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Ocado Retail saw 15% growth in the days leading up to Christmas to drag its overall fourth quarter sales up 0.3% despite a sharp drop in basket sizes.

Overall sales in the quarter of £549.4m were up 0.3% on last year, boosted by a 15% sales jump over the five days before Christmas, driven by order growth in that period of 13%.

Average orders per week of 382,000 were up 1.9% year on year and reflecting 940,000 active customers at end of the fourth quarter, up 12.9% year on year, but offset by reducing frequency in customer shopping compared with the pandemic period and as customers respond to the cost of living crisis.

Overall full-year revenue of £2.2bn was down 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, reflecting an increase in active customers, and full-year average selling prices have increased by 4.4% (from £2.44 to £2.55), an unwind of pandemic shopping behaviours, accelerated by the onset of the current cost of living crisis, resulted in lower basket volumes (down 12.1% and six fewer items) and declining shopping frequency.

Ocado said current headwinds related to inflationary costs, capacity investments to support future growth and higher marketing costs continued to weigh on profitability, meaning it expects to be “close to break-even” in EBITDA terms for the full-year period.

In terms of outlook, Ocado said it entered the new year with strong momentum following a record Christmas, albeit it will continue to compare against the larger volume basket shopping behaviours that remained in place last year (following the pandemic).

As such, it expects that the first half of 2023 will therefore see lower basket sizes than those of the first half of 2022.

In the second half of 2023 it will no longer be comparing against these larger basket sizes, which will support a return to volume growth, improved capacity utilisation and reduced costs relative to sales. Revenue growth will also reflect the impact of price inflation.

Though the group expects positive and improving revenue growth as we progress through the year, it is likely that EBITDA will be negative in the first half and positive in the second half, reflecting trends in volume growth.

Therefore it expects full-year revenue growth in 2023 to be in the mid-single digits and to deliver marginally positive EBITDA in 2023.

Hannah Gibson, Ocado Retail’s CEO, said: “This year we delivered our biggest ever Christmas for our customers at Ocado. A huge thank you to all my colleagues for making this possible. We now have close to one million active customers, our largest ever customer base and we see huge potential to convert those who have now trialled online shopping elsewhere to become Ocado customers.

“The year ahead will set us up to deliver strong sales and profit growth over the mid-term. In 2023 we will continue to strengthen and improve our leading customer proposition, including investing in value to help customers manage cost of living pressures, while keeping tight control of our costs. We will also be doing much more to unlock the potential of our partners, combining the benefits of Ocado’s technology with the magic of M&S products.

“While the current market environment is challenging for everyone, I am very excited in the future for Ocado Retail. Building on 20 years of amazing service and innovation, we are confident of continuing to raise the bar in online grocery and working with our partners to deliver the very best experience for our growing customer base.”

Ocado shares have dropped 6.7% on the update to 753.6p.

Morning update

Diageo has reached an agreement to acquire Don Papa Rum, a super-premium, dark rum from the Philippines.

The upfront consideration is €260m, with a further potential consideration of up to €177.5m through to 2028 subject to performance, reflecting the brand’s current growth potential.

The super-premium plus segment of the rum category is in the early stages of premiumisation, with a compound annual growth rate (CAGR) of 18% in Europe and 27% in the US between 2016-2021.

Through the same period, Don Papa Rum consistently outperformed the market in Europe, delivering a 29% CAGR.

Launched in 2012 by entrepreneur Stephen Carroll, together with Andrew John Garcia, Don Papa Rum is currently available in 30 countries, with France, Germany and Italy being its largest markets.

John Kennedy, president, Diageo Europe and India, commented: “We are excited by the opportunity to bring Don Papa into the Diageo portfolio to complement our existing rums. This acquisition is in line with our strategy to acquire high-growth brands with attractive margins that support premiumisation, and enables us to participate in the fast-growing super-premium plus segment.”

Carroll commented: “Diageo has a strong track record in nurturing founder-led brands. They believe in our unique story and have genuinely embraced our brand idea. We believe this acquisition is a great opportunity to take Don Papa into the next exciting chapter of its development.”

He will remain involved with the brand, working alongside Diageo to build on Don Papa Rum’s growth potential.

Naked Wines has increased its full year adjusted EBIT forecast, but will review forecasts given a sharp drop in customer recruitment numbers.

The online wine brand delivered a “solid” third quarter trading performance, with revenues broadly flat year on year, though down 6% constant currency.

UK revenues were down 1% in the quarter, US revenues down 11% constant currency (up 2% on a reported basis) and Australia down 6% (down 3% on a reported basis).

During the period it saw improved repeat customer contribution to margin year on year, while it continued to control costs.

That helped increase adjusted EBIT outlook increased to £13m-17m, from previous guidance of £9m-13m.

Margin was also helped by significantly lower investment in new customer acquisition.

Sales growth from new customers was down 27% as a result, compared to 3% growth from repeat customers.

Therefore, 2024 forecasts are under review in light of lower levels of customer recruitment

CEO Nick Devlin commented: “We have executed well against our pivot to profit in our key holiday quarter delivering flat reported revenue vs prior year, improving year-on-year repeat customer contribution margins and tightly controlling our SG&A expenses.

“Against a challenging market environment the robust performance of our repeat customers reflects the enduring appeal of Naked’s core proposition combined with strong operational performance – with increased throughput from our investment in warehouse automation supporting an especially strong peak in the UK.

