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Why the Breville share price has soared 57% higher in 2019

The Breville Group Ltd (ASX: BRG) share price has soared 57% higher so far this year to reach a record high following strong sales results in Europe and North America.

What’s pushing the Breville share price higher?

The small appliance maker defied a volatile global economy and building headwinds for consumption to post a 15.4% increase in revenue to $440.4 million and a 19.7% increase in net profit after tax (NPAT) to $43.5 million.

A falling Aussie dollar against the US dollar contributed to the result and saw Breville record a 7.1% increase in US sales (which makes up ~60% of company sales). The strong volume was largely based on expanding juice and coffee appliance sales as juicing took off in 2018 across US and Europe, where Breville saw sales rise 32% to $51.4 million in the half-year.

The group remains under pressure with earnings before interest and tax (EBIT) margin falling 3 percentage points to 14.2% and the broader concern remains headwinds for the Consumer Discretionary sector in the face of faltering consumer confidence and slowing economic growth.

Could Breville go even higher?

I’m inclined to think that Breville will struggle to continue to grow, particularly given the cyclicality seen in consumer discretionary earnings. The US-China trade war and fears surrounding Brexit before full-year results are released could see further global volatility but the group’s planned expansion into Belgium, the Netherlands, Luxembourg and Switzerland in 2H19 could grow earnings significantly.

The company increased its dividend by 2 cents per share (cps) to 18.5 cps, franked to 60%, and I’d see this as a sign that management is confident of further earnings growth in the short to medium-term.

I’m personally not bullish on the consumer discretionary sector at this point in the cycle and would be looking at other options in consumer staples such as Coles Group Limited (ASX: COL) or Woolworths Limited (ASX: WOW).

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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 Scott Phillips.

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