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Why the Blackmores share price dropped 13%

Blackmores vitamins
Credit: Blackmores

The share price of Blackmores Limited (ASX: BKL) fell around 13% today after giving a trading update.

The full half-year result is expected to be released on 25 February 2020, but there were a number of negatives.

The numbers

Blackmores said that it expects to report first-half revenue of $303 million with underlying net profit after tax (NPAT) of $18 million. Full-year net profit is expected to be in the range of $17 million to $21 million which includes impacts from the coronavirus.

So, what are the coronavirus effects?

Whilst there is an increase of demand for immunity products in Australia and Asia, the impact of the sales has been countered by supply chain disruptions across the region as a result of the contagion.

Some of Blackmores’ e-commerce partners have cancelled or modified February promotions with a slowdown of China inbound and internal freight, which has made it difficult to serve the local market demand with much needed products.

It’s anticipating at least two to three months of China sales and supply challenges due to the coronavirus.

What else did Blackmores say?

Blackmores said that the transition to manufacturing has put pressure on the second-half result, including approximately $13 million in expected adverse cost of goods impact, which includes a $9.5 million hit at the Braeside manufacturing facility.

It also said that it would try to improve its gross margin by discounting less in the final quarter over the year, though this is expected to adversely affect earnings before interest and tax (EBIT).

To counter some of the above problems Blackmores has said it will not pay an interim dividend to conserve cash for operations.

Is Blackmores share price a buy?

Well the share price is lower, but it needs to solve these issues for regain the confidence of the market. I’m not sure if Blackmores is a buy, or what price would be a fair price. I think there are easier businesses out there to judge.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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