Ocado shares fall to multi-year low as retailer partnership talks continue

Ocado shares fell sharply on Thursday.

The British technology and online grocery group's stock hit its lowest level in 13 years.

Investors were disappointed after the company failed to show meaningful progress in securing new US retail partners.

The market is closely watching Ocado's efforts to grow its customer base.

The company is also trying to strengthen its position against rapid grocery delivery firms.

London-listed Ocado develops automated technology for distribution centres.

It also operates its UK online grocery business through a joint venture with Marks & Spencer.

The company is now repositioning its business after setbacks with two major North American partners.

North American setbacks weigh on sentiment

OCDO has faced pressure after two key partners in North America scaled back their relationships with the company.

US retailer Kroger and Canadian supermarket group Sobeys decided to close robotic customer fulfilment centres they operated with Ocado, citing weaker-than-expected demand.

The closures have added to investor concerns about the company's long-term growth prospects.

Ocado's shares have declined 44% over the past six months, reflecting uncertainty surrounding its ability to replace lost business and expand its technology platform.

On Thursday, the company's shares were last trading 14% lower, marking a fresh 13-year low.

Focus remains on securing new US retailers

Despite the recent setbacks, Ocado said it remains focused on winning new business in the United States.

The company stated that it is currently in discussions with multiple retailers as it seeks to establish new commercial partnerships.

Chief Executive Officer Tim Steiner expressed confidence that the company's strategy would begin to deliver results.

"I think our chances of winning new partners in the next six months are good," Steiner told Reuters on Thursday.

He also said that the company believes its latest offering, which provides smaller store-based automation services to help retailers pick online grocery orders, will attract new customers.

The solution is designed to complement retailers that fulfil online orders directly from stores rather than relying solely on large automated warehouses.

Analysts question long-term competitiveness

While management remains optimistic, some analysts continue to question whether Ocado can compete effectively as the grocery industry increasingly shifts towards fulfilling online orders from physical stores.

RBC analysts said in a note that the company's financial targets may be difficult to achieve.

"Our analysis of the Group's cash flow potential suggests management's mid-term targets appear ambitious and we question whether Ocado will be able to compete effectively with other in-store fulfilment options," the analysts said.

The analysts' comments reflect broader concerns that warehouse-based automation technology may face increasing competition from lower-cost store fulfilment models that many retailers are adopting.

Termination payments boost reported earnings

Ocado's half-year earnings received a significant boost from one-off termination payments totalling £351 million following the end of its arrangements with Kroger and Sobeys.

Excluding those payments, the company's adjusted earnings for the first half declined 12% to £81 million ($109.63 million).

Despite the weaker underlying performance, Ocado maintained its guidance that it expects to become cash flow positive during the current six-month period.

The company also reiterated its forecast of achieving positive cash flow for the full year next year.

Leadership remains unchanged

The recent decline in Ocado's share price has also fuelled speculation over the company's leadership.

However, the company moved to address those concerns last week by confirming that Chief Executive Tim Steiner, who co-founded Ocado in 2000, will remain in the role for at least the next 18 months.

The announcement provides continuity for the business as it continues efforts to secure new retail partnerships and execute its strategy in an increasingly competitive online grocery market.