No applause from the market for what was on paper a solid result from JB Hi-Fi (JBH) yesterday.
Investors preferred to focus on what is shaping up to be a tough six months of retailing for the consumer electronics sector leader as it battles sliding sales and reluctant consumers.
As a result forecasts for profit increases for 2014-15 are being recast by analysts, and the share price is down accordingly.
So confirmation of the expected solid result for 2013-14 released by the company yesterday was ignored as was a higher dividend.
JBH lifted profit and will pay a higher dividend, but investors preferred to focus on some negatives – weak sales growth and forecasts for that to continue in the current financial year.
Net profit was up 10.3% to $128.4 million, while earnings before interest and tax (EBIT) rose 7.5% to $191.1 million, thanks to a 34.7% rebound in earnings from its New Zealand stores, which made up for the more modest 7.1% growth in EBIT from its core Australian chains.
JB Hi-Fi directors lifted final dividend to 29c, boosting the full-year pay out by 16% to 84c, compared with 72c in 2013. The dividend will be payable on September 5.
Directors also said that the company would undertake another share buyback after spending $25 million buying 1.4 million shares under a previous buyback designed to offset the issue of options to employees in the year to June 30.
The new buyback will be be similar in nature, the company said. The buybacks are to stop existing shareholders being diluted by the conversion of options into new shares.
Despite all this upbeat news, the market gave the announcements the thumbs down.
At one stage yesterday the shares were down 10% – this in addition to the 9.9% fall in the share price from the start of the year to the close of trading last Friday.
The shares edged back a touch to end down 7.9% at $17.84.
The ASX 200 was up 2% from January 1 to the close yesterday, meaning JBH is a serious underperformer this year, like many retailers here and around the world (as we pointed out a couple of months ago).
JBH YTD – Market ignores JBH profit
And what triggered the thumbs down?
Well, despite making all the encouraging noises, including cheering news of the continued expansion of its consumer electronics stores and conversion of more stores to its new JB Hi-Fi HOME format to drive sales growth over the next year, investors preferred to worry about the soft start to 2014-15.
JB Hi-Fi’s new chief executive Richard Murray said he expected sales this year to rise $120 million or 3.4% to about $3.6 billion , which was well under market forecasts for sales growth around 7%.
This was on top of the slowdown in the 4th quarter (already alluded to in an update two months ago), thanks mostly to the fall in consumer confidence after the budget, and a drop in consumer interest in computer tablets such as those produced by Apple, Samsung and others (Apple’s own sales of iPad sales fell sharply in the June quarter).
JBH said group sales for the year rose 5.3% to $3.48 billion – below the company’s original guidance of 6% to 8%. That was down on the 6.8% rise in first headline half sales.
Same store (comparable) sales growth slowed to 2% from 2.8% in the first half thanks to a 2.4% slide in same store sales in the June quarter.
Not even the opening of a net five new stores could halt the slide in top line sales growth.
That 4th quarter slide has accelerated into the current first quarter of 2014-15. All this wasn’t music to the ears of investors.
Mr Murray said the negative sales trend persisted into July, with total sales down 3.2% and same-store sales down a massive 5.5%.
He said July sales were impacted by the decline in sales of tablets, but the company had boosted gross margins in July and they were ahead of those at the same time last year.
“We anticipate sales in the first half of 2015 will continue to be impacted by reduced tablet sales, however we are positive about the pipeline of new products to be released and as a result we expect solid sales growth for the year,” he said.
Mr Murray, who took the CEO’s role from Terry Smart in June, said JBH will open eight new stores, compared with the net five in 2014, and would convert 26 existing stores to JB HI-FI HOME, with 17 to be converted in the first half.
The company is looking to grab a share of the housing boom by selling more white goods and similar products (and more directly challenge sector leader, Harvey Norman).
“2015 provides significant growth opportunities for JB Hi-Fi including the JB Hi-Fi home rollout, the continuation of our new store rollout program, the expansion of our commercial division and the opportunities created both in store and out of store by our new website,” Mr Murray said yesterday.
“These opportunities, combined with the maturation of the 21 stores opened in the last two years and an exciting new product outlook, will drive sales and earnings growth,” he said.
The company will have to show the market that it has stopped the slide in same store sales and pushed them back into positive territory.
According to the Reserve Bank’s latest forecasts for the wider economy (released last Friday), consumer/household spending is weakening, which will make the job tougher for companies like JBH.
