Ocado: unexpected earnings upgrade in bagging area

Ocado: unexpected earnings upgrade in bagging area
Warehouse whizz ends 2020 on a high
Dan Lane
Published
December 10, 2020
Updated
June 17, 2021

There won’t be many companies who can say they ended 2020 with not one, but two earnings upgrades.


Ocado is one of them.


This morning, the supermarket innovator upped its guidance for the second time since September, with the group’s full year earnings expected to hit £70m. 


That guidance began life at £40m three months ago, and grew to £60m in November.


So what’s changed? Well a 35% jump in sales in the quarter to November for a start. 


Orders per week rose by 3% versus this time last year to 360,000 but, mercifully for staff’s nerves, the firm said sales are starting to smooth out after the peaks and troughs of pre-lockdown spending habits.


Today’s update also gave us an idea of how the most recent M&S tie-up is getting on. 


The Ocado Retail division split from long-time partner Waitrose and teamed up with the Percy Pig-maker in September.


And it looks like customers welcome the change. The top selling product lines on Ocado’s virtual shelves now come from everyday essentials in the M&S fresh range.


Tech first, shopping second


Looks like a supermarket, is actually a bunch of robots. Is Ocado the Ex-Machina of groceries?


Ocado has been creeping onto investors’ watchlists for years now and the main driver isn’t their product range, it’s their warehouse tech.


That might not sound exciting initially but if you haven’t seen them in action, take a look. The South East London depot just ended the quarter handling 130,000 deliveries per week.


These customer fulfilment centres make use of gaming technology to create a 3D warehouse model, which allows analysts to spot and correct any traffic jams in the preserves aisle before they happen.


And a very important part of it is that all the software making it happen is written in-house.


Investors looking under the bonnet of the shiny website and delivery vans will see Ocado is really a tech firm masquerading as an online shop.


When supermarkets go shopping


Away from the tie-ups and delivery volumes in the company’s retail division, arguably it’s this tech side that holds most opportunity for the firm.


The big UK supermarkets have been busy optimising their websites and distribution networks over the past few years but when it comes to developing a back-end like Ocado’s, rather than even start they might have to go shopping themselves.


Its Ocado Smart Platform software is already being used by France’s Casino Group, Canada’s Sobeys and Kroger in the US.


Ultimately, this is why M&S joined the party, having neglected its delivery and fulfilment capabilities for years.


As Ocado grows and pumps more money into increasing the tech gap between itself and the established supermarkets, it may end up quicker and easier for them to make deals similar to the M&S one, or buy Ocado’s warehouse tech instead.


But even if not, Ocado has the advantage of being able to leapfrog the legacy world of huge and expensive supermarket real estate costs, and focus on its nimble online offering. 


That, coupled with plans to open three new customer fulfilment centres next year, shows they have no intention of slowing down yet.

Let us know what you think about Ocado on the community forum:

Important information


This should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.


When you invest, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future results.


Freetrade is a trading name of Freetrade Limited, which is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales (no. 09797821).


Important Information

This should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice.

When you invest, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future results.

Eligibility to invest into an ISA and the value of tax savings depends on personal circumstances and all tax rules may change.

Freetrade is a trading name of Freetrade Limited, which is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales (no. 09797821).

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