Contrarian investors may look with interest to a retail sector which has taken a post-budget pasting with weak consumer confidence blamed for a series of profit downgrades from brands like Kathmandu Holdings Ltd (ASX: KMD) and Super Retail Group Ltd (ASX: SUL). Super Retail Group said it was impacted because its core customer group of lower to mid income families were particularly hard hit by the budget cuts. Kathmandu is more of a premium brand, but that did not prevent it from recently cutting forecast profit guidance by 10%-15%. While in an interesting case of the sharemarket imitating life, Reject Shop Ltd (ASX: TRS) shares went on half price sale themselves over the past year, this after the company warned of tough trading conditions existing since Christmas 2013.
One retail stock caught in the general malaise and potentially now offering growth at a discount is household goods and appliance maker Breville Group Ltd (ASX: BRG). Microwaves, kettles and toasters are Breville's bread and butter, while juicers have seen strong sales as consumer demand shifts towards healthy dietary trends. Breville's products aren't cheap and sales are leveraged to overall household wealth in its three key markets of Australia, the US and UK.
The business has been growing sales steadily in Australia, with an ambitious plan to replicate its domestic success in the larger US and UK markets. Sales in North America now almost match those in Australia, with Breville launching into the UK market in an attempt to drive the next growth phase.
Breville is an effective advertiser, with influential celebrity chef Heston Blumental on board to promote its products. The management team is also highly regarded with executives and employees commonly on remuneration schemes that align their interests with those of the company and its shareholders. The largest single shareholder is retail guru and master-investor, Solomon Lew, who has substantial interests in the business through Premier Investments Limited (ASX: PMV).
Post-budget sell off Breville shares sell for $8.10 at 17.5 times analysts' projections for 2015's earnings, with a fully franked 3.4% dividend yield. With earnings now partly leveraged to global growth, I think Breville looks a decent prospect to outperform the market over a five-year time horizon.
