Ocado Profit Margins Under Pressure?

Ocado (LON: OCDO) reports its third-quarter results on Tuesday, with the group expected to highlight further cost issues placing its profit margins under increased pressure.

Grocery inflation remains in the double digits, and consumers are, therefore, looking for cheaper retailers to shop with. This follows Lidl’s full-year results last week, which showcased GB revenue up 18.8% as discounters continue to surge.

Ocado did well to grow its revenue by 9% in its recent interim results, with Ocado Retail revenue up 5% and an increase in active customers. However, the challenging environment saw consumers purchasing fewer items per basket, likely an issue that may persist as inflation remains elevated.

Additionally, the group has undertaken price cuts to compete with the discount players. Retail EBITDA fell 108% YoY in its interim results and will likely come under further pressure in Q3.

Declining food inflation into the second half may provide some relief. As a result, the outlook for Ocado Retail sees EBITDA being positive in the full year and volume-driven growth is expected to accelerate in Q4. Despite this, Q3 customer and order numbers are expected to reflect tougher comparisons.

Ocado shares currently sit up 22% so far this year due to rumours of a potential bid from Amazon.

By Jamel Boughedda