Beacon Lighting Group Limited (BLX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Beacon Lighting FY 2026 Financial Results Presentation. [Operator Instructions] I would now like to hand the conference over to the Beacon Lighting Executive Chairman, Ian Robinson. Please go ahead, Ian.

Thank you. Good morning, and thank you for joining us for the Beacon Lighting full year financial year 2026 results presentation. My name is Ian Robinson, Executive Chairman of Beacon Lighting, and I'm joined today by our Chief Executive Officer, Glen Robinson; and our Chief Financial Officer, David Speirs. Financial year 2026 was another year of solid progress for Beacon Lighting as we continue to execute against our 2030 strategy with our ambition to be even split between trade and retail and a leading provider of lighting, selling fans and electrical accessories for the Australian home with sales firmly on track. Trade delivered another strong year, reflecting the strength of our customer partnership and value proposition, while complementary business made a positive contribution to the group's earnings. In retail, conditions were mixed across the year. We saw some softening in consumer sentiment in the first half, driven by shifts in interest rate expectations, which led to a more cautious spending and some trading down within categories. Trading conditions improved through the second half with comparative sales strengthening to 7.1% increase in the fourth quarter. These results are underpinned by the dedication of our team and the continued support of our customers and trade partners. Turning to today's agenda. Glen will begin with an overview of our operating performance, followed by David, who will take us through the financial results in detail. Glen then will turn to the outline of our growth priorities and the outlook for financial year 2027 before we open for questions. With that, I'll now hand over to Glen to take you through the results.

Thank you, Ian, and good morning, everyone. Thank you for your interest in the Beacon Lighting Group. We are proud of what we've been able to build throughout the FY 2026 year with our valued team members, our retail customers and our trade partners. As always, the full presentation that I'll run through is available on the ASX and our corporate website. Turning to Page 4, which sets out our statutory result for the full year FY 2026. At a statutory level, sales increased by 3.4% to a record $340 million, with gross profit up 2.7% to $233.3 million. Gross margin was 68.6%, down slightly from 69.1% last year. Operating expenses increased by 4.7% to $149.7 million, representing 44% of sales. This resulted in EBITDA of $87 million, broadly flat on the prior year. Statutory net profit after tax for the year was $27 million, down 8.1% against the prior year. The statutory result includes a number of non-recurring items, in this case, restructuring costs related to Beacon Trade rebate, the closure of the installation department, redundancies made in Beacon Lighting America and the group support center. To provide a clearer view of the underlying trading performance, we've adjusted for these items in the underlying result shown on Page 5, which is the basis for our discussion today. On an underlying basis, sales increased by 3.5% to $340.3 million. Gross profit rose to $233.6 million with a gross profit margin of 68.6%, reflecting the growing contribution from trade sales and increased penetration into new core trade categories, particularly in the second half. Despite this shift in sales mix, our vertically integrated supply chain and continued introduction of new product lines supported a strong margin outcome. Other income increased by 20.5% to $3.4 million, reflecting an improved return from the large-format property fund investments and continued interest income on our group's cash balance. Operating expenses increased 3.9%, representing 43.6% of sales. As a result, underlying EBITDA increased 1.6% to $88.5 million with an EBITDA margin of 26%. Underlying net profit after tax was $28.1 million, down 4.5% on the prior year. Moving to Page 6. I'll step through the key operational highlights for the year. We continue to invest in our store network, opening a new store in Auburn and purchasing the St. Kilda franchise store into company ownership along with the new store in Millers Junction. We also relocated and expanded the Geelong store into a flagship for the market, which now also includes a 300-square meter trade-specific showroom, and we expanded our McGraths Hill store in New South Wales whilst closing our Springvale store here in Victoria. Together, these initiatives reflect both the network expansion and store optimization aligned to our 2030 store strategy. Company store comparative sales increased 1.8% for the full year, with the standout being a 7.1% comparative sales increase in the fourth quarter, driven by trade growth, promotional execution, traffic growth and category growth. Beacon Trade remained a key highlight for the year. Trade sales through our stores increased by 14.5% and total trade sales now represent 43.3% of relevant sales, up from 40% last year, keeping us firmly on track for our target of 50% of relevant sales by 2028. Innovation continues to be a core differentiator for Beacon. During the year, we designed and developed 692 new products, reinforcing the strength of our vertically integrated pipeline across lighting, ceiling fans and electrical accessories. Expertise is critical in our category. And with 347 lighting designers across our store networks, we are well placed to provide expert customer advice for both retail and trade customers. With that, I'll now hand you over to David to take you through financials in a little more detail.

