JB Hi-Fi Ltd (ASX:JBH) announced their full-year results today, revealing gross profit growth of 3.9% amidst a challenging retail environment and slowing consumer confidence. The Australian JB Hi-Fi business came out by far the strongest of their three main business units, with JB Hi-Fi NZ and the Good Guys experiencing modest revenue declines. Gross profit expansion is of 88bps in the second half, on the back of recent initiatives that were put in place over the past few months, was the main driver of the increase in profits.
The company has paid out 142.0 cents of dividends for the financial year, which amounts to a sustainable 65% payout ratio. The board declared that they believed this figure balanced future growth prospects and profit distribution, implying that they are looking to keep this payout ratio for the longer term.
The announcement revealed some positive news about the company’s balance sheet, with net assets increasing 10%. They have also restructured their debt facilities into multiple terms and paid off $110m in debt. Additionally, they increased their trade finance facility by $30m but did so alongside a reduction in the company’s overdraft facilities by $30m that offset the increase. The group’s $59.3m in capex is already beginning to show results in the form of improving margins, providing the business with the competitive advantage that it needs to keep growing into a contracting retail sector.
One of the risks the group identified is the erosion of its reputation for price leadership in the market. JB Hi-Fi’s management team is aiming to combat the risk by consistently monitoring competitor pricing, while also maintaining a close watch on customer complaints to make sure they are recognised as a good place to shop. Online competition is also a major risk for both JB Hi-Fi and the Good Guys, which is why management continues to invest aggressively in making sure they contain the costs of doing business, whilst being exposed to the rapidly growing online segment of the market.
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