Consumer Discretionary

JB Hi-Fi can pivot to online sales without cannibalising profitability: JP Morgan

Thu 24 Mar 22, 4:36pm (AEST)
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Key Points

  • Total sales in third quarter were up
  • The Good Guys helped drive strong operating leverage across the group
  • Consensus is Moderate buy

Shares in JB Hi-Fi (ASX: JBH) were up around 4% heading into the close today after the retail chain’s trading update revealed it was still a primary beneficiary of the Australia’s post-covid recovery story.

Due to heightened customer demand, management advised that total sales in third quarter of its financial year - across Australian stores - were up 11.3%, with comparable store sales up 10.5%.

Management wanted the market to realise that there’s still life in the return to normalcy narrative, with most households still holding more cash than normal due to recent lockdowns.

Latest figures are also a reminder that the retailer is ideally placed to benefit from consumers upgrading home offices and using their larger than normal cash reserves to spend on home appliances and electronics.

Commenting on the result, management noted:

“This sales growth, combined with disciplined cost control, and stock availability and sales mix benefits in gross margins, particularly in The Good Guys, drove strong operating leverage across the group.”

In light of ongoing covid disruptions, and other local and global uncertainties, management said it was inappropriate to provide full-year sales and profit guidance.

Here’s the third quarter shakedown

  • The whitegoods focused Good Guys chain delivered 5.7% total sales growth for the same period and was up 5.1% on a comparable store basis.

  • JB Hi-Fi in NZ grew at a slower rate, with total sales and comparable store sales only managing 2.9% increase.

  • For the almost nine months of the financial year, on a year-to-date basis JB Hi-Fi’s total sales growth is up 1.5% for Australia, 1% at The Good Guys.

  • Over the same period operations in NZ fell -2.5% where lockdowns were considerably heavier.

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JB Hi-Fi share price over three months.

Brokers’ sentiments

Based on the six brokers that cover JB Hi-Fi (as reported in by FN Arena), the stock is currently trading with a 7.6% upside to the current price.

While four of the six brokers have Buy (or similar) recommendations, the other two rate the retailer Neutral.

Macquarie, which has the highest target price of $57.80 (Buy), expects the announced $250m buyback to be 5% earnings accretive from FY23.

JP Morgan believes JB Hi-Fi can pivot to online sales without cannibalising profitability and is one of the broker’s top two picks in the retail sector to weather higher inflation.

While Citi remains confident of further growth, the broker’s preferred discretionary retailers are Harvey Norman (ASX: HVN) and Super Retail Group (ASX: SUL). The broker retains a Neutral rating and target price of $54.

Consensus on JB Hi-Fi is Moderate buy.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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