JB Hi-Fi: quality company, quality result and quality acquisition
Despite cost-of-living pressures and a continual stream of consumer data reflecting a zipping up of wallets around the country amid a cost-of-living crisis, JB Hi-Fi’s (ASX:JBH) total revenue for the year to 30 June fell just 0.4 per cent to $9.6 billion. This was the result of a much stronger than expected result for the Australian business.
According to the Australian Bureau of Statistics (ABS), inflation for the ‘Furnishings, household equipment and services’ category declined by 1.1 per cent between June 2023 and June 2024, making JB Hi-Fi’s result all the more impressive. That JB Hi-Fi’s revenue fell less than the decline in prices means volumes increased and/or market share was won.
Meanwhile, sales and marketing costs (mainly labour) rose 6.2 per cent, while rising rent, administration costs and interest expenses all adversely impacted profits. Earnings before interest and tax (EBIT) fell 15.8 per cent, net profit declined 16.4 per cent, and consequently, JB Hi-Fi’s ordinary dividend per share fell 16.3 per cent.
The big news, however, came in the form of a special dividend and a much stronger-than-expected description of July trading conditions.
By way of example, for JB Hi-Fi, sales of $6.61 billion were up one per cent for the year (the market had expected a one per cent decline) but were up 1.3 per cent in the June half. Meanwhile, FY24 like-for-like sales were up 0.6 per cent for the year, up 1.2 per cent in the second half and up 2.6 per cent in the final quarter, reflecting accelerating consumer activity as the financial year reached its conclusion.
JB Hi-Fi announced a generous dividend payout, with an unexpected special dividend of $0.80 per share (offsetting the decline in ordinary dividend) and a final dividend of $1.03 per share.
Keeping in mind JB Hi-Fi is loath to provide forward guidance, the company did note July trading had been solid with like-for-like sales growth of 5.2 per cent in its flagship Australian division, materially ahead of the sales growth of 1.3 per cent in the final June half of FY24.
The final piece of news was the announced acquisition of E&S Trading for $47.8 million for 75 per cent of the business with an option to take out the remainder in 2029. With access to high end U.S. brands like SubZero, Wolf and Liebherr, the company will begin by replicating in Victoria the success of winnings appliances in Sydney (unless it buys winnings next). The business will also bring into the JB Hi-Fi fold a premium customer willing to pay up to $50,000 for a stove and $60,000 for a fridge.
E&S Trading has ten showrooms in Victoria and one in Canberra, generating annual revenues of $230 million and earnings of $7 million, the latter meaning JB Hi-Fi is paying less than ten times current earnings.
JB Hi-Fi’s CEO, Terry Smart, confirmed the acquisition gives JB Hi-Fi exposure to the premium home appliance customers, as well as the bathroom category and large commercial construction customers – those who buy 250 stoves at a time for an apartment development – as well as to higher end builders and architects.
“The E&S business has a highly complementary premium product offering, which will appeal to a new customer base, and a commercial construction market focus, making it a strategically compelling addition to JB Hi-Fi,” Smart noted.
JB Hi-Fi shares are up 50.5 per cent over the twelve months to 12 August 2024, and up 135 per cent over the five years to 12 August 2024.
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.
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