The market reaction to the 2011 profit statement from leading electronics retailer JB Hi-Fi told us much about the current statement of investors thinking.
In short, there’s not much, the worries about the US credit rating downgrade, US economic growth, the eurozone have blinded many investors, large and small to a considered approach to assessing companies and especially profits.
To put it another way, the knees were jerking blindly yesterday morning when investors sold off JB Hi-Fi shares by around 6%, or 80c at the opening after the 2011 profit statement was released before trading.
Some investors took the result be worse than it was to be, a lower than expected profit.
And other investors obviously noted the attempt to spin the forthcoming weakish result (compared with previous reports from this company) on the front page of yesterday’s Financial Review, and panicked.
After the sharp fall, the shares steadied and by around 11.20 am, thee had bounced back into positive territory, not by much, a few cents, but it was a big turnaround from the early gloom.
The shares had hit a 52 week low of $13.55 in the early sell off, before the late morning bounce took them back to around $14.45, up 10c on the Friday close.
But the newly-won confidence didn’t last and the stock was sold off with most other shares in yesterday afternoon’s retreat.
The shares ended down 44c at $14.000, a loss of 2.4% for the day, but less than half that early mad and uninformed 5% plunge.
The group reported headline and underlying earnings in line with March guidance, which revealed the cost of restructuring the small Clive Anthonys chain of stores and suggested that the strong sales and earnings growth of the past couple years was slowing.
In announcing its profit, the consumer electronics retailer told the market it expected market conditions to remain challenging in the period ahead.
That’s no real shock; consumers are cautious and saving or travelling overseas, or buying cars; they haven’t been spending heavily on consumer electronics items, apart from iPads, iPhones and other so-called smart phones.
JB Hi-Fi said net profit for the 12 months to June 30, 2011, came in at $109.70 million, down from $118.65 million for the prior corresponding period.
Revenue rose 8.3% to $2.95 billion (well short of the $3.2 billion eyed late last year).
But same store sales fell 1.2% in the year (and have fallen even more sharply in the first weeks of the new financial year).
That’s a solid indication of the toughness of the retailing conditions at the moment.
The reason for the profit fall wasn’t a drop in margins (in fact they rose, underlining the idiocy of the early sell-off).
It was the cost of revamping the underperforming Clive Anthony stores.
JB Hi-Fi said the Clive Anthony restructuring charge was $24.7 million, post tax, about the estimate in the March update.
On a normalised basis – excluding that charge, net profit rose 13.3%, to $134.4 million, again within guidance.
JB Hi-Fi said gross margin was 22%, up from 21.8%, no mean achievement in the weak sales environment of the past 10 months or so.
The company’s trading margin (or EBIT, earnings before interest and tax margin) rose to 6.6% from 6.4% in 2010 (excluding the Clive Anthony costs).
The company said it expected 2011-12 "to be another solid year of sales and earnings growth", with sales to be "circa $3.2 billion, an eight per cent increase on the prior year".
That means it will be a year or so behind its targets from 2010.
"While we anticipate the market will remain challenging, we will continue to focus on driving market share growth through our core strengths of everyday low prices, great people and our low cost of doing business," JB Hi-Fi chief executive Terry Smart said in a statement.
"When combined with the opening of 16 stores, the maturing of recently opened stores and our continued online focus, we are well positioned to maximise growth through the next 12 months."
The company said it opened 18 new JB Hi-Fi stores across Australia and New Zealand in 2010-11, with a further four Clive Anthonys stores converted to JB Hi-Fi stores as part of the March revamp.
"These stores, together with the maturing of the 42 stores opened over the previous two financial years, will continue to drive revenue and earnings growth," JB Hi-Fi said.
A further 16 new stores were expected to be opened in 2011-12.
"We are pleased with our results in what was a challenging period for retail," Mr Smart said.
A full franked final dividend of 29c per share was declared, taking the full year payment to 77c, up 11c a share from the 66c paid in 2009-10.
The final was down from the 33c a share paid, but was after the share buyback earlier this year.
In addition the interim of 48c a share was up sharply from the 33c paid for the first half of the previous year.
With the company sticking to a 60% of earnings payout ratio, there’s a suggestion that the company’s earnings weakened in the six months to June 30.
And that suggestion is supported by the way the company described current terms of current trading conditions, JB Hi-Fi said sales in July "remained challenging".
"The Company had positive total sales growth for JB Hi-Fi branded stores of 6.4 per cent, with comparable stores sales negative 3.3 per cent,"
