Blackmores needs a boost

Company reports 31% fall in first quarter profit

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Vitamins and supplements supplier Blackmores (ASX: BKL) business is in decline in Australia, thanks to increased competition and structural changes in Australia's pharmacy sector. The company's share price has hit $25, the same price as three years ago.

At the company's Annual General meeting (AGM) today, the company announced that its first quarter profit had dropped by 31% to just $5.4 million. Blackmores says the Australian retail market remains 'highly challenging'. In a bid to boost flagging sales, a new managing director for Australia and New Zealand has been appointed.

The company says pricing pressure has intensified as many of its competitors face financial restructuring or sale, showing how the industry as whole is struggling. The continued growth of discount pharmacies and the decline of traditional community pharmacies and health food stores adds to the challenges.

Additionally, Blackmores has been hit by the fall in the Australian dollar, increasing the cost of raw materials. Competition for supermarket shelf space has grown as retailers Woolworths (ASX: WOW) and Coles – owned by Wesfarmers (ASX: WES) – in particular, demand bigger discounts, cheaper prices and lower margins for Blackmores' products. Supermarkets have also been destocking as they increase the shelf space for their private label branded products.

The company says it will need to adapt to lower margins in future, and is reviewing its cost structure in an attempt to protect its current margins.

The one good piece of news is that the Asia division and BioCeuticals, its practitioner branded business, grew sales by 19% and 7% respectively. Blackmores has established operations in China, Thailand, Malaysia, Hong Kong, Singapore and Taiwan, and the company's exposure to an emerging Asian middle class should see its offshore operations perform well in future.

Foolish takeaway

In the 2013 financial year Blackmores reported a 10% fall in net profit to $25 million, and looks on course to record another fall in annual profit in 2014. Australia still generates the lion's share of earnings, and it will take time for expected growth in Asia to offset falling sales locally. Trading on a current P/E ratio of 16.9 times, Blackmores looks expensive, and the fully franked dividend of more than 5% looks at risk of being cut.

Every Aussie investor knows Telstra, but only the smart money is on the move now… Discover whether you should buy, sell or hold Telstra shares in our brand-new report, written by a top Motley Fool analyst. It's free, click here for your instant download!

More reading

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

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »