Ocado Group plc (OCDO) Earnings Call Transcript & Summary

Good morning, all. Welcome to the Ocado Retail Q3 trading update, and thank you for joining us. I'm Hannah Gibson, CEO of Ocado Retail, and I'm joined by Mat Ankers, our CFO. Over the last quarter, we have continued to focus on delivering our strategy and giving customers a unique and compelling proposition, focused on unbeatable choice, unrivaled service and reassuringly good value. I'm pleased to say this has resulted in another period of strong growth. Let me share some of the key highlights from the Q3 period, which includes the 3 months to the 1st of September 2024. Our retail revenue grew 15.5% to GBP 658 million. At Ocardo.com, our volumes grew by 15.4% year-on-year and our average orders per week grew by 14.7% to 437,000 orders per week, driven by growth in active customers of 10.3% to 1.06 million customers. Our average selling price decreased by 0.4% below U.K. growth rate inflation of 2%, as we continued to invest in price, driving further improvements in customer value perception. That said, our average basket value remained flat, up GBP 120.97 with basket size, i.e., the number of items per shop slightly up year-on-year. Over the last 7 months, we've been the fastest-growing grocer according to Kantar and have taken share from multiple grocery retailers. We continue to focus on what matters to customers and what we know will drive longer-term growth. We broadened our already unbeatable choice with more amazing M&S products live on site. We've also grown a wonderful range from our small suppliers, many of which you can't find in any other supermarket. We strengthened our unrivaled service with better availability of products and delivery slots. We continue to improve our already high perfect order rate versus last year and delivered more freshness to customers. And we dropped prices to ensure we're providing reassuringly good value with our latest big price drop on Ocado Price Promise and customer perceptions around our value continue to improve. We know our proposition is resonating with our customers, and our overall customer satisfaction has improved by 7 percentage points year-on-year, and we continue to have the highest NPS in the industry. As we continue to strengthen our proposition, we're growing our active customer base by essentially attracting new customers to Ocado and then retaining more of these than ever. This is driven by our continued focus on marketing efficiency, with campaigns driving awareness and improve consideration as well as data-driven channel optimization and improvements to the customer journey. We also grew our incredible M&S range, which we know is a significant draw. Many people try us for the first time because of M&S and stay with us because of the whole Ocado offer. I know we've increases in our active base that drive our growth, but we've now also seen growth in frequency, driving a greater share of wallet, too. We focus on improving slot availability, and we've also seen a high growth in paid Smart Pass members who we know shop more frequently, as our proposition continues to resonate. Due to the strong performance in the first 3 quarters of the year, we're now upgrading our full year '24 revenue guidance to low double-digit percentage growth, having previously guided to mid-high single-digit percentage growth. All of the aspects of Ocado Group guidance are unchanged. We're now focusing on delivering a strong end to the year, and we're already seeing customers getting very excited about bagging their coveted Christmas slots. Before I finish, I'd like to take the opportunity to thank the great team at Ocado Retail, M&S and Ocado Group for their hard work and contribution towards the positive momentum we're seeing across the business. Whilst we've had a super summer, we're pleased with the progress we're making by always looking ahead at how we can deliver an even better experience for our customers in the future. Let's now go to questions.

[Operator Instructions] We will now take our first question from William Woods of Bernstein.

I've just got 2. On the first one, obviously, the investment in price is working quite well to drive volumes, do you think you still need to invest more in price? And then the second one is, obviously, you've maintained your EBITDA margin guidance for the full year. Why haven't we seen that go up? What are the puts and takes? And I suppose, why isn't the additional operating leverage of more sales driving up that EBITDA margin?

Thank you, William. So yes, to take your first question, yes, as you heard there, we've been investing in price. Actually, really that's been going on for the last 1.5 years-or-so, we've materially improved the value that we're offering to our customers across all parts of our offering, whether that be Marks and Spencer, Ocado own brand, branded pricing as well. We are now offering even better value than we were, say, a year ago versus Tesco versus other in the market. We still believe we'd like to go further and so we'll continue to kind of go on that journey over the next year-or-so. So that's kind of in terms of price investment. Your second question on guidance, yes, exactly, as you point out, we've had a strong top line. We did update on EBITDA at the half year. This will see just a trading update, so we're not giving any more guidance at this point, and we'll update again in January. Obviously, we've maintained that percentage margin. We've still got another quarter to go. We want to retain the flexibility to trade the business as needed, but no further update at this point.