Thank you, Glen. I'm now going to move to sales on Page 8. The Beacon Lighting Group had an underlying sales increase of 3.5% to $340.3 million. Company store sales increased by 1.8%. The highlight result for the year was a comparative store sales increase of 7.1% for Q4 financial year '26. The best performed states from a comparative sales perspective were Queensland, Tasmania and Western Australia. Beacon Lighting has continued to partner with our trade customers throughout financial year '26. Trade sales through stores, which include both direct trade sales and referral sales have increased by 14.5% with a stronger momentum in half 2 compared to half 1. Total trade sales as a percentage of total relevant sales, which includes sales from stores, commercial, Masson for Light and Custom Lighting has increased to 43.3%. Beacon Lighting remains on track to achieve our goal of total trade sales being 50% of total relevant sales by 2028. It's important to recognize that Beacon Lighting stores, Beacon Commercial, Connected Light Solution and Custom Lighting all had sales increases in financial year '26. Gross profit on Page 9. Beacon Lighting achieved an underlying gross profit dollar result of $233.6 million or 68.6% of sales. The change in sales mix towards trade is reflected in strong sales increases in product categories like cables and switches. This change in the mix towards trade is beginning to be reflected in the gross profit margin with a small decline in financial year 2026. Despite the change in the mix, it is important to note that the vertically integrated supply chain has continued to support the gross profit margin. Beacon Lighting continues to design and develop new products in Australia, which will continue to be well received by our retail and trade customers and support our overall margin as a result. Other income and operating expenses on Page 10. Beacon Lighting achieved a significant 20.5% increase in other income. Other income will increasingly become more important to Beacon Lighting as the group can expect to receive an improved return from the large-format property fund in the future. Inflation is being reflected in some expense items for the Beacon Lighting Group. However, with a continued focus on the management of operating expenses, underlying expenses increased by 3.9% to $148.5 million or 43.6% of sales. Of all the operating expenses, the management of the marketing expense was a highlight with an increase of 1.5% to $16.4 million. With the opening of new stores, new leases and options exercised, depreciation increased by 8.3% and finance costs increased by 6.8%. Cash flow on Page 11. Beacon Lighting has continued to maintain a strong cash position with a net operating cash flow of $60.8 million. Using this strong cash position, Beacon Lighting has been able to reinvest in the future of the business with CapEx of $12.2 million. Major CapEx projects for the year included the opening of new stores, store relocation, refurbishments, the replatforming of the group's websites, product development and various productivity projects. With the suspension of the dividend reinvestment program, dividends to shareholders paid have increased to $16.3 million in financial year 2026. Balance sheet on Page 12. Inclusive of the $10 million term deposit, which is presented as other financial assets, Beacon Lighting has a cash balance of $54.2 million at the end of June 2026. With an inventory investment of $101 million, Beacon Lighting has been able to maintain a good in-stock position and strong service levels to our customers throughout the year. With the acquisition of 2 new development projects in Coffs Harbour in New South Wales and Noosa in Queensland, Beacon Lighting has increased the investment in associates, which is the large format property fund to $29.5 million. Right-of-use assets and lease liabilities have increased with the opening of new stores, exercising options and the signing of new property leases. Beacon Lighting has continued to maintain a strong net cash position and net assets have increased to $192.4 million. Dividends on Page 13. It is important to note that the Beacon Lighting dividend reinvestment plan remains suspended. Reflecting upon the financial year 2026 result, the directors have declared a fully franked dividend of $0.034 per share for half 2 financial year '26. This means the directors declared a fully franked dividend of $0.075 per share for financial year '26. The directors will continue to target an annual dividend payout ratio of 50% to 60% of net profit after tax. The dividend payout ratio for financial year '26 has exceeded this target with a payout of 63.7% of net profit after tax. Thank you, and I will now pass you back to Glen.

