Breville has missed market forecasts for its interim profit

The retailer has enjoyed a rebound in coffee machine sales and food prep appliances, but a miss on profit expectations and a more pessimistic outlook than analysts hoped has seen its shares slump 13 per cent.

Breville CEO Jim Clayton at their offices in Alexandria, Sydney. Picture: John Feder/The Australian

Breville stepped back from low margin sales and heavy discounting through the December half, but at the cost of its sales trajectory, which has also seen it report a lower interim net profit than pencilled in by the market.

Shares in Breville slumped 13 per cent when the market opened on Tuesday and investors digested the company’s financial results that revealed a profit that was 2 per cent below consensus forecasts combined with a more pessimistic outlook of full-year earnings guidance of 5 to 7.5 per cent growth against market expectations of 7 per cent.

Breville’s poorer profit performance was also in stark contrast to more upbeat recent results from global rivals such as De’Longhi.

Although Breville did enjoy the tailwinds of a bounce back in coffee machine sales in the US and continued growth in home cooking, which helped drive sales for its food preparation appliances, the high-growth stock suffered sales falls in two out of its three geographical regions and profit undershot analyst forecasts.

Breville, whose largest shareholder is billionaire Solomon Lew with a stake of 30 per cent spread across his personal interests and his listed company Premier Investments, reported a net profit of $84m for the December half, up 6.7 per cent, as sales lifted 2 per cent to $905.8m.

The company lifted its interim dividend by 1c to 16c per share, payable on March 28.

Breville chief executive Jim Clayton attempted to accentuate the positive of the results, which did see profits improve despite the tougher economic environment across most of its operating regions.

“A solid half of performance for the group delivering 8.2 per cent EBIT growth against a subdued consumer backdrop, with gross profits up 6.7 per cent and revenue up 2 per cent. The strength of our new product launches, expansion of new markets and the continuing coffee tailwind supported top line growth as cost-of-living pressures and mean reversion buffeted the business.”

Breville boss Jim Clayton at their offices in Alexandria, Sydney. Picture: John Feder/The Australian

Mr Clayton said its distribution segment saw revenue and gross profit grow by 4.6 per cent and 26.7 per cent respectively as Nespresso sales bounced back in the US and Breville local and Kambrook prioritised gross profit delivery. In the US, its strongest segments were coffee and cooking.

In category terms, both coffee and cooking performed well.

Sales fell in most of its regions. In the Americas, sales slipped 0.1 per cent to $450.3m, while sales in the Asia Pacific fell 5.7 per cent to $155.4m. But in Europe, sales rose 5.5 per cent to $177.2m.

Across its key geographies, in the Americas, gross profit for the region rose 1.2 per cent as US consumers continued to respond well in key promotional periods, with the strongest performances in coffee and cooking.

In Australia, the business experienced a weaker first quarter, followed by a stronger second quarter, beginning with Black Friday.

Breville is forecasting fiscal 2024 earnings growth of 5 per cent to 7.5 per cent, which is a band that is below market expectations of growth of 7 per cent for the year.

The interim net profit was 2 per cent below expectations.

E&P Financial analyst Olivier Coulon said it was a slightly lower than anticipated profit despite a strong pre-tax earnings result.

“Composition less favourable than expected on weaker sales and better cost control. While any (market) consensus revisions are likely to be only modestly negative at EBIT, we think the reaction today is likely to be quite negative given poorer than expected composition of results. We expect the stock to underperform.”

Jarden analyst Ben Gilbert said overall it was a “good earnings result” albeit with questions hanging over its revenue performance and expectations of improvements into the second half.