Shriro is still optimistic about Heston Blumenthal's BBQ, but the retail apocalypse burns

Shriro (ASX: SHM) is coming off “a tough year” in its core kitchen appliances business.

The company released its 2018 results late yesterday, which showed a 46.9 per cent fall in net profit to $7.7 million.

Those numbers were in line with forecasts, after the company downgraded its earnings outlook last October.

Shriro was aiming for a $10+ million profit, but had to temper expectations to the $7-8m range. Following its October announcement, Shriro’s stock promptly lost more than 40 per cent to fall below 60 cents.

Shares in the company are up more than 13 per cent this morning at 62.5 cents.

Kitchen blues

Australia’s retail sector is going through a tough period, with intense price competition and ongoing changes in buying habits.

And some of those headwinds were keenly felt by Shriro’s kitchen appliance business, as the company was forced to adapt to shifting consumer preferences.

Segment revenue fell 10.9 per cent to $74.3 million, which the company attributed to four factors: “market decline, competition, currency headwinds and a phasing out of older products”.

The company’s Blanco products were the best performer, recording sales growth of 19 per cent.

However, “the Omega product range had a particularly poor year, with the need to phase out superseded products in a period of intense competition”.

The net result was that the kitchen appliances segment contributed very little the bottom line, with annual EBITDA of just $400k.

That meant the company was wholly reliant on its consumer products division — led by the sale of watches, barbecues and electronics — for earnings.

Revenue for consumer products was $106.8m with EBITDA of $13.9m — a fall of 14 per cent due to costs incurred launching a BBQ division for the US market.

Blumenthal’s barbie

Shriro remains committed to an international strategy for its line of “Endure” BBQs, endorsed by Heston Blumenthal.

The company signed a deal with the celebrity chef last year for a barbecue line focused on the growing market for slow-cooked meals.

Shriro said it spent around $2.6 million on advertising and promotion for the products, focused on the US market.

It had high hopes for a pickup in sales activity towards the end of last year which didn’t materialise — a development the group blamed on Trump’s trade war.

“The uncertainty surrounding the current tariff negotiations between the US and China has led to order delays and lower sales in the last months of 2018,” Shriro said.

While recent developments in US-China trade talks have some commentators optimistic about a trade deal, Shriro said its “taking action” to ensure orders aren’t delayed.