Breville’s gross margins were up year-on-year in FY21, driven by an improved product mix and lower promotional activity, which outpaced increased manufacturing and shipping costs. However, the company’s top executives have announced that price rises are forthcoming.
“As we look to FY22, we will take price rises where appropriate to protect our margins,” Breville chief financial officer, Martin Nicholas told investors during the company’s financial results presentation earlier in the week.
“Our working capital remains below equilibrium by approximately $80 million as delivery challenges including the Suez Canal blockage, four-week closure of the Yantian port in China and inbound port delays which suppressed in-country stock levels and customer deliveries late in the half.
“In FY21, we didn’t take any significant price increases product for product; it was more about lower promotional spend. There were a few that flowed through in Australia early in the year, but it was less promotional spend rather than an increase in existing prices.
“The container costs continue to surprise me, and we will be looking to recover this through price increases, but whether it will exactly balance the cost pressures with some of them being temporary in nature. This year it should balance quite nicely – in fact we are ahead of the equation. Looking into next year, the headwinds appear to be growing in momentum and we will see what consumers will tolerate in the marketplace.”
Breville group CEO, Jim Clayton described the current climate as a “global drag race” between vaccine rollouts and spread of the Delta variant.
“We are not done with COVID; this is a marathon not a sprint. Assuming the vaccines are successful, FY22 looks like it is shaping up to be a transitional year,” he told investors.
“We are moving from the entire world being in lockdown to country specific vaccine rollout cadences with different rates of opening up while still experiencing regional lockdowns. At a macro level, consumers have pent-up savings but as economies open consumers will diversify their spending patterns to include services.
“It is too early to tell how these countervailing forces will play out for the small domestic appliance market or for Breville. We are wrestling with everything reported in the news including the falling US dollar, though it has stabilised as of late; increased supplier costs, and we have intermittent part shortages, though so far, we have resolved each instance that has arisen.
“The global logistics backbone is stretched and erratic as it is impacted by local events, which coupled with increased demand, drives up transportation prices.
“Finally, as the Delta variant spreads across the world, the unpredictability of how countries or local regions will respond is on the rise with the potential to further disrupt supply or demand or drive additional logistical delays.
“From a Breville perspective, COVID is a tactical ripple in demand like Trump’s tariffs or Brexit. Ther primary difference being that it is a global, multi-year phenomenon. As such, we have seen nothing during the COVID period that has had any measurable impact on our go-forward strategy – more product into a larger market on a scalable platform.
“We will raise prices exponentially where appropriate. We are not adjusting our strategy, just living with the reality. To break it down into the pieces you have to manage, first of all, are you going to get the parts you need? Second, are you going to get them made? And third, you need to get them on the water.
“The good news for us so far is that we have completely managed one and two, now it’s just about putting them on the boat and moving the stock across. The orders are there, the products are there, now we just need to move them. Container rates are still going up a bit, but we are in the ‘move it’ stage.”