Shares plunge as Ocado delivers a profit warning

By Daily Mail Reporter

Last updated at 9:21 AM on 20th December 2011

Ocado shares plunged to a record low yesterday after the country’s biggest online-only grocer warned it would miss its full-year profit forecasts.

The Hatfield-based firm took the market by surprise when it said its annual earnings would come in at 27.5m to 28.5m, compared with 22m a year ago.

Analysts had expected the business to turn in full-year profits of around 34m.

Falls: Ocado shares have plunged to a record low

Falls: Ocado shares have plunged to a record low

The firm’s shares fell 12p to 59.2p, its lowest since the stock was floated in July last year at 180p.

Ocado chief executive Tim Steiner blamed problems at the firm’s warehouse on a former British Aerospace factory site in Hertfordshire for the fall in expected profits.

 

The business has had to take on more staff to process orders but had still had not hit its delivery targets.

The company had planned to send out 140,000 deliveries in the final week of its financial year at the end of November.

However, it only managed to despatch 131,881 deliveries to the 300,000 regular customers it serves in the M25 area.

Steiner said: ‘We are disappointed at the growth we have achieved over the year. Had we had the extra capacity we could have taken on more customers and boosted the business.’

The firm pointed out that despite its distribution problems it expects sales for the year to rise 16.7 per cent to 643m.

The firm’s plans to open a new warehouse in Dordon, Warwickshire, in the first quarter of next year are ‘on track and on budget.

This will boost its capacity by 85 per cent. Until then, said Steiner, the business will introduce new distribution and product picking machines to its existing warehouse over the next three months, which will boost capacity by up to 30 per cent.

But many analysts believe Ocado is struggling against more fundamental problems such as the squeeze on consumer spending and online competition from bigger supermarkets such as Tesco, Asda and Waitrose.

John Lewis-owned Waitrose has been a key supplier to Ocado but earlier this year it said it would expand its online delivery inside the M25, threatening Ocado’s own business.

‘The competitive environment has warmed up,’ said Shore Capital analyst Clive Black.

‘And I am not sure Ocado is strong enough to cope with it. We are also concerned at the time management spends getting its Hatfield plant right. It should not build a second warehouse in Warwickshire until it has got the first one right.’

 

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