UK online retailer set for first profit

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London - British online grocer Ocado posted an 18 percent rise in first-quarter retail sales, putting the firm on track to make its first annual pretax profit this year.

Britain's traditional supermarkets are seeing little, if any, growth in sales at their big stores but the online grocery market is growing strongly, and Ocado's share price has risen more than four-fold over the last 12 months.

The company has not made an annual pretax profit since it was founded in 2000 but before its trading update on Wednesday analysts were forecasting one of about 18 million pounds ($29.9 million) for its 2013-14 year.

“We don't think it needs to change,” Chief Financial Officer Duncan Tatton-Brown said of the forecast.

The UK online grocery market is currently worth 6.5 billion pounds a year, according to IGD data.

It forecasts the market will grow by 124 percent over the next five years to 14.6 billion pounds.

“While we are encouraged by our current trading, the retail environment remains both challenging and competitive, and we expect to continue growing in line with, or slightly ahead of, the market,” said Ocado chief executive Tim Steiner.

Ocado, whose range includes products supplied by upmarket grocer Waitrose, said its gross retail sales increased 18 percent to 218.8 million pounds in the 12 weeks to February 23.

That compares with an increase of 21.3 percent in the six weeks to January 5.

“There is a bit of a slowdown but it's very modest and it's such a short period of time, it's not something that we would worry about,” Tatton-Brown told Reuters.

Average orders per week rose 18.4 percent to 155,152.

However, average order size dipped 0.4 percent to 117.53 pounds, reflecting increased demand for Ocado's “Smart Pass” pre-pay delivery scheme which increases the frequency of deliveries but reduces the average basket size.

The rise of Ocado's shares over the past year has been mainly on the back of a 200 million pounds deal with Morrisons, Britain's No. 4 supermarket, to provide its online grocery operation, and on hopes it could do similar deals overseas.

Ocado said the Morrisons.com ramp up was “progressing well”, having launched on January 10.

Morrisons will report full-year results on Thursday.

The firm's stock was down 3 percent at 554.5 pence at 12:16 SA time, against a 0.7 percent fall in Britain's mid-cap index, valuing the business at 3.24 billion pounds.

Tatton-Brown said securing another third party deal was not a priority.

“We're not today spending lots of time trying to negotiate a deal with an international player. We are, and have, and continue to have discussions with them but we're not at the negotiation stage,” he said.

He added that Ocado was looking at potential sites to increase its capacity and expected to make an announcement this year. - Reuters


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