The recent full-year result for Breville Group (ASX:BRG) highlighted that the Company has successfully navigated challenges from tariffs, including costs associated with diversification of manufacturing assets. While this progress is reflected in ongoing strong sales and Gross Profit Margin (GPM) growth, the key question for investors is whether these benefits can be translated into meaningful earnings growth.

Accordingly, we recently researched BRG in The Dynamic Investor to assess whether the shares present value.

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

Key Sales Trends in Global Product Segment

Revenue for the Global Product segment grew by +9.7% (on a constant currency basis) in FY26, with double-digit growth reported for 2H26. Double-digit revenue growth over the short-term is expected to come from rapid expansion into new markets (China, Korea, Mexico and Middle East) and a healthy New Product Development pipeline.

One of the key factors supporting sustained double-digit revenue growth over the long term is that BRG operates in the premium coffee market which is a structural growth category with an engaged & resilient customer base. In addition, competitors (who are mass focused on mass market) drive consumers into the premium coffee category over time.

To this end, the 4-year store partnership with Best Buy (which is towards the premium end of the market) in the US provides a long-term structural opportunity. BRG has rolled out 300 store-in-store installations across Best Buy stores (up from ~50 in November 2024) and there is leverage from this opportunity given that the Best Buy network in the US is >1,000 stores. During FY26, there was a material uplift in both sales and average selling price in participating stores.

Earnings & Margin Expansion at Operating Level is More Constrained

BRG reported a recovery in GPM in 2H26. GPM is expected to expand in FY27 on the back a full 12-month benefit from the shift in production to lower US tariff countries. In addition, recent weakness in the US$ is a net benefit to GPM. The lower US$-denominated Cost of Goods Sold (COGS) as hedging rolls-off more than offsets the adverse impact on US$ revenue translation.

The strong revenue trends and expected recovery in GPM is unlikely to translate to meaningful EBIT growth in FY27. This is due to volatility from tariffs, sourcing, investment costs and further cost inflation from supply chain disruption. Further, while productivity benefits from AI appear larger than previously disclosed, the earnings impacts remain unquantified.

Finally, while the Company is expanding into new markets (i.e. China, Korea, Mexico and Middle East), what is unclear is how profitability in these markets compares to other new markets. To this end, we note that ~91% of the increase in operating expenses was directed toward growth initiatives and new markets.

Strengthened Balance Sheet Position

The recent financials highlight that BRG’s balance sheet capacity has improved. As at 30 June 2026, the Company had unused debt facilities of $364.4m and cash of $193.4m (up from unused debt facilities $221.6m and cash of $176.8m as at 31 December 2025). The increased capacity provides greater flexibility for continued investment in manufacturing assets, store-in-store expansion and normal seasonal inventory build. The improved balance sheet position also introduced Merger & Acquisitions as another potential growth driver.

Fundamental View

BRG shares are currently trading on a 1-year forward P/E multiple of ~30x, which is in line with the 5-year average of ~30x. Accordingly, we consider the risk-reward is unfavourable, especially in the context of an EPS growth profile of +12% over FY26-29 on a CAGR basis.

The key factor preventing a more favourable investment view is uncertainty as to whether BRG will be able to convert its strong sales growth into higher EBIT growth and faster EBIT margin expansion. To this end, we consider that there is downside risk to consensus estimates for EBIT & EBIT margin.

Further, given the currently elevated level of short interest in the stock (8.3%), lower levels in the share price are likely to be better supported.

Charting View

The share price has essentially gone sideways in the past two years but with a very wide trading range. It is back to the top end of that range and is finding resistance here. We are therefore likely to see softer levels, at least in the short-term towards $30. However, a break above $35 would be a positive sign that Breville is breaking out of the trading range and that could result in a further recovery in the share price.

 

Michael Gable is managing director of Fairmont Equities.

 

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