Online grocer shares fall despite sales improvement

Online grocer Ocado’s difficult start to life as a public company continued today after new sales growth figures failed to impress the City.

Online grocer Ocado’s difficult start to life as a public company continued today after new sales growth figures failed to impress the City.

The Hatfield based firm was forced to slash the price for its initial public offering to 180p in July – down from initial hopes of 200p and 275p – after retail analysts and fund managers hit out at the firm for overvaluing its business.

Shares started to drop as soon as the company was officially listed on July 26, falling to 131p at one stage, and today’s first trading update since the controversial move has failed to have a positive impact.

A 29.5% increase in gross sales to £126.5m (€152m) in the 12 weeks to August 8 did not boost confidence, as shares dropped 4% to 150p, valuing the group at around £829m (€998m) – well down on its initial hopes for a figure of around £1.2bn (€1.44bn).

Ocado said sales have been boosted by an increase in purchases through its mobile phone channels, using applications on Apple's iPhone and smartphones on Google's Android system.

The company also saw average orders per week for the 12 weeks to August 8 increase to 92,834 from 70,968 last year.

But the boost was not enough to convince the sceptical City, who believe Ocado, which is yet to make a profit since it was launched 10 years ago, overestimated its growth prospects in the face of increased competition and consumer uncertainty.

Some retail analysts have said the company is worth less than half its previous £1bn (€1.2bn) plus flotation value, with Morgan Stanley’s Geoff Ruddell slapping a low 80p price target on the firm.

The internet retailer faces stiff competition in the coming months, as supermarket Morrisons is expected to launch an online service, while Amazon recently moved into the grocery sector.

While Ocado has renewed a contract with Waitrose to continue selling its goods until 2020, the supermarket plans to launch its own competing delivery operation within the M25.

Ocado, which was launched in January 2000, wants to use the cash raised by selling shares to help expand its distribution centre and build a second warehouse.

Chief executive Tim Steiner said the firm now had the funds to complete the expansion plans, and lauded the timing of the flotation.

He said: “Given increased customer demand and our need to increase capacity it was an appropriate time for the company to raise capital for growth.”

Interim results for the 24 weeks to May 16 recently showed revenues up 29% to £230m (€277m), with weekly orders passing 100,000 for the first time in early May.

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