Blackmores profit falls 10%

Increased competition and structural changes in the pharmacy sector have hit Blackmores’ (ASX:BKL) annual results, with net profit after tax falling 10% to $25 million.

Despite strong sales results of $327 million, up 25% over the previous financial year, Blackmores was hit by a decline in its Australian margins. Net debt more than doubled to $69 million, resulting in higher interest expense, and interest cover dropping from 15.2 times to 8.1 times.

Smaller community pharmacies are declining as larger discount ‘warehouse’ style pharmacies pop up, intense competition from other brands such as Swisse, and pressure from the big supermarket retailers Woolworths (ASX:WOW), Coles – owned by Wesfarmers (ASX:WES) and Metcash (ASX:MTS) backed IGA stores are all playing a part in cutting Blackmores margins.

And Blackmores says these market dynamics are likely to persist in the coming year, making its strategy of expanding into Asian markets all the more important. Despite Blackmores declaring a final dividend of 83 cents, fully franked, as a vote of confidence in the company’s future, this is a company under pressure, and will have to run hard just to stand still.

Asia remains the key to future growth, as the Australian market goes through structural changes. Blackmores has established operations in China, Thailand, Malaysia, Hong Kong, Singapore and Taiwan, which all achieved record sales. During the year Blackmores launched in Macau and China, and expects to see sales grow in the coming year.

Foolish takeaway

Blackmores is a company under pressure to revive its profit growth, despite strong sales growth. The acquisition of BioCeuticals, a practitioner-only supplements supplier, is expected to continue to provide a positive contribution to earnings, and Blackmores expects an improvement in profit in 2014. Foolish investors may want to wait and see how the year ahead pans out, before making an investment in Blackmores.

Interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading

Motley Fool writer/analyst Mike King owns shares in Woolworths.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.