Retail: The Chinese dollar made these companies, now it may sink them

With reporting season upon us companies with exposure to China are now telling the market just how bad, or good, things are getting.

AuMake (ASX:AU8) says travel restrictions on Chinese travellers will “materially impact the company’s earnings”.

The company sells Australian products to Chinese people in China or to buyers locally who will send them over (‘diagou’), as well as to Chinese tourists in Australia.

China has internal travel restrictions in place, and Australia has a 14-day quarantine in place for non-citizens or residents entering from mainland China.

It says the earnings hit will come from fewer tourists visiting its network of 25 stores, although online and daigou buying of face masks, sanitisers, and immunity-related health supplements have risen.

AuMake has not said what it expects the final impact of higher online sales and lower in-store sales by tourists might be.

This will be disappointing for investors hoping for a shift into profit.

For the half year to December 31, AuMake doubled revenue to $45m and reduced its loss from $3m to $521,441.

AuMake said the almost-profit was due to the acquisition of Broadway, a network of shops in New Zealand and Australia catering specifically to Chinese tourists.

“[Gross margin of 46.7 per cent] was driven by the increase in Asian tourist visitation in both the Broadway and AuMake store networks, and their appetite for new and authentic high-margin retail products,” the company said, highlighting the severity of the problem AuMake faces as China, and the rest of Asia, locks down.

Mediland Pharm (ASX:MPH) is AuMake’s listed rival for the Chinese tourist market in Australia, but is much more dependent on that segment.

It listed a year ago in order to raise money for, among other things, developing an ecommerce business, but it only just finished the acquisition of an ecommerce business in October last year.

While Mediland Pharm had positive cashflow in the December quarter, it’s unclear as yet how heavily affected it will be by the slowdown in Chinese tourists.

In other ASX news:

Stockhead has been reporting on the impact of coronavirus among small caps since late 2019.

But it was $14bn Cochlear’s (ASX:COH) news yesterday that underlying profit will be lower at around $270-290m this year that rocked the market, as it became clear the carnage would not be limited to smaller companies.

Today Blackmores (ASX:BKL) said the impact of the virus in China was one factor for its latest full year results downgrade to $17-21m profit.

A shift to in-house manufacturing is expected to have a material cost of $9.5m, new labelling rules will have a $7m impact, and while the coronavirus outbreak has resulted in increased demand for immunity products, Blackmores’ supply chain in the region has been disrupted. The company anticipates at least three months of China sales and supply challenges.

Blackmores’ performance has disappointed investors for several years now.