Thank you for standing by, and welcome to the Breville Group Limited FY2024 first-half results investor and analyst briefing. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session for investors and analysts. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Martin Nicholas, Group CFO. Please go ahead.
Good morning to everybody joining today's call. It's my pleasure to welcome you to the presentation of our first-half 2024 results. I'll walk you through the group's financial results, and then Jim Clayton, our CEO, will provide an operational and strategic update. I would like to start our presentation today by acknowledging and paying our respects to the traditional custodians on whose land we meet today. I would like to pay respect to their elders, past and present, and further extend that respect to all Aboriginal and Torres Strait Islanders present today. We celebrate the continuing contribution of their food culture and their connection to and custodianship of this country. Turning to slide 4, we start with an overview of our first-half results. In the first half 2024, we delivered revenue growth of 2.0% against what can only be described as a subdued consumer backdrop.
That said, CAGRs over the medium term remained strong, and we again posted a record half of sales. Importantly, in a period of inflation and widespread in-market discounting, we delivered gross profit dollar growth of nearly 7%. Our gross margin percentage improved year-on-year by 160 basis points as input costs abated and investment into promotion was well controlled. Our period-on-period OPEX increased by 5.7%, mainly due to budgeted increases in depreciation and amortization. Having absorbed these increases, EBIT grew at 8.2%, comfortably ahead of sales and in line with our plan. NPAT grew at 6.7% after absorbing higher interest costs, which are forecast to abate somewhat in the second half. Also, as forecasted, we delivered step reductions in net debt and inventory, and we forecast further cash inflows in the second half as our peak receivables are collected.
An interim dividend of AUD 0.16 and an increase of 6.7% on the prior period will be paid in March. So overall, a very solid half of performance against a challenging backdrop.
Turning to slide 5, we see key segmental results. Our global product segment grew revenue by 1.6%, or a decline of 1.3% in constant currency. But importantly, gross profits grew by 4.8%. Our distribution segments, or revenue and gross profit, grow by 4.6% and 26.7% respectively, as Nespresso sales bounced back in the USA and Breville Local and Canada prioritized gross profits over sales in Australia and New Zealand. In the global product segment, our new product launches landed well, with strong sales from the Barista Touch Impress, the Vertuo Creatista, and the InFizz range. After a quiet period during COVID, new product launches are firing, with a healthy pipeline in place for the remainder of FY24 and FY25.
New geographies also grew well, with countries that we entered during and since the COVID period growing at 73%, albeit off a small base. In category terms, both coffee and cooking performed well, posting good gross profit gains, with our food preparation category juices, blenders, and food processors proving more discretionary and declining period-on-period. Turning to slide 6, here we see the relative theater performances in the global product segments. Pleasingly, all three theaters posted gross profit growth. From a business planning point of view, it was good to see sell-out, or consumer offtake, and sell-in, or retailer purchases, broadly tracking each other. Our five-year sales CAGRs remained strong, with some degree of mean reversion and cost-of-living pressures dampening the current period's growth. In the Americas, our largest region, we saw flat sales but growth in gross profit dollars.
U.S. consumers continued to respond well in key promotional periods, with our strongest performances in coffee and cooking. Of note, our reported growth number in the half is suppressed by the presence of Bed Bath & Beyond in the prior period, partially compensated for by our launch into Target. The opposite effect is expected to be felt in our second half. In APAC, Asia continued its strong growth trajectory, moving from strength to strength. Australia and New Zealand experienced a weaker first quarter, followed by a stronger second quarter, beginning with Black Friday. Given this environment, we restricted our promotional cadence and instead focused on gross profit growth, which grew well half on half. In EMEA, the Ukraine backdrop was perhaps not as impactful as in the prior period, and sales and gross profits grew.
Performance was particularly strong in our key direct markets, somewhat tempered by lower growth in indirect markets still served by distributors. Turning to slide 7, here we look at our EBIT growth drivers in the first half of 2024. A strong gross profit delivery was again key in generating funds to drive our EBIT growth. Input cost savings flowed through the half, and we were measured in reinvesting these savings into promotion. In terms of operating expenses, they were well managed, with 5.7% overall increase, allowing half of the gross profit gains to flow through to EBIT. The forecast increase in depreciation and amortization played through the half, reflecting the increased number of product launches we have put into market since COVID and a step up in our right of use asset depreciation on our renewed warehouse leases.
