Contrary to the prevailing wisdom that retailing is a black hole and everyone is doing it tough, JB Hi Fi (JBH) confirmed that its surprise early May update of better than expected sales growth, had resulted in better than expected profit growth.
The mostly consumer electronics retailer told the ASX yesterday that it had enjoyed its first annual profit growth since 2010.
Full year earnings rose 11% to $116.3 million, against the $104.6 million earned in 2011-12, just above the top of the May earnings guidance range of between $112 and $116 million.
The profit performance helps to explain the recent strength of JB Hi Fi’s shares.
They closed at $18.52 on Friday after hitting a two-year high of $18.93 in July and yesterday ended at $19.15, up 3.4% and a new two year high (they touched an intra-day high of $19.29 during trading yesterday).
JBH YTD – JB Hi-Fi defies retail gloom
The higher profit was struck on sales up 5.8% at $3.3 billion, although comparable sales (the best way of measuring retail sales performance) which compares like-for-like sales excluding factors such as new store openings) fell 0.6% across the year.
But there was a noticeable second half pick up in Australia with top line sales growth of 10.9%, sharply better than the weak 2.8% rate seen in the six months to last December.
However, the second half of 2011-12 was a very weak sales period, so the near 11% improvement in topline growth looks good, but might be better than it actually was. The same point can be made about comparisons with the current first half of 2013-14 and the very weak first half of 2012-13.
Earnings before interest and tax rose 10.1% to just over $177 million, from $161 million the previous year and the EBIT margin (the best measure of retailer profitability) rose 21 points to 5.37% from 5.16%.
JB Hi-Fi’s gross margin improved by 43 basis points to 21.53% in the latest year.
Both measures are the best way of illustrating the quality of the JB Hi Fi performance in the year to June.
The company says it will open 12 new stores in the 2014 financial year and expects total sales in 2013-14 to grow by between 6% and 8% on the current year. It currently has 177 stores and is looking for that figure to rise to around 214 over the next four years.
This year’s increase in store numbers equates to a rise of around 6% which is also the bottom of the 6% to 8% growth in sales forecast for the current financial year.That would see sales top the $3.5 billion mark by June 30, 2014
A total of 13 new stores were opened in the year to last June. TVs were the weak product, with comparable sales of vision products down nearly 12% for the full year, but only 3.6% for the last six months.
New Zealand was a black hole – top line sales fell 5.7% to just over $NZ209 million, while on a comparable store basis, they fell 5.5%. And yet the NZ economy has been travelling well, with solid growth, a housing boom and inflation under control.
CEO Terry Smart said in yesterday’s statement that the positive sales momentum had been maintained in the second half of the 2013 financial year.
Online sales, which represented about 2% of total sales, were up 29.8% at just over $65 million, which is a start but not really important.
That’s a rise of nearly 11%.
And in what is possibly the best news for the sector as a whole, the company told the market yesterday that while the market remained competitive, it “did not experience the level of unsustainable discounting seen in the second half of 2012-13”.
That could be sweet music for the likes of Harvey Norman and Dick Smith, but then again it could be just JB’s own experience.
And in other retailing news from the electronics sector yesterday, David Jones has outsourced its offering in this sector to the private equity owned Dick Smith group.
David Jones told the ASX yesterday that it had entered into a retail brand management agreement with Dick Smith to operate its electronics offering from October 1.
It said products to be covered by the agreement will include televisions, computers, tablets, home office, audiovisual and other digital products.
Whitegoods and small appliances will not be part of the deal.
The new retail banner will be called ‘‘David Jones Electronics, Powered by Dick Smith’’.
Dick Smith will buy David Jones’ electronics inventory, fixtures and fittings with David Jones staff also moving to the new venture.
For online ordering, David Jones will still be responsible for taking the order but Dick Smith will take over picking, packing and dispatching the goods to the buyer.