Thanks, David. Let's move on to the strategic pillars of growth, starting on Page 14. Many of you will be familiar with our 4 strategic pillars. These have remained consistent for many years as we focus on the long-term growth across stores, trade, e-commerce and complementary businesses. Page 15 outlines our vision for the Beacon store network through to 2030. Our ambition is to evolve from being a lighting retailer to becoming Australia's leading provider of quality lighting, ceiling fans and electrical accessories for both homeowners and trade professionals. The strategy brings retail and trade together in a way that is natural and mutually reinforcing. For homeowners, Beacon is the destination for inspiration, expertise and design guidance. For trade professionals, Beacon is a trusted partner, recognizing their influence, rewarding loyalty and supporting the growth of their business by referring Beacon customers to use our preferred trade partners. At the intersection of these 2 customer groups sits Beacon, becoming the homeowners' first choice and the electrician's most valuable partnership, the partner that can bring both the trade and the homeowner together to complete the job. Turning to Page 16, an update on our store growth pillar. It's been a transformative year for the store network with greater role clarity, alignment across the teams, value and promotional activity and expansion into key product categories, which showed in the strong positive comparative performance in Q4 of the year. We finished FY 2026 with 130 stores, comprising 120 company-owned stores and 1 franchise store. We opened new stores in Auburn, Millers Junction, purchased the St. Kilda franchise store, relocated Geelong and expanded the McGraths Hill store. Our product and service offer remains central to the strategy with 692 new products designed and developed during the year to support our core range of more than 3,500 products. Our accredited lighting designers, design consultants grew to 347 associates with our 59 design studios across the stores, completing more than 4,360 lighting design consultations across the network. Finally, updated store network research confirms the opportunity to grow to around 217 stores nationally, providing a clear and disciplined runway to support our long-term growth ambitions. Page 17 highlights the continued progress in trade and its critical role in our long-term strategy. Again, consistency was the key message for the teams this year. Working with our large number of trade customers, finding solutions and expanding into lower penetrated categories positions us well to grow once again in the trade channel. Beacon Trade members continue to benefit from a 2% Beacon Cash rebate, trade essential pricing plus special pricing across the entire range, monthly trade perks and branded workwear in collaboration with Nena and Pasadena, the fashion brand. Total trade sales have now reached $139.5 million for the year with trade sales through our stores increasing by 14.5%. Total trade sales now represent 43.3% of relevant sales, and we remain firmly on track to achieve our goal of 50% of relevant sales by 2028. E-commerce continues to grow as an important channel with customers increasingly researching our products online before visiting our stores to seek expert advice and confidently finalizing their choice. E-commerce sales represent 13.1% of total store sales. Trade remains a key driver online with online trade sales up 16.5% and online visitation up 20.2%. Online trade sales now account for 14.9% of direct trade sales, reflecting the increased digital adoption of our trade customer base. During the year, the team have worked tirelessly to build all new websites for the group on a new platform. This investment will strengthen our position as the leading lighting, ceiling fan and electrical accessories online seller for homeowners and trade professionals in the years ahead. Turning to Page 19. Our complementary businesses delivered a mixed, but overall positive contribution during the year. Beacon International had a year of restructuring and consolidation, while sales declined modestly, improved margin and disciplined cost management delivered a significant improvement in profit. Hong Kong remained the financial cornerstone of the business. Europe delivered improved sales, margin and profitability. And in the United States, restructuring established a leaner cost base and a stronger platform for future growth. Connected Light Solutions was a particular highlight with sales up over 50% for the year, and the business secured a significant state-based contract to replace existing street lights with new energy-efficient LED infrastructure spanning several years. Commercial and Custom Lighting also recorded sales growth for the year, while Masson for Light and Light Source Solutions in New Zealand were softer. We also continue to benefit from the 50% interest in the large-format property fund, which owns 9 retail properties, including recent acquisitions in Coffs Harbour and Noosa. The portfolio comprises of 5 fully tendered properties, 1 partially tendered property and 3 development projects. The highlight for the year was the completion of the Auburn development, which now includes a new Beacon Lighting store, our New South Wales commercial office and also a state office. Together, these businesses continue to diversify the earnings and broaden the group's growth platform. Briefly on Page 20, we remain committed to our sustainability goals across people, product and planet. For our team, safety, respect and well-being is at the center of everything we do at Beacon, creating a safe and supportive work environment, one with career advancement opportunities. On product, our LED globe range has now replaced fluorescent, incandescent and halogen globes as standard, cutting energy use by up to 80% with a lifespan up to 6x longer with ceiling fans, including the super energy-efficient direct current ceiling fans being a great alternative to energy-intensive air conditioning systems. On planet, we now have 72 solar systems operating across the group sites, continuing to reduce our reliance on grid-sourced electricity, along with huge advancements in our product packaging, eliminating polystyrene and most plastics from our products. Moving to Page 22, our outlook for the FY 2027 year. Our focus across the business remains on delivering the projects, capability and range to successfully meet our 2030 vision for the stores. Positive momentum in company store sales from Q4 FY 2026 has continued into the first 8 weeks of FY 2027. Beacon Trade offering continues to be increasingly supported by our trade customers underpinning store sales. We have a strong store opening pipeline during the year. We'll plan to open new stores in Caloundra, which we've actually just opened, Angle Vale, Rockingham, Everton Park and Mornington, along with refurbishments at Gepps Cross and Osborne Park and expansion at Castle Hill and a relocation of the Hervey Bay store. We'll continue category expansion and market share growth for key trade product ranges. Connected Light Solutions will continue rolling out new energy-efficient LED street lights under the state-based contract they secured last year. In the first half of FY 2027, we will launch our new retail and trade websites on the new platform, further improving the customer experience. With the foundational work completed during FY 2026, including identifying new Beacon Lighting store locations, securing a major street lighting tender, advancing our 2030 initiatives and developing new websites, together with our continued focus on customer obsession and category expansion, we're well positioned to realize the benefits of these investments in FY 2027 and beyond. Thank you for your time. I'll now hand you back to Ian Robinson to take any questions.

