Must read: miners, ASOS, Ocado, UK food prices

GLOBAL MARKETS

European markets have opened mixed, with the FTSE 100 underperforming dragged down by miners like Anglo American (LSE:AAL), Fresnillo (LSE:FRES) and Antofagasta (LSE:ANTO). Meanwhile Ocado Group (LSE:OCDO) has soared to the top of the UK blue chip index, gaining around 5% after a strong update from Ocado Retail.

Germany’s latest GfK consumer confidence reading increased to -27.4, the highest reading of 2024, slightly ahead of expectations and up from the previous reading of -28.8. US consumer confidence figures are due to be published later today. 

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US futures are pointing to a higher open after the rally took a pause for breath on Monday, with the major indices on Wall Street closing in the red.

ASOS 

ASOS (LSE:ASC) reported an 18% slump in first half sales, in line with expectations, and said it is on track to meet guidance for sales to fall again this year, albeit at a slower pace of 5-15%, sending shares higher by around 5%. The online fashion business is focusing on reducing excess inventory back to pre-Covid levels and improving stock efficiency. It also wants to increase the speed at which it can deliver fashion trends to meet changeable customer demands. 

While e-commerce retailers fared well during the pandemic, when most people were stuck at home and bricks and mortar stores were closed, ASOS has struggled with weak demand amid pressures from the cost-of-living crisis and intense competition. ASOS is facing stiff competition on price from the likes of cheaper, online fashion rivals such as China’s Shein as well as from the high street brands like Zara and H&M. CEO José Antonio Ramos Calamonte has been trying to drive a turnaround since he took the helm in June but clearly needs more time for it to bear fruit.

Shares are enjoying a boost today, thanks to its reiterated guidance and a sales drop that met expectations. However, reflecting the pressures facing the business, shares in ASOS have shed almost 50% over the past year and are down around 8% since the start of the year. In a negative sign, most analysts are either neutral or bearish on the stock with a majority of hold or sell recommendations on the stock.

OCADO 

Ocado Retail reported first quarter retail revenue growth of 10.6% to £645.3 million. Average orders per week grew by 8.4% year-on-year to 414,000 with the average basket value up 2.1%. Active customers also rose by 6.4% to 1.02 million. The supermarket joint venture between Ocado Group and Marks & Spencer kept its full-year guidance unchanged. 

Separately, echoing the strong update from Ocado Retail this morning, Kantar reported that Ocado was the fastest growing grocer in the 12 weeks to 17 March. 

Ocado Retail has been enjoying strong volume growth and increasing its market share thanks to an increase in active customers. This has been driven by its sustained voucher campaign and a successful pricing strategy – Ocado has been increasing prices less than the market which has chimed with customers who are particularly price sensitive at the moment amid the inflationary, higher interest rate backdrop. Ocado’s success this quarter highlights just how important value and price are amid the current macroeconomic backdrop and amid stiff price competition from the likes of Aldi and Lidl. 

Shares in Ocado have had an extremely tough time so far in 2024, sharply underperforming the wider market, logging a loss of nearly 40% year-to-date. The company has faced a series of price target cuts from the analyst community lately. And its CFO said in February the company isn’t expected to make a pre-tax profit for another five to six years.

KANTAR

According to Kantar, UK grocery price inflation in the 4 weeks to 17 March slowed to 4.5%, reaching the lowest level since February 2022. This is a sharp decline from the grocery inflation peak in March 2023 of 17%. 

However, almost one in four (23%) UK households are still struggling financially because of the cumulative impact of multiple years of rapid price increases since the pandemic. While grocery inflation is certainly slowing, prices on average are still going up, which is hurting individuals and families. Aldi and Lidl continue to enjoy sales growth, but Aldi’s market share actually declined in a sign that the German discounters’ market share penetration is waning after years of rapid growth. Ocado was the fastest growing grocer over a period thanks to its successful pricing strategy and voucher campaign.