Can JBH get its Mojo back?
What a difference a high Australian dollar (lots of people travelling and spending their money overseas and not here), a shift to online retailing, deflation, competitors going out of business, higher petrol prices and a more cautious consumer can make in the retail space in just nine months. And few companies are more exposed to all these influences than JB Hi-Fi.
Back in August 2011, the company reported the following in their annual report;
FY11 Sales $2.96b
FY11 NPAT $134.4m
FY11 NPAT Margin 4.5%
Based on these numbers as well as company guidance for sales growth in FY12 of 8% to $3.2b, the consensus analyst view at the time was for 11% FY12 NPAT growth to $150m.
Since that time however, shareholders have suffered three profit downgrades – in mid December, mid February and another this morning.
In this morning’s trading update, management have guided analysts to an estimated NPAT of $100-$105m on sales of $3.1b. Based on this latest announcement, 2012 numbers will look like this (assuming no further downgrades);
FY12 Sales $3.10b
FY12 NPAT $102.5m
FY12 NPAT Margin 3.3%
What’s clear from these numbers is that sales revenue is growing. No immediate issues there. And despite being below the initial 8% forecast, sales are now forecast to grow by 5%. The concern however is that LFL (like-for-like) sales are negative. For the nine months, sales of mature (older established stores) are down 1.3% which means without their current expansion plans, sales targets would not be met. It’s also the main reason their initial 8% sales growth target won’t be met.
But the main issue in forecasting what the business is worth is that despite this incremental sales growth, this is not CURRENTLY being converted to the bottom line. Based on management’s forecasts, NPAT margins will be 3.3% this year vs. 4.5% in the year prior, a 26.7% margin decline in just nine months. No businesses can increase intrinsic value in such an environment.
The tide that’s currently running against JBH is very strong, no plaudits for pointing that out. But when that tide turns, could JB Hi Fi be in an even better position than it was going into the non-resource-recession (a.k.a. the seven cylinder recession of 2012). There’s certainly the possibility and the key is working out when the economy turns and whether the structural changes occurring in retail are enough to adversely impact and offset the benefits of a cyclical turnaround.
Here’s what we are watching:
· Recently management including CEO Terry Smart and Chairman Patrick Elliot have been heavy sellers of their own personal holdings in JBH. What do they know? Why are they selling?
· The retail industry is experiencing a huge shake-up. Many retailers are doing it tough and many more are exciting the space. The Good Guys was being shopped around for a private sale recently with Blackstone rumoured to be the suitor. Later denied by them. Clive Peters (now owned by JBH) and WOW Sight and Sound have gone into receivership and JB’s largest competitor Dick Smith (owned by Woolies) is set to close 100 stores by 2014. Few electronic retailser are investing in growth. The night is darkest just before the dawn so we are looking for evidence that JB Hi Fi is capturing market share in such an environment, either by making acquisitions of distressed sub-scale business or by taking over leases in locations previously unavailable to them. In QLD it appears up to $250m in sales are up for grabs as competitors close. Dick Smiths had $1.5b in sales of which an optimistic analyst would say that JBH could pick up a substantial portion of.
· Currently electronic retailers are on the back foot evidenced by store closures and liquidation sales. These participants are forced sellers of excess stock putting HUGE downward pressure on retail prices and hence profit margins. In March alone, JBH experienced a 200 bps contraction in gross margins. I was silly enough to buy two C3-PO USB keys for my kids at Christmas for $40 each but picked up another two in Brisbane a few weeks ago for $18 at a closing down Dick Smiths (my new book will be called How to Go Broke Saving MoneyTM).
Margin compression of the magnitude reported recently is unprecedented for an operator of JBH’s buying power. So we are looking for signs that the worst is over in terms of competitors closing their doors, a sure sign margins will improve or cease falling precipitously.
· We are also watching closely JBH’s move into the online space. Growth has been excellent in this segment of the business (admittedly off a low base) with an average of 965,000 website visitors each week. That’s 50.2m views per annum – 2.4 times the population of Australia. The trick of course is to convert page views to sales.
