JB Hi-Fi: Music to investors' ears

Structural and cyclical changes are still a threat to this business

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Consumer electronics group JB Hi-Fi Limited (ASX: JBH) has reported its first annual fall in earnings since listing 9 years ago, with net profit down 4.6% to $104.6m, despite revenues rising 5.7% to $3.1 billion.

Earnings per share were up 4.1%, thanks to the company's buy back of shares, to 105.9 cents, while the annual dividend has fallen 13% to 65 cents.

Margins have been hit, thanks to a triple whammy of a higher wages bill, which has risen by more than 10% cumulatively over the last three years , falling software sales (music, movies and games) and aggressive discounting. Harvey Norman Holdings Limited (ASX: HVN) recently announced a 7% fall year-on-year, in Australian same store sales, due to the tough trading conditions, and soft sales of technology products.

Despite the wage increases, JB Hi-Fi's Cost of Doing Business (CODB) is lower than many of its local and international competitors, at 15% compared to Amazon at 21%, 29% for David Jones Limited (ASX: DJS) and 32% for Myer Holdings Limited (ASX: MYR) according to Morgan Stanley Research.

Software sales continue to move away from physical media such as DVDs and CDs to online downloads, falling 9.3% compared to the previous year, which is consistent with the previous year's rate of decline.

Woolworths Limited's (ASX: WOW) restructure of its Dick Smith Electronics business and the demise of several other competitors, such as WoW Light and Sound and Retravision Southern Region has led to the closure of many consumer electronics stores and the sell-off of their stock, much at below cost prices. That has put pressure on JB Hi-Fi to match those discounts, or at least reduce its prices significantly to remain competitive.

Outlook

The company has forecast sales for the 2013 financial year to be up around 5.5% compared to this year, driven by the rollout of 16 new stores, with 3 smaller stores expected to be closed. This compares to 15 new stores opened in 2012, with 4 closed, including 3 Clive Anthonys branded stores. Clive Anthonys continues to be a problem for the company with same store sales falling 24.6% compared to the previous year.

The Foolish bottom line

JB Hi-Fi have met analyst expectations with this result, and investors appear to like the result with the share price up more than 5.7% at the close.

With software sales continuing to fall, the company is looking to increase its sales of hardware such as computers and tablets, and increase store exposure to hardware at the expense of software. Structural changes are nothing new to the company – it started off selling high-end stereo systems, before moving into car audio and then software and other consumer electronics.

With a low CODB compared to many of its competitors, the company appears well placed to ward off new competitors, and to benefit from growing its market share through the demise of existing competitors, and any uptick in consumer sentiment. Online sales grew 77%, but still remain a low percentage of sales, suggesting the company has opportunities to substantially grow its online business. As a current shareholder, I'm still happy holding onto my investment in JB Hi-Fi.

If you're in the market for some high yielding ASX shares, look no further than our "Secure Your Future with 3 Rock-Solid Dividend Stocks" report. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

More reading

Motley Fool writer/analyst Mike King owns shares in JB Hi-Fi and Woolworths. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »