Breville Group: Brand Strength To Cushion Sales From Discretionary Spending Slowdown

Data from the Australian Bureau of Statistics shows retail turnover in electrical and electronic goods, which includes electric appliances such as Breville’s BRG, has softened in recent months. In the fiscal year to April 2023, seasonally adjusted trade has fallen 1% compared with the previous corresponding period, or PCP. We expect discretionary goods consumption will remain under pressure in the near term as households absorb higher interest repayments and continue to rebalance toward a higher share of services spending. Accordingly, we reaffirm our 3% top-line growth forecast for Breville’s Asia-Pacific product segment in fiscal 2023, a marked slowdown from 19% growth in fiscal 2022. Asia-Pacific sales account for around 20% of consolidated revenue.

Similar trends in discretionary spending can be seen in Breville’s international markets. Data from the U.S. Bureau of Economic Analysis indicates that sales at electronic and appliance stores have slowed considerably, down around 5% in the fiscal year to April 2023 versus the PCP. In the U.K., retail sales at household goods stores have fallen by around 2% over the same period. However, we believe that the strength of the brand in the U.S. and Europe—underpinning Breville’s narrow economic moat—should cushion Breville, allowing it to continue to capture market share, buoyed by continued international expansion. We forecast fiscal 2023 revenue growth of 5% and 12% in the European and Americas product segments respectively.

Thanks to its strong brands, Breville can protect margins by passing on elevated input costs through higher prices. At the group level, we forecast an EBITDA margin of 13.7% in fiscal 2023, an improvement on 13.2% in fiscal 2022. As cost inflation subsides, we expect that margins will continue to expand, reaching around 16% by the end of our explicit forecast period. We make no changes to our AUD 20 fair value estimate for Breville, and at current prices, shares screen approximately fair value.