· In prior years the business has benefited immensely from positive LFL sales and also an internally funded store-rollout strategy driving new sales and sales as stores matured. This was a tailwind for the business when the number of new stores being added divided by existing stores produced a high ratio. For example when the business only had 50 stores and another 15 were opened, the proportion of stores growing and adding to sales was 30%. At present the business has in excess of 150 stores and is opening 14-15 stores per annum – a ratio of just 10% in new growth. So when you have negative LFL sales in existing and maturing stores, this is a huge drag on business momentum. We are therefore watching for signs that LFL sales stabilise or turn positive so that the business gets its mojo back.
We think it can although we are convinced the very easy money from the store roll out stage of the business along with P/E expansion has been made. Businesses with a leading market position are able to survive traumatic periods in what is a highly cyclical business and are able to absorb the effects of margin compression. Provided they can capture high levels of market share amid the tumult and cement their position as the dominant player JBH might be well positioned for the next economic recovery. One might ask whether ‘Terry and Co’ will be there when that happens.
Skaffold.com Intrinsic Value 13 year chart.
Skaffold’s conservative valuation estimate for JBH is $13.43 for 2013 as can be seen by the thin orange line in the above chart. Whether the share price now approaches that valuation or that valuation instead is revised lower and approaches the price will be determined by whether the company can harness its opportunity and when the irrational pricing associated with collapsing competitors ends. Of course after that, its success will be dependent on the depth of the impact of the structural change represented by the retail shift global and online.
Amid all of your bearishness about housing in Australia, do you think retailing conditions will pick up for JBH and its peers or not? Can you buy goods that JBH sells cheaper online?
Posted by Roger Montgomery, Value.able author, SkaffoldChairman and Fund Manager, 27 April 2012.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Rowan
:
hmm, wont even buy at 8$ .
Depends what amazon wants to do , why would it set up it Australia to if they want it to be a warehouse to send good over to Asia , why not set it up in Singapore or Malaysia where it is more central and it can then market to whole Asia and Australia.
I just wonder how much internet can really erode JBH , I mean I tried buying Diablo 3 game from Amazon but they don,t ship to Australia. And even if you could i dont think it be far off from the JBH price , by the way Amazon sell Diablo 3 for 56$ and if you add shipment fees in it be the same or slight below JBH. Also would you ever buy laptops or USB or TV from internet , warranty would be a killer. Also lastly I am an avid internet shopper , bought a ADSL modem and found that the guy who sold it to me sold me a wrong product( image from his website to the product i got was wrong) , and you might be saving like 3$ but for the hassel to send the item back and wait again for them to send the item to you again , i think i just buy it from JBH and pay the 5$ extra more. All in all i believe there is a future for JBH .
Roger Montgomery
:
All good points Rowan.
Ron F
:
Hi Roger,
Thanks for the article.
Good blogs have been posted on the subject.
I read the other day Harvey Norman are the ones driving the discounting (exacerbating the deflationary pricing) to put the final nail into Dick Smith.
Whether that maybe, I think it won’t create extra business in the future within the electronics sector, even if consumer sediment picks up – though margins may increase.
JBH still have headwinds to face with the continuing drift to online and the real possibility of Amazon opening a warehouses in Australia. Amazon’s economic scale of buying is larger than JBH creating differential pricing from manufactures and suppliers.
It is important to realise that the large international online sites’ economic scale of buying is also a contributing factor, in addition to the high Australian dollar, for the rapid migration to cheaper online buying. Think back to before the infancy of online buying and the high Australian dollar, goods in the USA where cheaper to buy back then compared to Australia. Another view of it, is to use the simple scale cost of producing, the 1,000th item produced is significantly cheaper than the 1st produced.
Still, like you Roger I will be keeping a close eye on JBH. In my opinion they are the second best retailer behind Oroton and won’t disappear. They will come out stronger than any other electronics’ retailer and this may present opportunities to buy shares in the future.
Regards
Ron
Roger Montgomery
:
We are indeed watching closely. The tired look that Harvey Norman now seemingly relish is ever present, even for JBH. The hard-to-get cd’s used to generate foot traffic and music aficionados. Now gone.
