Ocado's sales growth held back by capacity constraints

LONDON: British online supermarket Ocado Group raised its annual earnings forecast for the second time in two months, though sales growth at its retail joint venture with Marks & Spencer has slowed due to capacity constraints.

The group has seen sales soar this year as the COVID-19 pandemic has generated huge demand for grocery home delivery.

Revenue at its M&S joint venture rose 34.9pc to 579.6 million pounds ($772 million) in its fourth quarter to Nov. 29 - a slowdown from third quarter growth of 52pc.

"The slower rate of growth compared to Q3 reflects the seasonality of the period," Ocado Retail finance chief Niall McBride told reporters on Thursday.

"The bottom line, however, is that we've continued to operate at capacity over the quarter."

Shares in Ocado were down 5pc at 1005 GMT, paring 2020 gains, which have been mainly driven by the technology side of the group, to 72pc.

Ocado forecast earnings before interest, tax, depreciation and amortisation (EBITDA) of "over 70 million pounds" ($93 million) for 2019-20 versus a previous forecast of "over 60 million pounds". EBITDA in 2018-19 was 43.3 million pounds.

Average orders per week rose 3pc to 360,000 in the fourth quarter, and average order size was 133 pounds.

In September, the Ocado Retail venture switched from using Waitrose to M&S products.

Ocado said sales and earnings growth in 2020-21 would depend on the extent to which it returns to a "normalised" trading week and when planned additional capacity goes live.

It plans to open three new warehouses in 2021, which will ultimately provide 40pc more capacity.

Ocado's capital-intensive and centralised fulfilment model has restricted its ability to quickly increase its capacity during the pandemic.

In contrast, Britain's big four grocers - market leader Tesco, Sainsbury's, Asda and Morrisons - were quickly able to adapt their predominantly store-pick models to boost capacity, enabling them to deliver faster growth and win share of the online market.

Online grocery shopping has doubled its share of the UK market to nearly 14pc since the start of the pandemic and Ocado reckons it could reach 30pc over the next few years.