Thank you, Glen and David, for your presentation. We're now open for questions.

[Operator Instructions] The first question today comes from Forres Salekian with Barrenjoey.

Well done on the result. Just on like-for-likes, it looks like the strengthening in momentum was on the back of trade improving. Can you just give us an update on how the momentum in retail has evolved maybe over Q4 and into the new year? And I guess, like what happened in Q4 to get comps accelerating so hard?

Yes. Thanks, Forres, and good question. So you're right, trade has definitely improved throughout the second half and particularly into Q4. A lot of that was through success of some of the new products that we brought to market, things like some of the switch ranges. We're getting better penetration in categories that we had previously low market share in, things like cable. So that's continued to go particularly well for us. But you did also mention retail. And I think that's what was pleasing to see that retail wasn't the drag that has been in the last couple of years in some of the states. So we've definitely seen some improved activity across retail, and I think we can put that down to a few different things. Obviously, the economic situation across Australia and the global political issues overseas play heavily on consumer confidence, and you'd probably expect that to be a negative for retail, and we certainly would have expected that as well. But I think what we started to see was maybe more people staying at home, potentially investing in their primary place of residence, so investing in their home and doing renovation activity there. At the same time, we really did have a strong focus on promotional execution across stores. So making sure the marketing is aligned to value and promotion. That doesn't necessarily mean heavier discounting, but really just very clear on our promotional execution. So I think that helped with the retail spending. It helped consumers see that there was great value across Beacon Lighting so that when they are looking at doing some renovation or updates, we were a great alternative to others that might be out there. So it was across the board, across categories, new category expansion and trade sales growth.

And operational performance has certainly improved in the stores.

Yes, that's right, Ian.

That's super helpful. And then I guess just maybe as you think about the next 12 months on like-for-likes, how are you thinking about that as housing turnover starts to slow just on the back of higher interest rates and changes to housing policies after the budget? It looks like comps get a bit easier to cycle through the first half as well. So just wondering, like against this backdrop, do you think you'll be able to hold the current run rate or should it soften from here?

Yes. Look, I think we've got some really exciting opportunities ahead of us. We've just completed conferences across all our states with all our store managers. And I think the alignment across the business is a lot stronger than it's probably ever been, and there's some real genuine excitement out there about what we can control rather than focusing too much on the externals. So things like promotional tie-up, box stacks, value pricing and category expansion are really the areas that we are mostly focused on, and that's what I believe will be -- put us in a good position to be able to continue to grow the business throughout the year.

Got it. And then if I could just squeeze in one more. It looks like the marketing as a percent of sales came down to about 4.5% of sales in the second half and the dollar amount invested went backwards year-on-year. So just wondering like how you're able to balance this while growing top line and how you're thinking about marketing investment over FY '27?

Yes. I think total investment in marketing spend still went up, but as a percentage of sales, it did come back a bit. I think that's the beauty of our brand is that we've been consistently spending over 5% of sales for near on 60 years. Next year, it will be our 60th year in the market. And we've got a very strong brand awareness across the Australian market. And therefore, we don't need to do as much heavy lifting to build awareness as what some other brands out there need to do. So we can concentrate a bit more deeper on the consideration phase of purchasing rather than the awareness phase. And I think that's where we can get some particularly good value from our marketing to drive store traffic, which is what we're able to do in the second half despite not spending a huge amount on marketing. It's still a big investment for the business. We still absolutely believe in the benefits of marketing and driving sales, but I don't think we need to. Yes, we've got to spend cautiously because costs across the business and costs across Australia are challenging to keep under control. And where we can save some and still achieve good sales growth, we should be looking at that.

