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JB Hi-Fi Ltd: Strong FY20 result and positive market reaction

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

JB Hi-Fi Limited (ASX: JBH) is a specialty discount retailer of branded home entertainment products. The Group's products particularly focus on consumer electronics, software (including music, games and movies), whitegoods and appliances. The company primarily operates from standalone destination sites and shopping centre locations and its online stores in Australia and New Zealand. JB Hi-Fi has a market capitalisation of around A$5.4 billion.

 

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What are the key features of the FY20 result for JB Hi-Fi?

JB Hi-Fi reported underlying net profit after tax up 33.2% to A$332.7million and underlying earnings per share up 33.2% to 289.6 cents per share. The final dividend for FY20 is 90 cents per share (up 75.6%), making the total FY20 dividend up 189 cents per shares (up 33.1%).

The driving factor behind this positive result is an increase in total sales of 11.6% to A$7.9billion. Of particular interest is that total online sales across the Group grew by 48.8% to A$597.5million, representing 7.5% of total sales. The Group saw a significant acceleration in online sales in the June quarter 2020, up 134% on the June quarter 2019. JB Hi-Fi continues to invest in its online and digital offerings, including the launch of a new platform for JB HI-FI Australia.

In Australia, JB Hi-Fi’s total sales grew by 12.5% to A$5.3 billion. Sales momentum was strong through the year and accelerated in the June quarter 2020 as customers spent more time working, learning and seeking entertainment at home. The key growth categories were communications, computers, visual, audio and small appliances. Gross profit increased by 11.7% to A$1.17 billion resulting in a gross margin of 22.0%.

In New Zealand, JB Hi-Fi’s total sales were down 5.7% to NZD$222.8 million. Sales were materially impacted by the temporary closure of stores as a result of the New Zealand Government Covid-19 restrictions. EBIT of NZD$1.9million was in line with last year as the impact of the temporary store closures was offset by the wage subsidy received from the New Zealand Government and reductions in depreciation.

For The Good Guys business in Australia, total sales grew by 11.2% to A$2.4 billion. Sales momentum improved through the year and accelerated in the June quarter 2020 as customers spent more time working and learning at home as well as upgrading their home appliances and entertainment products. The key growth categories were portable appliances, floor care, laundry, computers and televisions. Strong operating leverage from the elevated sales growth and cost control drove strong EBIT growth. EBIT was up 47.8% on FY19 to A$107.8 million with EBIT margin up 112 basis points to 4.5%.

What is the outlook for JB Hi-Fi?

Sales continued to grow strongly in July 2020. Total sales growth for JB HI-FI Australia was up 42.1% on July 2019, total sales growth for JB HI-FI New Zealand was up 9.1% on July 2019 and total sales growth for The Good Guys business was up 40.4% on July 2019.

JB Hi-Fi management notes that the Victorian Government’s announcement of stage 4 restrictions in metropolitan Melbourne has meant the temporary closure of 46 JB HI-FI stores and 21 The Good Guys stores from 6th of August for a minimum period of 6 weeks. The Group has seen a significant acceleration in online sales in Victoria in the first 11 days following the stage 4 temporary store closures. This, combined with continuing sales momentum across the rest of Australia, has resulted in the Group achieving strong sales growth in the first half of August 2020. In addition, following the New Zealand Government’s re-introduction of alert level 3 restrictions in Auckland, 7 JB HI-FI New Zealand stores were temporarily closed to customers from midday on 12th of August for a minimum period of 2 weeks.

JB Hi-Fi management said that while the start to FY21 is positive, in view of the uncertainty arising from Covid-19, the Group does not currently consider it appropriate to provide FY21 sales guidance. This view is reasonable given the uncertainties in Victoria and New Zealand around Covid-19 restrictions at the moment.

What is the market reaction to the FY20 result?

JB Hi-Fi shares are up 4.5% to A$49.50 while the ASX200 is down around 0.5% (17 August 2020). This suggests that JB Hi-Fi’s FY20 result is better than market expectations. JB Hi-Fi trades on a forward P/E ratio in the mid-teens and a dividend yield of around 3.5%


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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