Kicking off the Australian 2015 reporting season with a positive result was electronics retailer, JB Hi-Fi.
The company announced a strong result yesterday which saw sales growth of 4.8% and profit growth of 6.4%, both above market expectations. Management also increased the final dividend and announced a share buyback, which was taken positively by the market.
JB Hi-Fi has fourteen stores in New Zealand (7% of the Group’s footprint). The company’s financials revealed these stores continue to under-perform with comparable store sales growth declining nearly 5% for the year. Total sales growth was flat due to the opening of one store during the period. More importantly, Earnings Before Interest and Tax (EBIT) was down 50% year-on-year.
The poor performance of its New Zealand stores is due to increased competition. The electronics market in Australia has three key players, compared to New Zealand where four strong competitors (including JB Hi-Fi) dominate a much smaller market. Therefore, there is more price competition to attract customers. This financial year, JB Hi-Fi struggled to grow sales at a faster rate than expenses.
JB Hi-Fi has also had a strong start to the 2016 financial year. Comparable store sales are up nearly 6% in July, albeit this is cycling a weak July period in the previous financial year. Like most retailers, JB Hi-Fi’s 2016 financial year performance is heavily reliant on Christmas trading, so this one month of trading can not be extrapolated across the 12 month period. However, this strong start is positive and will be taken positively by the market.
At the close, JB Hi-Fi share price finished up over 10%. Other than the better-than-expected result, other factors contributing to the strong market reaction are that the company trades on a fairly undemanding earnings multiple, has a good dividend yield and that the market is gaining confidence in the new Chief Executive Officer.
This strong result is a good read-through for other companies in the electronics sector. We are also continuing to see positive momentum in housing-exposed retail and more broadly, we are experiencing an improving consumer environment in Australia so will expect limited earnings risk and more positive outlook statements from retailers this reporting season.
Disclaimer: This blog is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.