Ocado shares were rocked this week by its first drop in annual sales, with a 15% jump in the five days before Christmas not enough to drag its yearly sales into growth. At £2.2bn, they fell 3.8%, albeit still up 40% from pre-pandemic 2019.

The UK retail joint venture with M&S did at least record fourth quarter growth of 0.3%, but it was accompanied by a sharp drop in basket sizes, though order growth in that period was 13%.

Average orders per week of 382,000 were also up 1.9% year on year, with active customers numbering 940,000 at the end of Q4, up 12.9% year on year. However, this was offset by reduced frequency in customer shopping compared with the pandemic period.

The slightly positive growth in the fourth quarter was not enough to prevent overall full-year revenue of £2.2bn falling 3.8% from the prior year, albeit still up 40% from pre-pandemic 2019.

While average orders per week were up 5.8% in the year and full-year average selling prices have increased by 4.4%, an unwind of pandemic shopping behaviours resulted in lower basket volumes (down 12.1% and six fewer items) and declining shopping frequency.

Compounding inflationary costs now is excess capacity and higher marketing needed to fill it, which is expected to weigh on profitability, meaning it expects to be “close to break-even” in EBITDA terms for the full-year period. It also warned that it continued to face tough comparatives.

“Another year, another loss and another trading deficit is on the cards for 2023,” noted AJ Bell investment director Russ Mould. “Investors have long since become bored of profitless prosperity, whereby firms claim to be winning the war for customers but then consistently fail to turn those new users into profit, including or often even excluding bad stuff.”

Joe Dawson of GlobalData said the Q4 numbers were “disappointing”, adding: “With the UK online food and grocery market forecast to rebound in 2023, Ocado must rethink its strategy for customer acquisition and retention, enhancing its value proposition, while not alienating its affluent core consumer base by harnessing the quality reputation of its range of M&S products.”

Ocado shares fell 9.3% on Tuesday to 733p, but shares are 12% up so far in January as the tech stock rebound and wider grocery retail performance helped it recover from a low of just 380p in October.

Retail partner M&S rode out the sales fall, rising a further 0.5% on Tuesday, taking its rebound so far in January to almost 18%.

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