Tesco (TSCO.L), it was relaxed about the return of inflation after two years of deflation, said Tatton-Brown.

“We’re growing faster than anybody else and we’re becoming more efficient so we don’t mind the competition, which is why we continue to follow market prices,” he said.

Ocado’s gross retail sales rose 13.1 percent to 352.4 million pounds ($427.8 million) in the 13 weeks to Feb. 26, its fiscal first quarter - the same rate of growth as the previous quarter.

Shares in Ocado have had a rollercoaster ride since listing at 180 pence in 2010. They had fallen 20 percent in the six months prior to Tuesday’s update.

Partnerships with retailers in north America and western Europe are seen by analysts as the key influence on Ocado’s stock market valuation. However, the firm missed its target of securing a deal in 2015 and is still to announce one.

”There’s no diminishment in our confidence (in securing deals), we remain as confident as ever,” said Tatton-Brown.

He denied investors were losing patience with management.

“When I look at our shareholder register ... the important thing I would say is our supporters have remained as confident as they ever have,” he said.

Among analysts there remain naysayers.

“The technology part of the business trades at tech company style multiples, yet Ocado would need to sign one deal per year to justify those multiples,” said Bernstein analyst Bruno Monteyne, who rates the stock “underperform”.

($1 = 0.8237 pounds)

Editing by Paul Sandle and Susan Fenton

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