Breville warns of low single-digit earnings growth for the full year

The retailer, known for its coffee machines and toasters, has warned it faces economic headwinds in 2023 as sales stall.

Breville, the maker of coffee machines, juicers and bluicers, has warned that its earnings could slow to as little as 5 per cent growth for 2023 as the household appliance retailer faced economic headwinds including maturing markets and volatile supply chains.

The company, which counts billionaire Solomon Lew and his Premier Investments vehicle as its biggest shareholder, reported on Tuesday flat sales and earnings for the six months to December – a marked difference from the high growth investors have become accustomed too given its strong track record of double-digit profit growth.

In previous years, Breville has posted sales and profit gains of well over 20 per cent with the company tagged as a growth stock by investors and analysts as customers scooped up its popular coffee machines, juicers and other kitchen benchtop appliances.

Shares in Breville fell more than 5 per cent on the release of its interim result and its cautious outlook, and later closed down $1.02, or 4.7 per cent, at $20.68 to make it the fourth worst performer among the S&P/ASX 200 leaders. Breville’s shares are down 25 per cent in the past 12 months.

Breville said on Tuesday that sales for the first half rose only 1.1 per cent to around $887.9m – although it was a record sales result for the half – as net profit was also flat, up only 1.3 per cent to $78.7m. The company also declared a flat interim dividend of 15c a share, payable on March 27.

The sales result was about 6 per cent below market expectations but earnings were slightly better than expected.

The limp profit growth was also blamed on increased finance costs for the half and higher interest rates. Although earnings were bolstered by Breville passing on price rises through calendar 2022 and a tight control on promotions and discounting.

Oven and coffee machine growth benefited from quality coffee and air fryer tailwinds, as air fryers in particular continued to be a popular kitchen appliance. However, there was a rebasing of food preparation appliances as lockdowns and other Covid-19 restrictions ended and people ventured out again to cafes and restaurants.

In its outlook statement, Breville said the financial year continued to be one of competing macro headwinds and tailwinds, with it bringing company-specific tailwinds of new product launches, a growing direct to consumer channel, maturing new geographies and cost improvements to the year.

“Assuming no further significant change in economic conditions in the group’s major trading markets, no material supply chain interruptions and taking into account our expected investment levels into marketing, R&D, and technology services we expect a full year EBIT delivery of between $165m – $172m, or 5-10 per cent growth on the previous year,” Breville said.

Chief executive Jim Clayton said retailers were not overstocked with Breville products.

Breville said there was strong growth in coffee machines.

In terms of its geographical performance, sales in its biggest market, the America, jumped around 22 per cent to $450.7m, sales in the Asia Pacific rose 0.3 per cent to $163.2m. Sales across Europe, Middle East and Africa fell 22 per cent to $156.6m as Breville refrained from discounting to shift products.

Breville said US consumers proved resilient at the premium end of the market. Ovens, now back in stock, grew strongly, coffee delivered solid growth while in Mexico the Breville business accelerated in its second year.

Mr Clayton said it was a solid half of performance for the group, delivering 7.6 per cent earnings growth against a challenging and dynamic backdrop.

“The strength of our product portfolio, coupled with the maturity and agility of our underlying acceleration platform, cut through the macroeconomic headwinds of the first half of 2023.”

Mr Clayton said the company managed price to counter material input and logistics cost inflation, as well as negative currency swings.

Interests linked to billionaire Mr Lew own just under 26 per cent of Breville.