Ocado narrows losses and raises outlook for robotic warehouse arm

Online grocer Ocado has revealed interim losses nearly halved and said annual earnings for its robotic warehouse arm would be better than expected despite delays with some key contracts.

The group reported a £154 million pre-tax loss for the six months to June 2 against losses of £290 million a year ago.

It notched up revenues of £1.54 billion for the first half, boosted by a 21.8% surge in its technology solutions business, which powers online grocery businesses and automated warehouses for other retailers.

Ocado retail – run as a joint venture with Marks & Spencer – saw revenues rise 11.3%, helping the division swing to underlying earnings of £20.7 million from a £2.5 million loss a year earlier.

Ocado said it was on track for annual underlying earnings margins in its technology solutions business to be in the “mid-teens”, having previously guided for at least 10%, helping shares bounce back by 11% in morning trading on Tuesday after heavy losses on Monday.

This comes in spite of some major customers – such as US grocer Kroger Co, Sobeys in Canada and Coles in Australia – slowing the rollout of automated warehouses.

Ocado’s first-half losses were also better than expected in the market.

It insisted it had a “clear road map” to deliver positive cash flow in 2025-26.

The results come a day after shares in Ocado tumbled after an analyst downgraded his outlook on the stock, saying he believed the online group may need to raise more cash.

Shares in the group fallen sharply over the past six months, down by nearly 40%.

Tim Steiner, chief executive of Ocado, admitted that online grocery shopping was growing at a slower pace than expected at at the height of the pandemic, which has seen some of it global customers pause expansion.

But he insisted it was still the fastest growing shopping channel and said the setbacks would not impact its goal of turning a pre-tax profit within five years.

He said: “We have come through an unprecedented period for online grocery, with multiple years of high food inflation following a surge in demand during the pandemic.

“The global channel shift to online has now resumed and Ocado is uniquely well-positioned to take advantage of the opportunity.”

He said the group continues to “engage constructively” with Ocado Retail partner M&S as it looks to agree a settlement in a row over payments between the businesses.

M&S is due to pay Ocado a final instalment of £190.7 million as part of the payment for the £750 million 50-50 tie-up between the businesses, Ocado Retail, which was launched in 2019.

But the joint venture has failed to meet performance targets, leading to negotiations between the pair, with Ocado saying in February that it could take legal action against M&S over the payment.

Mr Steiner said he would not give further details on the talks, which he said were “confidential”.

In its first half, Ocado Retail saw price inflation ease back to 1.5%, which it said was “well below” the 4.4% seen in the wider sector.

Despite this, the average basket value lifted by 1.8% to £123, it said.

Ocado said it would keep a tight lid on costs and said that while in the longer term it would likely have fewer staff, it had no immediate plans for job cuts.

“To bring down our costs over the longer term, we’ll emerge with less people than we have today,” Mr Steiner said.