Ocado delivers sales growth shock

OcadoOnline grocer Ocado has unveiled improved sales growth against a backdrop of more aggressive competition from Britain's biggest supermarkets.

The group, which delivers Waitrose and its own products to much of the UK, said that year-on-year sales growth will be around 13% for the 12 weeks to May 13, compared with 10.9% in the previous quarter.
The group said its Hatfield, Hertfordshire distribution centre is now operating at "record levels" of capacity after work last year to expand the site hit deliveries.

Shares in Ocado rose 5% to 107p but this is still 40% lower than its flotation price in July 2010.

The construction of its second distribution centre at Dordon, in Warwickshire, is progressing according to plan, Ocado said, and is set to open in the first quarter of 2013.

Philip Dorgan, analyst at Panmure Gordon, said second quarter sales growth had beaten his expectations and gave "credit where credit is due" but warned the group is still losing market share.

Sainsbury's online food operation is growing at 20%, Tesco at about 12% and Waitrose recently announced that its online business grew by 26% over the last 15 weeks with online food up 42% last week, Mr Dorgan said.

He went on: "This means that Ocado is losing market share. Why is this? We think that it is because its competitors have sharpened up their act, delivery windows are narrowing, product quality is improving and substitutions are decreasing, or getting better."

Ocado was founded in 2000 by Tim Steiner, Jason Gissing and Jonathan Faiman, and now deals with an average 18,000 orders a day.

Andrew Wade, analyst at brokers Numis, was more upbeat on its prospects and repeated his "buy" recommendation for the shares.

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