Ocado posts a profit for first time in its history

By DAILY MAIL REPORTER
Updated: 06:43 EST, 1 February 2011

Ocado, the posh online grocery retailer, today posted a profit for the first time since its foundation in April 2000, after it scraped into the black at the end of 2010.

The group, which sells own-brand products and Waitrose food through an agreement with the John Lewis Partnership, made a pre-tax profit of £300,000 for its final quarter to November 28, although it remained in the red for the full year.

In its first set of results since being listed on the stock market last July, Ocado revealed pre-tax losses more than halved to £12.2 million, including £3.5 million of flotation costs, from £25.5 million a year earlier.

Growing: Ocado plans to expand its own-label offering in 2011

Annual sales rose 29 per cent to £551.1 million and the group said it had maintained growth since the year-end, with sales so far up 25 per cent. Shares rose 2 per cent, close to their recent all-time high, as the firm's co-founder and chief executive Tim Steiner hailed a ‘landmark year’ for the group.

The stock has rallied in recent weeks thanks to takeover rumours and a robust Christmas, when Ocado beat the snow to post a 26.7 per cent hike in festive sales. It had a rocky start to life as a public company after it was forced to slash its float price to 180p on concerns over valuation, before the stock slipped to as low as 120.9p in October. 

Numis Securities analysts said Ocado had moved into profit earlier than forecast. ‘The Ocado management has achieved what it set out to at the initial public offering by this stage, with the ultimate metric - profitability - coming ahead of expectations,’ they said.

They added that Ocado's sales growth was only being held back by short-term capacity constraints as demand continues to outstrip supply.

Ocado is expanding into the south-west through a new site in Bristol and building a second distribution centre in the Midlands. However it admitted changes to systems and processes to support growth had initially had a slight impact on productivity and efficiency in the year.

The group plans to grow the business in 2011 by expanding its own-label offering, which currently features more than 250 products. It aims to capitalise on the boom in internet grocery shopping, but faces stiff competition as established rivals up their online offerings and as Morrisons prepares for a trial online service.

While Ocado has renewed a contract with Waitrose - owned by the John Lewis Partnership - to continue selling its goods until 2020, the supermarket has just started its own competing delivery operation within the M25.

John Lewis owns a major stake in Ocado - at around 11 per cent - but is free to reduce its shareholding following today's annual results. This could free up Ocado's shareholder base, which currently sees 10 investors hold around 80 per cent of the equity.