A special dividend is up for grabs as JB Hi-Fi beats FY24 earnings expectations

JB Hi-Fi (ASX: JBH) defied expectations of a consumer spending slowdown, reporting a better-than-feared FY24 result and declaring a special dividend.

The stock opened 6.5% higher as the market opened on Monday and briefly hit a record high of $74.66.

FY24 at a glance

• Total sales down 0.4% to $9.59bn

• Net profit after tax down 16.4% to $438.8mn

• Earnings per share down 16.4% to 401.4 cents

• Final dividend down 10.4% to 103 cents per share

• Full-year ordinary dividend down 16.3% to $2.61 per share but:

• A special dividend of 80 cents per share fully franked

• Has also entered into an agreement to acquire E&S Trading Co, with an initial acquisition of 75% for $47.8m cash

To add some perspective, the net profit figure was 3.7% ahead of consensus expectations.

Three key data points

Beyond the above numbers, three data points stood out.

A sizeable full-year dividend: JB Hi Fi's full-year ordinary dividend beat Citi's expectations by 6% (261 cents per share vs. 246 cents per share expected). If you included the special dividend – that's a sizeable 38% beat.

Solid margins beat: Citi analysts expected JB Hi-Fi to report full-year EBITDA margins of 6.5% vs. actuals of 6.75%, demonstrating solid cost control.

FY25 trading update reads well: JB Hi-Fi said total sales growth for JB Hi-Fi Australia was up 5.6% for the period 1-31 July 2024. While total sales growth for JB Hi-Fi New Zealand was up 12.2% (but comparable sales growth of -4.9%). "It is pleasing to see sales momentum in Australia continue into July. We remain committed to offering the best value and exceptional customer service to maximise our brands' sales opportunities," commented CEO Terry Smart.

The dividend

JB Hi-Fi will trade ex-dividend on 22 August, with a payment date of 6 September. The 183 cents per share dividend yields approximately 2.5% at current prices (around $73).

Is JB Hi-Fi too expensive?

There are a few moving parts to consider.

• Pre-result performance: JB Hi-Fi was up around 26% year-to-date as of Friday, 9 August close. So the stock was already up massively in the lead up to today's result

• A tad expensive: JB Hi-Fi is now trading at a price-to-earnings of around 17.5x compared to 12.5x at the beginning of the year. Since 2004, JB Hi-Fi has traded at an average price-to-earnings ratio of around 13.7. In the past ten years, the average falls even more to 11.7. So the stock is a tad expensive when compared to historical averages

• Earnings outlook: Citi expects JB Hi-Fi to deliver NPAT growth of 7.2% in FY25 and 4.0% in FY26 (as of 21 July). Today's better-than-expected result could see analysts lift their outlook assumptions and target prices

In the same note, the analysts said "Global PC volumes are set to lift into CY25 following two years of significant decline ... We believe JB Hi-Fi is well positioned to take advantage of this as the market leader in PCs."

"While the stock has performed strongly, we believe it could trade up to a 20x 1-year forward PE in a strong operating environment given its historical range."

Echoes of February

This performance echoes the company's February reporting season, where earnings, margins, and dividends surpassed consensus forecasts. The market responded positively, with the stock surging 7.1% on results day (12-Feb) and an additional 5.6% the following day, before settling into a sideways trading pattern for the next five months.

JB Hi-Fi price chart since February 2024 (Source: TradingView)

The bottom line – JB Hi-Fi continues to demonstrate resilient earnings and effective cost control, while returning surplus capital to shareholders. While the latest results are impressive, it's worth noting that the stock has seen significant gains in recent weeks and months, and now trading at the higher end of its historical valuation range.