How Is Reece Navigating Sales Growth Amid Profit Pressure?
Reece Limited reported an 8% rise in first-quarter sales driven by network expansion, while profitability dipped due to higher costs and investments. The company also completed a $365 million share buyback, signaling confidence despite subdued market conditions.
- Q1 FY26 sales revenue up 8% to A$2.4 billion
- EBITDA declined 8% to $222 million amid elevated costs
- 15 new branches added, including 10 in the US
- Completed $365 million off-market share buyback
- Anticipates higher interest expenses of $65-75 million for FY26
Sales Growth Driven by Network Expansion
Reece Limited kicked off fiscal year 2026 with a solid 8% increase in sales revenue to A$2.407 billion for the first quarter, supported largely by the network expansion completed in the previous year. On a constant currency basis, sales growth was even stronger at 26%, underscoring the impact of foreign exchange movements on reported figures. Like-for-like sales, which exclude new branches, rose a modest 2%, reflecting a mixed performance with low single-digit growth in Australia and New Zealand (ANZ) offset by a slight decline in the US market.
Profitability Pressured by Investment and Costs
Despite top-line growth, Reece’s earnings before interest, tax, depreciation, and amortisation (EBITDA) fell 8% year-on-year to $222 million. Earnings before interest and tax (EBIT) declined even more sharply by 18% to $129 million, primarily due to elevated depreciation and amortisation expenses linked to ongoing investments in the business. The company highlighted that labour cost inflation, particularly in the competitive US market, and continued investment in core capabilities contributed to the higher cost base.
Branch Network Expansion Continues
Reece added 15 net new branches during the quarter, with 5 in ANZ and 10 in the US, further extending its footprint. This expansion strategy has been a key driver of revenue growth, although it also adds to operating costs in the short term. Chairman and CEO Peter Wilson acknowledged the softness in housing markets but emphasized the company’s long-term approach to building a stronger business through continued investment.
Capital Management and Share Buyback
In a notable capital management move, Reece completed an off-market share buyback on 20 October 2025, repurchasing 28.1 million shares at $13.00 each for a total of $365 million. The buyback was funded through a combination of cash and debt, which is expected to increase the company’s gross interest expenses to between $65 million and $75 million for the full fiscal year. This move signals confidence in the company’s valuation and future prospects despite current market headwinds.
Looking Ahead
Management remains cautious about the near-term outlook, anticipating continued softness in both ANZ and US markets. However, the company’s commitment to network growth and capability investment suggests a focus on positioning Reece for long-term resilience and growth. Investors will be watching closely how the company balances expansion with profitability in the coming quarters.
Bottom Line?
Reece’s strategic investments and share buyback underscore confidence amid a challenging market environment.
Questions in the middle?
- How will Reece manage rising interest expenses from increased debt?
- Can US market sales stabilize or rebound after recent declines?
- What impact will ongoing labour cost inflation have on margins?
