Ocado shares jump on hopes for full year profit

A packed morning of trading updates from high-profile names in all of the main segments of UK retailing has brought some mixed results.

The news provides an important insight into the performance of the sector as economic data signal a potential consumer-led revival ahead of the pivotal autumn season.

An interim management statement from Ocado Group Plc. the online grocery retailer, is particularly salient, as the company represents changes in industry and consumption trends seen by grocers, and the burgeoning shift to online shopping that has gathered pace over the last few years.

An early-adopter in the online space, Ocado has struggled against numerous challenges militating against potential benefits from its retailing model.

This morning, it’s reported 16% sales growth in its retail operations, amid an increasingly competitive grocery market, and said that it expects to grow sales in line, or slightly above, the online grocery market.

In the 12 weeks to 10th August, Ocado reported gross retail sales of £218.5m, up from £189.2m in the same period the year ago before. ‘Gross retail sales’ specifically refers to sales from Ocado.com and Fetch.co.uk.

Gross group sales, which include benefits from Ocado’s contract with Wm. Morrison Supermarkets Plc., totalled £231.9m, during the trading period, a rise of 23%.

A hopeful signal as retail pressures continue

The group’s chief executive Tim Steiner made no bones about the continued pressures the company faced.

“The retail environment is challenging with an increased level of promotional activity and price reductions across the industry,” Steiner said in a statement.

Despite the online grocer noting average order size fell 1.7% during the reporting period to £111.64 per order, Steiner was cautiously optimistic about the outlook for Ocado.

“However, due to the strength of our offer, we expect to continue growing sales broadly in line with, or slightly ahead of, the online grocery market,” he said

It’s this part of the statement the market appears to have latched on to with the stock opening stronger this morning and trading as much as 9.1% higher on the day.

Steiner’s statement is the clearest signal yet, from the firm that it expects to post a profit for the full-year period, something it has failed to do for its entire existence to date.

Having said that, the stock’s chart does not back up the optimism initial dealing suggests.

The share trades below all major moving average (MAs), whilst for consistent upside strength it should ideally trade above them. Additionally, MAs would themselves overlay each other in order of the length of their time period: 200-day MA at the bottom, 50-day above the other two. In this chart, the reverse is the case.

An important point with Ocado, which doesn’t pay a dividend, is that it’s known to have a persistent bias to the short side amongst active traders of the stock.

Markit, the financial markets data provider, currently classifies Ocado’s London-listed stock as showing ‘Medium’ short-selling activity. Within Markit’s classification system the category suggests such activity is above the average one would expect in a stock of similar characteristics to Ocado.

Whilst much of today’s stock move might be down to short-covering by traders required to buy back stock in order to close losing short trades, the Moving Average Convergence Divergence signal has pointed slightly upwards.

It is still below the ‘zero’ division, and below the MA line in the system, suggesting a greater tendency for selling momentum than buying, but if the signal line were to cross above both components it would be a positive signal for the stock.

Ocado’s full-year report is due on 3rd February 2014.