JB Hi-Fi profit falls 9.4% in first half – five key insights from a retail leader

JB Hi-Fi has started 2012 with a disappointing result, as profit in the first half of the year fell 9.4% from the previous corresponding period to $79.6 million, as chief executive Terry Smart forecasts even more difficult conditions, coming as deflation continues and customer sentiment remains weak.

The result was forecast in December, but the company once again affirmed weakness in a number of areas, including IT accessories and “lower than anticipated sales in TV panels”.

The company was once the hope of Australian retail but has now been suffering under weak conditions for some time – but this morning’s results do reveal some bright spots of hope.

Here are five key insights in JB Hi-Fi’s results that could reveal how much of the year is yet to pan out.

Conditions are extremely tough

JB Hi-Fi’s profit wasn’t as bad as expected. Although it fell 9.4% from the previous corresponding period, this was actually within expectations.

The biggest indicator of tough conditions was that same-store sales actually fell 5.5% in January, and dropped by 3.9% for the first six weeks of the year. This is not good.

As Smart points out, lower than anticipated sales in TV panels is a clear reference to deflation, while IT accessories and other items aren’t in hot demand. People just aren’t buying, and whether that’s because they’re finding better deals online or are just using their money to pay down debt, it’s clear JB is still in some trouble.

But despite bad conditions, stores are still opening

Despite the poor conditions, JB is still keen on tackling the rest of the market. It only shut down one store in the past six months, and is poised to open six more in the second half of the year. The company still has over 50 stores yet to open in its growth plan.

This is a contrast to other electronics businesses which are either failing or closing stores. JB should benefit from some substantial organic growth.

Dick Smith will help out in the second half

In the midst of JB Hi-Fi’s results, Smart makes a comment that the roll-out of new and established stores will help the company benefit from any consolidation in the market.

This is a clear reference to Woolworths’ recent decision to sell off the Dick Smith chain and close dozens of stores.

Dick Smith was never a massive threat, but it’s possible closure will give JB Hi-Fi more market share.

Customers have “promotional fatigue”

One of the more interesting comments made by Smart was that consumers are now suffering from “promotional fatigue”, which could have contributed to the lower sales in the post-Christmas period.

Businesses have been saying for months now they want to stop discounting, but could this be a sign JB is willing to try?

Things are getting better – a good outlook

Despite the poor conditions, JB Hi-Fi still has a few things going for it. Same-store sales are positive in February, online sales grew 87% during the first half – with December sales up 109% – and the store rollout is continuing as planned.

Although conditions remain soft, it maintains a key market share. And as Smart points out, costs still remain low, which should keep the business travelling through the second half.


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