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FTSE 100: Ocado share price falls as shoppers cut back on spending

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·Business Reporter, Yahoo Finance UK
·3 min read
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Ocado delivery van
Ocado share price falls as customers cut back on grocery spending. Photo: Dinendra Haria/SOPA Images/LightRocket via Getty Images

Ocado (OCDO.L) fell out of favour with investors on Wednesday, tumbling as much as 5% to the bottom of the FTSE 100 (^FTSE), after it revealed that consumers are buying less thanks to the cost of living crisis.

The online retailer said its joint venture with Marks & Spencer (MKS.L) will see both its sales and profits slowdown as shoppers tighten their purse strings.

Ocado Retail now expects growth for the 2022 fiscal year in the "low single digits", down from previous forecasts of 10%, as the cost-of-living squeeze and surging energy bills take their toll.

Sales declined by 8% in the three months to 25 April, compared to a 5.7% fall in the previous quarter.

Read more: What is the cost of living and how you can manage yours?

Ocado said it had benefited from a rise in customer numbers, which grew 12% in the year to date, however, it warned that "the rate of growth has slowed as consumers respond to short-term discounts and promotions".

“Since Ocado Retail’s Q1 trading update on March 17, the trading environment has deteriorated, as has been widely reported in industry data, with the cost-of-living crisis compounding the impact of a return to more normal consumer behaviours as restrictions have ended and many people return to the office,” it said.

During the pandemic, Ocado’s performance rocketed as more people shopped online as they were forced to stay at home to curb the spread of COVID-19. But restrictions have now eased, and people are spending in stores.

Watch: How does inflation affect interest rates?

Separately, M&S on Wednesday warned that the cost-of-living crisis and a full exit from Russia will prevent its profit from rising this year.

It will close 32 shops as it moves away from multi-floor buildings to more modern edge of town sites with better access and car parking.

The retailer has already closed 68 legacy full-line stores and 19 smaller food stores and is expecting 32 more closures.

The retailer reported pre-tax profits of £392m ($491m) for the year to 2 April – up from a loss of £209m the previous year.

However, M&S said it expected sales growth to slow due to rising costs and increased pressure on customer budgets.

Read more: FTSE pushes higher despite inflation and recession fears

“While all retailers face the same headwinds – navigating the supply global supply chain bottle neck, inflation and expected lower consumer spending – M&S does so from a stronger position than it had been in,” Mark Crouch, analyst at social investing network eToro, said.

“The challenge for the management team now will be to continue Rowe’s good work and to lead the retailer through the next stage of its transformation. Retail conditions are highly uncertain at present and M&S has predicted little to no profit growth this year as a result. But longer-term, the outlook is arguably looking better than it has done for some time.”

Watch: How to save money on a low income