Future margin pressures for JB

After release of financial results.

Despite delivering a record half year sales and earnings result, market analysts punished JB Hi-Fi with fears of future gross margin pressure.

For the half year period, net profit was up by 37.4% to $151.7 million and revenue was up 41% to $3.7 billion, including The Good Guys. JB Hi-Fi Australian stores grew by 10.8% to $2.48 billion, up by 7.8% on a comparable basis.

“We are pleased to have delivered record sales and earnings in the first half. It was another strong result for the JB-Hi-Fi business in Australia, particularly through the important November and December periods. We are pleased with the progress we have made at The Good Guys and are confident about the future opportunities for the Group.”

Analysts were mixed in their interpretations of the result, noting that the drop in the share price following the announcement after a 16% rise since Christmas and a 30% increase in the two months to the end of January.

JB Hi-Fi in Chadstone, Victoria 

The main criticism revolved around the long term indication that annual profits are forecast to lag sales, and in doing so flagging tighter margins.

“We continue to be a sales led organisation with a focus on growing top line sales and gross profit dollars,” Murray said in his presentation.

But it was one of the last sentences in the group’s presentation regarding FY18 guidance for the first six months of the calendar year that created the most attention. The guidance fell short of prior predictions of analysts while others have interpreted this as the emerging influence of Amazon.

“In the second half of FY18, we expect our focus on sales and market share, and continuing changes to sales mix, to result in sales growth exceeding gross profit dollar growth.”

FY18 sales results

This announcement coincided with the release of its financial results for FY18. Total sales were up 21.8% to $6.9 billion for the year ended 30 June 2018, while net profit after tax (NPAT) increased 12.3% to $233.2 million.

For JB Hi-Fi Australia, total sales grew 9.4% to $4.54 billion with comparable sales up 6.2%. Online sales grew 32.1% to $209.9 million (4.6% of total sales). Eight new stores were opened in FY18.

For JB Hi-Fi New Zealand, total sales were down 1.1% to NZD231.5 million with comparable sales up 2.4%. Following the relaunch of its website in August 2017, online sales in New Zealand grew 96.3% to NZD9.6 million (4.1% of total sales).

Total sales for The Good Guys was $2.10 billion with full year ownership in FY18. Sales on a statutory basis were up 67% and for comparative purposes, for the same 12 months, total sales were up 1.5% with comparable sales up 0.9%.

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