Ocado shares extend decline after Kroger setback

Ocado shares plunged to a fresh 12-year low after partner Kroger said it would close three U.S. automated delivery centres, deepening a sell-off that began the prior day; the stock was down about 5% in early London trade. Ocado will receive just over $250 million in compensation but expects roughly a $50 million hit to fee revenue in fiscal 2026, prompting JPMorgan to cut its target price to 290 pence from 356 pence, while Bernstein warned Kroger may cancel two more planned facilities and that Ocado will struggle to win further large U.S. partners. Kroger said the closures will not affect its core sales, but the development represents a material setback to Ocado's U.S. growth thesis and near-term revenue visibility.

Analysis

Shares of Ocado fell further after a 17% slump the previous day, hitting a fresh 12-year low in early London trade and trading down 5% at 172.6 pence by 0824 GMT, while the FTSE 100 was only marginally weaker. The immediate market reaction reflects heightened investor concern about the durability of Ocado's growth narrative after Kroger announced the closure of three U.S. automated delivery centres.

Ocado will receive just over $250 million in compensation from Kroger but still expects an approximately $50 million hit to fee revenue in fiscal 2026, a direct impairment to near-term revenue visibility. JPMorgan lowered its target price to 290 pence from 356 pence, and Bernstein expects Kroger to cancel two more planned facilities and sees diminished odds of Ocado securing additional significant U.S. partnerships.

The compensation cushions cash flow but does not replace recurring fee income or salvage the strategic setback to Ocado's U.S. Smart Platform rollout; the situation increases execution risk and valuation pressure. Key risks for investors are further Kroger cancellations, the pace of replacement partnerships, and the company’s ability to preserve fee margins; monitor forthcoming guidance and counterparties’ decisions for signs of stabilization.

Key Decisions for Investors

• Reduce near-term exposure or hedge positions given the confirmed $50m FY2026 fee hit and elevated execution risk from Kroger's closures
• Wait for concrete evidence of replacement partners or revised partnership terms before adding to positions, as Bernstein expects additional Kroger cancellations
• Monitor upcoming company guidance, contractor pipeline updates and analyst revisions (eg. JPMorgan cut) as triggers for reassessing valuation-driven buying opportunities
• Consider selective hedges against further downside rather than outright selling for long-term holders until management provides clarity on U.S. strategy and fee revenue recovery