Returns On Capital At Briscoe Group (NZSE:BGP) Have Hit The Brakes

As investors, we're always on the lookout for companies that can consistently deliver strong returns on capital. Briscoe Group (NZSE:BGP), a retail giant in New Zealand, has been a darling of the market for years, but recent trends suggest that its returns on capital may have hit a snag. Let's dive into the factors contributing to this slowdown and explore what the future might hold for this retail titan.

One of the primary reasons for the slowdown in returns on capital at Briscoe Group is the shift in consumer spending patterns. As consumers become more conscious of their spending habits, they're favoring higher-margin products and services. This trend has led to a decline in sales growth for Briscoe Group, with its unaudited annual sales growth dropping to 6.1% in 2022, excluding an extra week. This is a significant slowdown compared to the previous year's 10% growth in sporting goods sales. Additionally, the company's gross margin percentage for the full year is expected to close significantly above last year's margin percentage, indicating a shift in consumer preferences towards more profitable products.



Another factor contributing to the slowdown in returns on capital is Briscoe Group's inventory management strategy. The company's focus on securing product months in advance of traditional timings has helped minimize supply chain disruptions and ensure sufficient inventory to satisfy demand. However, this strategy has also led to a slowdown in returns on capital as the company invests more in inventory. This is evident in the company's operating margin, which was 16.50% in 2021, lower than the previous year's 17.85%.



Fluctuations in the New Zealand dollar have also impacted Briscoe Group's returns on capital. A strengthening New Zealand dollar can make imports cheaper, reducing the cost of goods sold. Conversely, a weakening New Zealand dollar can increase the cost of imports, negatively impacting the company's gross margin. In the 2021 financial year, Briscoe Group's gross margin was 43.76%, which was lower than the previous year's 45.76%. This could be partly attributed to currency fluctuations, although other factors may also have played a role.



In conclusion, the slowdown in returns on capital at Briscoe Group can be attributed to several factors, including shifts in consumer spending patterns, inventory management strategies, and currency fluctuations. As investors, it's essential to stay informed about these trends and adapt our portfolios accordingly. While Briscoe Group may face challenges in the short term, its strong brand and adaptability could help it navigate these headwinds and emerge stronger in the long run. As always, it's crucial to maintain a diversified portfolio and keep a close eye on the companies in which you invest.