(Bloomberg) —
Ocado Group Plc shares plunged on concern that the unprofitable online grocery company keeps increasing spending even as sales growth is held back by labor shortages and rising competition.
Ocado said it will boost its capital expenditure to 800 million pounds ($1.1 billion) this year, up about 18% from 2021, to meet the growth of its solutions business, which helps other retailers automate their online operations. The stock fell as much as 10% Tuesday, reaching its lowest level since April 2020.
Ocado bills its robotic warehouse technology as the answer to online grocery. However, it’s failing to benefit from the biggest grocery e-commerce bonanza after the pandemic spurred many consumers to try ordering food via online for the first time. Ocado’s pretax loss more than tripled last year.
The guidance is “horrendous,” wrote Clive Black, an analyst at Shore Capital. Competition has ramped up, which “leads to a smaller pot of gold should the end of the rainbow ever be reached.”
Ocado both sells groceries in an online U.K. venture with Marks & Spencer Group Plc and also has contracts to operate e-commerce for third parties abroad. The company’s capital spending exceeds that of all other European retailers as a percentage of sales, according to Bloomberg Intelligence analyst Charles Allen.
Revenue rose 7.2% last year, which Black noted is low for a technology company. Ocado’s shares have lost half their value in the past year even as e-commerce boomed.
“We’re a growth business,” Chief Executive Officer Tim Steiner said on a call with reporters. “We see a big runway ahead of us. We’re in the very early stages of that and we will continue to invest where it makes sense.”
Ocado has struggled with capacity since the start of the pandemic, having to temporarily close its website in March 2020 because it was deluged with orders. A fire in a warehouse in July slowed sales growth at its joint venture with Marks & Spencer, and labor shortages in the U.K. also posed an obstacle.
Short-sellers have increasingly been targeting the company, betting against about 10% of Ocado’s freely traded shares, the highest level in a year and a half, according to data from Markit Securities.
The company signaled that profitability from its U.K. venture with Marks & Spencer will be lower, though it said the margin should “rebuild” towards last year’s level.
Investors have been awaiting news of further contracts to help run automated warehouses for clients such as Kroger Co. Ocado said it’s in talks to add more clients, though any new contracts will weigh on profitability at first.
The company forecast higher sales this year, helped by expected mid-teens growth at its venture with Marks & Spencer. Ocado also said it expects a doubling of international fees from retailers that use its technology to run their online businesses.
Separately, Ocado had 29 million pounds in legal fees related to an ongoing patent dispute with Norwegian rival AutoStore Holdings Ltd. over warehouse technology.
(Updates with analyst comment in fourth paragraph)
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