Analysts retain concerns about the prospects of UK online retailer Ocado even after it posted a reduction in full-year losses earlier today (31 January).
The company announced its losses dropped from GBP12.2m (US$19.2m) last year to GBP2.4m this year, while sales grew 16.6%.
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Neil Saunders, managing director of Conlumino, said Ocado is “moving in the right direction” but expressed concern over “thin” profitability and increasing levels of competition. He said: “While we accept that Ocado’s operating model necessitates higher costs, the company has yet to prove itself financially.
“Central to future success will be the ability to ramp up volumes. While we are confident that Ocado is taking the right steps in terms of investment in capacity, the market is becoming more competitive – notably with Waitrose.com entering Ocado’s core London market – and this could dampen volume growth over the next couple of years.”
The figures show that some customer service level metrics dropped, such as deliveries on time falling from 94.9% to 92.3%. Saunders warned that volume growth should not come at the expense of customer service levels, stating: “While we believe these remain market-leading, Ocado cannot afford to allow them to decline further.”
Clive Black of Shore Capital says he and his colleagues greeted the results with “a modest sense of relief” that there wasn’t more bad news after recent profit warnings.
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By GlobalDataWhile losses were lower than Shore Capital’s forecasted GBP6.3m, he expressed concerns about Ocado’s building debt, which stands at GBP19m and could rise as investment in a new customer fulfilment centre in Warwickshire grows.
He said: “It is our ongoing opinion that Ocado’s business model contains structural flaws that have not been ironed out after a decade of trading. Ocado has not demonstrated to the market that it has an operating model that can work for customers whilst building margins and returns to a satisfactory level.”
