Ocado share price steady, Q3 sales top estimates

British online grocer Ocado said on Tuesday that third-quarter sales topped analysts projections and that it remained confident of signing its first technology deal with an overseas retailer this year.

Gross retail sales jumped 15.3% in the 12 weeks to August 9th to £252.0 million from £218.5 million a year earlier, topping analysts projections for a 14.5% jump. They rose 15.7% in the first half. Group sales, including its £200-million contract with WM Morrison, jumped 17.3% to £272 million from £231.9 million in the 12 weeks to August 10th 2014.

“We are pleased with the continued steady growth of our business in a retail environment that remains tough,” said Tim Steiner, Ocado’s CEO. “We believe our commitment to improving what we offer to customers through innovation and our proprietary IP will support further growth. Notwithstanding the competitive nature of the marketplace, we expect to continue growing slightly ahead of the online grocery market.”

The company also said that average orders per week rose by 16.6% to 190 000 from 163 000 a year earlier, although the average order size declined by 1.1% to £110.46 from £111.64.

However, the better-than-expected results come at potentially troublesome times for Ocado after last week David Potts, chief executive of Morrison, said that the supermarket chain could grow its developing online business outside its contract with Ocado, opening the possibility for possible changes to the deal between the two.

Ocado signed its first third-party contract with Morrison in 2013, which helped it post in February its first annual pre-tax profit since it was founded in 2000 by three former Goldman Sachs bankers. Meanwhile, upmarket grocer Waitrose, an Ocado supplier, is now free to serve notice to terminate its supply agreement, potentially pressuring Ocado to seek an overseas licensing deal which it had promised in February to strike this year.

Duncan Tatton-Brown, the online grocers finance director, told reporters that Ocado still targeted a deal this year and downplayed the prospect of Morrison changing the terms of their agreement. He added that he was not concerned about the launch of Amazons Amazon Fresh grocery delivery service in the UK as it would help expand the overall market.

Ocado Group Plc traded 0.18% lower at GBX 315.34 per share at 10:05 GMT in London, marking a year-on-year increase of 10.76%. The company is valued at £1.86 billion. According to the Financial Times, the 7 analysts offering 12-month price targets for Ocado Group Plc have a median target of GBX 420.00, with a high estimate of GBX 550.00 and a low estimate of GBX 260.00. The median estimate represents a 32.95% increase from the previous close of GBX 315.90.