On a full year basis (52 weeks ended 27 November 2011) Ocado saw a rise in gross sales of 16.6%. Operating profit moved into positive territory of £1.1m, although the company posted a pre-tax loss of £2.2m (against £12.2m). Neil Saunders, Managing Director of Conlumino comments:

“The headline indicators for Ocado are all moving in the right direction and sales growth of 16.6% in a competitive and challenging market is encouraging. However, profitability remains thin, especially relative to that of mainstream grocers. 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.

“It is also of critical importance that volume growth does not come at the expense of customer service levels. In the latest update there have been some declines in availability and on-time delivery metrics, both mainstays of Ocado’s superior proposition. While we believe these remain market leading, Ocado cannot afford to allow them to decline further.

“Finally, we maintain our view that Ocado is overly reliant on Waitrose. This does not represent any issue for the foreseeable future due to the sourcing contract with Waitrose which runs until 2020. However, longer term Ocado needs to start thinking about how, as a business, it can stand on its own two feet.”

Source: Conlumino