Ocado delivers profits, but sales fall as Asda gains from price wars
Shares fall despite nearing profit
Tuesday 01 July 2014
Ocado is feeling the impact of Britain’s supermarket price war, with slowing sales in the last few months.
It comes as high street rival Asda emerged as the big winner among its peers following heavy discounting.
The revelation sent shares in the online grocer down 4.4 per cent to 355p, even though the company posted its first first-half profit and the chief executive, Tim Steiner, confirmed it is on course to record an annual profit for the first time in its 14-year history.
Mr Steiner said: “It wasn’t our focus to hit an [annual] profit, but it appears we will, which I’m sure will upset a few people because they won’t be able to call us the loss-making grocer any more.”
However, the speed of sales growth nearly halved in the three months to 18 May compared with the first three months of the year, and the company remained cautious on the future speed.
Sales for the six months to 18 May were up 15.6 per cent to £442.4m, while pre-tax profits hit £7.5m compared with a £1m loss a year ago.
The company continued to benefit from its £210m link-up with Morrisons, adding £12.7m to its revenues from the deal, although Mr Steiner insisted Ocado would have made a profit even without the joint venture.
He also revealed its second warehouse in Dordon, Warwickshire, which it shares with Morrisons, is performing more efficiently than the original site in Hatfield, Hertfordshire.
A third warehouse will also be opened in Andover, Hampshire, at a cost of £80m.
However, the new site will be considerably smaller than its others, with Mr Steiner explaining that the new focus was to open smaller sites that could be as economically viable as larger ones.
Clive Black at Shore Capital, remained unconvinced. He said: “We do not see the business as a disrupter in the UK grocery market because it is irrelevant within the £175bn industry.”
Meanwhile, Asda has emerged as the major winner from the recent price war among the big four supermarkets, with signs that the Walmart-owned grocer’s early start on cost-cutting is stealing customers away from rivals Tesco and Morrisons.
The supermarket pledged last year to spend £1bn over the next five years to cutting prices, and launched massive reductions to tackle the rise of discounters Aldi and Lidl.
It saw sales jump 3.6 per cent in the 12 weeks to 22 June, according to Kantar Worldpanel.
By comparison, Tesco and Morrisons launched their own price cuts in only the last few months. However, their sales fell 1.9 per cent and 3.8 per cent respectively.
Ocado is also being hit by the cuts because of its price promise to match Tesco, although bosses insist it will continue to grow faster than its rivals.
In the last 12 weeks, sales at Sainsbury’s grew 3 per cent but Asda’s impressive rise sees it start to cement its position as second-biggest retailer behind Tesco, despite signs Sainsbury’s was catching up.
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