Rob S
:
Roger,
JB has been on my mind of late too, it’s the biggest poor investment I’ve made since I started in November 2010 (around the same time the private fund started I see from your press statement), but despite this, I have still managed a return of about 12.5% since inception. to paraphrase Peter Lynch, out of 5 stock picks, two or three will do nothing or go up slightly, one will double, and another will collapse, but overall you end up doing fairly well.
The reason I still hold onto JB is not because I see a return of halcyon days, but because I see the shift from a fast growing star to a low capital-intensity cash cow*. In light of this, I’m less worried about forecast NPAT than I am about cashflow in this year and the years ahead. With reducing investment in new stores in the next 5 years, there will be excess free cash flow (providing no further excessive margin contractions, or indefinitely decreasing sales). Sure, this will reduce the ability of the company to invest at favourable rates of return, but depending what they do with that cashflow (share buybacks, increased dividends etc), the returns on a per-share basis could be quite significant even with low overall growth for the business. With current dividend yields approaching double official rates (and the prospect of lower official rates in the future), it won’t be long before people shift their focus on JB to looking at yield rather than capital growth.
As noted by others, the buyback saw a dramatic reduction in equity per share due to using debt to finance the return of capital. This means we really need to watch what happens to net-debt, interest payments and cash flow, rather than stated earnings in the next reporting season.
*either that, or cognitive dissonance!
Roger Montgomery
:
Spot on Rob and well done with your returns. Your post reminds me to mention the issue of returns…
Slow and steady wins the race. You can make more the 50% on a speculative portfolio (shouldn’t call it a ‘portfolio’ at all) with a few hundred k. I know I have. But try doing that with a few hundred million or a billion… There’s a very good reason even the best fund managers don’t report those kinds of returns consistently. Anyone with such aspirations is simply immature and inexperienced. Consistent alpha is the key.
Simon
:
If you were (able?) to invest a billion in Facebook IPO I dare say that a 50% return IS possible within two years of the float.
Roger Montgomery
:
Ohhh. Controversial!
William A
:
Further to my previous comments, in case if anyone is interest I did a bit of comparisons between JBH vs HVN vs Amazon in term of Selling, General and administration costs (SGA) as a percentage of sales
According to my calculation based on latest available report, JBH’s SGA costs as a percentage of sales are only 14.5%. On the other hand an average domestic bricks-and-mortar retailer like Harvey Norman (HVN) operates at an SGA/sales ratio of around 35%.
This low operating cost is arguably JBH’s advantage compared to other brick & mortar retailers and possibly even some online businesses?
But, looking at one of the most efficient US online retailers, Amazon, guess what, the SGA/sales ratio of only 4.8% !!
Matthew R
:
I’m in my mid 20s & I always compare prices online. I also readily accept requests from older family members who don’t know how to shop for the best price online.
JBH is competitive on most items I look for online but at a cost to their margins as we are seeing
I believe that the retailing of items online will make it difficult for JBH to thrive. They will however survive and a lot of bricks & mortar companies will go broke before they do.
I believe the future of JBH is going to be in selling items that you need to see/compare. Buying music equipment may be an example. TVs will continue to be. Buying music in-store will not be (unless it is suitably cheap or available no where else). There is a saturation element to the technology sales as well however and the major transition from CRT to plasma/LCD/LED TVs has passed.
I have bought and sold JBH in the past for a profit but I am happy to wait on the sidelines currently as I think there will be further disappointing results from JBH. There is probably an element of liquidation stock clearances putting pressure on margins but I don’t see those margins widening again dramatically because internet retailing continues to push them down.
As to whether this is a cyclical change in margins? If it was the economy that was down and therefore people didn’t have the money to buy I would say YES. However this compression in margins I believe is about consumer choice, not a lack of customers, and hence my belief is that the answer is NO.
Matthew R
:
This article quoting RBS is interesting
http://www.retailbiz.com.au/2012/05/01/article/Harvey-Norman-blamed-for-JBs-slide-RBS-report/FEWXBIGHDP.html
Mike
:
A couple of points to remember about retailing. If I want or need something now, I can go into a shop to get it. People enjoy browsing and going shopping. They can’t do that online, as it doesn’t offer the same experience (yet).
For everyone predicting the death of bricks and mortar retailing, here’s a couple of questions.
