Fluctuating investor views on the potential impact from US tariffs have underpinned trading volatility in Breville Group (ASX:BRG) shares over the course of this calendar year. The recent full-year result reflected limited impact to margin as BRG built up ‘pre-tariff’ inventory. However, the current financial year (FY26) is a different story – as costs (augmented by tariffs) step up across the board. In turn, this will impact margins in FY26, with recovery not expected until FY27-FY28.
This was a key reason for the de-rating in the shares following the release of full-year results in August. Accordingly, we recently researched BRG in The Dynamic Investor to assess whether the sell-off was overdone.
About Breville Group
Breville Group manages of a number of consumer electrical appliance brands. The Company’s core focus is on the small kitchen appliances segment. The operations of BRG now comprises two segments:
i. The ‘Global Product’ segment – focused on the design, development and sale of Breville-branded products supplied in 65 countries to the premium kitchen segment of the market. This segment accounts for 80% of group revenue and comprises contributions from three regions: Americas, Asia Pacific (APAC) and Europe Middle East and Africa (EMEA). The America region is the largest region for global product, accounting for ~50% of sales.
ii. The ‘Distribution’ segment, which distributes products that are designed or developed by a 3rd party pursuant to a license or distribution agreement.
Key Fundamental Drivers
Pricing Strategy The Key Swing Factor for FY26 Outlook
The Company began selectively increasing prices across the US in late July to provide some offset to tariffs. This measure was in addition to achieving a pricing/mix benefit as a result of higher-priced New Product Development. Although BRG have lifted prices across select Cooking & Food Preparation products since late July, BRG have yet to change prices across their US espresso coffee machines range.
While key peer De’Longhi has increased prices on some coffee products, this seemingly has not happened on the ‘manual’ range which directly competes with BRG’s products. In this context, it appears that BRG is looking to preserve market share rather than be a ‘first-mover’ on price. Further, the Company has flagged significant input cost increases in FY26 and FY27, hence price rises in coffee are needed in order to mitigate the quantum of EBIT decline in FY26. To this end, notwithstanding the available mitigation strategies, EBIT in FY26 is expected to decline by ~2%.
Tariffs to Put Downward Pressure on Margins
BRG reported Gross Profit Margin (GPM) of 36.6% in FY25 (+20 basis points compared to FY24). In context, there was a material uplift in GPM in FY24 (+140 basis points), as the Company benefitted from a strong pricing strategy with measured promotions as well as an increased focus on higher-margin sales. BRG’s strategy is to not follow competitors down the path of heavy discounting in order to stimulate sales.
The higher GPM position was maintained in FY25, despite weaker A$ and elevated EMEA shipping costs. The expansion in GPM in FY24 translated to higher EBIT margin, as BRG benefited from input cost savings (from both product costs and freight). BRG also kept its EBIT margin flat in FY25 (at 12.1%).
Both GPM and EBIT margin are expected to decline in FY26. This view is based on the current US tariff regime where BRG will face a material step up in input costs for US sales in FY26. However, GPM in FY27/28 expected to recover (but not reach the FY25 level) on the back of: i) Additional sales into higher-margin channels in the US and ii) Further increasing the portion of Cost of Goods Sold sourced outside of China.
Strong Balance Sheet Despite Higher Inventory Build
BRG reported a -43% decline in operating cashflow as a result of increased inventory build ahead of anticipated tariff imposts in FY26. Despite this inventory build and increased CAPEX for the manufacturing diversification program, BRG ended 30 June 2025 with a net cash position of $48.5m (compared to $53.6m in FY24).
The Company has unused debt facilities of $388.2m and cash of $105.7m. This balance sheet capacity provides flexibility for expected continued investment in manufacturing assets and normal seasonal inventory build.
Fundamental View
Despite the shares de-rating since the FY25 results release, BRG continues to trade on a premium multiple (1-year forward P/E multiple of ~30.5x). This reflects the Company’s track record of outperforming competition and generating consistently high earnings growth via multiple organic growth drivers.
The current multiple is also in line with the 5-year average and starting to look stretched in the context of an EPS growth profile of ~9.5% over FY25-28 on a CAGR basis.
While EPS growth potential from FY27/28 is appealing (i.e. +13%/+15%, respectively), earnings visibility in FY26 is limited. There is a wide range of potential outcomes on FY26 EBIT based on the efficacy (or otherwise) of several mitigation strategies to lessen the impact of US tariffs. Hence, we consider that cheaper levels would provide a safer entry point.
Charting View
The decline in BRG during late August saw the stock initially find support at a major level just above $32. However, it then fell through support, retested, and fell again. The stock is now at the next level of support which is near $30. It is too early to know yet if it will level out here. If it can’t, then we would be targeting the next level of support down near $28.
Michael Gable is managing director of Fairmont Equities.
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