JB Hi-Fi Group (listed holding company: JB Hi-Fi Limited) is made up of two Australian retail brands, namely JB Hi-Fi (ASX: JBH) and The Good Guys. The Group sells a range of consumer electronics, whitegoods, appliances and home entertainment products. JB Hi-Fi Group has over 300 stores in Australia and New Zealand. The Group also services the commercial, insurance and education sectors and offers information technology and consulting services, through its JB Hi-Fi Solutions business. JB Hi-Fi has a market capitalisation of A$4.6 billion.

What are the key features of JB Hi-Fi’s HY20 results?

  • Total sales for HY20 is A$3,995.2 million, up 3.9% compared with the corresponding period.
  • Net profit after tax (NPAT) for HY20 is A$170.6 million, 8.9% compared with the corresponding period.
  • Earnings per share (basic) for HY20 is A148.5 cents, up 8.9% compared with the corresponding period.
  • Dividend per share for HY20 is 99.0 cents, up 8.8% compared with the corresponding period.

What are the drivers of this result?

The main driver of this positive result was JB Hi-Fi performance in Australia. Total sales in Australia is up 5.1%, mainly attributed to increased sales activity in the Christmas period. Hardware and services sales were up 7.8%. Software sales were down 18.2% with comparable sales down 17.9% as a result of continued declines in the movies and music categories. Online sales grew at 18.3% and represent 6.3% of total sales.

What is the outlook for JB Hi-Fi?

JB Hi-Fi FY20 guidance is as follows:

  • Total group sales to be A$7.33 billion.
      • JB Hi-Fi Australia A$4.93 billion.
      • JB Hi-Fi New Zealand A$0.24 billion.
      • The Good Guys A$2.18 billion.
  • Total group NPAT (pre-application of new Accounting Standard AASB 16 Leases) is estimated to be in the range of A$265 million to A$270 million, an increase of 6.1% to 8.1%.

A major factor that could influence potential future cash flows for JB Hi-Fi is household final consumption expenditure and the savings ratio. According to the national accounts for the September quarter 2019, household final consumption expenditure increased by 0.1% (seasonally adjusted) in the September quarter and increased 1.2% (seasonally adjusted) annually. In addition, household savings ratio rose to 4.8%, this reflects the reduction in income tax cuts not translating into a rise in discretionary consumer spending. With household consumption remaining sluggish and the savings ratio increasing, it seems in the short-term Australian households are not consuming at a high rate. Although JB Hi-Fi has shown through HY20 results that sales have increased along with NPAT, this clearly demonstrates that Australian consumers are still choosing to shop at JB Hi-Fi to purchase their products compared with competing retail outlets.

 

What is the market reaction?

The initial market reaction to JB Hi-Fi HY20 report is positive. JB Hi-Fi is up 5% and is currently trading at A$42.33. JB Hi-Fi has a forward P/E ratio in the high-teens and an annual dividend yield of around 4% (fully franked).

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

February 10, 2020