News

ResMed’s decision a year ago to stockpile components to beat a pandemic-fuelled supply chain crunch allowed the company to keep up with demand for its sleep apnea machines but it has come at a cost.

Chief executive Mick Farrell says the company’s profitability is not where many analysts expect – even 12 months later.

“In the heat of the supply chain crisis, I just couldn’t get availability of semiconductors from the traditional suppliers and we were redesigning our products. We did all that,” Mr Farrell said.

“But then we bought components at a tough time and supply was tough, so we paid quite high prices. Freight rates 12 months ago were high, so all that inventory is now working its way through to our sold products … and when we sell them, we take the cost of what we purchased at.

“Twelve months ago, everyone said that was fantastic – freight rates are high, doesn’t matter, just take care of the patients. Now, they’re saying ‘but wait a second why isn’t profitability not where I want?” Well that’s why.”

ResMed’s revenue soared 23 per cent to $US1.1bn ($1.68bn) in the three months to June 30 as pandemic-induced challenges slipped further into the rear view mirror. But the result was slightly below analysts’ expectations.

The price of the company’s ASX-listed chess depositary interests fell 9.4 per cent to $30.67 on Friday, against a 0.2 per cent rise across the broader sharemarket.

Mr Farrell said “unconstrained availability of our market leading cloud connected flow generated platforms” had allowed the company to meet demand in its key global markets, with the exception of its latest product AirSense 11.

“We are ramping up and improving the availability of our best in class AirSense11 platform, which will gain further geographic regulatory approvals throughout the fiscal year and steadily increasing supply also throughout the fiscal year 2024 and beyond,” he said.

“Although challenges within the post-Covid supply chain haven‘t completely been mitigated yet, we expect ongoing steady improvement in component and end product supply in the quarters ahead.

For the full financial year, revenue surged 18 per cent to $US4.2bn, compared with analyst estimates of $US4.2bn. Meanwhile net profit vaulted 15 per cent to $US897.6m.

Wilson analyst Shane Storey said the company didn’t deliver the earnings beat that was expected. “Fourth results were broadly in line with our forecasts but 5 per cent below expectations in the US market hence the 9 per cent sell-off we see there in the aftermarket,” Dr Storey wrote in a note to investors.

“Investors should take advantage of this sell-off, following 4Q23 results. We are seeing another round of short-termism on the stock, bemoaning the gross margin impact of success.”

The company’s shares, which are also listed on the New York Stock Exchange, slumped from $221.23 to as low a $US199 in US trading before settling to $US219.95.

“We’d received feedback that AS11 (AirSense 11) ordering had improved in recent weeks but device supply may stay on an allocation basis for the next few quarters,” Dr Storey said.

“US device sales grew 25 per cent and this outperformance continued to weigh on GM (gross margin) mix, as did securing componentry for a planned AS11 acceleration.

“Competitive dynamics continue to weigh in ResMed’s favour, but the risk of things suddenly changing – Philips re-entry … remain a dampener on sentiment until AS11 remobilisation is realised.”

In January last year, Mr Farrell said the pandemic-induced supply chain crunch was limiting a windfall of up to $US350m that the company expected to reap from a product recall from rival Philips. Nevertheless, in August last year ResMed’s net profit surged 64 per cent as it reaped a windfall of up to $US70m from Philips’s recall.

Asked if ResMed could maintain its edge over its rival as Philips returned products to key markets, Mr Farrell believed it could.

“I think the reputation hit and the time to market is going to be a very slow progress for them, country by country.”

ResMed’s earnings per share for the year to June 30 jumped 11 per cent to $US6.44 versus analyst estimates of $US6.52.

Gross margin contracted 80 basis points to 55.8 per cent. Mr Farrell said he could “reverse engineer” the company’s margin by slowing product sales.

“But we’re not going to do that when a patient needs care,” he said.

“I will never turn down a patient if there‘s demand for a patient. We‘re going to take care of them, even if it’s a slightly lower gross margin. And by the way, it is really good gross profit dollars and we get to take that cash flow, as you saw a really strong cash flow in the quarter, and reinvest it in R&D.

“We continue to significantly grow our impact each quarter, improving over 160 million lives in the last 12 months, well on our way to helping 250 million lives in 2025.”

The company will pay a quarterly dividend of US48c per share on September 21.

Anna Croft has been appointed as Coles’ new chief commercial officer, effective January next year.

Croft is the current COO of Mecca Brands where she helped transform the retailers’ business operations for health and beauty.

