Ocado delivers good Christmas report

By This Is Money
Updated: 06:41 EDT, 4 March 2011

Online grocer Ocado turned in a profit after trading well over Christmas and the start of 2011.

Ocado shares: Despite the tidy Christmas it had a dire week in February

Its shares slumped dramatically towards the end of February however, as £100m was wiped off its market value when investors took fright at the prospect of more vigorous competition from Waitrose - whose products it delivers.

When the posh supermarket announced it was revamping its own online delivery offering, with a £10m investment and targeting customers in Ocado's core market inside the M25, Ocado's shares slumped 7.75% from around 240p to 198p.

But on today's news shares are trading up 3.4p (1.6%) at 213.9p.

Sales at the Hatfield-based firm increased by 24.7% to £146.2m in the 12 weeks to February 20.

It floated on the stock market last July, and claimed the business continued to be profitable in the first quarter of its financial year, after it made its first pre-tax profit in the three months to November 28 last year.

Customer numbers increased although the average delivery size shrank by 1% to £118.1 as people ordered more frequently.

The figures include a strong festive period when sales were up 43.5% to £12.3m in the week before Christmas after the group fitted snow tyres to its 700 vans to ensure deliveries would be met.

Chief executive Tim Steiner said: 'Despite the economic headwinds in the UK, more and more consumers are seeing the benefits of online grocery shopping and we are increasing capacity to meet this demand.'

Ocado opened a depot in Bristol on Wednesday which will allow it to deliver to an additional onem households. It means its vans can now reach 70% of homes in the UK and can access south Wales for the first time. Another depot is expected to open in Wimbledon in May, which will allow the group to handle a further 14,000 orders a week. It is expanding its main distribution centre in Hatfield and plans to open a new distribution centre in the Midlands in 2013.

The group also plans to grow the business in 2011 by expanding its own-label range, which currently features more than 250 products. It aims to capitalise on the boom in internet grocery shopping, but faces stiff competition as established rivals up their online offerings and Morrisons also prepares to enter the market.

The John Lewis Partnership's pension fund recently sold its 10% stake in the group, sparking fears that the Waitrose supermarket chain will compete harder with Ocado in London, having recently started its own rival delivery operation within the M25.

But Ocado said the sale did not impact its commercial relationship with Waitrose, after the two companies signed a 10-year delivery deal in May. John Lewis said the move was part of its pension fund review process.

The business, which was founded in April 2000, had a rocky start to life as a public company after it was forced to slash its float price to 180p on concerns over valuation, before the stock slipped to as low as 120.9p in October. It has since recovered and rose 2% following today's update to 215p.