Ocado Group (LSE: OCDO) shares fell this morning after the online grocer said that a warehouse fire in July caused revenue to fall by 19%. The fire — the second in three years — is only said to have damaged 1% of the robotic grid at the Erith warehouse. However, management doesn’t expect the site to return to full capacity until the end of November.
Fires aside, Ocado appears to be performing well. Revenue fell by 1.8% during the six weeks to July 16. This tells me that the company has held on to most of the gains it made last year, when sales rose by 54% during the original lockdown.
Although the average customer order value has fallen from £141 to £124 over the last year, Ocado is continuing to attract new customers. The group said customer numbers rose by 64,000 to 805,000 during the quarter, leading to a 22% increase in weekly orders.
Ocado’s joint venture with Marks & Spencer also seems to be making progress. The company says that 29% of products sold are now M&S branded items.
Ocado shares under pressure from rising costs
Driver shortages have forced Ocado to increase driver wages and offer sign-on bonuses. The company expects this to add up to £5m to costs this year.
Ocado’s insurers will pick up many of the the costs of the Erith fire. However, the company expects around £10m of excess costs aren’t covered by insurance.
As a result, I expect the group’s losses to be higher than the £220m currently forecast for this year.
Ocado’s share price has fallen by nearly 15% over the last six months, leaving it lagging behind rival supermarkets. However, the stock continues to trade at more than five times forecast sales. This suggests that expectations for future growth from the group’s technology business remain high.
