Harvey Norman reported FY24 EBITDA down 11% with a drop in Franchising and New Zealand earnings and increase in its property earnings. The company has lost market share in both Australia and New Zealand over the past five years and its EBITDA margin recovery is yet to emerge. We expect New Zealand to remain a headwind in FY25e but Australian earnings should rise slightly. The quality of the FY24 result was low with reduced lease amortisation supporting earnings.
JB Hi-Fi reported FY24 EBIT down 16%. Sales momentum and margins were encouraging in the second-half and the company has consistently gained market share over the past five years. We expect another year of softening margins, albeit overall EPS should be up slightly in FY25e. While JB Hi-Fi is clearly a well-run business, we expect future earnings growth is likely to be low single-digit at best.
We initiate coverage on Breville group, a global kitchen appliance developer that has achieved very strong sales growth in recent years, particularly in the coffee category. After a soft FY24e, we expect solid sales growth to resume in FY25e and beyond with household penetration, new markets and new products all supporting sales growth of 6%-9%. While gross margins should also expand, the company will need to invest in advertising and product development to sustain momentum.
We have produced a chart pack of retailer performance vs market. This market share report provides two insights – 1) Performance of key ASX-listed retailers compared with market growth. 2) Market structure and individual retailer performance over time. The most interesting perspective about the data in the near-term is the recent sales performance for supermarkets, hardware, liquor, and electronics. The data includes actual six-monthly growth in industry sales to end of December 2023.
Australian inflation of 7.0% in March 2023 quarter suggests price rises peaked in December 2022. We think the same is true of retail prices. Inflation has dropped meaningfully in appliances and furniture prices are starting to fall. Food inflation has also peaked albeit this is more a function of fresh categories which now have very low inflation such as vegetables and red meat. The unwind of elevated inflation will see retail sales slow. The drop is more noticeable in household goods with a more significant slowdown likely in other non-food categories later in calendar 2023.