Ocado shares down 12% after slump in basket size

[MongiIG]

Despite a record number of new customers, a 6% drop in basket size means that costs are rising disproportionately to income.

 

 

 Jeremy Naylor | Writer, London | Publication date: Tuesday 13 September 2022 

Despite what Ocado Group PLC (OCDO) has called a record number of new customers, a 6% drop in basket size means that costs are rising disproportionately to income. Here, Jeremy Naylor looks at the drop in OCDO stock and how this has had a knock-on to joint venture partner, Marks & Spencer Group PLC.

Ocado Q3 trading statement

The delivery company Ocado has come through with a third quarter (Q3) trading statement this morning, which actually looks quite good, although it's not quite as impressive as some had been expecting.

Lets take a look at the figures for the third quarter: retail sales are up 2.7% of the business to £532 million. Bloomberg had been estimating this could rise to as high as £557 million. So that was a little bit short of expectations.

But, the company is reporting that record numbers of new customers are now shopping at Ocado, with the active customer base rising by 23% year-on-year (YoY), active customers growing to 946,000 annually, driving an increase in average orders per week of 10.7%.

While customers and orders have grown, consumers are shopping smaller basket sizes and seeking value-for-money items as they respond to these inflationary pressures that we're all feeling now. The average basket size is down 6% to £116.

So that is not good news because every time the company has to go and deliver a new basket to a new premises, it has to spend money in getting there and getting back. So the base costs are increasing and the company's also saying that not just energy but dry ice is also weighing on profitability. This is going to hit the fourth quarter (Q4) numbers.

Ocado share price

Let's take a look at the share price because this just says it all.

Ocado has been feeling the pinch right the way from the highs that we saw in the stock near £30 back in September 2020 and this big move lower. The stock is now trading at 696 pence, it's down 12.6% in the session in today's trade, not too far away from this line of support at 670p. So, all the good work the stock's done in the last couple of weeks has now evaporated in this one trade that we have today.

Ocado has a joint venture with Marks and Spencer which is also down today but is off the lows, that's down 2.22%. So, pressure is building for Ocado.