Why JB Hi-Fi shares slumped on strong earnings and a higher dividend

JB Hi-Fi (ASX: JBH) shares briefly rallied 5.5% to a record $108 on Monday after the company reported better-than-expected first-half FY25 earnings alongside a robust trading update for January.

Despite a broad beat against most key metrics and expectations for further sales momentum, JB Hi-Fi shares quickly faded back to breakeven within the first hour of trade.

First-half FY25 highlights

• Sales up 9.8% to $5.67 billion vs. $5.52 billion consensus (2.6% beat)

• Gross margins of 21.8% vs. UBS estimates of 22.2% (180 bp miss)

• EBIT up 8.6% to $419.9 million vs. $409 million consensus (2.7% beat)

• NPAT up 8.0% to $285.4 million vs. $278.3 million consensus (2.5% beat)

• Interim dividend up 7.6% to 170 cents per share vs. 166.5 cents consensus (2.1% beat)

Recent trading and guidance

In line with historical practices, JB Hi-Fi did not provide any guidance for the rest of the year. However, its trading update for the month of January 2025 was very strong.

• Total sales growth for JB Hi-Fi Australia up 7.4% (accelerating from 2.5% for the same period last year) and comparable sales growth of 7.1% (vs. Jan-24: 1.7%)

• Total sales growth for JB Hi-Fi New Zealand was 20.4% (also accelerating form 8.2% for the same period last year) with comparable sales growth of 10.0%

• Total sales growth for the Good Guys was 6.4% (a turnaround compared to -2.2% in Jan-24) with comparable sales growth of 5.9% (vs. Jan-24: -2.2%)

Despite continued sales momentum, CEO Terry Smart reiterated a cautious tone for the rest of the year.

"Whilst we are pleased to see sales momentum continue into January, we remain cautious given the uncertainty in the retail market and the continued competitive activity," he said.

Putting it all together

JB Hi-FI delivered a broad beat against most key metrics, including revenue, net profit and dividends, as well as an upbeat January performance.

However, these achievements come against a backdrop where the stock has surged 75% over the past 12 months and is now trading at a price-to-earnings multiple of 25x — well above its historical average of 13x.

The result also revealed some margin pressure, with gross margins at 21.8%, down 17 basis points year-on-year (1H24: 22.01%) and 180 basis points below UBS’s forecast of 22.2%. Management addressed this on the earnings call, emphasising their focus on pricing and value:

• "It's always been number one internally on our list. We're very, very focused on top-line growth, and to get top-line growth, we're very focused on ensuring that we get the price right."

• "Customers are clearly searching for value at the moment. And so we're just making sure we're really doubling down on improving that value to customers."

This suggests JB Hi-Fi is sacrificing some of its margins to drive strong sales – an approach that isn’t necessarily negative but does highlight growing price sensitivity among consumers and intensifying competition.

"Overall, our initial thoughts are that JB Hi-Fi delivered another good result – however, the strong share price leading into the result may suggest the market was looking for a higher level of consensus upgrades," commented E&P analyst Philip Kimber.

Price Action

JB Hi-Fi shares surged within the first 15 minutes of trade, up as much as 5.5% to a fresh all-time high of $108.08. This likely reflects an initial enthusiasm, reflecting the broad 1H25 beat and stronger-than-expected dividend.

However, by 10:30 am AEDT, the stock had retreated to breakeven, and by 2:00 pm, it was down 4.3% as valuation and margin concerns, along with profit-taking, weighed on sentiment.

JB Hi-Fi intraday chart on Monday, 10 February (Source: Market Index)

Looking Ahead

JB Hi-Fi reported some solid numbers for January trading. To add some perspective, consensus is expecting sales growth of 5.1% for JB Hi-Fi Australia and 3.6% for the Good Guys in the second half of FY25.

Given the consensus beat, analysts are likely to lift their earnings forecasts and target prices. However, with the stock already trading at elevated valuations, the upside may not be compelling enough to trigger many Buy ratings.