We'll now take our next question from Sarah Roberts of Barclays.

Just 2 from me. So firstly, do you have any further update on when we should expect to see Ocado Retail deconsolidated from the group, as a quick one? And then secondly, are you able to provide an update on the utilization levels you're seeing at the U.K. CFCs at the half year? Tim commented that utilization was around 80%, and it's fair to say that given volumes are accelerating, you're probably a little bit above that now. How are you thinking about growing kind of volumes -- sorry, growing capacity from share on it? And then how much headroom is there to extract extra capacity to grow in the existing CFCs versus having to order additional modules?

Thanks, Sarah. So just to take your first question, for those on the call who might not be so familiar, so when the original joint venture agreement was made, there was an agreement on consolidation moving to M&S at some point. That still remains exactly the case. There's no new news here. No date is being formally communicated. We'll obviously update the market as and when that is agreed. On your second point, [indiscernible] you said, Sarah, at the half year, we talked about 80% utilization, I think it's fair to say we are well north of that at the moment, so a few percentage points higher than that. Look, we are actually, I'd probably say, quite frankly now looking at how much extra capacity we can get out of our existing sites and that is now where our focus is that we can continue on the growth trajectory that we'd like to. And we're actually having lots of positive conversations around that. That said, at some point, past that, we will expect to be continuing to look at where the next CFC beyond that is located. So both in terms of slightly existing sites, then also what happens next thereafter.

[Operator Instructions] We will now move on to our next question from Lara Simpson of JPMorgan.

Yes. It's Lara Simpson from JPMorgan. We actually wanted to ask on customer retention. I mean, clearly, you're showing good customer growth. But could you just talk a bit more about sort of retention and customer behavior that you're seeing? I know in the past, you've spoken a bit about the sort of [indiscernible] order. But are you seeing any difference in cohort behavior between, for example, sort of new active customers and your existing ones?

Yes. Thanks, Lara. Thanks for the question. Yes, so actually, this is another positive story at the moment. So we're seeing our active base growing, but actually, we're seeing our mature active base, i.e., those who are customers who are [indiscernible] shop and beyond growing slightly ahead of the active base number. So what does that mean? Well, tracking back, we are getting more customers into Ocado week in, week out. But we are also actually retaining more of them as a percentage to [indiscernible] shop as well versus last year, and we're seeing the first quarter value higher than last year as well. So we've got more coming in, higher retention rates and higher value over that quarter as well. So generally, a positive story on that front.

And we'll now move on to the next question from Luke Holbrook of Morgan Stanley.

My first is just on how the trends fared during the quarter and just to understand the phasing potentially into Q4? My second question would just be -- it would be interesting to hear some of your thoughts on the adoption of On-Grid Robotic Pick, some of the latest technologies and the benefits that Ocado Retail might be seeing from that?

Luke, I'm afraid you just cut out on your first question. Do you mind repeating that one again? I got the second one.

It's just on the phasing through the quarter on the growth, like month-to-month growth rates that you might be seeing, did it exit stronger? Sorry, I'm traveling currently.

Okay. Got you. Understood. Okay. So we don't normally talk about the -- within month view. I mean I have to say, like over the course of the summer, generally, it was very positive. We normally see actually as we enter into summer, we have -- given the shape of our year that there is a normal decline going to the summer period. This year, it was much shallower. I'd say that was the case across the whole summer, so nothing particularly interesting in terms of the shape there. Your second point on adoption of technology across our estate has actually been, again, positive progress on this front. So On-Grid Robotic Pick actually, we now reached [Technical Difficulty] and so we've been hitting 30% of items at least have been On-Grid Robotic Pick, so that means that really for many items, they are only being touched once as they go into the grid; otherwise, they're not touched again until they get to a customer's kitchen table. So that is going positively, and we're continuing to expand that base in Luton, but also in Purfleet as well. We've also got Auto Frameload, which has been operating well across a number of our sites, too.

[Operator Instructions] There are no further questions in queue. I will now hand it back to Hannah Gibson for closing remarks.

Thank you, everyone. That concludes our call for today. We will give you a next update on sales of our Q4 trading statement in January 2025. Thank you very much.

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.