An increased employee cost largely reflects wage inflation, with headcount fairly flat period-on-period. Other costs were also relatively flat, yielding an 8.2% increase in EBIT. Turning to slide 8 and the balance sheet, it's largely a story of doing what we said we would do. Inventory was reduced by over AUD 85 million through measured purchase reductions rather than discounting. A further reduction is forecast for the second half of 2024 as our normal inventory flow model continues. In terms of our receivables, like-for-like debt to date are in line with the prior period after adjusting for Bed Bath & Beyond, which was on near-to-cash terms last year. Moreover, our sales growth was skewed to the second quarter, with stronger sales starting with Black Friday, which increased our receivables book as of December the 31st, 2023.
As of January 31st, 2024, one month later, our receivables had already reduced to AUD 323 million as we began collecting our peak period receivables. The development of new products and solutions is a key element of our growth strategy and is reflected in the balance sheet as capitalized development costs and software. As more new products are developed and then launched, our capitalization will increase. With a lag dictated by the length of our development cycle, so will amortization. Intangible balance shown here is a good leading indicator of future growth, with the growing balance signaling that we have a larger number of products projects moving towards launch or recently launched. Our PPE, property, plant, and equipment period-on-period increase reflects an investment in market-facing store fit-outs, manufacturing equipment, land and building, and tools and dies as new products move into their industrialization phase.
In line with the inventory improvement, net debt was reduced to AUD 97.5 million at the end of the half, with a further reduction forecast for the second half of 2024. As of January the 31st, 2024, net debt had already improved to AUD 34.7 million. Finally, at 0.4 times last 12 months' EBITDA, the group remains conservatively geared and has significant unused debt and cash facilities in place for expansion. Turning to slide 9 and before concluding my review, a few key points I'd like to reiterate about the first-half performance. Against a challenging backdrop, we delivered 6.7% gross profit growth and a very solid 8.2% EBIT growth. Another period without a backward step and indeed another record sales half. Our new products and increasing geographic diversity helped deliver this positive outcome, compensating for the headwinds felt in the business as the consumer faced continued cost-of-living pressures.
As forecast, we successfully delivered inventory and net debt reductions, with further inventory reduction and cash inflow forecast for the second half. Finally, we continue to manage the business for the medium term, which means not only continued geographic expansion but also continuing to push on our innovation investment levers. This strategy remains unchanged and is core to our long-term sustainable growth. Following that summary, I will hand over to Jim.
Thank you, Martin, and good morning to everyone. Martin has taken you through our first-half 2024 results. I'm going to walk you through how BRG has been able to deliver outlier performance where others have struggled, then finish with some commentary on the second half and our outlook for FY2024. Slide 11. Since COVID began, I've been tracking several public companies globally to get a read on where we might be in the cycle. With the chart on the left, I've chosen a large retailer in the northern hemisphere as an example of a relatively consistent pattern across these companies. GDP-like growth heading into COVID, acceleration of revenue, gross profit, and EBIT in the first half of 2021, deceleration in the first half of 2022, followed by a mean reversion period in the first half of 2023 and likely the first half of 2024.
Many companies increased their OPEX going into FY21 and 2022, which negatively impacted EBIT on the way out. While BRG has certainly been experiencing the same macro wave, it has not shown the same year-over-year pattern. Instead of declining, revenue has grown, gross profits have grown, and EBIT has grown. This certainly begs the question of why is BRG an outlier? Is it not experiencing the same headwinds as the rest of the market? In fact, BRG has been riding through the same mean reversion cycle. To reinforce a common BRG theme, the investments we made into R&D, go-to-market, and geographic expansion over the last eight years, coupled with the tailwinds of coffee and cooking, have created growth levers of a sufficient scale to overcome these headwinds and deliver consistent growth.
Our goal-post approach to annual planning, coupled with the variability of our OPEX cost structure, has enabled us to manage through the cycle and convert gross profit dollars to EBIT dollars. Slide 12. As we began our transition into adding solutions to our offerings, the targets were not random. We focused on the tailwinds of our consumers' migration to better quality coffee as well as air fry. After a couple of years of prep work, both solution plays launched in the first half of 2024. While we continue to evolve these services within the context of this discussion, their purpose is to magnify the impact of the tailwinds in play. Slide 13. During the COVID period, we continued to invest heavily in new product development despite the challenges. This COVID product pipeline is now releasing, which is well-timed given the mean reversion headwind.
