Source: Company reports/Fung Global Retail & Technology

1H17 Results

Ocado Group announced another half year of strong top-line growth. Revenues for 1H17 came in at £713.8 million versus consensus of £698.2 million. Retail gross margin expanded 60 bps, due to reduced multi-buy promotional activity, the SG&A margin increased 80 bps and the retail operating margin expanded 10bps to 10.1%. Diluted EPS declined by 12.1% to 1.23 pence, which was below the 1.30 pence expected by analysts. Among the non-financial metrics reported by Ocado were:

• Active customer numbers rose by 12.7% to 600,000.
• Order volumes grew by 15.6% to an average of 260,000 per week.
• The average grocery basket value declined by 1.4% to £108, impacted by increased uptake of Ocado’s Smart Pass and reduced multi-buy promotions.

In June, Ocado announced a long-anticipated tie-up to provide technology services to a European retailer using the Ocado Smart Platform (OSP). The company noted that it continues to engage and develop discussions with further international retailers to adopt Ocado’s OSP solution.

Outlook

Ocado noted that it expects to continue to outperform the online grocery market in the year ahead. It expects capital expenditure to total approximately £175 million in FY17, to fund further development of infrastructure and technology solutions. The consensus estimate for FY17 revenue stands at £1,445.7 million, implying year-over-year growth of 13.8%. Consensus expects Ocado’s operating profit to be £22.5 million, up 2.6% year over year. The FY17 EPS consensus estimate is £2.21, implying a year-over-year EPS decline of 5.6%.