UK online grocer Ocado Retail cuts growth forecast in tough market

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An Ocado delivery van is seen driving in Hatfield, Britain February 26, 2021. Picture taken February 26, 2021. REUTERS/Matthew Childs

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LONDON, May 25 (Reuters) - Ocado Retail, the British online grocer owned by Ocado Group (OCDO.L) and Marks & Spencer (MKS.L), slashed its growth outlook on Wednesday as its customers ordered fewer items against the backdrop of a growing cost of living crisis.

The retailer said it expected sales this financial year to grow in the low single digits rather than the 10% it previously guided, while its core earnings margin would be in the low single digits.

It said the grocery market had declined by 4-5% in recent months compared to last year when COVID restrictions were at a peak and online had declined even faster, although it remained 60-70% up on pre-pandemic levels.

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Cost inflation was also impacting food suppliers, it said, and the price of the average basket had increased by "low single digits".

"Ocado Retail is seeing consumers ordering one or two fewer items per shop than before and therefore the value of the average basket is currently trending 9% lower compared to a year ago," it said.

The lower basket, combined with slower growth in customer transactions, caused sales to fall by around 8% in the second quarter until April 25, compared to a fall of 5.7% in the first quarter, it said.

Shares in Ocado Group, which licenses its online grocery technology to retailers globally, were trading down 4.5% at 730 pence in early deals.

Marks & Spencer, which reported full-year results on Wednesday, was up 0.5% at 133 pence. read more

Analysts at Peel Hunt said their core earnings margin forecast of 4% would perhaps fall to 2%, which might leave Ocado Group at "roughly break-even this year".

"The news is disappointing, but perhaps not too surprising given its direct exposure to the consumer," they said. "But it might accelerate the sale of the remaining portion of Ocado.com to M&S."

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Reporting by Paul Sandle; editing by James Davey, Kirsten Donovan

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