Ocado Shares Decline Following Mixed First Half Results Despite Revenue Growth

Shares in Ocado Group PLC tumbled nearly 16% to 149.55 pence following the release of first half results that revealed deteriorating cash flow and underlying earnings, despite headline revenue growth.

The FTSE 250 company, which provides automated warehouse systems for supermarkets, reported that underlying cash outflows worsened to £147 million from £108 million in the prior year period, excluding the impact of customer fulfilment centre closures. Management nonetheless reiterated guidance for positive free cash flow across the full financial year.

Revenue increased 54% to £1.04 billion, although this figure was significantly inflated by one-off termination payments and accelerated revenue recognition stemming from facility closures for North American clients Kroger and Sobeys. When these exceptional items are excluded, revenue advanced only 1% to £684 million.

Underlying earnings, measured by adjusted EBITDA, rose to £432 million from £92 million in the corresponding period. However, stripping out the closure-related impacts reveals a 12% decline in adjusted EBITDA to £81 million, highlighting underlying operational challenges.

The Ocado Retail division, operated as a joint venture with Marks and Spencer Group PLC, continued to outperform the broader grocery market. This segment delivered revenue growth of 15% whilst adjusted EBITDA more than doubled to £73 million, demonstrating the strength of the consumer-facing online grocery business.

On the commercial front, the Technology Solutions division secured a significant contract with Asda to replace the supermarket chain’s entire ecommerce infrastructure. The deployment of Ocado’s Smart Platform across Asda’s online operations is scheduled to commence in early 2027, representing a material new growth opportunity in the UK market.

The group confirmed it remains on track to deliver approximately £150 million in cost savings. The Technology Solutions arm expects six robot-operated warehouses to become operational for customers within the next two to three years, including facilities in Busan for South Korea’s Lotte and in Tokyo for Japan’s AEON, with the latter scheduled for this year.

Chief executive Tim Steiner commented that the first half had witnessed accelerating international volume growth, strong commercial momentum, improved organisational efficiency and rigorous cost discipline. He stated that continued focus on delivering growth and efficiency would enable the company to achieve positive cash flow in the second half and full year cash flow positivity in financial year 2027.

Broker Peel Hunt characterised the results as representing genuine progress, noting that Ocado Retail has achieved profitability, the Asda contract provides a legitimate new UK growth lever and cost discipline is clearly taking effect. The broker believes the core Technology Solutions business has reached a trough following the closures and that management’s timeline for cash positivity appears increasingly credible.

The market reaction, however, suggests investors remain cautious about near-term execution and the pace of underlying organic growth once exceptional items are excluded.