Ocado Retail ekes out 1Q revenue gain with price hikes as customers cut back

By Geoffrey Smith 

Investing.com -- Ocado Retail (LON:OCDO), the supermarket operation half-owned by Marks&Spencer (LON:MKS), eked out a modest gain in revenue in the first quarter, even though record food inflation forced customers to cut back on purchases.

Revenue rose 3.4% from a year earlier in the three months through March, according to preliminary figures released by the joint venture. The company raised its prices by 8.3%, offsetting a 7.5% drop in the average number of items in each order. 

"While the trading environment remains challenging, we expect to build momentum through the second half of the year, as we improve our proposition, grow our customer base, and no longer lap Covid shopping behaviours," Chief Executive Hannah Gibson said in a statement. "This solid 2023 performance will enable us to return to sales growth and profitability."

The company is set to benefit this year from the first full year of operations from its logistics center in Bicester, as well as the opening of another center in Luton, north of London, in the second half. The company repeated its guidance that the increased scale these provide will turn earnings before interest, taxes, amortization positive in the second half of the year.

The group's numbers suggest that consumers are suffering increasingly as wages fail to keep up with record price rises, caused by poor harvests in parts of southern Europe and Africa, and by margin expansion at the major supermarket chains. 

Ocado's price increases are, however, only half of the nationwide rate compiled by the British Retail Consortium, a reflection of the fact that it is already one of the more expensive of the major supermarket chains. Despite that, it continued to add customers at a brisk rate in the quarter. Active customer numbers were up 14% from a year earlier at 951,000.

Figures out on Tuesday from the BRC and Nielsen IQ showed that food inflation continued to accelerate in March, with fresh food prices up 17% from a year earlier in the first week of the month - an acceleration from 16.3% in the previous monthly update.