In the second half of 2023, we launched the Barista Touch Impress, the Vertuo Creatista, and the Joule Turbo. All three products had their first high season and contributed to growth in the first half of 2024. Next slide. Also in the first half of 2024, we launched four new products: the InFizz Fusion, a product that lets you carbonate anything instead of just water; the Paradice 16 and the Sous Chef 16, the initial down payment on our new food processor range; and the Oracle Touch Noir, a special edition of the Oracle Touch. These products also helped us deliver growth in the first half of 2024. Next slide. If you recall, despite some second guessing, we actively launched into new countries during COVID. As we said at the time, we weren't entering these countries for that year's result. We were doing it for future years.
FY24 is one of those years. From the period of FY20 through 2024, for Breville Sage, we flipped Mexico, Portugal, Spain, France, Italy, Poland, and South Korea into direct go-to-market model. For the first half of 2024, Breville Sage products in these countries grew 73% in net sales, which was also a meaningful contributor in our ability to post positive net sales and gross profit growth for the half. Slide 16. While our growth levers have pushed through the headwinds delivering gross profit growth, it's our approach to financial planning that has enabled us to consistently convert this gross profit growth into EBIT growth. As I watch other companies working their way through this turbulent period, this is where they struggle. The vertical that was highly forecastable and predictable went off the rails in March of 2020 with the beginning of the lockdowns.
The COVID cycle, supply chain disruptions, regional wars, mean reversion, and the unprecedented move by central banks around the world became the new normal. Beginning in July of 2020, we embraced the uncertainty, assumed the future was not dependably forecastable. We adopted a financial planning approach that I used with startups, which assumes a wide range of outcomes, what I've referred to in the past as the goalpost plan. At the beginning of each year, we plan inventory for the high side and our cost structure for the low side, recognizing both are wrong and they can't both be right at the same time. As the future unfolds, we converge on reality, either by reducing forward purchases or by increasing OPEX spend to end the year on the target business model for that year's gross profit number.
To make this point another way, Martin and I are often asked how much room we have to cut costs if things don't go as planned. With this approach, we start the year with those costs already cut. Then we increase our spending during the year to arrive at the exact plan we would have built if we had known the gross profit outcome for the year in advance. This flexible financial planning approach, effectively a rolling budget that accounts for lead times, has enabled us to tap through the disruptive events we've all read about and experienced, thus converting our gross profit growth in a decelerating environment to EBIT growth.
It's our growth levers and our adaptive financial planning approach that has enabled BRG to go from strength to strength, from net sales all the way down to EBIT, while others are riding the undulating wave kicked off by COVID both up and down. Now onto the second half and our outlook for the year. The good news is I don't have much to highlight for the second half. I expect the macro mean reversion headwinds to continue for period-over-period purposes. With the exception of the Bed Bath & Beyond Target trade in the US, we have a fairly stable denominator across the theaters, something we haven't had in a while. On the whole, sell-in and sell-out tracked pretty closely in the first half, meaning retailers started the second half in a good stock position, not too high and not too low.
We have some solid new product launches in front of us as well as the regional rollouts of products already launched. Consistent with what we signaled leading into 2024, inventory is transitioning into our flow model, and we'll see a further release of working capital in the second half. Lastly, as we continue to manage through the uncertainty, we will play a conservative hand focusing on gross profit dollars while continuing to invest for medium-term growth. For the year, we expect EBIT growth to be between 5% and 7.5%. To head off any confusion, there's nothing new or incremental in the three bullet points on this slide. They're the same as always. With that, I will now hand the call back to the operator who will open it up for any questions you may have about our first-half performance.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. We ask that all participants limit their questions to one per turn, and if you have any further questions, you will need to rejoin the queue. Your first question comes from Lisa Deng with Goldman Sachs. Please go ahead.
Oh, hi, Jim and Martin. Thank you for that. Just two questions from me. One is, are we able to quantify in the first half how much was actually contributed from the NPD as well as the new regions and then therefore the underlying business? Sales, first-half sales.
