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JB Hi-Fi share price surges higher after strong half year result and guidance upgrade

JB Hi-Fi share price
Credit: Peter Heath

The JB Hi-Fi Limited (ASX: JBH) share price is surging higher on Monday morning following the release of its half year results.

At the time of writing the retailer’s shares have jumped 10% to a record high of $44.19.

How did JB Hi-Fi perform in the first half?

During the first half of FY 2020, JB Hi-Fi delivered a 3.9% increase in total sales to $4 billion.

This was driven by positive comparable sales growth across all three of its divisions. It was also an acceleration on its first quarter sales growth of 3.4%.

Thanks to a combination of good cost control and lower depreciation, the company’s earnings before interest and tax (EBIT) climbed 8% to $255.6 million. This compares to the consensus estimate for EBIT of $244 million.

Net profit after tax and earnings per share grew at a slightly quicker rate of 8.9% to $174.4 million and 151.8 cents per share, respectively.

This solid profit growth has allowed the JB Hi-Fi board to authorise an increase in its interim dividend by 8.8% to 99 cents per share.

Group CEO, Richard Murray, said “We are pleased to report record sales and earnings in the first half, with JB HI-FI Australia and The Good Guys recording strong earnings growth. I would like to thank the over 12,000 team members across Australia and New Zealand whose hard work and continued focus on our customers delivered this result.”

How did its businesses perform?

The JB HI-FI Australia business reported total sales growth of 5.1% to $2.72 billion. Comparable sales were up 4.4% over the period. The key growth categories during the first half were Communications, Audio, Computers, Visual and Accessories. Online sales grew 18.3% to $170.8 million or 6.3% of total sales. Good cost control supported stronger margins and led to division EBIT of $204.5 million. This was a 6.5% increase on the prior corresponding period.

The JB HI-FI New Zealand business reported a 0.8% lift in total sales to NZ$132.8 million, with comparable sales up 0.8%. Division EBIT was NZ$1.1 million, which was in line with last year. A decline in its gross margin was offset by reductions in depreciation.

The Good Guys business delivered total sales growth of 1.5% to $1.15 billion, with comparable sales up 0.6%. Its key growth categories were Dishwashers, Floorcare, Cooking, Communications and Computers. Online sales grew 12.6% to $79.6 million or 6.9% of total sales. Management advised that strong sales on The Good Guys website were partially offset by a decline in third party marketplace sales. And thanks to good cost control, lower depreciation, and its modest sales growth, The Good Guys business recorded a 14.7% increase in EBIT to $50.1 million.

Outlook.

JB Hi-Fi has started the second half in a positive fashion. Both its JB Hi-Fi Australia and The Good Guys businesses delivered positive comparable sales growth during January.

JB Hi-Fi Australia’s total sales were up 6.5% and comparable sales were up 6% in January, whereas The Good Guys recorded a 1.4% lift in both total and comparable sales. This offset weakness in New Zealand where JB Hi-Fi New Zealand reported a 1.6% decline in both total and comparable sales.

In light of this, management now expects FY 2020 total sales to be ~$7.33 billion, up from its previous guidance of ~$7.25 billion. This comprises JB HI-FI Australia sales of $4.93 billion, JB HI-FI New Zealand sales of NZ$0.24 billion, and The Good Guys sales of $2.18 billion.

Total net profit after tax, pre application of AASB 16, is expected to be in the range of $265 million to $270 million. This represents an increase of 6.1% to 8.1% on the prior corresponding period.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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