1. Think about the effect of the AUD/USD falling back to around 80 cents. Are you still going to go online and buy a book or DVD from the US that costs more and takes days or weeks to get here?
2. What will happen to our shopping malls if retailing all goes online, and how likely is that to happen?
3. US companies have tried to invade Australian turf before and not succeeded. Look at Starbucks.
It’s easy to forget the tech boom, when everyone was predicting the death of bricks and mortar shopping. Which one won then?
Martin Anderson
:
I believe the views of those predicting a dire future for traditional retailing will be discredited in the fullness of time. A traditional bricks and mortar retail presence delivers tremendous advantages when compared to online only retailers. Consider the immediacy of purchase and warranty issues. Who wants the hassle of having to send their new laptop back to the e-tailer for a warranty claim, especially in the case of overseas purchases. Furthermore, manufacturers want their products displayed on shelves for people to look at. Who do you think the supplier is going to support: the traditional retailer or the e-tailer? We know food suppliers have to pay to have there goods displayed prominently at the supermarket. In a more concentrated electronics market, JBH is going to be in the drivers seat when it comes to dealing with suppliers who want there product displayed. Yes, the traditional retail model has to change but those who are able to adapt will do very well.
William A
:
Hi Roger
It remains debatable if lower margins are a short term event or a structural change brought about by online competition. The internet reveals to the consumer international pricing for many commoditised products and JBH are now forced to offer an international competitive price or lose out to offshore online rivals on products such as Bluray, DVDs, CD, games and even consoles.
Im actually expecting the migration of revenues online will accelerate over coming years, therefore forcing the retail industry to rationalise store portfolios. I don’t understand the rationale of adding more stores if the new stores are not going to make descent profit.
In terms of online sales, I am very pessimistic on how they can utilise this channel to offset loss of revenues going to online shopping and I believe Amazon is opening a warehouse here down under and this is BAD news for JB.
I guess the only hope is JBH NOW music service and I cannot see how this is going to improve the company’s profitability in the long run. iTunes is already there and illegal music download will be around for the foreseeable future.
I think JBH is a “Value Trap”. In addition, being the most shorted stocks on ASX (according to latest ASIC filing) I would avoid at all cost at this stage.
Cheers
Roger Montgomery
:
I was asked to speak this morning at one of the big bank’s morning meetings and I did hear JBH and value-trap in the same sentence there also. We don’t own it but we are looking at it closely. What are we looking for? Evidence of cyclical versus structural change.
Steve Moriarty
:
First of all apologies for the length of this post but hopefully it will give some food for thought.
I hold JBH.
From Bruce Greenwald’s Competition Demystified, page 111 –
“It takes little courage to predict that over time, more people will buy goods and services online, and that online transactions will encroach on old fashioned shopping, banking, and other services. For our concerns with the economics of strategy, the question is not how big online business will become, but whether it will be profitable, and if so, for whom. The main sources of competitive advantage are customer captivity, production advantages, and economies of scale, especially on a local level”. None of them is readily compatible with Internet commerce, except in special circumstances.” He goes on to say “Finally, it is virtually impossible for any competitor to profit from economies of scale on the internet. Internets merchants bragged about all the money they had saved by not having to build physical locations from which to sell their wares. But economies of scale entail substantial fixed costs that can be spread over a large customer base. With minimal required investments the incumbents (other online shops that is) have no advantage.”
He further adds that there is nothing stopping the existing retailers, banks, newspapers etc from establishing their own online presence (as JBH has done). And so in the end states that “it has been an enormous boon to customers, but for the businesses selling to them a destroyer of profit”.
From the Australian Communications and Media Authority’s 2010-2011 report titled “E-commerce marketplace in Australia – online shopping”. A rough summary –
1. In the six months to April 2011, approximately 62% of adults purchased a good or service online. Purchases varied according to age, income and location.
2. Biggest users – 35-44 years old with 73% using internet for purchases.
3. The biggest users by income are those earning over $150K per year (86%). I suspect this is the “time poor/convenience” sector of the population. Those under $50K (46%).
