Ocado Expects Retail Growth as M&S Deal Preparations Advance
Ocado Expects Retail Growth as M&S Deal Preparations Proceed
(Bloomberg) --
Ocado Group Plc forecast retail revenue growth of as much as 15% this year as it starts to sell products from Marks & Spencer Group Plc and sets up the first of its robot-run delivery systems for supermarkets abroad.
The U.K. online grocer says it’s on track to launch its joint venture with M&S in September and open the first warehouses for Casino Guichard-Perrachon SA in Paris and Sobeys Inc. in Toronto in the first half. The company reported a higher-than-expected pretax loss, but it included exceptional costs related to a fire at a U.K. site.
Ocado remains bullish on prospects for its international solutions arm, which licenses automated warehouse technology to supermarket around the world. After a slow start, the company has struck a flurry of deals with the likes of Kroger Co. in the U.S. and Japan’s Aeon Co. It forecast that invoiced fees from such partners will grow 40% or more in 2020.
The so-called solutions arm is now the “center of gravity” for Ocado, Chief Executive Officer Tim Steiner said on a call, taking over from the U.K. food delivery business as the company’s focus.
In the domestic market, however, a lot is still riding on the launch of the M&S venture in September. Last year M&S agreed to pay 750 million pounds ($970 million) for a 50% stake in Ocado Retail, unseating John Lewis Partnership Plc’s Waitrose as the main grocery supply source.
Steiner said growth of 10.3% in its U.K. retail business in 2019 made Ocado the country’s fastest-expanding grocer, despite a loss of capacity when its facility in Hampshire, England, was destroyed in a fire. British supermarket chains have been struggling with the shift to online and the rise of discounters Aldi and Lidl.
What Bloomberg Intelligence Says:
Ocado’s expectations that capital spending will reach 600 million pounds in fiscal 2020 may reinforce its status as a tech company with long-term aspirations. The bet is that fee income from its installed robotic warehouses will eventually justify the investment.
-- Charles Allen, BI retail analyst
Ocado to Double Capital Spending to Build Client Capacity: React
Ocado has been burning cash since its creation more than two decades ago. It forecast 600 million pounds of capital expenditure this year to help meet the growth of its solutions business. This is up sharply from its 350 million-pound forecast at the start of 2019, although only 260 million pounds of that was actually spent.
Ocado’s shares gained as much as 2% early Tuesday in London after an early dip. They’ve jumped 31% over the past 12 months.
To contact the reporter on this story: Deirdre Hipwell in London at dhipwell@bloomberg.net
To contact the editor responsible for this story: Eric Pfanner at epfanner1@bloomberg.net
©2020 Bloomberg L.P.