The pandemic has also decimated the tourism trade and led to a sharp drop in foot traffic in shopping centres in Australia, the US, the UK and Europe. Overseas markets account for about 80 per cent of Breville’s revenues.
“We’re seeing soft foot traffic across most shopping centres and softness in clothing purchases, so there’s that aspect from a domestic retail trade point of view,” said Credit Suisse analyst Grant Saligari.
Dr Saligari said Premier sourced from several countries including China and Bangladesh.
“I wouldn’t single them out from a sourcing point of view … and one thing to keep in mind is the China supply chain is slowly getting back up and running, whereas we’re entering a peak period here,” he said.
Dr Saligari said Premier was better placed to withstand a significant trading hit than many retailers because of its strong cash flows and balance sheet, including cash on hand of $190 million at the end of fiscal 2019.
“Everyone is going to be disrupted – what you can look at is company balance sheets and their ability to withstand disruption,” he said.
Premier is due to report January-half results next Friday and is likely to update investors on supply chain issues and recent trading.
Bell Potter analyst Sam Haddad said the sell-off in Breville shares – whose stock had almost doubled in the 12 months to February 13 – had been overdone. However, he said the near-term outlook was challenging and reduced his earnings per share forecasts by 3 per cent this year and 6 per cent in 2021.
Mr Haddad said the supply chain risk had abated because Chinese suppliers were ramping up production and the demand risk was less than feared because Breville generated most of its sales in October, November and December.
“We believe the risk of severe demand disruption is reduced, albeit on the assumption that COVID-19 can be managed ahead of these peak months,” Mr Haddad said.
Breville said last month it was insulated from the coronavirus because it had boosted inventory levels last year as insurance against Brexit and tariff increases in the US and to meet demand in Europe, where it is expanding rapidly.
Mr Haddad also said Breville sold a lot of appliances in the US and Europe online through partners such as Amazon and leading omnichannel retailers such as William Sonoma and John Lewis.
“While we recognise the online channel is not immune to consumer sentiment headwinds, it provides an ability to purchase where there may be a physical constraint (due to COVID-19 containment efforts),” he said.
Mr Lew was contacted for comment.
