The A2 Milk Company Ltd (ASX: A2M) share price finished 1% lower on Thursday.
In a little more than a week, shareholders will be getting a look at the milk company’s performance for the first half. Estimates place A2 Milk’s earnings at NZ$60 million. If analysts are right, that would represent a 50% decrease on 1H21 earnings, which were down 35% from the prior year also.
A major influence on the disappointing performance throughout the pandemic has been the impact on the daigou sales channel. This channel involves purchasing by shoppers in Australia, before travelling back to China with the product.
So, with international travel expected to resume from 21 February — will it bring back A2 Milk sales with it? Maybe not, and here’s a look at why.
Daigou or dai-gone?
While A2 Milk has highlighted in previous ASX announcements that it will remain focused on China, it might not be quite the same.
The destruction caused to the daigou channel by COVID-19 has been vast. In 2019, the industry had reached revenues of $40 billion. Suddenly, it almost ceased to exist with international borders being locked down.
Industry experts have estimated that around 30% of the daigou speciality stores have either temporarily or permanently shut down. Although A2 Milk chair David Hearn has shared his belief that Daigou will not disappear, he also believes it won’t be the same.
In response, the infant formula company is not putting its eggs in the ‘daigou bounceback’ basket and waiting for them to hatch. This is despite indications that the daigou channel has been returning.
The once adored market darling of the ASX, A2 Milk, is taking a different approach. A2 Milk will be opting for a more localised strategy in China. This means building upon its China label brand with increased marketing and improving online sale capabilities.
The decision follows promising metrics displayed to shareholders in the annual general meeting back in November 2021. Namely, sales of A2’s China label were up 15.4% to $389.9 million. Comparatively, sales of the company’s English label were down 52.1%.
How has A2 Milk been doing on the ASX?
The A2 Milk share price has been a catastrophe for shareholders over the last year. In a devastating display of value destruction, A2 Milk has fallen 46% on the ASX during this time period. For context, the S&P/ASX 200 Index (ASX: XJO) has managed to provide a positive return of 6.4%.
Long-term shareholders will be hoping to see a glimmer of the once-booming company in the A2’s results this reporting season.
The post Why opening borders might not be the good news A2 Milk (ASX:A2M) shareholders have been hoping for appeared first on The Motley Fool Australia.
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More reading
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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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