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JB Hi-Fi share price higher after upgrading profit guidance for FY 2020

The JB Hi-Fi Limited (ASX: JBH) share price is pushing higher on Thursday morning after the release of an announcement.

At the time of writing the retailer’s shares are up almost 1% to $42.30. This compares to a sharp decline by the S&P/ASX 200 Index (ASX: XJO).

What did JB Hi-Fi announce?

Hot on the heels of a sales update by rival Harvey Norman Holdings Limited (ASX: HVN) yesterday, this morning JB Hi-Fi released one of its own.

According to the release, the JB Hi-Fi Australia business has been performing very strongly during the pandemic.

Second half sales are up 20% over the prior corresponding period both in total and on a comparable store sales basis. This compares to first half sales growth of 5.1% and brings its year to date growth to 11%.

It doesn’t stop there. The company’s The Good Guys business has been performing even better. Its sales are up 23.5% so far in the second half. This has been a significant improvement on its performance during the first half, which saw the business deliver only a 1.5% increase in total sales. As a result of this impressive performance, The Good Guys sales are now up 10.7% year to date.

Unfortunately, things weren’t anywhere near as positive for its JB Hi-Fi New Zealand business. It was forced to close its doors at the height of the pandemic, which has inevitably had a big impact on its second half sales. The business has recorded a 19.3% drop in sales so far this half, which means its year to date sales are now down 7.3%.

Though, given how small this business is in comparison to the other two, I don’t think investors will be overly concerned with this news. Incidentally, management revealed that it is reviewing the carrying value of the New Zealand business and expects to make a non-cash impairment of $25 million in FY 2020.

What has been the driver of JB Hi-Fi’s strong sales growth?

Management advised that its strong sales growth in the second half has been driven by customers spending more time working, learning, and enjoying entertainment at home.

Pleasingly, although the company has invested in additional operating costs associated with ensuring team members and customers remain safe during the pandemic, it has still experienced strong operating leverage from this elevated sales growth.

As a result, management notes that both JB HI-FI Australia and The Good Guys have seen strong earnings growth during the second half.

FY 2020 guidance.

When the company released its half year results in February, it provided guidance for the full year. At the time, it expected total sales to be ~$7.33 billion with net profit after tax in the range of $265 million to $270 million. The latter represents an increase of 6.1% to 8.1% on the prior corresponding period.

The following month the company understandably withdrew its guidance due to the uncertainty caused by the pandemic.

This morning JB Hi-Fi has not just reinstated its guidance, but upgraded it materially.

Barring any significant changes to its trading performance, management expects total sales of $7.86 billion and net profit after tax (after the aforementioned impairment) in the range of $300 million to $305 million. This will be a 20% to 22% increase on FY 2019’s profits.

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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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