Breville result is out.

It’s quite the presso pack, so, good on them for having a conversation with investors.

Firstly, 1) a question they put to readers.

Second, 2) a lesson in SKU management.

Third, they give the answer to 1).

We are not so sure. Again, really great that they’ve taken to this framing.

However, we see the negative cashflows…

…and can’t convince ourselves that this is not an unusual amount of inventory to carry. They make the point that working capital has “normalised”, to us, this doesn’t match that description.

The composition of working capital has changed enough, and the nature of the cycle (confidence, rates, all that) such that I would be nervous, and do you want to see rising or falling receivables at this stage…

I’d make the point that falling receivables as a % of sales is often a warning sign to a slowing in sales, and hence to use it as a red flag.

Anyway, as someone on the internet noted, they’ll either look like geniuses if in another half all that inventory is cleared without impacting margins, or, they’ll look more like Kogan, which is discounting hard-to-move stock.

We like the business, the model, the financials (in most part) but can’t get comfort on the cycle or the valuation.

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