An oldie but a goodie

RESULTS ANALYSIS

Need To Know

• FY23 EBIT 4% ahead of consensus.
• A soft 2H23 but gathering momentum into FY24. EPS upgrades ~4-8% likely, but a material fall in earnings is ahead.
• A good performer in a soft market equals a Hold recommendation.

Investment Implications

Slower sales and softer margins are to be expected in FY24 as consumers tighten belts. JB Hi-Fi’s military grade operations are coping better than the market anticipated with a clean inventory position and higher market share. The stock should range trade as negative sector news builds a wall of worry.

FY23 result. Group sales reached $9.6bn and EBIT $769m. JBH Australia sales increased 5.6% (comparable sales growth +4.8%), EBIT $552m +1.9% on last year. The Good Guys sales were flat (+0.8%) and EBIT fell 11.8% to $213m (margin down 108bp to 7.6%). Online sales slipped approximately -20% to $1.3bn or 13.6% of group sales.

JBH declared a final dividend of 115cps (full year 312cps) representing a payout ratio of 65%. This was above the 60% target but considering the balance sheet has a net cash position of $127m (excluding lease liabilities) and a big pile of franking credits ($518m), there was arguably room for a better outcome for shareholders. Net debt to EBITDA is a desert-dry 0.5x (limit is 3.5x) and free cash flow in FY23 amounted to $462m after capex of just $72m.

Outlook. The July trading update showed JBH Australia sales -2.9%, much better than consensus -6.4%. Trading at The Good Guys is -12% (consensus -8.2%). The sales profile for JBH overall looks better than the market was thinking and should remain so through FY24. However, this is in the context of a much softer sales environment in which earnings will be lower in FY24 – it’s just a question of degree. Under the hood, JBH’s inventory position is clean and gross margin is steady. It appears that JBH has won market share across the group and is likely to retain it.

The company has not given up on New Zealand and intends to add 3-5 stores per year over the next three years to the existing base of 14 stores. NZ contributed EBIT of NZ$4.4m on sales of NZ$292m in FY23.

Investment View

Sales and earnings are heading south in FY24 after a pandemic-boosted last few years. For more clarity, the rate of compound annual growth is a better guide, and this shows JBH in a solid state of affairs. Compared to pre-COVID, JBH Australia and The Good Guys sales are up 39% and 22% respectively. Gross margin at JBH Australia is above FY19 and cost of doing business is comfortably below.

We retain our Hold recommendation.