We don't normally break that out, Lisa. But suffice to say, the new coffee machines, the Vertuo Creatista, Vertuo, and the Barista Touch Impress, went extremely well in the first half. And we did give a growth number for the new territories, 73%, but off a relatively small base. But no, we're not in the habit of reporting actual NPD and geographic growth. Otherwise, we'll be tracking the waves to and fro in our numbers going forward.
Got it. And then just to follow up, is the second-half investments we talked about on 19, are we thinking more marketing investments to therefore then drive up the second-half sales, or is the investment more for 2025 and onwards?
The investment's for 2025 and onward.
Thanks.
Your next question comes from Ben Gilbert with Jarden. Please go ahead.
Morning, Jim, Martin. Hope all is well. Just on the U.S., just probably one question before I try and put two parts into it. It's just around the growth or sorry, the numbers of the first half, excluding Bed Bath & Beyond, where you guys are. And then just the second part of that is, as you look forward in the U.S., appreciate this coming half is extremely small and it's all about the first half of 2025. But are you starting to get any feedback from your customers around replacement cycles starting to kick back in? And given a lot of this new range you're putting out and you've obviously talked to a decent level to come over the next six months or so, are you increasing your SKU count across your key retailers as well? Sorry, a little bit in that.
Maybe I'll, Jim, I'll pick up the first part, which is, yes, it's difficult to completely isolate it, but excluding what we measure as the impact of Bed Bath out and Target in, yes, we would be in positive growth if we netted those two out.
The second was, did SKU count increase when we launched new products? Short answer is yes.
And you're saying the replacement cycle. Do you think there's any early signs of that starting to kick back in? Because obviously, a materially higher installed base of coffee and some of these other categories for COVID.
Honestly, I don't have any fact base. I look at the total. That's the way to describe it. And when I watch sell-out, so I can't disaggregate sell-out into how much of this was replacement cycle versus new customers.
Gut feel?
I think the one thing, and we said this going in, so just be mindful, which is that the U.S. or the Americas, their growth will be understated in the second half and overstated in—I mean, understated in the first half and overstated in the second. It'll be clean for the year, but when I look at the Americas, I think of FY2024 as the first clean data year. And what I mean by that is there is a trend break that's played through last year and this year, which is the absence of Bed Bath. So the good news in 2024 is we'll be laying down a clean number of zero Bed Bath all the way through, and that'll be the number that we kind of use for analysis going forward.
Data before that point is kind of questionable depending upon how you want to play it, with the exception of gross profit. I think gross profit is a clean view year over year over year because it's how did we transition with the Bed Bath & Beyond and all this kind of bit. But the other numbers, given that Bed Bath & Beyond was our highest cost-to-serve customer, are going to really be pretty messed up.
Thank you.
We ask that all participants limit their questions to one per turn. If you have any further questions, you will need to rejoin the queue. Your next question comes from Tom Kierath with Barrenjoey. Please go ahead.
Yeah. Morning, guys. My question is on investment OPEX. I can't see that it's been disclosed in this result. I think in the PCP, the first half of 2023, it was AUD 11.4. Can you maybe just quantify where that sat in this period and then where maybe it goes in the second half, just based on the slowdown in the profit growth that you're expecting for the second half? Thanks.
Yeah. So the investment growth, and by that, you mean the global product or the new product launches, the go-to-market or the marketing spend and the tech services, is up in first half 2024 over first half 2023 as a percentage and as a total absolute spend, part of that being the amortization that's starting to flow through into the P&L from investment decisions in the past. But yeah, it's about at the 12.5% for the first half of 2024.
Right. And it will step up in the second half? Is that the expectation, Martin?
Well, those investment decisions have been made, so we know what we're going to do. We don't 100% know what the sales number will be, so what it will be as a percentage is more difficult to call. But yeah, I think I said that at the end of my intro, Tom, that we continue to press on the growth levers of technical services, go-to-market, and global product. So yeah, our investments continue unabated.
Right. Thank you.
Your next question comes from Asha Sehgal with UBS. Please go ahead.
Oh, good morning, Jim and Martin. My question just on the EMEA result. We've done 6% constant currency sales growth, but you were cycling a -20% in first half 2023. And if you look at second half 2023, you saw a pretty strong rebound to over 20% growth. So I guess EMEA clearly did slow down a bit in the half. Can you just talk a bit about what's driving that?
