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ASX reporting season brings mixed results for electronics retailers

Despite the doom and gloom pervading the ASX retail sector, some bright lights shone this reporting season.

Sales were down 0.5% in December, the peak Christmas shopping period, but Ltd (ASX: KGN) reported record gross sales for the half-year ended 31 December. JB Hi-Fi Limited (ASX: JBH) also reported strong results.

Harvey Norman Holdings Limited (ASX: HVN), on the other hand, saw profits sink, blaming the bushfires, and warned of a poor start to the second half.

Let’s take a closer look at how these 3 ASX retail shares performed in the first half. 

Harvey Norman Holdings Limited (ASX: HVN)

Harvey Norman released its half-year results last Friday and saw shares sink nearly 14% over the course of the day. Profits dropped and the retailer warned the second half had started poorly, with aggregate franchisee sales for the period 1 January to 27 February down 3.2%. 

First-half revenues

Harvey Norman reported $2.95 billion in revenue for franchisees in the first half, up a meagre 0.11% for the half year. Offshore company-operated stores reported $1.12 billion in revenue, up 7% on the prior corresponding period (pcp). Aggregate revenue was $4.07 billion, up 1.9%. 

Revenue from franchisees decreased by 4.2% to $497.84 million in 1H20 due to a reduction in franchise fees received from franchisees. Costs of running the franchising operating segment have also increased due to increased investment in technology and infrastructure assets. 

Mixed profit results

Growth and profitability of company-operated retail operations did, however, continue during the half with a 5.4% rise in profitability offshore to $81.69 million. Five new stores were opened in Malaysia during the half. Another two stores in Malaysia, two in Singapore, and a store in Galway Ireland are due to be delivered by the end of the financial year.

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased to $443.43 million, up $60.06 million from the pcp. Profits, however, fell 4.1% to $213.59 million from $222.77 million in the pcp. 

The decline in profits was attributed to negative effects from the bushfires and associated reductions in air quality, with impacts coinciding with the peak Christmas trading period. The application of AASB 16 to leases also resulted in a $5 million increase to expenses in 1H20. A fully franked dividend of 12 cents per share was declared, on par with the prior corresponding period. 

FY20 outlook

Harvey Norman warned that extreme weather and the coronavirus outbreak have taken their toll on consumer confidence, with franchisees’ sales down in the first couple of months of 2020. 

Executive Chairman Gerry Harvey, however, told the Sydney Morning Herald that he was not particularly concerned about coronavirus. Stores weren’t putting any contingency plans in place, he said, and no huge delays were expected from China in terms of sourcing stock. Ltd (ASX: KGN)

Kogan released its half-year results in mid-February with shares falling more than 14% in the period since. Sales and profits increased, however, revenue declined following the launch of Kogan Marketplace. 

Kogan reported its highest ever half of gross sales which were up 16.4% on 1H19 to $332.9 million following a promising contribution from Kogan Marketplace. Revenue declined 5.3% to $219.5 million, largely due to the growth of Kogan Marketplace in respect of which only seller fees are recognised as revenue. 

Founder and CEO Ruslan Kogan said, “as we progress our investment in the Kogan Marketplace platform, it will enable our business to achieve ongoing growth without the ongoing investment in inventory.”

Growing profits

Gross profit increased 10.6% to $49.9 million, up from $45.1 million in the pcp. This reflected an increase in gross margin of 3.3 percentage points to 22.7%. Adjusted EBITDA of $18.2 million was reported, a 35.2% increase on the $13.4 million reported in 1H19. 

Net profit after tax (NPAT) grew 20.8% to $8.9 million from $7.4 million in the pcp. A fully franked interim dividend of 7.5 cents per share was declared, up 22.9% on 1H19’s 6.1 cent interim dividend. 

Kogan said, “we are proud to have delivered a record half in gross sales and gross profit whilst delighting our customers with the broadest offering we’ve ever had and the widest and fastest distribution network we’ve ever had.”

JB Hi-Fi Limited (ASX: JBH)

JB Hi-Fi reported its half-year results in early February. The JB Hi-Fi share price rocketed up over 10% on the day as the retailer reported increases in sales and profits.

JB Hi-Fi reported $4.0 billion in total sales, a 3.9% increase over 1H19, with positive comparable sales growth across all divisions. JB Hi-Fi Australia saw sales grow by 5.1% to $2.72 billion with comparable sales up 4.4%. Online sales grew 18.3% to $170.8 million or 6.3% of total sales. 

In New Zealand, both total and comparable sales grew by 0.8%, with sales of NZ$132.8 million recorded. Online sales grew 22.3% to NZ$9.6 million, or 7.3% of total sales. The Good Guys grew total sales by 1.5% to $1.15 billion, with comparable sales up 0.6%. Online sales increased 12.6% to $79.6 million or 6.9% of total sales. 

JB Hi-Fi reported an 8% increase in earnings before interest and tax (EBIT) which grew to $255.6 million. NPAT grew to $174.4 million, up 8.9%. An interim dividend of 99 cents per share was declared, an increase of 8.8% over the pcp. 

FY20 outlook

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.” 

JB Hi-Fi advised it expects full-year sales of approximately $7.33 billion. Total NPAT is predicted to be in the range of $265 million to $270 million, an increase of 6.1% to 8.1% over FY19. 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ltd. 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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