JB Hi-Fi Limited (JBH)
HOLD

Diminuendo

 3 May 2023
Sector: Consumer Discretionary

3Q23 SALES

Need To Know

  • Comp sales growth -0.1% JB Australia, -3.8% The Good Guys in 3Q23
  • Sales declining as inflation eases. Likely to continue into FY24f
  • Margins may be squeezed as wages rise and sales slow

The third quarter sales update was no calamity as some in the market had thought. JB Hi-Fi is exhibiting the same trend as many other retailers as inflation begins to ease, slowing sales growth down. This was already evident at the 1H23 result in February.

3Q23 sales. Sequentially, JBH Australia’s quarterly comparable sales growth for each quarter this year have been 14.2% in 1Q, 4.9% in 2Q and -0.1% in 3Q. For The Good Guys, the data is 12.3% in 1Q, 3.3% in 2Q and -3.8% in 3Q. The trend is steadily down and should persist into FY24 as inflation continues to slow and consumer spending falls due to tighter household budgets. For the year-to-date, JBH Australia comp sales growth is 5.8%, The Good Guys 3.8% and JBH New Zealand is 14.5%.

JBH’s conference presentation today did not reveal anything about margins, but we know this a pressure point for earnings. We expect wages to rise in FY24 and this may nudge up the cost of doing business for JBH. Fortunately, the company is well known for its tight control of expenses and could find ways to mitigate the unavoidable wage bump.

JBH intends to add 3-5 new stores in New Zealand each year in an attempt to build the business from a static position. JBH NZ has barely troubled the scorers in recent years, so a new manager has been installed to get things moving. In FY22, JBH NZ contributed A$8.3m to the group EBIT of $795m.

Investment View

The pattern for retailers is one of falling inflation but rising wages placing pressure on margins as we head into FY24f. This applies to JBH, but the company has a strong track record of managing its cost base. Sales growth is mainly a story of falling prices rather than volume, so the equation boils down to one of good management. In that regard, JBH will likely disappoint the bears. 

Given the soft outlook for retail spending, we have retained our Hold recommendation on JBH.

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Stock Overview

Share Price

Company Overview

JB Hi-Fi is a consumer electronics and whiteware retailer with a 319-store network across Australia and New Zealand.

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