4. Remote users (70%), major city dwellers (60%) and inner regional and outer regional (56%).
5. Convenience and price were the two major drivers. This is where I suspect the “convenience” aspect is for the high income earners. The report states that the large jump in overseas purchases happened 18 months prior to April 2011. If you look at the $AU against the $US in November 2009 it was at 85 cents and in April 2011, 18 months later it was at $1.05. A nice steady increase which I suspect is a major reason for increased online purchases from overseas. I ask myself if I would buy a music download from the US, when our dollar is fetching 80 US cents rather than the current $1.03. My answer is no as there is no product differentiation.
6. Most of the purchases are for travel goods including accommodation and tickets (56%). Clothing shoes and personal items are next at 42%.
7. Australians still buy predominately from local Australian websites, however there has been a decline in the 18 months to April 2011 (from 68% in Nov 2009 to 53% in April 2011). The “cheaper overseas” was the dominant response.
8. In JBH’s industry, there is only small increase (from 37 to 42%) purchasing in the category of Household Goods which included electrical appliances and computer equipment. Audio and Video content 34%, 56% for DVD’s and CD’s, music was 26% and communications technology 18%.
9. The dominant age group for these types of purchases was the 3 middle brackets from about 20 to 50 year old adults.
I think JBH is a good company and there is a solid future based on
1. The decline of their competitors which will probably mean an increase in market share for them. While they may lose some to overseas purchases, remember that there is still a strong percentages of products sales both locally and in-store.
2. The increase in their online presence which although from a small base they have had good success and future source of profits as they have a great existing customer base (customer captivity?)
3. In-store sales are still large and they have economies of scale (competitive advantage?).
4. If the Australian dollar reverts to the mean (which I think likely I just dont know when), then there will be an increase in sales as the “cheaper overseas” reason is reduced.
If you look at Skaffold Line for JBH, their share price has declined but its intrinsic value has increased every year bar one. It is interesting to note that it spent a lot of time where the price was above the actual value which I think reflects the “market darling” status afforded to it. But even as intrinsic value rises, it has lost this status and so the price is now below the intrinsic value as investors believe that “the story” is finished. Darling no more!
The Friday announcement was followed by a high level of media commentary and analysis showing that JBH is still generating interest and is one of the bellweathers for the “declining” retail sector story. It also has the “usual” post earnings drop in price.
I suspect that once the price no longer drops on these earnings announcements because analysts are convinced that JBH is finished, then the increases in intrinsic value will come through and it will rise again.
It will then be in Horace’s Ars Poetica “Many shall be restored that now are fallen and many shall fall that now are in honor”
Roger Montgomery
:
Hi Steve,
This is a great post and I sincerely appreciate your time putting it together. Everyone should have a read of it. We are watching JBH closely and have often described the economics of recessions and the proportionately larger adverse impact on competitors and the subsequent acquisition of market share. What Greenwald talks about is the lack of competitive advantage of online retailers thanks to low barriers to entry. Does he address the Network Effect (agreeing perhaps with our own view that it is valuable but impermanent)? Also the fragmentation of shopping by an equally fragmented competitive landscape may indeed mean that the new players don’t make any money and are therefore not worthy investment candidates but it may also mean that the incumbents are no longer either. WIth regards to SKaffold valuation make sure you look at both valuations.
Andrew
:
Retailing will pick up eventually however it is a really tough current environment. Right now as I sit in my local shopping centre I see all around me signs of a tough retail market. Eb games (a JBH competitor) is having a buy 1 get 1 free sale. Myer appears to be in a year long sale where the only thing that changes is the % discount from the retail price etc.
What makes it harder for JBH is that it is very easy to either get the things online or not buy them as they are non-essential. In saying this, JBH is the busiest store by observation in this centre but a problem is that a lot of people are looking and walking around the store but that is completely different from people at the registers.
JBH do have some choices to make about their future direction but they are well placed to ride the tsunami and come out safe and probably with renewed strength if they get it right. Their castle is strong, it is just getting a bit damaged by weather. Once it passes and has a bit of maintenance done than I feel they should be ok.
I am currently neutral on JBH in the sentiment states, I think their needs to be a lot of thought about their future path. I am still trying to decide if the future is rosy (in which case this year could be a great opportunity) or whether it is best looked at from a distance.
I still struggle to find anywhere that beats them on price (with little analysis of online competitors though). I will keep a close eye on this company.
