Another one bites the dust, or how to spin bad news by bribing the market?
Leading discount retailer JB Hi-Fi easily convinced investors to look at the good news, rather than the bad news of a big restructuring of an underperforming business yesterday and the attendant losses of $24 million.
As a result of the changes and write-downs, JB Hi-Fi lowered its full-year underlying profit forecast, but said in the statement to the ASX that it plans to spend an estimated $170 million buying back 10% of its shares.
The shares surged, jumping more than 7% or $1.37 to $19.83.
It said it would restructure its underperforming Clive Anthonys electrical goods stores, which would cut net profit by between $108.5 million and $113.5 million, compared with the previous forecast of $134 million to $139 million.
The profit drop would mainly be due to a $24.8 million charge to restructure the Clive Anthonys business.
The company paid $24.15 million for 70% of the business back in 2004.
JB Hi-Fi also said that the company had appointed former chief executive Richard Uechtritz as a non-executive director, as was planned when he retired as CEO in February 2010.
The company also appointed Beth Laughton as a non-executive director, while Will Fraser will retire from the board in September as a non-executive director.
JB Hi-Fi said the decision to restructure Clive Anthonys followed a strategic review of the business, which comprises 10 stores with forecast revenue for the full year of about $140 million.
The company said that a strategic review of the Clive Anthonys’ business "was considered necessary following several years of disappointing returns and further deterioration in 2011 half year sales and earnings, driven by negative comparable store growth of 13.3%.
"Trading performance since the half year has remained disappointing and forecast industry data points to prolonged challenging trading conditions in the key categories of White Goods, Cooking and Air Conditioning.
"This, when combined with new competition expected to enter the market, is likely to result in continued sales and earnings pressure in these categories.
"Following the strategic review, JB Hi-Fi considers a pre-tax charge of $33.4 million (post-tax $24.8 million) relating to the Clive Anthonys business appropriate.
"The charge relates to the write down of tangible assets of $13.5 million, intangible assets of $4.6 million, a provision relating to property leases of $12.7 million and other miscellaneous items of $2.6 million.
"The total non-cash impact of this charge will be $14.4 million. The residual $19.0 million relates to cash outflows expected to occur over a number of years.
"The board and management of JB Hi-Fi continue to be focused on ensuring capital is allocated across the group in a manner which maximises the return to shareholders.
"JB Hi-Fi will look for opportunities to improve our performance at each of these ten store locations. The options under active consideration include rebranding to JB Hi-Fi stores, repositioning the stores or exiting certain locations.
"JB Hi-Fi is confident that this is a once-off charge and does not anticipate any further charges in relation to the Clive Anthonys business," the company said.
JB Hi-Fi’s CEO Terry Smart said in the statement that the company was going to buy back shares because of the ongoing strong cash flow generation.
‘‘We continue to take a prudent approach to the management of our balance sheet and we are now in a position to return capital whilst still maintaining financial flexibility to invest in growth opportunities,’’ Mr Smart said.
He said the buyback would be paid for by borrowings.
After adjusting for the items above, Statutory NPAT guidance for FY11 will be between $108.5 million to $113.5 million. Subject to this, JB Hi-Fi confirms its guidance of 7 February 2011 that the underlying NPAT for FY11 will be between $134 million and $139 million.
JB Hi-Fi said its policy of a 60% dividend payout ratio will be maintained on normalised FY11 earnings of between $133.3 million to $138.3 million.
