Ocado Group plc’s share price dropped by 9% following the release of its FY25 annual results on February 26, 2024. This decline marks a staggering loss of 92% in market value since the stock peaked in September 2020. The grocery-robotics company’s performance raises questions about its future viability and investment potential.
The Ocado business model consists of two primary segments: the online supermarket operations in partnership with Marks and Spencer and its Technology Solutions division, which provides robotic warehouse solutions to international grocers, including Kroger in the United States, Aeon in Japan, and Coles in Australia. While the online supermarket division has struggled under a capital-intensive model, the Technology Solutions segment has long been viewed as a promising growth area.
During the height of the COVID-19 pandemic, Ocado’s stock experienced significant gains, driven by increased demand for online grocery deliveries. Since then, however, the company has failed to demonstrate its ability to achieve sustainable profitability. The recent decision by partners Kroger and Sobeys to close several underutilised customer fulfilment centres has further undermined investor confidence, leading to a 37% decline in share price over the past six months.
Despite the financial turmoil, the FY25 results reveal some positive aspects. Revenue rose by 12.1% to £1.36 billion, with both divisions reporting double-digit growth. The company shipped 72 million orders globally during the year, reflecting a 26% increase in weekly customer fulfilment centre volumes. However, only four new modules were added to the fulfilment centres in the UK, US, and Poland, indicating slower growth than anticipated.
While Ocado reported an adjusted EBITDA increase of 59% to £178 million, it still faced a substantial adjusted loss of £353 million. The company is optimistic about turning cash flow positive in the second half of this year, with a goal of achieving full-year profitability by 2027. Management anticipates adding up to 25 new customer fulfilment centre modules over the next few years, which may help offset the closures in North America.
To address its financial woes, Ocado plans to cut around 1,000 jobs, representing about 5% of its global workforce. Most of these cuts will occur at its headquarters in Hertfordshire.
Looking ahead, the conclusion of exclusivity arrangements in various international markets presents an opportunity for Ocado to seek new partnerships and expand its operations. However, potential partners may be hesitant, as many grocers are currently focusing on fulfilling online orders from physical stores instead of investing in automated solutions.
While there is potential for Ocado to rebound if it secures new contracts and achieves cash flow positivity, uncertainty surrounding its ongoing losses leaves some investors cautious. With a share price hovering around just over 200 pence, analysts suggest that there may be more promising growth opportunities within the FTSE 250 at this time.
As Ocado navigates these challenges, the market will be closely watching for signs of its ability to adapt and thrive in an evolving retail landscape.