Roger Montgomery
:
Thanks for sharing those thoughts Andrew.
Andrew
:
Another thought which came up in a conversation after I posted the first. The online issue is another feather in the cap of Sally McDonald at oroton as other companies appear to have missed the trend of online retail.
The fact that Westfields who are a centre operator and not a retailer started moving seriously into online stores before the likes of dj’s and myer is an indictment against the management of the latter companies. I will allow myer the excuse that for a while they were playing the private equity profit game.
I probably have a reputation for Being a retailing fan but some questions I believe do need to be asked of Aussie retailers ability to spot trends in the market place.
Roger Montgomery
:
Agreed Andrew.
Joseph Rich
:
Just finished re-reading a few excerpts from Roger’s book ‘Valueable’ and couldn’t help notice Roger’s warning against companies that are ‘commoditised’ – that sell a product or service that is not clearly differentiated from competition.
When competition gets tough in such industries, price is the be-all and end-all and margins get squeezed. Although JB is currently trading below intrinsic value, one has to ask – what does JB have that its main competitors do not?
For years JB made a killing on getting customers in the door with mind-boggling cheap TV’s and music systems, and then making up margins on cameras, phones, music, and peripherals (think $50 HDMI cables….). But a quick search on ebay reveals just how much competition JB has in this area.
With ‘hard’ music sales (CD’s/DVD’s) in decline, customers becoming increasingly savvy about online shopping, the key questions is – how will JB make its money 5 years from now.
Remember JB sells a commodity. I can walk into a JB store, and use my ebay iphone app to check a comparable price for the *exact* same product online. One must ask – is this a business that can increase price year on year without suffering a fall in volumes? If not, this prospect might not be so bright after all…
Roger Montgomery
:
Thanks Joseph,
And if they are going to be the low cost supplier (another possible competitive advantage), are they able to maintain the lowest costs?
Andrew
:
Jb’s advantage was that they were able to profitably sell goods at the lowest prices by making up for the lower sale price with paper thin operating margins, there for the customer will buy there or else they will force their more bloated competitors to match it.
New technology definitely brings up some interesting thoughts about whether they are still in that position.
Nick Mason
:
I find your estimates for present and future values very optimistic Roger, I estimate JBH to be worth about $8 a share on current earnings projections, although given the number of times these forecasts have been revised is there any point in using them?
And even at a discount to $8 you’d have to be a far braver investor than me to be buying JBH considering the current headwinds facing the sector which are immense and I can’t overstate that enough. Online shopping, domestic competition slashing margins to the bone, and both legal and illegal downloads of games, music, films…… incredibly hard conditions to try and operate in.
Terry Smart has one of the toughest jobs in Australia and one has to wonder if he has already seen the writing on the wall which has caused his recent selling of his own personal stake in the company?
Best Wishes to you.
Roger Montgomery
:
I don’t think we are currently disagreeing Nick!
Hiten
:
Roger, I have my doubts about JBH ever returning to above average returns of the past. There might be a few Half Year results where things might look promising but over the long run I believe investors will be disappointed.
Reason being…what does JBH sells that cannot be purchased online? Nothing. But you say JBH is also present online to that I say wait until the big guys (Amazon, Ebay) start seriously pushing for growth in Australia, I believe that should happen within the next 5 years once they saturate markets in US, UK and need to look for growth in smaller markets. There were lots of articles recently regarding Amazon shopping for warehouse in Australia.
I might be wrong but I think JBH main products are CD’s, DVD’s, Audio systems and TV. All of which are going through structural shifts with new technology and internet. Growth in online music purchase (iTunes) is astronomical (-ve CD), Growth in online video (Netflix) exponential (-ve DVD), as for TVs go if rumours are to be believed and Apple TV is released sometime end of this year its not going to be good for retailers. We all know selling iPhones have only benefited Apple not the telcos, I believe it will be no different for retailers selling Apple TV.
IMO JBH faces not only structural challenges to it’s business model but competition which is only going to get intense as time passes. As a business these are the things that destroy your economic moat.
Roger Montgomery
:
I think you are right Hiten. The business is also maturing and the easy dollars have been made.
