Breville Group (BRG)
HOLD

Tough grind

 14 Feb 2023
Sector: Consumer Discretionary

1H23 RESULT

Need To Know

  • Sales growth is slowing
  • Gross margin supported by price rises
  • Air fryers and premium coffee machines selling well

Breville’s strategy of growing revenue faster than EBIT was temporarily adjusted to counter the macro headwinds during the half year period. Price rises in the premium segment supported gross margin growth, but BRG is feeling the squeeze in the mass market distribution segment.

The growth in Americas, BRG’s largest geographic segment, saved the blushes from the topsy turvy EMEA region with APAC merely steady. 

Americas revenue grew 22% in the period (+11.9% constant currency basis) supported by the premium end of the market together with an expansion into Mexico, now in its second year.

EMEA sales fell -22.2% (-19.6% CC) reflecting a large amount of de-stocking by retailers. Consumer purchases grew in low single-digits in the period which should encourage retailers to get back in the game.
APAC sales were steady with some gains from the entry into South Korea plus new product development gaining traction.

Gross margin headwinds from higher freight costs and a higher USD were offset by product price rises.

Investment View

BRG’s product portfolio and new product development is tilted more and more towards premium appliances. A year ago, BRG acquired the Italian ‘prosumer’ home coffee equipment manufacturer, LELIT for €113m in cash and shares. This has lowered the near term return on equity for BRG, but the longer term theme is clearly focused on premium products. This is promoted through catch phrases like ‘café quality coffee at home’. The strategy has been hugely successful for many years now, but as consumers face increasing pressure on household budgets, sales are slipping.

BRG has deftly tweaked its approach so that EBIT improved 7.6% in 1H23 as group sales spluttered to a 1.1% increase.

The defensive moves from BRG suggest there is heightened sales growth risk lurking, which tempers our enthusiasm for the stock at this point. 

Figure 1: 1H23 Result

Stock Overview

Share Price

Company Overview

Breville designs, manufactures and distributes small kitchen appliances, including coffee-making machines, food processors, juicers, blenders, cookers and mixers.

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