She comes with 20 years of industry experience and has worked with leading retailers such as Tesco, Coles, Mecca Brands and WHSmith in the UK and Australia.

Coles CEO Leah Weckert said she is delighted that Croft is returning to Coles with significant leadership experience in both local and international retail.

“Anna will play an essential role with our team and suppliers to deliver exceptional quality products, innovative exclusive brands and convenient meal solutions for our customers at a great value.”

Casual brand Crocs has reported record quarterly sales of more than US$1 billion, reflecting a 12 per cent increase in constant currency terms over the previous year.  

The company’s growth was driven by Asia, where sales increased by 33.2 per cent, or by 39 per cent on a constant currency basis, and North America where direct-to-consumer (DTC) comparable sales grew by 12.9 per cent year on year.

Revenue of $160.1 million from Europe, the Middle East, Africa, and Latin America decreased by 0.2 per cent or 1.4 per cent when measured in constant currency.

“We achieved record quarterly revenues of over $1 billion, representing growth of 12 per cent on a constant currency basis to prior year,” said Andrew Rees, CEO. 

“Both the Crocs and HeyDude brands continue to gain share and bring in new consumers with our comfortable offerings, as evidenced by DTC growth of 26 per cent in the second quarter. We continue to invest behind our strategic priorities that are driving profitable growth.”

The business anticipates a consolidated sales increase of 12.5 per cent to 14.5 per cent in the third quarter of this year compared to 2022, translating to revenues of roughly $4 billion to $4.065 billion at exchange rates as of the end of the most recent reported period.

Washington | American fast-food chain Wendy’s has inked a deal with the world’s largest food franchisee and the new owner of Pizza Hut in Australia, Flynn Restaurant Group, to build 200 local Wendy’s stores starting in two years’ time.

In a deal foreshadowed by The Australian Financial Review in February, the Nasdaq-listed burger giant – the world’s third-largest after McDonald’s and Burger King – will pose a fresh challenge to local operators such as Hungry Jack’s.

Hungry Jack’s’ founder, billionaire Jack Cowin, has questioned Wendy’s’ ambitions in Australia after its foray in the 1980s failed.

Abigail Pringle, president for Wendy’s international and chief development officer, said that following the positive reaction from Sydneysiders to a one-day Wendy’s pop-up event in 2021, and the overwhelming interest in its arrival, the burger company was ready to formalise a deal.

Ms Pringle said Australia is a “high priority, strategic growth market” and that she was ready to take on competitors such as Mr Cowin.

“We clearly have [Mr Cowin’s] attention. But he does not have mine,” Ms Pringle said.

“I’m focused on the customer. And we’re focused on delivering on a great brand experience. I’d love to invite Jack to Wendy’s when we launch and maybe he can really experience for the first time a fresh, never frozen Wendy’s hamburger.”

In 1982, Wendy’s arrived in Melbourne, an expansion set up by one of its then major US franchisors, the Tennessee-based Johnston Southern Corporation.

Ms Pringle said the operating environment had changed significantly in 40 years and the Flynn Restaurant Group had “incredible experience” in the restaurant space.

Ms Pringle said Wendy’s competitive edge would come through freshness of product, supply chain advantages (it already has existing supply chains in Australia for its Asian and New Zealand markets), new look stores designs and the strength of the world’s largest restaurant franchisee.

“Flynn has a strong leadership team, great culture, vast industry knowledge, success with our brand in the US, and we are confident that Flynn Restaurant Group is the right partner to unlock growth for Wendy’s in Australia.”

Flynn operates Taco Bell and Pizza Hut in the US, as well as 190 Wendy’s shopfronts in five states and Washington DC.

It owns and operates 2600 restaurants including Applebee’s, Panera and Arby’s and generated $US4.5 billion in sales last financial year with over 75,000 employees.

Wendy’s said the agreement with Flynn would drive growth in Australia “primarily after 2025, with the ambition to hit 200 restaurants across the country through 2034, through a combination of equity stores and sub-franchise partners”.

Wendy’s transaction with Flynn includes a master franchise fee and an additional income stream from each of the Wendy’s stores once in operation.

Flynn’s chief operating officer Ron Bellamy said he looked forward to expanding the brand and was in the process of redefining what Australians should expect from quick-service restaurants.

“It is a tremendous brand with significant untapped potential outside of the US and we think it is an especially great fit for Australia, given the savvy nature of the Australian consumer,” Mr Bellamy said.

