Shares of Blackmores Limited (ASX: BKL) have been slammed again today following a less-than-impressive update on its first quarter results.
The shares fell as low as $97.91, a decline of 6.2%, marking the first time the shares have fallen below the $100 mark in more than 12 months. Today's decline follows a 6.3% fall on Wednesday, with the shares losing more than 55% of their market value since the beginning of the year.
Investors had good reason to be disappointed. The vitamins maker reported group sales of $149 million (the grey bar in the chart below), down 8.1% compared to the prior corresponding period. It's also down almost 20% compared to the previous quarter in which the company achieved sales of $186 million. The fourth quarter of FY16 begun the trend in declining sales, after $190 million of sales were made in the third quarter of FY16.
Net profit for the period was $12 million, down 46.6% on the prior corresponding period.
In its 2016 full-year update, released in August, Blackmores said:
"…at this stage we expect our first quarter result to be down compared to the prior corresponding period. We expect sales will improve as the year progresses and will continue to develop our business model, building new growth channels, adapting our cost base and accelerating our transition to support the changing retail landscape to ensure our continued optimism for long-term growth."
Consistent with that message, Blackmores today said: "Though trading conditions were challenging at the start of the financial year, we finished the quarter in a stronger position than we started with improved sales and profitability momentum." That said, it does not expect to match last year's exceptional performance, despite expectations of a stronger second quarter.
It also noted that consumer demand remains high, but its earnings were impacted by softer sales in August. Australian retailers have reduced excess stock while Blackmores also reported "changing buying patterns of Chinese exporters" hurting Australian sales by 40% compared to the same period in FY16. It also reported "sluggish" sales of its infant formula product – the result of a joint venture with Bega Cheese Ltd (ASX: BGA) – which Bega Cheese itself confirmed earlier this week.
On a more positive note, Blackmores recently launched in Indonesia and reported "encouraging early sales". Its China division also delivered $31 million in sales, up 220% on the prior corresponding period. CEO Christine Holgate said: "The rapid growth of sales through these channels is encouraging as it validates continuing demand for our products in China."
The company estimates that 20% of its Australian sales during the first quarter were intended for consumers residing in China.
Foolish takeaway
Blackmores is a quality business, but its sharp decline in sales and earnings recently is a concern. While some investors will see this as a great opportunity to buy shares at a discounted price, I would be inclined to wait for a turnaround in the performance of the business rather than buying shares now in hope of a turnaround in its share price. That said, if the shares got much cheaper I may well be tempted.
