Ocado's sales surge but average basket size falls

8th Dec 2016 08:14

(ShareCast News) - Online grocer Ocado's full year sales were on the front foot, but the price of its average basket size fell amid squeezed margins as consumers spend less.For the year ended 29 November, sales advanced 15.1% to £1.38bn, compared to last year, and retail sales jumped 13.6% to £1.26bn.Meanwhile, for the four months to 27 November, sales surged 14.5% to £436.8m, and retail sales gained 13.1% to £398.1m.Average orders per week increased 17.6% to 241,000 driven by new and existing customers.The average order size expanded by 2.9% to £105.61, but customers' total average basket, including standalone Fetch, Sizzle and Fabled orders, declined by 3.7% to £103.15.Neil Wilson, senior market analyst at ETX Capital, said amid the strong sales the average basket size is the red flag that might have investors worried, as margins are being squeezed as consumers are spending less per order."In September we noted that Ocado appeared to have reached its peak in terms of basket size, with average orders down to £107.94 from £111.75. That has now fallen again to £105.61 and it's hard to see it rising in such a highly competitive market. We may see it creep up a little but only as a result of supplier-led inflation being passed through."Supermarkets are under severe pressure to keep prices low, which given rising food price inflation created by the weak pound, will probably put further pressure on margins. There's also too much capacity - too many stores, too many firms vying for customers."That said, Ocado is beating the market on sales growth, notching up a very healthy 13% rise in sales and 17% increase in orders. It's clearly doing something right although when the stock is trading at a price-earnings ratio ratio of roughly 125 times earnings and dividends seem a long way off it is going to have to turn that sales growth into profits soon to justify those multiples."He added that Ocado is facing competition from Amazon Fresh, while Morrisons, which works with the company, seems to be getting cosier with the retail giant.At the end of November, the company had £50.9m in cash and external borrowings of £107m.Chief executive Tim Steiner said: "The strong growth in sales and order volumes reflects the attractiveness of our retail offer to customers."During the period, we were also pleased to announce that we have commenced operations at our Andover customer fulfilment centre. This is the first of our customer fulfilment centre to use our new proprietary infrastructure equipment solution and software, which will support the ongoing growth of our business."Shares on Ocado were down 3.6% to 267.70p at 0834 GMT.