Landmark year as Ocado records first profit

Upmarket online retailer Ocado posted a profit for the first time in its history yesterday after it scraped into the black at the end of 2010.

The group, which was founded in April 2000 and has a delivery deal with supermarket Waitrose, made a pre-tax profit of 300,000 for its final quarter to November 28, although it remained in the red for the full year.

In its first set of results since floating on the stock market last July, Ocado revealed pre-tax losses more than halved to 12.2m, including 3.5m of flotation costs, from 25.5m a year earlier.

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Annual sales rose 29 per cent to 551.1m and the group said it had maintained growth since the year-end, with sales so far up 25 per cent.

The firm's co-founder and chief executive Tim Steiner hailed a "landmark year" for the group.

The stock has rallied in recent weeks thanks to takeover rumours and a robust Christmas, when Ocado beat the snow to post a 26.7 per cent hike in festive sales.

It had a rocky start to life as a public company after it was forced to slash its float price to 180p on concerns over valuation, before the stock slipped to as low as 120.9p in October.

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Numis Securities analysts said Ocado had moved into profit earlier than forecast.

"The Ocado management has achieved what it set out to at the initial public offering by this stage, with the ultimate metric – profitability – coming ahead of expectations," they said.

They added that Ocado's sales growth was only being held back by short-term capacity constraints as demand continues to outstrip supply.

Ocado is expanding into the south-west through a new site in Bristol and building a second distribution centre in the Midlands.

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However, it admitted changes to systems and processes to support growth had initially had a slight impact on productivity and efficiency in the year.

The group plans to grow the business in 2011 by expanding its own-label offering, which currently features more than 250 products.

It aims to capitalise on the boom in internet grocery shopping, but faces stiff competition as established rivals up their online offerings and as Morrisons prepares for a trial online service.

While Ocado has renewed a contract with Waitrose – owned by the John Lewis Partnership – to continue selling its goods until 2020, the supermarket has just started its own competing delivery operation within the M25.

John Lewis owns a major stake in Ocado – at around 11 per cent – but is free to reduce its shareholding following yesterday's annual results.