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High-tech grocer Ocado, which is a partner of retailer Kroger in the U.S., reported a 33% surge in profits through 2020, as the group laid out its belief that the grocery landscape has been forever changed by the COVID-19 pandemic.
Shares in the “stay-at-home economy” favorite, which is a leader in online grocery delivery in the U.K., opened more than 4% lower on Tuesday. The stock settled closer to 2% down, with analysts pointing to profit-taking as the likely cause for the slide. Ocado OCDO, -1.71% stock is up more than 120% over the past year.
Alongside operating a joint grocery venture with storied retailer Marks & Spencer MKS, +0.60% in the U.K., Ocado also has a logistics solutions business. It partners with retailers to revamp their logistics networks with Ocado’s high-tech software and automated warehouses, which also represent the foundation of its own retail operations.
“We believe that in the long term, online can be a mainstream channel for grocery shopping,” said Ocado Chief Executive Tim Steiner. “COVID-19 has been the catalyst to accelerate a structural change that would have taken place, just over a longer period of time.”
The group posted a loss before tax of £44 million in 2020, a significant improvement from the £215 million loss in 2019. Adjusted earnings before interest, taxes, depreciation, and amortization, closely watched by analysts, rose 69% from the year before £73 million — outpacing expectations.
“Ocado isn’t a lowly bystander of the online grocery revolution, it is leading the charge,” said Sophie Lund-Yates, an analyst at Hargreaves Lansdown.
“However, the business case hinges on a very different story to the delivery vans scurrying around the country,” Lund-Yates said, pointing toward Ocado Solutions, which is the group’s high-tech logistics branch.
“The addressable market is huge, especially with the long-term shift to online shopping having been accelerated. But the levels of profitability and investment needed are still disappointing,” Lund-Yates said of Ocado Solutions.
Ocado’s stock decline came on a mixed day for markets. The FTSE 100 UKX, +0.18%, the index of London’s top stocks by market capitalization, hovered around flat for much of the day.
“The FTSE 100 is finding upside progress much more challenging, failing to get anywhere close to the highs last month when we briefly hit 6,900 before slipping back,” said Michael Hewson, an analyst at CMC Markets.
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“This failure is a little perplexing given that the recent moves in commodity prices, as well as yields are more likely to suit the likes of the FTSE 100 big caps of big oil and the banks, however concerns over the travel sector still appear to be acting as a drag,” Hewson added.
Oil hasn’t paused for breath since benchmark Brent BRN00, -0.08% broke the $60 per barrel threshold on Monday — a landmark price signifying pre-pandemic highs — with prices pushing a further 0.5% higher on Tuesday to close in on $60.90.
Crude prices are now at their highest since January 2020, with oil in the midst of its longest rally in more than two years.
London-listed major oil companies rose in London trading, with shares in BP BP, +0.11% and Royal Dutch Shell RDSA, +1.49% popping up.