The next question comes from Leo Armati with Bell Potter Securities.

Congrats on a great result. Look, just first from me on trade sales, obviously now increasing towards that 50% target around 43%. I'm just wondering what the cadence is to sort of close that remaining 7% into 2028? Like is it a similar growth that we've seen from 40% to 43% this year?

I think that's what we've been consistently getting is a similar growth over the recent years. And we've been able to achieve that. We've got some leading stores, and we've also got some stores that are -- have really got some runway to make up. And that's where we think we'll continue to have a similar cadence in trade sales growth sort of going forward.

Yes. Great. And then just on gross margin. Obviously, that's declining just given that trade mix. Should we just expect, I suppose, going forward, more margin dilution? Or does the sort of vertical, I guess, supply chain that you guys have sort of offset that as you scale a bit more?

Yes. I think there's a lot of moving parts to the gross profit margin at the moment. I think as you continue to sell more and more cable and switches, that's going to put a bit more pressure on the gross profit margin. We've probably still got some U.S. dollar currency improvements or the Aussie dollar against the U.S. improvements to be realized over the next sort of 6 months or so. So that will help a little bit. But some of that will be also offset by rising costs coming out of our factories. So as I said, there's a lot of moving parts. We will be doing what we can to try to manage the gross profit margin around where we probably finished this year.

Yes. Great. And then just on that state contract, I know it's sort of at the end of the result. But I'm just wondering if you could sort of size that revenue contribution or margin profile from that contract because you noted when you were speaking that it is quite significant?

Yes. We won't go into the details for commercial reasons, obviously, about margin and size of it, but we look forward to giving you an update once we get through the half results and hopefully be able to put a bit more color on that. We've only just started supplying into that contract. So to be really clear on the margins is a little bit challenging for us at the moment until we see how they play out. So -- but we'll definitely try to give some more information at the half result. But it is a contractual arrangement. So it's definitely not going to be anywhere near the margins that the group gets, but it will all be incremental sales and margins that the business hasn't had before. And it will be transformational for that for Connected Light Solutions. It will make that business totally different to what it is today.

The next question comes from Sam Teeger with Citi.

David, 23 years at one company is a great achievement and all the best for the future.

Thank you, Sam.

I'm just wondering, if trade reaches 50% of sales by 2028, should investors expect structurally lower margins than the business has generated historically?

I think because the vast majority of the trade sales are going through the store network, Sam. We would expect the store network to be more efficient in the way that we transfer sales into profitability across the network. When we first used to sort of size up a potential opportunity of a store, we would sort of look at it and go, we might be able to get to $1.2 million, $1.4 million in sales for a new store. Now obviously, having the trade base in there, it helps build the volume that's going through that business, which helps the -- improve the returns out of that store a lot quicker, but also for the long term, it makes them a lot more profitable as well. So that's the way we look at it. All the additional GP dollars that flow through help cover those fixed costs associated with that store, and therefore, it should be a big benefit to the profitability of each one of the stores that we operate.

Okay. Great. And can you talk about third quarter versus fourth quarter EBIT margins, just given how strong those fourth quarter comps were?

We haven't gone into the details on that, Sam. But yes, you can imagine with comps at 7.1% driving the top line and holding up your margin and your costs are relatively fixed through the business that obviously that plays out positively for us.

All right. Sure. And then for the past several years, Beacon has been very successful growing its trade business, its online sales, Commercial Lighting, property, yet group earnings have remained pretty consistent. What's the missing piece that needs to occur here before investors see a lot of these strategic successes translate into sustainably higher EPS growth?

Yes. I think we've been in the backdrop that the retail's discretionary spend has been relatively soft, Sam. So we've been supplementing overall group sales with trade growth, but that's been dragged back by the retail sales. And for us to be able to get both going through, which is what we started to see more of in the fourth quarter, that's where I think you start to see the benefit of the strategy and play -- and that will hopefully play out throughout the FY '27 year where you get retail either being flat or slightly positive and continued trade growth driving additional GP dollars through these relatively fixed costs. And the last few years have been quite significant from an inflation point of view. So if we can start to get some more reasonable inflation sort of indicators coming through, driving the retail sales to a positive or flat or positive position plus trade growth driving GP, then it should be a good outcome for the profitability of the group.

The next question comes from Benjamin Gilbert with Jarden.