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‘Landmark year’ as Ocado moves into profit

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Online grocer Ocado today unveiled its first profits as it announced its first set of full-year results as a stockmarket-listed company.

The company said that it had halved its full-year pre-tax losses to £12.2m, after the £3.5m costs of its stockmarket flotation. Significantly, it had moved into profit for the first time in the second half of the year, making pre-tax profits of £0.3m in the fourth quarter.

The news cheered investors, who by noon had driven up the Ocado share price by 7.77% to 234.94p.

Ocado, which delivers Waitrose products under a 10-year contract signed in May, alongside its growing range of own-label goods, pointed to gross sales up by 29% to £551.1m in the year to November 28, as the average number of orders per week rose by 31% to 92,916.

Tim Steiner, chief executive of Ocado, said: “This was a landmark year for Ocado with gross sales up 29% for the year; we have delivered on the targets set out at the flotation. We have continued our focus on improving the customer offer, which has led to a record number of customers and sales with the achievement of profitability in the final quarter. Ocado’s growth continues to outpace the market.”

Steiner said a strategy of continuous improvement to its customer offer had driven sales, and that its rise in sales was a “strong result” in a “weak UK economy”. The number of active customers rose by 19% to 262,258 at the year of the full year, despite “minimal geographic expansion”. The company also said average order size had fallen slightly to £114.06 for the year, but that customers were shopping more frequently.

Highlights included the fast growth of mobile purchasing, which grew by three times over the year. Since the New Year, mobile devices have been used in 12% of all checkouts.

In all 99% of deliveries were delivered ‘exactly as ordered’ while 95% of deliveries were on time or early.

During the year the company expanded its existing customer fulfillment centre and agreed to buy a second site, part of a plan to more than triple the business’ capacity between 2009 and 2013. That will also increase the geographical area that the business can serve, and, says Ocado, will “help to serve the demand we expect to see in the online grocery market.”

Growth has continued into the current financial year, with sales rising by 25% since then. Steiner said: “We are focused on positioning ourselves to take advantage of the significant latent demand for online grocery in the UK. We continue to improve the customer offer, while at the same time building capacity to serve the increasing demand.”

Our view: The weak spot in last summer’s Ocado stockmarket flotation was always its lack of profits. Now it seems that long-awaited goal has been achieved. As long as it can be maintained in the long-term, the fast growth in sales will continue to impress – especially as Ocado expands to serve new areas of the country. It’s worth noting the company says it’s improvements to the customer service that lie behind the sales growth – something online retailers across different sectors will watch with interest.

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