Yesterday’s sharp improvement in the stockmarket turned out to be a far better day to deliver what amounted to a downgrade by one of retailing’s bellwether stocks, JB Hi-Fi (JBH).
In a statement that first appeared innocuous in that the company told us the transition from old CEO Terry Stuart to his replacement had gone so well that Mr Stuart would be leaving at the end of this month – two months ahead of the previously announced schedule.
The statement also reaffirmed the earnings guidance for the year to June of $126 million to $129 million (up between 8.3% and 10.8%).
There was also guidance for the company’s revenue growth in the 2013-14 year – the statement said it was expected to be around 5.3%.
Investors liked that and the shares jumped sharply at the start, with the rest of the market.
In fact they rose more than 4% to a day’s high of $19.74, but then analysts started pointing out that the 5.3% figure was actually lower than the previous forecast of 6% to 8% growth.
So down went the shares, falling to a day’s low of $18.84. They then steadied and edged back up to close at $18.97, up 1.3%.
It turns out that, like an increasing list of retailers and other companies (think Pacific Brands, Noni B and The Reject Shop), JBH has been hit by the slide in consumer confidence and spending since the Federal budget was delivered last month to a very poor reception.
In fact close to 10 companies, mostly from retailing, have reported on the negative impact of the budget and its impact on consumer spending – for many retailers it has amplified the weak sales growth caused by one of the warmest autumns on record along the east coast (and which is extending into early winter).
JB Hi Fi is the biggest company to have detailed the impact of the weakening of consumer spending on its forecasts. Given its leadership of the consumer electronics business, the company is considered to be a leading indicator because it operates in a sector where consumers spend disposable income which is subject to swings in confidence. Unlike food retailing at supermarkets, consumers can easily postpone purchases in JB Hi-Fi stores.
But what is also interesting is that so far the downturn in consumer confidence and spending hasn’t negatively impacted spending in cafes and takeway food. That might show up in the May retail sales data in two weeks or so.
During Mr Smart’s tenure as CEO, JB Hi-Fi’s sales have risen from $3.1 billion to $3.6 billion and net profits from $105 million to between $126 million and $129 million this year.
