Shares in Ocado dropped by nearly 12% today (19 September) after the UK online retailer’s sales growth slowed and it admitted that margins would be lower than earlier forecast.
Ocado said its gross sales were GBP147.9m (US$232.5m) for its third quarter 7 August, a 16.9% increase on a year earlier. However, in the first six months of its financial year, the retailer’s sales were up 20%.
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Average orders per week are also up to 110,945, compared to 92,834 in the equivalent period in 2010, although the average order size dropped to GBP111.08 from GBP113.59 last year.
Ocado said it had invested in customer service to “ensure it returned towards previous high levels” and it admitted the expenditure was likely to lead to a “slightly lower than expected increase in full-year margins”.
The firm also admitted that it had suffered due to capacity constraints at its Hatfield customer fulfilment centre.
“In spite of the tough economic environment, our sales are growing substantially and we remain focused on improving range, value and service for our customers,” Ocado CEO Tim Steiner said.
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By GlobalData“We are continuing to expand the capacity of our first fulfilment centre in Hatfield, with significant progress made over the summer months. While conducting these works, we have invested additional resources in improving our key customer performance metrics and we are pleased that these efforts are paying off.”
Shares were at 118p at 12:26 GMT, an 11.67% drop.
Concerns over the company’s distribution woes and Waitrose’s rival online offering will have hit the share price, according to Arden Partners analyst Nick Bubb. He said: “With Waitrose about to crank up its own London online offer, it is good to see that Ocado has worked hard to protect its precious level of customer service, but it is disturbing that the much-vaunted Hatfield warehouse is still suffering from capacity problems and the case for a second warehouse has therefore not been proven, so the great valuation debate about Ocado will go on.”
Ocado is targeting higher growth rates in the fourth quarter, although the company admits that depends on continued capacity expansion at Hatfield and consumer confidence, which is “fragile”.
