(Bloomberg) -- Ocado Group Plc said sales rose in the first quarter as new customers signed up to its online grocery business with Marks & Spencer Group Plc amid a rising cost-of-living crisis.

Sales rose 3% on the year before and customers rose by nearly 14% during the period. Ocado expects to build on this momentum to return to sales growth and profitability in the second half, said Hannah Gibson, Chief Executive Officer of the joint venture. 

Shares in Ocado rose more than 2% in early trading. 

Ocado struggled to make the most of the switch to online shopping during the pandemic and since then the cost-of-living crisis has seen it lose customers to cheaper rivals. However, it has been working to improve its price perception. Last month, the company said it would price match Tesco Plc on more than 10,000 products in a bid to win over shoppers. 

Data from the British Retail Consortium Tuesday revealed that food price inflation has hit a record 15%, impacted by fruit and vegetables in short supply, showing the inflationary crisis is far from over.

Ocado is also battling some of the same energy and labor cost pressures that have tightened margins at mainstream grocers Tesco and J Sainsbury Plc.

Average basket size fell by 7.5% to 45 items in the first quarter as cash-strapped shoppers watched their spending, the company said Tuesday. But the value of the basket is holding steady for now and Ocado stuck to its previous guidance that its earnings will turn positive in the second half of the year.

The performance of Ocado in the coming months could be key to determining the size of a deferred payment still owed by Marks & Spencer since setting up the joint venture. The amount depends on how well Ocado does, and it is in talks with M&S over how much of a discount may be warranted due to the weaker performance of late. 

Ocado is pausing the opening of some facilities in the northwest and southeast of England because it cannot currently fill that capacity. Last month the venture said it’s processing about 400,000 orders a week. Once a facility in Luton is added in the second half, the business will have room for 700,000 weekly orders.

Over the past year Ocado stock has fallen almost 60% and some investors are betting it has further to fall. D1 Capital Partners, Kintbury Capital and others have built short positions totaling about 6% of Ocado’s shares. 

(Updates with statement details, context from sixth paragraph.)

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