Sir Stuart Rose brings a dose of glamour, prestige and experience to the chairman’s seat at Ocado, but don’t expect miracles, analysts have warned.
Rose’s appointment, announced today (22 January), has been likened to football manager Harry Redknapp’s recent arrival at struggling Queens Park Rangers.
The highly quotable Redknapp previously led a rejuvenated Tottenham Hotspur and has a reputation for making bad teams play well. But, having departed Tottenham and dropped down the Premier League ladder, even he will be pushed to save QPR from relegation this season.
Shore Capital analysts Clive Black and Darren Shirley said today that they see something of ex-Marks & Spencer chief Rose in this tale. “We are delighted to see Sir Stuart back in the sector, the banter should be good,” they said.
“However, the evidence tends to suggest that bad companies will always beat good management.”
Ocado’s share price got a jolt of confidence today, rising by 6% in the first few hours of trading, but Black and Shirley reiterated that they consider the business model as “fundamentally flawed”.
This, they believe, is the nub of the retailer’s problem. “The cost of competing and the cost of fulfilment are just too high; hence it makes meagre cash flows and no earnings never mind dividends.”
Ocado’s recent report of a 14% rise in gross sales in the six weeks to 6 January have done little to douse analysts’ scepticism about the retailer’s ability to make a profit in an online retailing landscape that has the major multiple grocers coming fast over the horizon. Those retailers are also developing Click & Collect, a format that is beyond Ocado.
“As it is just about to double its capacity [by opening a second distribution warehouse], the next six months are crucial,” said Philip Dorgan, of Panmure Gordon. However, he said the group “gobbles up cash” and added: “Its multichannel competitors are growing faster and profitability seems to be nowhere in sight.”
Both Dorgan and Shore Capital’s Black and Shirley downplayed talk that Rose’s appointment might prove a precursor to an Ocado takoever.
For what it’s worth, Rose is known to have eyed-up the retailer from the M&S boardroom a few years ago, while Ocado could provide a stepladder to both online presence and the south of England for Morrisons.
“We think that a deal at current prices is very unlikely,” said Dorgan. Black and Shirley agreed that a move by either M&S or Morrisons is probably not in the pipeline, given Ocado’s current travails.
Ocado attempted to manage expectations around Rose’s arrival, emphasising that he is “not expecting to be overseeing operations”. “He has committed to a day a week, although obviously will devote as much time as is needed, whenever it’s needed,” said a spokesperson for the retailer.
Rose himself has previously said that a chairman is in charge of the board, not the company. Less a manager, then, more a director of football.
There is a caveat, however. “Of course, it is anticipated that his 30 years [of] experience will help Ocado further develop its customer footprint and brand impact,” the Ocado spokesperson said.
“Sir Stuart is nothing but a man who enjoys a challenge and he is someone we hold in high regard,” said Black and Shirley, despite questioning Rose’s assertion today that Ocado will “emerge as a powerful online player”.
If Rose is to truly emulate the Harry Redknapp school of rebuilding, we might expect a bit of wheeling and dealing in the boardroom executive transfer market in the near future.