1Q17 Update

Like most UK companies, Ocado provides updates on sales on a quarterly basis, but only provides profit data at the half-year and full-year. In 1Q17, the company grew total gross sales by 13.3% to £385 million, marking a sequential slowdown from 14.5% growth in the previous quarter. This includes revenue from its service agreement with brick-and-mortar grocery retailer Morrisons. Ocado grew gross sales through its own website by 13.1% to £352 million; this was the same rate of growth as in the previous quarter. For comparison, the total UK grocery market grew by 2.3% in the 12 weeks ended February 26, according to Kantar Worldpanel, with grocery inflation standing at 1.4% in the period. Shoppers continued their trend of buying from Ocado more frequently, but with smaller average basket sizes. In 1Q17, Ocado’s number of average orders per week grew by 16.7% to 252,000. The average order value fell by 1.6% to £111. A sequential easing of the decline in average order values reflected a softening of deflation: in 4Q16, the average order value had declined by 2.9%.

Outlook

The company offered no specific guidance today, other than to say it expects to “continue to grow ahead of the online grocery market.” On inflation, CEO Tim Steiner said, "[T] here are the first signs of a change in market pricing dynamics coming through. However, it remains too early to predict how this will unfold throughout the year, and in particular is dependent on any future currency movements." For the fiscal year 2017 ended November 2017, analysts expect the company to grow revenues by 14.6% and EBIT by 3.7%. This would yield an EBIT margin of 1.6% versus 1.7% in FY16. The consensus is for FY17 diluted EPS of 2.09 pence, up from 1.96 pence in FY16.