Online grocer Ocado Group Plc forecast first-quarter sales growth of about 10 percent, easing concerns about its prospects after a profit warning last month.

The company, which mostly sells the products of upmarket grocer Waitrose via a fleet of brightly coloured vans, said its rate of growth should improve as the year progresses, service initiatives kick in and distribution capacity increases.

Shares in Ocado, founded in 2000 by three former Goldman Sachs bankers, rose 4.6 percent to 84 pence by 10:10 a.m., valuing the business at about 445 million pounds.

Despite the recessionary headwinds that we are sailing into, we are still seeing double-digit growth in online grocery, Chief Executive Tim Steiner told Reuters on Tuesday, adding the company was benefitting as consumer spending shifts to the Internet.

He said its success was not about requiring customers to spend money that they were not spending before.

Ocado had said in December earnings had been hit by higher staffing costs as it battled to overcome capacity constraints at its main distribution depot in Hatfield, north of London.

Steiner said these constraints had alleviated and the group planned to take capacity at Hatfield to 160,000 orders a week by the end of the year, up from a 2011 peak of 131,381 orders. A second distribution centre will open in Warwickshire in central England in the first quarter of 2013.

We'll be making a lot of enhancements to customer service, in particular in terms of range and usability, and we know that as we turn those on we'll see an acceleration in demand, said the CEO.


The group said earnings before interest, tax, depreciation and amortisation (EBITDA) rose 27 percent to 27.9 million pounds in the year to November 27, in line with forecasts which had been reduced after the December alert.

Sales increased 16.6 percent to 642.8 million.

Shares in Ocado, which have lost nearly two thirds of their value since floating at 180 pence in July 2010, gained some ground after a positive Christmas update, but fell again less than two weeks later after it said Chief Financial Officer Andrew Bracey had been poached by recruiter Michael Page.

The capacity improvement works will allow much stronger growth towards the end of the year just as the comps (comparatives) start to get easier, said analysts at Barclays Capital.

Steiner played down bid speculation surrounding the stock.

We aim to remain an independent company and extract the most value for our shareholders and we haven't had an approach, he said.

Ocado has polarised opinion like few other recent UK market debutants.

Fans point to rapid growth in online grocery sales and to its high customer service ratings. Sceptics, however, think its model of filling orders from a central depot will never be as profitable as online operations at established grocers, which mostly pick orders in store.

They also fear Ocado will face growing competition from Waitrose itself, which has recently starting selling groceries online in Ocado's heartlands in and around London.

(Editing by Rhys Jones and David Holmes)