The Breville Group Ltd (ASX: BRG) share price is tumbling on Tuesday after the company dropped its earnings for the first half.
Shares in the S&P/ASX 200 Index (ASX: XJO) appliance developer are currently down 3.78%, trading at $20.88.
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Breville share price plummets as debt grows in the first half
- $888 million of revenue – a 1.1% increase on that of the prior comparable period (pcp)
- Gross profit climbed 3.8% to $311.3 million at a 35.1% margin
- Earnings before interest and tax (EBIT) of $121.1 million – a 7.6% improvement
- 15 cents per share interim dividend declared – flat on that of the prior year
- Ended the period with a $212.2 million debt position – down from a $31.7 million net cash position
Breville posted record sales last half, growing its revenue by 1.1%, but that's nothing compared to the growth the market is accustomed to seeing from the small appliance icon. The last three financial years have seen its revenue grow between 19% and 25% annually.
The company's debt levels also soared last half as it bolstered inventory and forked out $84 million to acquire LELIT Group. It currently holds excess inventory as a hedge against supply chain disruptions but plans to transition to a normal inventory flow model in the second half.
Finally, it highlighted headwinds from shipping and freight costs, as well as a strong US Dollar. Fortunately, those were offset by price rises in its premium global segment, a slight benefit in the mix, and a normalising promotional cadence.
What else happened in the first half?
Revenue in Breville's global product segment grew 5% to $770.7 million last half. That was despite revenue from Europe, the Middle East, and Africa (EMEA) tumbling 22% to $156.6 million, reflecting retailer destocking.
On the other hand, revenue in its distribution segment fell as the business struggled to recover cost increases. Much of that was due to the Nespresso product line, which faced supply disruptions.
The company said its new product development launches were well received last half, while its investment in its digital platform "paid dividends" as direct-to-consumer sales grew more than 66%.
What did management say?
Breville CEO Jim Clayton commented on "a solid half of performance" wherein the company delivered growth despite "a challenging and dynamic backdrop", saying:
The strength of our product portfolio, coupled with the maturity and agility of our underlying acceleration platform, cut through the macro-economic headwinds of the [first half].
We grew gross profit by tacking into our areas of strength: we managed price to counter material input and logistics cost inflation as well as negative currency swings; we leaned on our geographic diversification to deflect the impact of EMEA retailers buying much less than they were selling; we aligned our supply chain and go-to-market to take advantage of the trending tailwinds of "air frying" and "café quality coffee at home"; we executed a much improved new product launch process that accelerated revenue; and, we captured the benefit from the investments we've made in our digital execution and geographic expansion.
What's next?
Breville expects the future to bring a more benign inflationary environment for its products, which should support gross margins. It's also aiming to reduce its debt position amid its inventory transition.
It forecasts its full-year EBIT to come in at between $165 million and $172 million – representing 5% to 10% of potential annual growth.
For comparison, the company's EBIT grew 15% year-on-year in financial year 2022 and 40% year-on-year in finanical year 2021.
Breville share price snapshot
Despite today's tumble, the Breville share price has outperformed so far this year.
The stock has risen 13% year to date while the ASX 200 has lifted just 7%.
Over the last 12 months, however, Breville shares have dumped 24% while the index has risen 3%.