I think this is honestly the problem of the year-over-year, which is you've got all this noise in the data. So with EMEA laid down the first half that we thought they would, I guess, the way to describe it. And so I think my hope as we get to 2025 and 2026, that 2024 is kind of the first clean year that we've laid down in a dataset. We'll find out when we get to 2025 and 2026. But EMEA is best looked at at the end of the year. I guess it would be the first suggestion I would make. And then we'll kind of see how this plays out in the end. But I think where we're going to get to is we'll have a pretty clean year this year, and future year-over-year analysis will get pretty normal.
Just building on that, I think I mentioned it in the commentary that the direct countries, so where we're responsible for marketing and sales directly, grew stronger than the overall average number you're seeing, and the indirect countries have lagged behind that. That's normal in terms of consumer offtake pulling through to demand from us in terms of sell-in. So if we were only talking about Sage products sold in direct countries, you'd be seeing a stronger number overall, and we expect that trend to sort of right itself as the full year plays through.
I think just to build on that, if you think about what happens in a distributor market, there's an inventory pool that sits in front of us before you get to the consumer. So in the direct market, you'll snap, and the indirect markets will lag and catch up. And that's what we're seeing.
Okay. Thank you.
Your next question comes from Tim Lawson with Macquarie. Please go ahead.
Hi, Jim and Martin. Thanks for taking my question. Just in terms of the food prep segment or category, can you just talk a little bit more about that with the little bit of weakness you've called out, just whether that's going to be resolved by sort of new development timing or just that standalone performance in that segment?
So yes. I mean, Tim, when I think about this, I think one interesting number to go look at is Whirlpool has started disclosing KitchenAid separately. So if you go look at those numbers, you can get a pretty clean view of what is the definition of market, if you want to call that, in food prep. And so it's that mean reversion cycle I was talking about. So one, that's going to cycle on its own. Eventually, it becomes a tailwind, right, once the mean reversion's over. And then the second bit is we have NPD coming into that segment. So actually, in one of the three theaters, food prep actually grew, and that was driven by NPD kind of taking the edge off mean reversion. So we've got some NPD rolling out in the second half as well as what we just launched.
I would expect next year that that would start to flatten out or go positive, but we'll see.
Do you think that guidance from Whirlpool for that segment of 2%-4% is reasonable? Is that sort of what you think?
Yeah. Honestly, I don't know. Look, everybody's throwing darts at the board. I'm more looking at history, which is actuals. And I only look at KitchenAid as a really nice public pure play. So if the question is, "What did the market do historically?" I think that's kind of a good baseline in the sense that they've got to be, I would assume, they're fully stocked and fully penetrated and all that kind of stuff, right? So they're just riding it. And as you look across the other companies in the space that reported, everybody's kind of reporting food prep's weak. I think I've always thought it had more beta anyway in the discretionary side of the equation. But if you see KitchenAid start to flatten out, then you'd expect everybody's flattening out, I guess, is the way I would describe it.
And then we've got the kicker, which is we've got NPD launching into that space, and NPD tends to drive our growth rate, but it sits on top of market.
Yeah. Yeah, it's clear. Thank you.
Your next question comes from Olivier Coulon with E&P Financial Group. Please go ahead.
Yeah. Hi, guys. Can you hear me?
Yes.
Yep.
Okay. Perfect. Just digging in on that food prep category a little bit more. I think De'Longhi called out they thought that they'd gained market share. Looked like they had a bit more of a promotional intensity during the period. I mean, is that your read that maybe you ceded a little bit in North America because you didn't participate in promotions? And then I suppose the following question just on GP dollar increase. I mean, how much of that is from you deliberately managing GP dollars and not participating aggressively in promotions, and how much is rolling off higher FOB and logistics costs?
So the first bit, if you think about what's driving De'Longhi in food prep in the US, it would be the acquisition of NutriBullet. And that's a space we don't really play in, I guess, is the way to describe it. So I can't judge kind of one way or the other about what they did or didn't do. On the second one, it's, I would say, 100% whether we participated or not. And what I mean by that is the tailwinds came through. So we called, "Hey, there's gross margin tailwinds coming through," which was just the backing off of the insanity we all went through. Once that's happened, you now have a choice, right? And the choice is, "I could take all of that, put it in the promotional budget, and drive," right? Or you could decide not to do that or somewhere in between.
