Ocado Group PLC (LSE:OCDO) issued a profit warning as it said the “trading environment has deteriorated” for its UK joint venture with Marks and Spencer Group PLC (LSE:MKS) due to the surging cost of living and a return to lower levels of online grocery shopping from pandemic highs.
The Ocado Retail joint venture said underlying profits (EBITDA) were now expected to grow in “low single digits” rather than the 10% previous guidance, following an 8% fall in sales in the second quarter.
Partly this was from customers ordering “one or two fewer items per shop”, with the value of the average basket currently 9% lower than a year ago.
Growth of new customers has slowed too, though customer numbers are up 12% in the year to date.
The FTSE 100 group, which positions itself as a technology provider to grocery groups, said the overall online grocery market has declined by around 20% compared with last year, though remains 60%-70% higher compared with two years ago.
Online orders for the UK joint venture represent an 11%-12% share of the total grocery market, which it was noted is almost double pre-pandemic levels.
The fundamentals of its business remained strong, it argued. “Ocado Retail continues to see big pools of demand in the UK market for online grocery services which, with new capacity coming on stream, it has the opportunity to serve.”
The warning echoed similar caution from US retail giants Walmat and Target that spooked markets last week.
In a separate statement, M&S forecast that its own profits are likely to be flat this year, though sales for the past year were up 6.9% and underlying profits up 30%.
Ocado shares dropped 4.6% to 730.2p, down 53% so far this year, while Marks was up 1% at 133.55p.