Despite the NZ market headwinds, JB Hi-Fi expects profits to hit the $300m mark

Summary

• Due to COVID-19-induced restrictions, JB HI-FI’s New Zealand business was shut entirely.
• The JB HI-FI business in Australia and The Good Guys reported strong sales growth in 2H20.
• The retailer now expects a total NPAT growth in the range 20%-22%, considering the New Zealand impairment of approximately $25 million.

The outbreak of COVID-19 has led to the implementation of severe restrictions across Australia, New Zealand, as well as other countries. Businesses across the globe have felt the financial as well as the operational impact from these restrictions. However, among several factors, the change in the behaviour of the people staying at home has proven to be the cream of the crop for some businesses.

With customers spending more time working, learning and enjoying entertainment at home, JB HI-FI Limited (ASX:JBH) has witnessed an impressive sales growth in 2H20 in JB HI-FI Australia and The Good Guys brands.

JB HI-FI comprises of two of Australia’s widely known and highly trusted retail brands, The Good Guys and JB Hi-Fi. The Company engages in commercialisation of a broad range of white goods, home entertainment, consumer electronics and appliances through its more than 300 stores across Australia as well as New Zealand and its online platform (websites).

Moreover, the investment in additional operating costs associated with ensuring team members is offset by the Strong operating leverage from this high sales growth coupled with disciplined cost control and the customers remain safe during COVID-19 crisis. Consequently, both the retail brands have witnessed robust earnings growth in 2H20 to date.

JB HI-FI Boasts Strong Sales

The Company’s FY20 year to date sales results are as follows:

Source: Company Announcement

Previously, JBH notified that temporary closures following New Zealand Government restrictions impacted its NZ business. However, trading has now resumed entirely in New Zealand as the country has entered Level 1 restrictions.

JB HI-FI’s New Zealand business comprising of 14 stores, online and commercial operations, was closed due to the introduction of alert level 4 restrictions that limited all ‘nonessential’ businesses in New Zealand.

With FY19 sales of NZD 236 million constituting ~3 per cent of the Group’s total annual sales and an FY19 EBIT loss of NZD 1.9 million, it is worth noting that the New Zealand business of JB HI-FI does not make a significant financial contribution to the Company.

Although the initial sales performance since reopening in New Zealand has been impressive, JBH continues to review the carrying value of certain JB HI-FI New Zealand assets due to the continuing challenging performance and anticipated continuing uncertainty in New Zealand. This review is anticipated to cause an approximately $25 million (post-tax) non-cash impairment in JB HI-FI New Zealand during FY20; however, the estimate remains unfinalised and is subject to auditor review.

Acknowledging the significant contribution of the Company’s team members during the unprecedented time led by COVID-19, the CEO of JB Hi-Fi, Richard Murray, commented:

Pre-COVID-19 Scenario

Before the COVID-19 scenario (from 1 January 2020 to 22 March 2020), the Company had made a total sales growth of 9.1% with comparable sales growth of 8.8%for Australia business, while the sales growth for New Zealand business remained negative at -2.0% with comparable sales growth of -2.0%. However, 10.4% of total sales growth was seen for The Good Guys with comparable sales growth of 10.4%.

The above numbers signify a strong momentum in Australia through the quarter as a result of the offering products to respond to and prepare for COVID-19, like essential home appliances for food storage and preparation and other technology products that enable remote learning, working as well as communication.

Fresh Guidance for FY20

During the period of uncertainty arising from COVID-19, JB Hi-Fi had withdrawn its sales and earnings guidance for FY20 that was announced earlier.

With an improving situation concerning COVID-19, relaxation in restrictions, the ongoing strong performance of the business through April and May, and assuming no material changes to customer shopping patterns or trading performance during the significant June tax period, JB HI-FI now expects total sales to be approximately $7.86 billion, including the total sale of $5.26 billion for JB HI-FI Australia, a NZ$0.22 billion sales for JB HI-FI New Zealand and sales for The Good Guys worth $2.39 billion.

Additionally, total NPAT, after considering New Zealand impairment, is expected to witness a growth of 20% to 22% as compared to pcp and lie in the range of $300 million to $305 million.

JBH shares a strong commitment to supporting the efforts of the government as well as the community in limiting the spread of COVID-19. Moreover, JBH also recognises and prioritises the health and wellbeing of its customers, team members, business partners, as well as the broader community.

Over the period, the Company has made continuous investments to protect the health and safety of all people who work in or visit JBH’s premises in measures like additional intensive cleaning, hand sanitizer stations protective screens at store counters, and customer store traffic limits.

JBH stock ended the day’s trading session at $40.220 on 11 June 2020, a decline of 4.238%. The Company has a market capitalisation of ~$4.83 billion.

NOTE: $ denotes Australian Dollar unless stated otherwise.