JB Hi-Fi flags record interim sales and earnings

JB Hi-Fi is primed to once again set the “gold standard” for the retail sector this reporting season as buoyant shoppers flush with cash and an appetite for plasma TVs, smart phones and fridges pushed it to record profit and sales for the first half.

With reporting season now only weeks away from its official start, when the nation’s leading ASX-listed companies will be unveiling their financial performance for the six months to December, JB Hi-Fi has unveiled rocketing sales for its flagship consumer electronics store and its Good Guys whitegoods business.

The sales boom also translated into record profitability for the first half, setting JB Hi-Fi up for one of the standout results for the retail sector as well as a stronger than expected full-year result assuming consumers don’t lose their willingness to spend up on electronics, gadgets and home appliances.

While some economists and analysts have cautioned that spending over the holiday season, taking in Black Friday, Christmas and Boxing Day sales, could come sputtering to a halt soon there looks to be strong momentum at the JB Hi-Fi business. When the consumer electronics giant reports its half-year results on February 13 its trading update will be keenly read to decipher if that consumer spending spree has started to wane over January and February.

On Tuesday JB Hi-Fi issued a trading update to the ASX revealing its preliminary unaudited sales for the first half of 2023 had risen 8.6 per cent to $5.278bn with earnings up 14 per cent to $479.2m.

The retailer said it was on track to post a record first-half profit of $329.9m, up 14.6 per cent. It is roughly 17 per cent above market expectations.

Online sales were $752.1m for the half, representing 14.2 per cent of total sales, but this was down from the same period last year when Covid-19 lockdowns helped drive strong online sales of $1.1bn, representing 22.7 per cent of total sales.

JB Hi-Fi said for the second quarter same-store sales growth at its Australian business was up 4.9 per cent, JB Hi-Fi New Zealand sales were up 9.8 per cent and The Good Guys sales for the quarter better by 3.3 per cent.

Earnings at its flagship JB Hi-Fi Australian business rose 16.7 per cent to $341.3m for the first half.

Shares in JB Hi-Fi initially leapt on the trading update, gaining more than 5.5 per cent to $49.72, but by the afternoon was sold down and ended the day down 1.25 per cent at $46.51. Its share price is up more than 11 per cent since the start of the year.

JB Hi-Fi chief executive Terry Smart said on Tuesday he was pleased to report record sales and earnings for the first half of 2023 as trading conditions started to normalise following two years of Covid related disruptions.

“Our relentless focus on providing the best value and high levels of customer service every day, both in store and online, continues to resonate with our customers,” he said.

JB Hi-Fi is the second major retailer to disclose robust trading through the first half. On Monday Super Retail Group – the operator of Supercheap Auto, BCF, Rebel and Macpac chains – said it expected to post normalised profits of between $212m and $218m – some 20 per cent above expectation. However, it hasn’t all been a rosy picture for the sector with Baby Bunting warning of weaker margins and profits for the half, sending its shares sharply lower.

Phillip Kimber, consumer and retail analyst at E&P, said first-half sales and earnings released by JB Hi-Fi were materially higher than his estimates.

“While growth rates slowed in the second quarter 2023, they were still positive, versus E&P and consensus expectations for flat to slightly down.

“If we assume no change to consensus forecasts in the second half (expected net profit of $154m), the better than expected first half result would result in 11 per cent upgrades to consensus full-year 223 profit forecasts.

“Overall we expect consensus upgrades of around 15 per cent. This is broadly similar to the share price increase since January 1.”

Mr Kimber said the focus at the result on February 13 will be on earnings composition, in particular gross profit margins and sustainability as well as trading in January and February.

However, the analyst has a negative recommendation on the stock, and the trading update hasn‘t changed his mind.

“Today’s announcement doesn’t change our negative recommendation on JB Hi-Fi. We remain of the view that calendar 2023 will be significantly tougher than calendar 2022, given compressing household income – higher cost of living – and reallocation of spending away from goods to services.”

Despite interest rate rises by the RBA since May, and another official hike in rates expected for February, consumer spending has not deteriorated sharply yet, and this has showed in the JB Hi-Fi trading update.

On Tuesday it was reported the Westpac Melbourne Institute Consumer Sentiment Index increased by 5 per cent, from 80.3 in December to 84.3 in January. This is the largest increase in the Index since April 2021, and prior to that, since October 2020 when consumers were responding to positive news around the pandemic.

The Index has lifted by a cumulative 8.1 per cent over the last two months, from a 78 in November. But sentiment is still depressingly low. The January read is in the bottom 10 per cent of observations since the mid-1970

Article: The Australian, Eli Greenblat (17 Jan 2023)