Consumer electronics retailer JB Hi-Fi (JBH) provided a little lesson for all those professional gloomsters and moaners about the health of Australian retailing.
Some of these ‘experts’ who include industry insiders (who should know better) bang on about how tough things are and how the internet here and offshore is making life tough.
And yes retailing is tough – especially now that the easy growth days of a decade ago are well behind us.
Good retailers are now coming to the fore, people who know how to sell to the public and how to position their companies to respond to challenges from all directions.
JB Hi-Fi and its current management are a good example of that – just as the company under former management under long time CEO Richard Uechtritz was well and truly on top of its game.
Now it’s CEO Terry Smart, and he told the company’s 2013 AGM yesterday that JBH is on track to meet its full year sales targets as it continues to open new stores and expands deeper into the home appliances market where it will eventually run up against more aggressive rivals.
Mr Smart said total sales rose by 8.1% in the three months to September 30, while comparable sales growth in that period was 2.9%.
That compares with 2012-13 growth of 5.8% for the year and a fall of 0.8% in comparable store sales, thanks to a very weak first half.
But second half sales growth accelerated to end up 10.3% on a topline basis and 3.2% on a comparable store basis, which was a significant improvement in what turned out to be a good year, with sales and earnings hitting new highs.
The first quarter improvement in 2013-14 is off the weak first quarter in 2012-13, so sales growth will slow as JB Hi-Fi moves into the six months to June 2014.
That’s why Mr Smart seemingly hinted at a sales slowdown for the rest of the year from the strong first quarter. In fact sales growth will settle down to a much more solid and consistent rate of growth than in the previous financial year.
He told the AGM that after the solid start to the year, the company still expects to grow sales by between 6% and 8% in the 2013-14 financial year.
That will be more than twice the rate of growth in retailing generally (which is running at just over 2% at the moment, or little better than the inflation rate).
JB Hi-Fi had 176 stores across Australian and New Zealand as of June 30, and plans to eventually grow to 214 stores.
As part of that expansion, shareholders were told the company still plans to open 12 new stores in the year, while a further 10 stores will be converted to a new home goods format.
That’s going to be a challenge because it brings the company into head-on competition with the likes of Harvey Norman, The Good Guys and several smaller chains.
But the likes of Myer and David Jones have struggled in this area (and David Jones is out sourcing its consumer electronics to Dick Smith), so perhaps there’s room for an aggressive, margin-conscious player.
JBH vs MYR vs DJS YTD – JBH on track to meet sales targets
Mr Smart said the expansion and the move into home appliances would underpin JB Hi-Fi’s sales growth targets.
"We see good growth opportunities ahead driven by significant new product releases, growth from our new store rollout program, online and commercial businesses, and the expansion of the home appliance categories via JB Hi-Fi HOME," he told the AGM.
It expects to have converted or opened 50 HOME stores within the next three years.
The company recorded $3.31 billion in sales last financial year and made a full year profit of $116 million, up 1% on the previous year.
Actual profit guidance wasn’t given yesterday, but if the company makes a 6% rise in sales for the year, earnings could easily top the $120 million mark after tax, and reach to at least $125 million if costs are kept under control.
Given the confidence shown yesterday at the AGM, it’s no wonder JB Hi Fi shares jumped more than 3% to $21.29, a rise of 36c on the day. The shares are now at levels last seen in 2010.
The takeaway from the AGM for the country’s best performed major category specialist retailer is how much of the confidence shown by management is built into the share price. At more than $21, the price is around levels hit three years ago.
The shares have been higher before the GFC, but there has been a massive price gain this year and you’d have to wonder if the current surge just might be getting a bit stale.
The big test for management is the execution of diversification into whitegoods and home products. On the face of it, the move is well timed as the home building sector accelerates (a two year high for new home sales was reported yesterday by the Housing Industry Association).
But this move out of its area of speciality into larger products in the HOME chain carries with it some risk, especially if there was to be a sudden slowing in home building.
But equally, if the move works, it could cost the likes of Harvey Norman valuable sales and profits. One to watch
A further footnote: Could JBH be facing sharply higher insurance costs? Victorian police say the 7th company outlet in Victoria was broken into earlier this week and a range of products stolen. If this continues, there could be added insurance and security costs that are not currently apparent.
