The Blackmores Limited (ASX: BKL) share price has gone nowhere in the past 5 years – a true test for its faithful shareholders.
But with the coronavirus creating tailwinds for the likes of sectors such as online retail, supermarkets, pharmacies/chemists and health/wellness consumables, could Blackmores be poised for a return to former glory?
What the numbers say
Blackmores is attempting to turn its struggling business around as it announced a strategic shift in priorities in its 1H20 result. This holistic shift addressed all aspects of the business from its sales and regions to products and internal teams.
That said, Blackmores' 1H20 report highlighted a struggling business that saw revenue fall 5% while net profit after tax (NPAT) slid 48%. The company blamed an increase in material and packing costs and operational expenses as the main culprits for its hampered profitability.
Looking at its regional performance, the ANZ division highlights a competitive business landscape as its revenue was down 20%. The company noted that regulatory changes in China continued to impact revenue in Australia.
Performance from its China division was also underwhelming, reporting a 6% fall in revenues while earnings before interest and tax (EBIT) slid 58%. However, revenue across Asia (excluding China) grew 29% with strong performances in Indonesia and Malaysia. Blackmores' other Asia segment is now generating more revenue than China ($68 million vs. $62 million in 1H20).
Where do we go from here?
Blackmores has always had a strong foundation and base to grow from. The company is number 1 in market share for health products with 1 in 5 Australian households using Blackmores products. However, the business and management have failed to translate its strong base into meaningful growth.
Other businesses in the health and wellness sector have gone from strength to strength, particularly in today's health-conscious climate. For instance, the A2 Milk Company Ltd (ASX: A2M) recently provided a COVID-19 update to the market. It anticipates FY20 revenue will be in the range of NZ$1,700 million to NZ$1,750 million (approximately 30-35% increase on FY19), with higher earnings before interest, tax, depreciation and amortisation (EBITDA) margin in 2H20, in part due to consumer pantry stocking.
Alternatively, even smaller companies such as Keytone Dairy Corporation Ltd (ASX: KTD) have seen significant orders from its Chinese customers. In a recent update, the company cited that "following the outbreak of COVID-19, the increased uplift and global demand Keytone is experiencing for clean, green, pristine food staples and a range of health and wellness products is significant".
Blackmores had recently completed the acquisition of Catalent Australia's world-class manufacturing facility in Braeside, Victoria. This acquisition will provide the company with increased research and development capabilities, and provide greater control over production. Hopefully, the combination of greater innovation and control in its production and its strategic turnaround plan will pay dividends for the business moving forward.
However, I would personally need to see it to believe it. Blackmores needs to produce some positive announcements to show that its business is moving in the right direction.