JB Hi-Fi on the up?
Last week, within the first few minutes of sitting in a conference room listening to an update by Terry Smart, one of Australia’s smartest retailers, he announced a sales and profit upgrade. Naturally having a position in JB Hi-Fi (JBH) is pleasing.
JBH now expects sales in FY13 to be circa $3.3 billion (from $3.25b +ve 1.5 per cent) and a Net Profit After Tax of $112m to $116m (from $108m to $112m +ve 3.5 per cent).
Back in November last year when we last saw Terry, he was uncertain of when unsustainable discounting in the market would end. The issues surrounding Dick Smith in prior periods for example resulted in margins across the business being squeezed materially. Hence profits and profitability declined materially.
If you understand JBH’s operating model – the company’s NPAT is considerably leveraged to its margins. Consider FY11, when JBH’s gross margin was 22% on $2.96 billion of sales. In FY12, during a period of intense discounting within the electronics sector, the margin decreased to 21.1% on sales of $3.13 billion. This 90 basis point decrease in the margin had a compounding effect on the company’s bottom line, and the share price suffered as a result (the share price halved during FY12).
In the latest profit upgrade, management is forecasting sales of $3.3 billion for the current year and a gross margin of 21.5 per cent. Now that the company has survived the worst of the discounting wars, we wouldn’t be surprised if management has been conservative with the latest guidance and achieves further margin expansion by year end.
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.
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Andrew Legget
:
I have been and still am a big fan of this company. Unlike other aussie retailers they seem to have a great understanding of the market, they have a good strategy and a strong brand.
The company does have issues, the CD, software and DVD business is ripe to fall victim to structural change which means the business is dependent on the hardware section of TV’s, Tablets, Laptops, computers etc. It is dependent on new and exciting products to come out so it could be a volatile play as some years might be a bit quiet as they wait for their suppliers to finish their R&D.
If the war is over, than JB will be ripe for a much easier time.
Will have to value it and see what i come up with. I haven’t done it since i last said (i think on here) that it will have a good year (share price wise) a while ago, i think the share price was around $8-$9.
craig.cory.54
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I can’t see what folks are buying so much of in JBs to justify the big mark up in SP. Pre Christmas the store guy told me the lead up was quieter than many regular Satdy arvos, and most folks already have a new tv and their latest ipad gizmos. Must be slow growth from new stores rolled out i guess. And a few chasing new teves when they are forced to upgrade or have a digital box, as per Brisbane which goes all digital end of May.