Average gross annual sales for a franchised Wendy’s restaurant in the US was $US1.75 million ($2.7 million) in 2020, with a standard 4 per cent revenue royalty fee.

Wendy’s also has separate agreements for non-traditional locations, such as petrol stations, food courts, military bases and delivery kitchens.

Wendy’s has, in the past, used incentives to promote new restaurant development. This year, in the US and Canada, it offered royalty, national advertising and technical assistance fee waivers for up to three years for some operators.

Wendy’s also typically charges a standard technical assistance fee for newly executed franchisees of about $US50,000 for each new restaurant opened.

Ms Pringle said there had been “really great contenders” to take on the master franchise for Wendy in Australia and a long list of those who wanted to take on a smaller number of Wendy’s store franchises.

Subscription-based meal kit provider Marley Spoon plans to revise its full-year revenue guidance after sales plummeted on soft consumer demand.

For the quarter to June 30, net revenue fell 21 per cent to €86 million (A$141.31 million) while operating EBITDA slumped 161 per cent to A$3.94 million.

In Australia, net revenue grew marginally, up 1 per cent to $59.32 million while the US market reported a 9.1 per cent increase to $67.37 million.

In Europe, net revenue grew 16 per cent to $14.62 million however high inflation and interest rates have put pressure on the company’s conversion and early retention rates in the region.

During the quarter, the average order volume increased by 7 per cent benefiting from several revenue-enhancing activities along with price increases carried out last year.

Marley Spoon CEO, Fabian Siegel, said the results are “consistent” with the first quarter as consumer challenges coupled with price sensitivity and low consumer confidence impacted acquisition volumes and order frequency in the US and Europe.

Reflecting on the sentiments, CFO Jennifer Bernstein said persisting economic concerns have led to lower order frequency and a subsequent sales decline.

“We do see an improved trajectory throughout the second quarter and therefore anticipate more favourable spending patterns in the second half of the year.”

Aldi Australia has named Anna McGrath as its new CEO, succeeding former local chief Tom Daunt who became the business’ joint MD in May.

McGrath has been with the company for 17 years in various leadership roles and was the former group MD for both US and Australian businesses.

Of her appointment, McGrath said she is “honoured” to lead the business, adding that Aldi has always been focused on price leadership, but “it has never been more important than now”.

“We have a responsibility to maintain our price gap and show Australians, that are facing pressures within their family budgets, that they will achieve serious savings by changing their weekly shop to Aldi, without comprising on quality.”

According to third-party data, the company’s Price Promise helped contribute $3.1 billion in savings delivered directly to customers last year.

“We have a very strong strategy in place that is resonating with Australian customers, I’m looking forward to bringing Aldi savings to more and more households,” said McGrath.

Private equity fund Glow Capital Partners is set to acquire a 51 per cent stake in an Australian hospitality uniform brand Cargo Crew.

Glow Capital was established by Adore Beauty’s co-founder Kate Morris and former Quadrant Private Equity managing partner Justin Ryan in 2021.

Under the deal, the Cargo Crew executive team will “retain full management control” while three members from Glow Capital Partners will join the company’s board.

Cargo Crew founder Felicity Rodgers said it has been “a long journey” bootstrapping the family-owned business into a whole new product category in the Australian market.

“Over the last two decades, we’ve built this business to be a uniform brand people want to wear. As the Melbourne hospitality industry has become world-renowned, our brand has grown alongside.”

The brand supplies customisable uniforms to retail, hospitality, transport, health, banking and government industries and makes about 25 per cent of sales from international customers.

Its clientele includes Miele, the Melbourne Food and Wine Festival and celebrity chef Curtis Stone.

“The partnership with Glow Capital is the next natural step for our business. We have an incredible growth opportunity ahead of us, so we welcome the expertise in scaling up and building a global brand that the Glow team brings,” said Rodgers.

Glow co-founder, Justin Ryan, said Cargo Crew is the type of business Glow Capital Partners was looking to invest in.

“They have a proven track record with 21 years in business already and with an excellent founder and executive team, they are primed for growth that Glow can help accelerate.”

Bounce Foods, an Australian pioneer in the protein bar and ‘energy ball’ market, has fallen into voluntary administration, owing to significant debts from an unsuccessful foray into the American market.

Documents published by the Australian Securities and Investments Commission (ASIC) show Natural High Co Pty Ltd, trading as Bounce Foods, has appointed John McInerney and Philip Campbell-Wilson of Grant Thornton as joint administrators.

