Ocado’s increased debt calls turnaround plan into question

Ocado’s turnaround plans have reportedly been called into question as its heavy reliance on debt in a high inflationary environment threatens its ability to turn a profit, The Telegraph has reported.

The online grocer saw its annual debt interest bill climb from around £27m last year to nearly £100m in 2025 following a recent £300m bond refinancing at an 11% coupon rate.

According to The Telegraph, this extended its debt maturity but came at a much higher cost compared to previous bonds yielding below 4%.

Ocado now has a significant debt pile, which stood at £1.2bn at the end of 2024 against equity of £1.9bn and this raises concerns in the context of rising interest rates.

The company posted a pre-tax loss of £375m with £1.2bn revenue in its most recent results in 2024, a slight improvement from the previous year’s £394m loss with £1.1bn revenue.

Alongside this, the company cut nearly 1,000 jobs last year and has plans for further reductions in research and development as part of its turnaround strategy.

The company said it is aiming to achieve positive cash flow by next year, though some investors remain cautious after repeated delays in meeting cash-flow targets.

Fitch Ratings assigned a B- rating to Ocado’s recent bond issue, citing “high execution risk” and ongoing “liquidity erosion” from capital expenditures.

A significant portion of the company’s future lies in its US partnership with Kroger. With just eight automated warehouses currently operational, a significant expansion by Kroger could transform the retailer’s prospects. However, investors are wary of Kroger’s long-term commitment to Ocado.

Retail Sector has contacted Ocado for comment.