Ocado Slumps on Marks & Spencer Online Venture’s Weak Sales

(Bloomberg) --

Ocado Group Plc shares approached a two-year low after its online grocery joint venture with Marks & Spencer Group Plc warned that revenue may grow less than expected amid rising energy costs.

Ocado Retail, as the venture is called, said Thursday it’s starting to cut costs across the business after first-quarter sales dropped 5.7%. Ocado shares fell as much as 9.4%.

Customers are returning to pre-pandemic shopping habits, heading back to offices and requiring fewer groceries, Ocado Retail said. While the pandemic has given a huge boost to most online retail businesses, Ocado has been missing out on the boom because of capacity constraints. The company has lost almost half its market value over the past year because it’s struggling to keep up with demand. 

Rising food prices and cost of living increases are also weighing on the outlook, Ocado Group Chief Executive Officer Tim Steiner told reporters. Cost-cutting measures may include restraining growth in headcount, he said. 

Revenue growth, previously expected to be in the “mid-teens,” will likely be closer to 10% for the full year, the company said, citing inflation, the war in Ukraine and a return to more normal shopping patterns. Ocado Retail also said profitability may be impacted by significant increases in energy costs.

The company managed to increase the number of active customers by 31% to 835,000. Still, that wasn’t enough to counter a 15% decline in average basket sizes to 124 pounds ($163).

The supermarket industry has been hampered by higher raw material and product prices as well as more expensive energy, utilities and dry ice in the first quarter, the company said. 

Marks & Spencer shares fell as much as 4.3%.

Ocado Group’s main focus is selling its robotic warehouse technology to other retailers worldwide to boost their online operations with 10 partnerships ranging from Kroger Co. in the U.S. to Coles Group Ltd. in Australia.

The company is in an ongoing global patent dispute with Norwegian rival AutoStore Holdings Ltd. over warehouse technology. The dispute is currently being heard in the High Court in London after Ocado Group won the U.S. trade case last week.

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