Ocado Rises as Investors Buy Into High Hopes for 'Microsoft of Retail' --Update

(Adds CEO, analysts' comments, detail throughout, share price movement)

--Ocado shares rose Tuesday after its annual results, despite a sharply increased loss due to investment spending

--Ocado said its fiscal 2019 earnings will also be held back by increased spending on construction of distribution centers for a number of international supermarket chains

--Shares in Ocado have more than doubled in the last year as the company pivoted toward marketing its distribution technology and signed a string of deals, with grocers rushing to counter the threat from Amazon

By Adam Clark

A higher annual loss at Ocado Group PLC (OCDO.LN) didn't faze investors, as the online supermarket laid out plans to increase spending on its automated-distribution centers and become a global player in grocery distribution.

Chief Executive Tim Steiner on Tuesday hailed 2018 as a transformative year for the British company, which signed a string of international partnerships for its technology platform as supermarkets seek to respond to the threat of Amazon.com Inc. (AMZN) entering the sector.

Deals with U.S. grocer Kroger Co. (KR), France's Casino Guichard-Perrachon SA (CO.FR) and Canada's Sobeys Inc. have helped Ocado's share price more than double over the last 12 months and sent it surging into the FTSE 100. With Ocado formerly one of the most heavily-shorted stocks in the London markets, the deals forced a number of hedge funds to buy back their borrowed shares and cut their losses.

The share price rise means shareholders are currently willing to overlook the costs of investment to meet Ocado's side of the new deals. The company booked a pretax loss of 44.4 million pounds ($58.0 million) for its year to Dec. 2 compared with a GBP9.8 million loss the prior year. Earnings before interest, tax, depreciation and amortization fell 21% to GBP59.5 million.

Shares traded up over 4% by afternoon in London, although the rise was halted when the company said in a later statement that a fire at one of its warehouses led to a suspension of operations at the site.

Ocado's sharp fall in annual earnings was partly due to new accounting standards preventing it from recognizing revenue for upfront cash payments from partners, which rose 36% to GBP200.1 million. Ocado's revenue rose 12% to GBP1.60 billion, with double-digit percentage growth in both Ocado's retail and solutions businesses.

The revenue-recognition delay will drag on Ocado's results in fiscal 2019, when it expects a hit of between GBP15 million and GBP20 million due to the cost of building distribution centers for its partners.

This year Ocado intends to raise its capital spending to GBP350 million from GBP214 million. The company is set to open 23 new distribution centers for existing partners over the coming years, although it has not commented on speculation of a tie-up with U.K. retailer Marks & Spencer Group PLC (MKS.LN).

Analysts at stockbroker Peel Hunt said the results show that Ocado is positioning for the future; they expect the company to branch away from food retail to become the "Microsoft of Retail". Ocado told analysts it intends to trial its one-hour delivery service, branded Zoom, next month in London.

Mr. Steiner said the company is now a world-leading provider of e-commerce grocery solutions and a creative technology company.

Write to Adam Clark at [e-mail]; @AdamDowJones

(END) Dow Jones Newswires

February 05, 2019 09:14 ET (14:14 GMT)

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