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This overlooked retail stock has come roaring back today on a strong result

We haven’t been hearing much from home appliance company Breville Group Ltd (ASX: BRG) as the market’s attention has been fixated on struggling retailers with the arrival of US online shopping giant Amazon.com.

But that changed this morning after the company posted a pleasing half year result with growth in interim earnings before interest and tax (EBIT) rebounding to 12.3% from 6.7% for the same period last year.

This puts its EBIT at $55.2 million on the back of a 13.6% increase in group revenue to $385.4 million for the six months to end-December 2017.

Net profit only increased 7.8% to $36.3 million but that is due to a writedown in its tax deferred assets as the US federal corporate tax rate has been cut. Excluding this, net profit would have increase by 12.4%.

Investors also cheered the 1 cent lift in its half year dividend to 16.5 cents and the group’s stable EBIT margin of 14.3% even in the face of rising input costs and the volatile exchange rates.

Most of Breville’s growth is coming from overseas markets with sales in North America increasing by 22.7% and the rest of the world growing by 29.5%. In contrast, Australian sales inched up 9.3% with North America accounting for 61% of group revenue.

Management’s efforts to turnaround its underperforming distribution business is also gaining traction with this division reporting an interim EBIT of $8.4 million compared to $3.3 million in 1HFY17.

However, those hoping for a consensus earnings upgrade for FY18 will likely be disappointed as management is guiding full year EBIT growth of around 10%, which is in line with market expectations and would suggest a slowing in the second half.

This isn’t too surprising as retail-exposed stocks tend to generate most of their sales towards the tail end of the calendar year thanks to Christmas.

While the stock doesn’t look like a bargain, I think it is well placed to perform well compared to many of its peers. Consensus is tipping a close to 14% increase in FY19 net profit (which looks achievable based on the latest results) and the company is not affected by the online shopping revolution that is decimating the likes of department store Myer Holdings Ltd (ASX: MYR).

Even better managed retailers like JB Hi-Fi Limited (ASX: JBH) may be close to peaking as it is difficult to see what extra growth levers it can pull.

The ability for a consumer discretionary stock to achieve double-digit earnings growth for the next two years is commendable.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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