The online grocer's shares leap by nearly a third after a cracking Christmas.
Shareholders in online grocer Ocado (LSE: OCDO) breathed a sigh of relief on Thursday morning, as its shares rocketed following an upbeat trading statement.
As I write, Ocado shares are up 30% at nearly 72p, valuing the upmarket retailer at £375 million.
Delivering for Christmas
In today's trading statement, Ocado unveiled the following 'encouraging' trends:
- In the seven trading days to Christmas, sales approached £19 million, nearly a quarter (24%) ahead of 2012.
- In the four trading weeks to 25 December, sales rose by a sixth (16%) to £59 million, while customer orders leapt to 450,700 (up 22%).
- In the 16 weeks to 27 November, sales increased 11% to £198 million. Average weekly orders over this period rose by over 13% to 113,200.
- In the 52 weeks to 27 November, sales hit £643 million (17% ahead of 2010).
While this sales growth is encouraging, average order size over 16 weeks slipped slightly, from £112 in 2010 to £109 in 2011. Thus, while Ocado is making more deliveries, its customers are spending less per delivery. Given the decrease in disposable incomes of the past two years, this is hardly surprising.
A cracking Christmas
Among its festive highlights, Ocado reported that its own-label sales shot up 88% in the four weeks to Christmas Day. Also, Ocado kept its hard-won reputation for customer service, with 97% of orders on time or early during the Xmas week, versus 94% during 2010's wintry Yuletide.
Following this strong operational performance, Andrew Bracey, Ocado's chief financial officer, remarked: "We remain optimistic about continued sales growth and believe Ocado will remain a strong performer in the sector."
However, while Ocado's sales growth has easily outstripped its rivals' festive performances, its shareholders had a terrible 2011. When Ocado floated at 180p a share in July 2010, it was initially valued at around £1 billion. Though its shares began last year above 178p, they'd crashed to a mere 54p by the end of 2011.
Therefore, despite today's strong rebound to almost 72p, investors who bought when Ocado listed in London will have lost three-fifths (60%) of their capital in just 18 months.
Will Ocado deliver?
Habitual Fool readers will know that I have been very bearish on Ocado. Indeed, I've repeatedly warned investors off its shares since before they floated. Nevertheless, last September, I said that my interest in Ocado might be kindled were its shares to drop below 80p.
However, I'm still wary of the economics Of Ocado, particularly the potential £210 million the group could spend to open a second warehouse in Warwickshire. With dwindling cash in the bank, I suspect that Ocado will need a discounted rights issue to pull off the next stage of its development.
With 10 loss-making years under its belt, and profits still some way off, Ocado can only deliver jam tomorrow. As a value investor, I prefer my preserves today, so I'd much rather own shares in Tesco (LSE: TSCO), whose shares fell by 14% earlier today.
In short, I will continue to steer clear of Ocado shares, despite my wife's love of its superb service!
Ocado will release its preliminary results on 31 January, so watch this space...
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> The Motley Fool owns shares in Tesco.