JB Hi-Fi Limited (ASX: JBH) stock jumped over 6% today in morning trade, following the release of its half-year results. The electronics, software and appliances retailer opened up the half-year reporting season with half-year sales growth in the low-single digits and a 1.9% fall in net profit after tax. Judging from the market's upward reaction, investors may have been expecting worse results and are showing relief.
In what will be looked at as the first litmus test of general retail trade's market conditions, (especially after the holiday shopping season), it will probably colour investor expectations for other retailers like Super Retail Group Ltd (ASX: SUL) and Myer Holdings Ltd (ASX: MYR).
Electronic goods up, software down
Interim sales in hardware and service sales climbed 4.7%, yet software sales dragged overall results down by finishing the half year 10.8% lower. Comparable store sales for hardware/services and software were +2.5% and -12.4%, respectively.
Later product releases hampered sales
In the first quarter, tablet PC sales were weak as the category didn't have a lot of new products and customers were not replacing or upgrading quickly. Later in September, Apple iPhone 6 and iPad 2 products, as well as Microsoft's Surface Pro 3 were released, which may have boosted sales. However, overall comparable sales were impacted.
New store growth
The company continued slower new store growth, adding a net 3 stores to bring the total to 185. In contrast, 14 existing stores were converted to the newer JB Hi-Fi HOME format, which includes white goods and appliances, ending the half year with 39 HOME stores.
The significance is that these HOME stores achieved 5.8% comparable sales growth, higher than original format stores, adding revenue support when retail trade in general is still weak. JB Hi-Fi plans for another 11 existing stores to be converted in the second half. By the end of financial year 2016, the company projects to have around 75 HOME stores in operation.
Here are the half-year results highlights:
– Sales grew 1.3% to $1.965 billion
– Earnings before interest and tax (EBIT) fell 2.2% to $130 million, bringing EBIT margin down to 6.61% from 6.85%.
– Net profit after tax (NPAT) ended down 1.9% to $88.5 million from $90.3 million this time a year ago
– Earnings per share were 89.4 cents, down from 90.5 cents a share, or -1.2%
– Dividends per share were raised by the company 7.3% to 59 cents per share from 55 cents per share.
Update and outlook
Since mid-December, the stock has now recovered about 18% to $17.76. After improvement in second quarter performance, the January 2015 sales update is showing consolidated sales growth up 8.9% and comparable sales growth at a positive 7.0%.
The company projects full year sales will be around $3.6 billion, up from $3.48 billion in financial year 2014. Net profit should be around about $128 million – $130 million, about the same or slightly higher than FY 2014's $128.4 million.
The stock pays a 5.1% yield fully franked, so long-term investors can enjoy a strong dividend as the company shows more signs of improvement. I would have the stock on your watchlist, if not your portfolio. Also, look for more signs of retailing strength in the other retailers listed above, especially Super Retail Group.
