Merino & Co reports $2.21 million FY2026 loss

China growth arrives before profitability

Merino & Co. Limited (ASX:MNC) has moved decisively toward China, but the strategic pivot is not yet translating into group-wide growth. Revenue from China rose 125% to $1.37 million in FY2026, representing 61% of total revenue, while group revenue fell 36% to $2.24 million.

The company’s net loss narrowed to $2.21 million from $2.76 million a year earlier, a 20% improvement. Yet Australia remained deeply loss-making, recording a segment loss of $2.40 million, while the China segment generated a profit of $186,295. The figures show the attraction of the new model, but also how heavily the result now depends on one geography and one major customer, which contributed 58% of group revenue.

Three-year China agreement sets a demanding target

Merino said an exclusive Mainland China distribution agreement signed on 30 April carries a minimum annual order commitment of CNY30 million, approximately $6.5 million, over an initial three-year term. Renewal is subject to performance and an agreed minimum growth rate of 20% a year. The first full contract year falls in FY2027, so the reported FY2026 revenue only captures the agreement’s opening months.

Under the arrangement, Merino retains responsibility for product supply, quality control and export, while the Shanghai-based distributor handles in-market sales, marketing and channel development. The company also said its Wangara manufacturing fleet of more than 20 automated weaving and knitting machines was fully operational during the year, tripling production capacity and improving its ability to fulfil larger wholesale orders.

Cash drawdown keeps funding risk in focus

The balance sheet remains the harder part of the story. Cash and cash equivalents fell from $2.97 million to $740,337, while operating cash outflow improved but remained negative at $1.41 million. Inventory stood at $3.70 million and trade receivables rose to $972,902, including $938,819 after the allowance for expected credit losses.

Moore Australia Audit issued an unqualified opinion but included an emphasis of matter over a material uncertainty related to going concern. The directors’ forecasts assume expected revenue, committed orders, cost controls and available funding resources, including a $1.01 million placement completed on 9 September. The report states that continued operation remains dependent on achieving forecast cash inflows and potentially raising additional capital.

FY2027 must turn commitments into cash

The placement gives Merino additional liquidity to launch its YÙE sub-brand and support working capital, but it does not remove the underlying execution test. The company must convert the China agreement’s order commitment into delivered sales, collect receivables and manage inventory without allowing the expanded production base and wholesale terms to deepen cash burn.

The next useful evidence will be less about capacity and more about cash conversion: revenue recognised under the China agreement, the timing of customer payments, inventory movement and whether operating losses continue to narrow. Until those measures improve together, the annual report leaves a sizeable gap between Merino’s commercial ambition and its financial resilience.