Ocado Retail, the joint venture between Ocado Group PLC (LSE:OCDO) and Marks and Spencer Group PLC (LSE:MKS), has warned it expects a fall in sales this year following a decline in trading in recent weeks as customers trade down and put fewer items in their baskets.
Even though customer numbers are up, the online food retailer warned that full-year sales in 2022 will decline, with underlying profits (EBITDA) "close to break-even" as cost headwinds, predominantly from rising prices of energy and dry ice, are likely to weigh on profitability in the fourth quarter.
Third-quarter sales, covering the 13 weeks to August 28, 2022, came to £532mln, up 2.7% compared to a year ago.
Stronger growth of mid-single-digit percentages is expected in quarter four, after active customer numbers grew 23% year-on-year to 946,000, driving an increase in average orders per week of 10.7%, the business said.
The klaxon follows a previous profit warning in May, when the UK online grocery joint venture said it expected EBITDA growth in “low single digits”, down from previous guidance of 10%, following an 8% fall in sales in the second quarter as the-cost-of-living trend of smaller basket sizes emerged.
But while customers and orders have grown, consumers are shopping smaller baskets and seeking value-for-money items as they respond to inflationary pressures, the company said.
As a result, the value of the average basket was down by 6% in the period, to £116, with a greater decline experienced later in the quarter during the peak summer holiday season.
Ocado Retail's average selling price increased by 5% year on year, the result of a 7% increase in food prices offset by a 2% decrease related to customers choosing lower-priced alternative products.
Energy costs were around three times where they were a year ago, with fuel costs for the year expected to be around 15% higher. At similar levels of use, this represents a £20mln-25mln increase to the FY22 cost base compared with that of FY21.
Shares in Ocado fell 12.5% and M&S fell 2.4% on Tuesday morning.