We chose not to. This is a little bit of a, I say, judge it. You get to judge it whether it's right or wrong. But I play a multi-round game every time. And so my goal is to deliver a gross profit number to cause the plan to float within a year. If I took those if I reported a flat gross margin, I could make the number whatever you want it. In other words, either the 7% is going to be at the gross profit line because of gross margin, or I can put the 7% at the net sales line and go flat gross margin, and you get the same gross profit dollar. The difference between those two pieces is if you got there through "heavily discounting and promoting," that's your new denominator for next year. So now you go, "All right.
Well, how am I going to grow on top of that? Do you discount twice as much? Right? So I'm more concerned about next year's denominator than manufacturing a number, I guess, is the way I would describe it. So I would rather hit the gross profit 7% the way we did it than to have taken all of that, gone flat gross margin, dropped it up at the net sales, and then stood on top of that next year. So if we can deliver it with less inventory costs and less warehousing costs and less logistics costs and all those kinds of things, I'll do it all day long because we don't grow by taking market share. We grow by growing the market. And that's NPD, which causes us to maybe play through a little bit differently than companies that are more market-share driven.
Just add on that, Olivier, that we absolutely did increase our promotional spend half-on-half. We just increased it less than the amount that we got from FOB reductions and freight reductions. So it's not like we didn't do any promotions. We weren't on strike. We were still on promotion on Black Friday and running into Boxing Day. We still had a normal calendar. We just increased at what I would call a normal rate rather than an excessive rate. So we did increase our promotional spend, but not to the degree that it ate all of our savings from FOBs and from freight.
Yeah. No, that's helpful. Sorry, just to follow on to that. I mean, how much is left in FOB and freight? Obviously, you had quite a large amount of those costs capitalized into the balance sheet in the inventory position. If you were to look at it versus the December balance date, how much is kind of left to release, so to speak?
Is left to release? I think our gross margins that you're seeing now is, if you like, on new level. That's normal. And then does anything move forward from then? What we are seeing in the market at the moment is freight is not going back to the. It's not going back to the post-COVID levels or COVID levels where it was insane. But the noise in the Suez Canal and the Panama Canal, we are seeing some increases of freight going on. So not strong headwinds, but some maybe mild headwinds at the moment. In terms of have we got any of those previous savings still in inventory to flow through? SKU by SKU, Olivier. SKU by SKU. Yes, some others we've turned completely since those savings that were onto the new rates. But last year, I was calling out strong tailwinds to gross margins.
Looking forward, I'd be calling a neutral position at the moment.
Yeah. Okay. Thanks.
Your next question comes from Sam Haddad with Petra Capital. Please go ahead.
Well, hi, Martin. Hi, Jim. Just my questions on gross margin again. Just further to your comments around freight, your freight rates are just mildly going up. Can you give any colors to how much of that how much of that you're exposed to in terms of spot versus contract and of the contracts, how far forward do you tend to hedge yourself, and what are those sort of hedge rates, or have they been locked in at an attractive rate versus the current spot rate? Thank you.
So yeah, the comments I just made were probably more a comment on FY25 than on FY24. We're pretty certain we're contracted out for the balance of this financial year, and we're now in negotiations for the forward financial years. So as we go into a new budget year, we know where we sit. As we run through this budget year, we pretty much know where we sit. But I can see some headwinds blowing as we go into FY25 on transport costs, which are, however, back down in that normal scale for Breville that they're not huge because of the value of what we put in a container. The impact of slightly increased freight costs doesn't hurt as much as other people shipping cheaper goods. So that's a long answer, Sam.
But we're hedged out pretty much for FY2024, meaning we're contracted, and then we'll be exposed to a new contract for FY2025.
Your next question comes from Thomas Canil with Wilsons. Please go ahead.
Oh, hi, Jim and Martin. My question just quickly on the new countries, so the strong growth you're seeing there. Lots of those are European-based. Are you able to maybe call out for us just the underperforming regions in Europe? And I guess a follow-up question is, do you need to change anything by way of strategy there and go to more countries from a direct Sage approach?
