Ocado earnings climb 11% as new customers and product units surge

A 30% rise in new customers and 19% increase in active customers in the first half of the year helped online supermarket Ocado drive robust growth in revenue and operating profits despite the fierce grocery industry competition.

Much heralded talks with multiple overseas retailers about using the company's highly regarded Smart Platform technology were said to have "advanced further" and chief executive Tim Steiner reiterated his target of signing a first agreement "during 2015".

Revenues swelled 18.2% to £507.7m in the 24 weeks to 17 May, with earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 11.4% to £38m.

Statutory profit before tax came in at £7.2m, down from the £7.5m in the equivalent period last year.

Said Steiner: "The channel shift towards online grocery shopping continued during the period, with the broader grocery market remaining characterised by intense price competition and deflationary pressures.

"Against this backdrop, our relentless focus on customer satisfaction continues to drive customer numbers and like-for-like sales ahead of the online grocery market. The resilience of our business model and increasing operational leverage also mean that we have grown operating profit despite these industry headwinds."

The FTSE 250 group maintained a stable average basket size by number of items despite some decline in selling prices driven by greater price competition, which saw a decline in the average order size to £111.68 from £114.43 a year ago.

There was a notably significant broadening of product range on offer from Ocado.com to over 45,000 units, from the previous 35,000. This extended to the non-food range, leading to revenue from non-food increasing by nearly 80% year on year - with sports nutrition and slimming products the largest area in this subset.

Fetch, the specialist pet store subsidiary website, and Sizzle, a kitchen and dining shop, continue to grow and progress was made in preparations for the launch of a health and beauty business alongside Marie Claire.

More than half of orders are now being made using Ocado's mobile apps on via a mobile browsers and during the period the company launched its first Apple Watch app. Trials of a click-and-collect service to test initial consumer reaction are continuing on a limited basis.

Bryan Roberts, director of retail Insights at Kantar Retail, noted that while Ocado continues to grow ahead of the market, the ongoing erosion in average order size is down to industrywide deflation and smaller average purchase values from the Fetch and Sizzle websites.

"The direction of travel for operating profitability is a satisfying development for the business and reflects the benefits of Morrisons-assisted scale and leverage set against recent increases in capacity.

"Clearly, this relatively benign update on trading will be overshadowed by the lack of concrete news on Ocado’s much-vaunted first international partnership. While Ocado remains convinced its first global deal will be signed in 2015, the shortage of anything to communicate today is set to reverse some of the company’s recent effervescence in terms of share price."

After a strong month, shares in Ocado slumped as much as 6% early on Tuesday as investors took profits, spurred by vague concerns about the company's offering.

Augustin Eden at Accendo Markets said: "Ocado, seen more as a ‘tech’ than ‘grocery’ play by investors has seemingly not convinced the wider market that it has staying power with concerns about key partner Waitrose, and other grocers with which Ocado has links, cutting ties and going out on deliveries alone adding to ongoing worries about vicious competition and deflation in the supermarket sector at large.

"But why would the likes of Waitrose cut and run now? Even if they did, someone would probably buy Ocado or its technology in order to gain the edge, which would be incredibly bullish for the stock."

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