Personal care and hygiene company Asaleo Care (ASX:AHY) announced a nasty downgrade today. It now expects profit for 2016 to decrease 15% on 2015, whereas previous guidance was steady. A little disappointing for a company that sells well-known branded staple goods like Sorbent tissues and Libra feminine hygiene products.
Reading through today’s announcement, there was something awfully familiar about the company’s explanation for part of the downgrade. According to their CEO, the company’s new “Every Day Price” strategy was introduced “with the strong endorsement of major retailers.”
“Every Day Price strategy” sounds a lot like the “Every Day Low Price” strategy of major customer, Coles, or the “Everyday Rewards” strategy of their other major customer, Woolworths.
Call me cynical, but this reads like management speak for “we are being worked over by our major customers.”
This company earned a lofty operating margin of 18.8% last year (compared to Goodman Fielder’s 7% operating margin prior to being taken over). Its profit represented a return on tangible capital of 51%. That’s a very profitable business, which is not a great starting point when your major customers are in the midst of a price war.