What: Shares in kitchen appliance maker Breville Group Ltd (ASX: BRG) soared more than 7% at lunchtime today as investors took confidence from Solomon Lew's renewed commitment to the business.
In late August Premier Investments Limited (ASX: PMV) the retail conglomerate that Lew controls as chairman substantially increased its holding in Breville to more than 27%. Unsurprisingly, master-retail-investor Lew concluded that Breville offered excellent value trading for under $7.50.
Now what: Breville was sold off heavily after releasing full-year results that showed a marginal drop in earnings per share despite sales climbing 15%.
One of the key reasons for the earnings fall was the loss of the commission income from a distribution agreement with North American distributor Keurig. The strategic loss of this important contract was a blow to Breville and notably the company unexpectedly announced the resignation of its chief executive, Jack Lord, when revealing the results.
What of the outlook: On the downside Breville saw weaker sales in the second half of FY14 in its North American market, which clearly worried investors. It also announced that it saw the outlook for FY15 as challenging, although it would be cutting costs in an attempt to support earnings.
On the upside sales in Australia and New Zealand held up well despite the generally weak retail environment. While the rest of the world growth was strong, up 56% on the prior year, with revenues equally derived between the UK and other regions. With a clever marketing campaign supported by celebrity chef Heston Blumenthal and strengthening macro environment, I wouldn't be surprised if Breville continues to deliver in the UK and elsewhere.
Therefore it appears with two out of three of Breville's regions growing to plan it may only take some strategic tinkering in the North America region to return the business to a strong earnings growth trajectory. In my opinion, Breville offers good value at $8.10 given its outlook.
