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Ocado share price jumps 8.5 per cent as Morrisons tie-up pushes sales up

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Ocado shares opened 8.5 per cent higher this morning after it reported a 22.5 per cent rise in gross sales for the 12 weeks to 10 August 2014.

The online grocer enjoyed £231.9m worth of group sales, compared to £189.2m during the same period last year. Average orders per week rose 17.4 per cent from 139,000 to 163,000, however the average order size fell 1.7 per cent.

Retail sales rose 15.5 per cent to £218.5m, narrowly beating analysts' expectations of a 15 per cent hike. 

Ocado's tie-up with Morrisons – in January it took over the management of Morrisons.com – continues to successfully scale with demand, the company said in a statement.

Chief executive officer Tim Steiner said he expected the company to stay a step ahead in the online grocery market.

He said:

We are pleased with the continued steady growth in our business despite the increasingly competitive nature of the market. We remain committed to continually improving the quality of the offer to customers, which we believe will support continued growth. This performance also further demonstrates the ongoing shift to online grocery shopping.
 
The retail environment is challenging with an increased level of promotional activity and price reductions across the industry.  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.
 
The company also added that it has cash and cash equivalents of £78m and external borrowings of £44.9m as of 10 August. 
 
Ocado's successful period was not reciprocated by business partner Morrisons. The supermarket chain reported a 31 per cent drop in pre-tax profit to £239m this morning, while its sales also fell 4.9 per cent to £8.5bn.
 
Andrew Wade, retail equities analyst at Numis, said Ocado's results were particularly encouraging in the context of a floundering grocery market.
 
He said:
This is a strong top-line result in our view, particularly given the challenging grocery market backdrop, which has seen a further slowdown across the major supermarket multiples.