“However, the consumer and marketing environment remains challenging and opportunities to invest in new customer recruitment at attractive payback levels continue to be limited. We expect to spend £20m-24m on new customer investment in FY23, around 40% below FY22 levels.

“This is below the run rate necessary to maintain our current scale and we are likely to see a modest decline in revenue in FY24 as a result. As we enter our detailed FY24 planning cycle we will be evaluating a number of options to improve this outlook while remaining disciplined in our approach to investment evaluation and capital allocation.”

Online beauty and nutrition specialist THG posted record sales of £2.25bn in 2022, with sales up 3.3% year on year (4.1% excluding Russia).

THG Beauty was up 6.1% to £1.19bn, THG Nutrition up 2% to £672.4m and THG Ingenuity up 7.1% to £208.1m.

The modest sales increase reflects the decision to discontinue a proportion of loss-making OnDemand sales (which were down 16.9% year on year), primarily across international markets, using the peak trading period to reduce residual inventory impacting revenue and profitability.

It also experienced a lengthier onboarding of higher revenue and margin Ingenuity partnerships, while seeing disruption in the UK courier network during December, which impacted online gifting demand in Beauty in particular.

Key customer indicators including average order values, repeat rates and active customer numbers all remain in growth year on year, which the group said demonstrated the resilience of beauty, health, and wellness categories, and continued adoption of digital channels post pandemic, particularly in the UK.

THG also made a significant investment in price strategy through 2022 to support long-term customer retention, alongside new customer growth in established and emerging markets.

It said its key Ingenuity arm was “gaining momentum”, following the pivot to focus on higher value and higher margin contracts, with further major contracts close to agreement, building upon the recent expansion of the Matalan strategic partnership.

Simplification of the group, including a strategic review of loss-making categories and territories within the THG OnDemand division, will underpin 2023 profitability improvements.

For 2022 expected adjusted EBITDA on a continuing basis will be in line with current market expectations. Medium-term adjusted EBITDA margin guidance of under 9% was reiterated.

CEO Matthew Moulding commented: “In a year that presented numerous challenges across the world, I’m proud that the THG team has delivered another record revenue performance at £2.25bn. Amongst many highlights, I’m especially pleased with the progress of Ingenuity, successfully competing with major global technology giants to transform digital operations for global retailers and brands.

“With the completion of the divisional reorganisation, and around £100m of annual efficiency savings already delivered, the Group enters 2023 with strong momentum to achieve substantial margin expansion. Core commodity prices used within our Nutrition division have seen significant deflation since their record highs in 2022, giving us confidence in significant profit progression as we move through the year ahead, against a much reduced Group cost base. We remain highly confident of delivering adjusted EBITDA margins in excess of 9.0% over the medium term.

“Our delivery of c£50m free cashflow in H2 2022, coupled with c£640m of cash and facilities at year end, mean we are well positioned for further operational and strategic progress, notwithstanding the continued macroeconomic uncertainty.”

Finally, household goods manufacturer McBride has issued a trading update for the six months ended 31 December 2022.

It said it performed in line with expectations during the period, with group revenues 31% higher than the prior year period (at constant currency), benefiting from both the effective pass-through of input cost inflation and volume growth.

Customer service levels also significantly improved as a result of a focussed effort during the period and cost efficiency initiatives have continued.

While there were some early signs of stabilisation in certain input costs towards the end of the period, costs of some raw materials continued to increase. Energy and employment costs continue to apply further inflationary pressure, and accordingly the group is continuing to seek mitigations including price increases, product engineering and cost actions.

Overall, McBride delivered an improved operational and financial performance, with it returning to adjusted EBITA profitability in the final two months of the first half.

The group expects to report a small adjusted EBITA loss before exceptional items at the interim results.

Net debt closed the period at £169.4m (compared to £164.4m at the star of the period) with liquidity at the end of period of £56.6m, which is comfortably above its banking covenant.

On the markets this morning, the FTSE 100 has edged back 0.1% to 7,850.6pts.

Risers include McBride, up 1.1% to 26.5p, Hilton Food Group, up 0.9% to 611.3p and Just Eat Takeaway.com, up 0.7% to 2,136.5p.

Alone with Ocado, fallers include THG, down 5.9% to 64.4p, Fever-Tree, down 1.2% to 1,060p and Unilever, down 1.1% to 4,183.9p.

Yesterday in the City

The FTSE 100 opened the week up again, rising 0.2% to 7,860.1pts.

Grocery risers included Fever-Tree, up 5.5% to 1,073p, Ocado – ahead of this morning’s annual trading update – up 5.2% to 808p, and THG and McBride up 3.6% to 68.5p and 3.6% to 26.2p ahead of their own trading updates this morning.

Other risers included Pets at Home, up 3.1% to 337.2p, Marks & Spencer, up 2.9% to 150.1p, Nichols, up 2.6% to 1,110p, Greggs, up 2.1% to 2,580p and Domino’s Pizza group, up 1.9% to 305p.

Fallers include Science in Sport, up 3.6% to 13.5p, Just Eat Takeaway.com, down 2.9% to 2,121.5p, Hotel Chocolat, down 2.6% to 189p, C&C Group, down 1.6% to 164.6p and Greencore, down 1.2% to 71.6p.

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