Ken
:
Roger,
Back about a year ago when I used to contribute regularly to this blog, I voiced the opinion that MCE, JBH & TRS were all poor investments. Of course hardly anyone agreed with me at the time, but history has already shown that MCE has sunk and JBH are taking on water at a rate that their pumps cannot handle – to use a marine analogy. As for TRS, they have holes everywhere and time will tell if they can plug them, but I seriously doubt it.
To answer one of your questions, viz; Can you buy goods that JBH sells cheaper online?….You bet I can.
Ken
Roger Montgomery
:
Thanks Ken,
Great to hear from you and delighted you continue to read the Insights blog. Keep well.
Steve Moriarty
:
Welcome back Ken,
It is a shame that you have not being able to contribute more here over the last 12 months. Forgive me, but it seems a little cheeky to return to what is essentially tell us all how prescient you have been.
Fortunately, not many of us here invest with a 12 month timeframe so your observations may well be valid now but to continue your metaphor, they don’t hold much water.
I bought TRS at $9.46 late last year so I am up 25%. If you bought in 2004 you are up over 500% plus dividends.
If you bought JBH 5 years ago you are up 5% plus annual dividends. If you bought in 2003 then you are up 300% plus dividends.
If you bought MCE in November 2009 at float (I think) you are up 122%.
Interesting what time frame we pick to measure our “success”?
regards
Steve
Andrew
:
Hi ken,
I think whether you can find them cheaper online or not depends on the product. I tried getting Microsoft office for Mac online but found it cheaper in JBH. So online is not a winner by knockout.
It is evidence like this that I am neutral towards positive at the moment on JBH. However when more facts come to light and require a change f opinion I will happily do that.
Also don’t worry about people disagreeing with you, you’d never be able to buy or sell shares if they didn’t.
Macca McLennan
:
This downgrade is a real shocker
Their EPS for the 1st half were steady (some cracks showing)
Now their EPS could be 99c for the year; it looks like dropping 40% for this half
Now i look at ROE which is running above 65%
WHY?
I’ve just looked back to last years Balance Sheet
And long term debt has jumped from 421M in YE10
to 615m YE11 So now long term debt is 60% of capital
In this same period Equity per share dropped from
$2.71 to $1.77 Why did this occur?
They borrowed a large amount to fund the buy back of
about 10% of the shares Was this wise?
Without knowing the structure of these borrowings
it’s difficult to know what may happen in the future.
But i have no doubt the future of the company is more
in their corner than JB HiFi
Yes the RBA will reduce interest rates & price competition
my ease.But will this happen soon enough??
MY CALL
50% it will fall over;or a dilutive raising
50% This time next year we will be cheering
Macca
Disclosure in Sorrow
i own shares that i bought Aug 11 at $14.50
Roger Montgomery
:
Using company funds or borrowed funds (where the company provides the collateral) for buybacks, while execs are selling their stock doesn’t seem consistent does it?
Justin
:
Roger, I am surprised that you did not mention (although you might have written your piece before they were released) Amazon’s reported quarterly earnings for the first three months of the year in the context of the headwinds facing JBH and of a potential turnaround. If anything ought cause more concern to bricks-and-mortar retailing in Australia, it is the prospect that Amazon may open here. As you’d be aware, Amazon is apparently scoping out properties in Australias as we speak. I personally find it difficult to envisage a future for traditional profitable retailing other than as a showroom for products that consumers then buy online. There will be exceptions, of course, depending on the nature of the retail items being sold. In this regard, perhaps somewhat counter-intuitively, I think HVN may have better prospects of survival than JBH, although it won’t be as an electronics retailer (I’d like to know what percentage of HVN’s sales are made up of consumer electronics because it is likely to be that percentage of its business that HVN is going to lose) but as a furniture and bedding retailer. I don’t think people will ever migrate online to make their furniture purchases. But then again who knows?
Roger Montgomery
:
I understand Amazon are scoping for a warehouse for Asia-wide delivery. We could write a lot more than we do but this is a discussion platform only (and its free). On the furniture side, I know an online furniture retailer who is growing at double rates per month and that’s not off a tiny base. Who knows maybe even furniture will see their industry turned on its head.