Blackmores will be “buggered in the long run” unless it can re-engage with powerful daigou traders who have spurned the vitamins company because it lacks inspiring new products, says its interim chief executive.
Blackmores shares initially tumbled 7 per cent in early trading on Tuesday to $83 after an ominous slide in profits and revenue, which 73-year-old Marcus Blackmore says is self-inflicted.
The veteran Financial Review Rich Lister was installed as interim boss after the departure in late February of former chief executive Richard Henfrey following a profit dive.
Blackmores faces a serious uphill battle in the short term after net profit after tax plunged 43 per cent in the three months ended March 31 to $9.9 million, and revenue dropped 4.3 per cent to $141 million.
The company has fallen out of favour with big daigou traders, the entrepreneurs who buy large volumes of stock from Australian retailers such as Chemist Warehouse and sell them online in China on various e-commerce sites.
“I don’t think we chopped them out. They chopped us out,” Mr Blackmore told The Australian Financial Review on Tuesday. “I think we ended up doing that by default.”
Blackmores had fallen into the trap of being too focused on managing for short-term profit growth and had not placed enough emphasis on new-product development after the boom years of 2016, he said.
It needed to turn that around rapidly. A new chief executive would have to be a business builder and not a cost-cutting specialist, even though $60 million was being pruned from across the business over the next three years, he said.
“Unless we can grow the top line, we’re buggered in the long run,” Mr Blackmore said.
“What I want to see is a business builder,” he said of the search for a new chief executive still in progress.
The company estimated sales to Chinese consumers were down about 6 per cent in the March quarter. That comprises both sales direct to customers in China and sales at Australian retailers to entrepreneurs buying up large amounts to sell on e-commerce sites in China.
The huge success of Chemist Warehouse, which Mr Blackmore emphasised was a highly valued retail customer, had permanently shifted the business models in vitamins retailing, with rivals also employing aggressive discounting.
“In turn, we’re not making the margin,” Mr Blackmore said.
Blackmores was a sharemarket darling from 2014 to early 2016 as demand soared from Chinese customers chasing the “clean and green” brand aura of Australian vitamins producers. Blackmores shares hit $220 in January 2016 but now trade at less than half that.
The company on Tuesday reiterated a warning sounded in February that second-half profits in 2018-19 would be below the first half of $34.3 million. For the nine months ended March 31, net profit after tax was down 14 per cent to $44 million.
Dumping quarterly profit reporting
The company is dumping quarterly profit reporting from 2019-2020. It will revert to the standard half-year and full-year reporting, like most companies listed on the Australian Securities Exchange, because quarterly reporting had led to too much short-termism in the stockbroking community, and made the group too attractive to short-sellers.
Mr Blackmore said a major review had been undertaken on China strategy, with the company now putting much more focus on supporting daigou traders to “more deeply engage” with the Blackmores brand.
Blackmores previously had been shifting its strategy more to one of direct sales to Chinese consumers using its own official Blackmores channels, in the pursuit of higher margins.
Mr Blackmore is also accelerating a cost-cutting program targeting $60 million in savings over three years.
Blackmores said revenue from Australasia was 26 per cent lower in the March quarter to $54 million, as it deliberately cut back volumes to clear a build-up of stock at Australian retailers that was bound for China. The company also backed off on aggressive promotional deals undertaken in the March quarter last year. Gross margins increased 2.1 per cent as a result.
Marcus Blackmore was a long-serving executive chairman at Blackmores until 2017 and has been a director since 1973. He holds a 23 per cent stake in the company and is the son of founder Maurice Blackmore.
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