I'm trying to think of dissect that question. So I look at Europe as Europe. I was able to I mean, in the data, I can pull out each of these pieces, but I'm not sure we had a weak part because you have to remember that these are small and absolute. It's kind of part of it. So I can drill into the data for the purpose of that chart to say, "Gosh, how did they do?" But I actually run the company by theater. So I don't have the data in front of me to pick on any one country, much like I can't tell you how New York did versus California, which is how I think about that. On the direct side, we will continue to move into a direct posture in geographies where the math says so, I guess, is the way to describe it.
I would think when I look at Europe as a whole, I think we've clearly done the 80/20 and probably then some. So that doesn't mean a little piece doesn't happen here or there, but that isn't going to move the number that much. I think that you'd have to go back - I don't know how many years - 2018 or 2019. And I did a chart which showed that those distributors grew like 40% or something like that once we landed the inventory pool in Prague. So it's not that those geographies have a growth problem, meaning if I was looking at their sell-out, their sell-out would look the same as what we were seeing. The difference is you've got a lag in timing because they hold an inventory pool. So just like everybody worked through the inventory cycle, they would naturally have that same posture.
All it means is they're going to lag by 6-9 months, would be my guess, and then they'll be at the same run rate at sell-out in their geographies. I think if you want to call it that, it becomes a tailwind for Europe if you want to call it, but it's really just a lag that will play through in 2025, would be my guess.
Thanks, Jim. Just to follow up on Europe, is Lelit a contributor to growth in the region still? I know it was growing pretty rapidly after the acquisition about a year ago now.
So, Lelit, I would describe it as on plan. What I mean by that is the purpose, the transformation of both Lelit and Baratza is to go global. That's how I'm tracking. They're doing fine, but I actually measure them by how well they're doing in the globalization because you need to reset the table to come up off of. The Lelit we bought was an Italian manufacturer that sold to many countries in the world. It's almost like Breville when I got here, in a way. We want to flip that into a country, a company that is direct in multiple regions. The regions that we're focused on right now are Australia and the U.S.
There'll be others added to that, but that's where all the work is going on right now, which is doing the hard yards of converting both of those countries into a direct market. And I'd say both of them are doing well. Same with Baratza. But for Baratza, it's Europe and Australia. And both of them are on plan.
Thank you, Jim.
Your next question comes from Russell Gill with J.P. Morgan. Please go ahead.
Hi, Jim. Just want to just go back to the comment you made earlier about the tailwinds you received in, I guess, the freight and, I guess, lack of participation in the promotional end of the market in the last six months. During COVID, you were one of the few guys that sort of took some of those tailwinds and reinvested a lot back into growing the top line. It feels like I understand you manage this business to gross profit dollars, but it feels like you wanted to bank some more at the margin as opposed to keep growing that top line. Previously, the messaging around growing the top line was, I guess, creating a bit more of a brand out there, a bit more remote.
Is there, I guess, a change in dynamic of the business, and the preference was to bank those gross profit dollars at the margin as opposed to the top line? I just want to understand the nuance around that decision.
Yeah. So actually, I'm going to kind of twist it just a little bit, which is I don't bank it at the top line. You bank it in OPEX. The question, once the gross profit dollars are generated, whatever they are, you have a choice. I either give it to you in EBIT or I spend it in OPEX. And then when I spend it in OPEX, it's what do I spend it on, right? So the spend that we pushed through in kind of 2021, 2022, it's never for that year. It's always for future years. And so what happens is we get into the second half of every single year. That's where I'm making those investment decisions, which then ultimately folds back into the guidance that we give you in February.
So what I did last year was we grew I think we grew EBIT 10%, and gross profit grew what did it grow, Martin, last year? It was like.
Yeah. We put on about 0.7% in the full year.
7. So if you think about that spread, so if I've got 7% of gross profit and I've got 10% of EBIT, then I've tilted the business backward. And so what we chose to do when we got the big headwind was effectively to show, with this business model, I can tilt the business both ways. With the guidance of 5%-7.5% this year, what I'm saying is I'm going to if I did 6.5% or if I did 7% at the top and I'm calling 5%-7.5% at the bottom, then I'm going to stand the business more straight up and down.
And then as we move forward, as soon as some of the stuff rebases and we're standing on more firm ground, then I'll move to tilt the business forward again where gross profit dollars will grow faster than EBIT like they did from, whatever, 2016 to 2022.
Got it. Thanks, guys.
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