Speaking to SmartCompany on Tuesday, McInerney said the administrators have launched an urgent expression of interest campaign, in the hopes of finding a buyer to take over the business and continue trading the two-decade-old Bounce Foods brand.

While the Bounce Foods online store remains online at time of writing, and its products remain stocked in supermarkets nationwide, McInerney confirmed all staff have been stood down through the administration process.

“While the management team are staying on to support the voluntary administration process, due to limited available cashflow, all staff contracts were terminated on the date of the Administrator’s appointment,” he said.

What happened to Bounce Foods?

Founded in 2004 by Bondi husband-and-wife duo Andrew and Paula Hannagan, Bounce Foods was among the first Australian companies to bring high-end protein snacks, geared towards health and fitness aficionados, to the local market.

According to the couple’s website, Paula was inspired by the fitness-focused snacks she discovered on a trip to New York City.

She worked with Andrew to find a US manufacturer to develop products for the Australian market, with the pair initially marketing the brand’s protein balls to health food shops, juice bars and gyms.

The brand grew onshore as local appetite for protein snacks increased.

The Hannagans relocated from Australia to Oregon to explore an expansion into the US market itself in 2014.

That move proved too ambitious, Andrew Hannagan wrote on LinkedIn, given the “mature and well established” competition abroad, and the way Bounce Foods “completely underestimated” the challenges of raising capital abroad.

McInerney said the attempted US expansion cost $6 million, leaving a “heavy debt burden” on the business, which has limited Bounce Foods’ ability to access working capital for its domestic operations.

Despite the setback, Bounce Foods transitioned to local manufacturing after retreating from the US market, and has secured distribution in Woolworths and Coles, alongside independent grocers and convenience stores.

Recent partnerships include a collaboration with major Australian frozen treats brand Weis, now owned by Unilever.

SmartCompany understands the administrators are confident in the strength of the brand and its underlying revenue performance, despite the debt burden carried by the business.

Regulatory concerns have been raised over Coles’ plan to purchase two milk processing plants in Victoria and NSW from Canadian dairy company Saputo.

Should Coles’ bid succeed, it will be the first time a supermarket will own and operate its own milk processing facilities.

The ACCC (Australian Competition and Consumer Competition) and several industry players said the move would result in a major structural shift that could substantially lessen competition and lower prices for dairy farmers. 

According to the consumer watchdog, it is closely considering whether the acquisition would allow Coles to influence the market in a way that was not possible as a retailer and purchaser of dairy products.

“For NSW dairy farmers, concerns have been raised that this acquisition may change Saputo’s incentives to continue acquiring raw milk in NSW,” said Mick Keogh, deputy chair of ACCC. 

He added that industry participants had raised concerns that the acquisition would result in Coles’ consolidation of its private-label milk production and increase its bargaining power in negotiations with dairy processors and wholesalers.

NSW and Victorian farmers sell raw milk to the supermarket giant, which processes the product at the two Saputo plants.

“If Saputo does exit NSW as a result of the acquisition, this would leave limited competition in regions of NSW, which could result in farmers receiving lower prices for their raw milk,” remarked Keogh.

Coles CEO Lea Weckert said the company doesn’t see any lessening of competition, noting that the company already acquires 80 per cent of the volumes at the facilities and will provide milk processing services to Saputo Dairy under an arrangement. 

“We remain confident that any outstanding concerns can be addressed so that the proposed transaction can proceed to completion,” she concluded.

L’Oreal has named social media personality Kendall Jenner a global ambassador as part of its strategy to improve the brand’s image. 

Kendall Jenner will be the face of L’Oreal Paris’ beauty campaigns beginning in September.

Born in Los Angeles in 1995, Jenner has become one of the world’s most recognised models and one of the world’s most influential women since 2007, together with her sisters. 

“At any other time, Kendall Jenner might have been as successful as she is now, but her worth and her choices and her image might have been defined or even controlled by others. But nobody defines Kendall Jenner but Kendall Jenner,” said Delphine Viguier-Hovasse, L’Oréal Paris global president.

“She is the embodiment of everything Gen-Z stands for, owning her image, proudly growing in her self-worth, and inspiring others to do the same.”

According to L’Oreal, Jenner is an example of solidarity and sisterhood, which matches the image it is seeking.

The 27-year-old model will reportedly front future advertisements for items including the Infallible Matte Resistance Lipstick and the Panorama Mascara, targeting young customers.