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Founded in 1974, Australia based company with two of Australia’s most popular retail brands, under its kitty. The group retails consumer electronics, white goods appliances, and home entertainment from over 300 stores in Australia and New Zealand. It also operates online websites serving the two regions. The shares of this company have appreciated by 126% since the march lows.
The JB Hi-Fi Group is operating as JB Hi-Fi Limited (ASX:JBH) with two prominent brands JB Hi-Fi and The Good Guys. It also offers information technology and consulting services through its JB Hi-Fi Solutions business to clients from the commercial, insurance and education sectors.
In September 2016, JB Hi-Fi acquired The Good Guys for A$870 million. The acquisition enabled JB Hi-Fi to add whitegoods under its product category.
JB Hi-Fi beats the benchmark indices hands down
JB Hi-Fi got listed on ASX in October 2003. We can see that JB HI-Fi has performed incredibly well as compared to S&P/ASX 200 (the representative index of ASX), and S&P/ASX 200 Retailing. The share price rise was backed by continuous demand for white goods and electronics over the years. The company has also been recording continuous growth in online sales during pandemic.
Consistently Delivering Growth over many years
Over the five years to FY20 ending 30 June, the company has grown its Revenue from A$3,954.5 million in 2016 to A$7,918.9 million in 2020 at a CAGR of 18.96%. The growth has been backed by the increasing demand for communications, computers, white goods and home Appliances.
Gross profit increased from A$865.4 million in FY16 to A$1694.1 million in FY20, representing a CAGR of 18.29%. Gross profit margin remained in the range of 21% to 22% in the past 5 years, depicting that the company has been able to keep its prices stable.
EBIT increased at a CAGR of 21.78% to reach A$486.5 million in FY20, from A$221.2 million in FY16. EBIT Margin stayed in the range of 5%-6% in the last five years, including FY20 margins in the same range, indicating a minimal effect of COVID-19 on the company’s operations.
NPAT increased by CAGR of 21.53% to reach A$332.7 million in 2020, from A$152.2 million in 2016.
The stability in gross margin coupled with higher growth in profitability viz a viz revenue shows that the company has been able to cut its costs over time.
The company operates around 314 stores. A considerable part of its expenses consists of maintaining a robust instore salesforce along with marketing expenses to increase footfall in the store and boost online sales. Operating expenses primarily consist of Selling, General, and Administration expenses which almost stayed constant over the five years, as percentage of sales.
We can also observe that Average Revenue per store has increased from A$20.4 million to A$25.2 million, a CAGR of 5.42% over five years.
JB-Hi Reports Strong set of FY20 numbers
Strong sales experienced during the coronavirus pandemic have led to 33.2% increase in profits. The company recorded revenues of $7.9 billion for FY20, up 11.6% from FY19. The company witnessed growth in sales throughout the year with the pandemic leading to an accelerated sales growth in the Q4 as people started purchasing home entertainment products and appliances to optimise homestay and work from home conditions.
Source: Company Filings dated 17 August 2020
Underlying EBIT increased by 30.5% to A$486.5 million backed by strong operating leverage from the increased sales growth and steady cost control despite additional operating costs incurred during Covid-19 to ensure the safety of team members and customers.
Underlying NPAT increased by 33.2% to A$332.7 million. On the back of good set of numbers, the company distributed final dividend at 90 cents per share fully franked, bringing total dividend at 189 cps, representing payout ratio of 65% of Underlying NPAT. The Board believes the 65% payout ratio correctly balances the distribution of profits to shareholders, repayment of debt, and reinvestment of earnings for future growth.
Covid-19, a water shed moment for online sales
Total online sales increased by 48.8% to A$597.5 million, contributing 7.5% to total sales, with Q4 sales witnessing a 134.3% jump. Online sales across all platforms saw robust growth:
- JB Hi-Fi Australia sales increased by 56.6% to A$404 million
- JB Hi-Fi New Zealand sales increased by 53.3% to NZ$20.4 million.
- The Good Guys sales increased by 33.0% to A$174.2 million.
JB Hi-Fi continued investment in its digital and online capacity that includes launching a new platform for JB Hi-Fi Australia. Investment in supply chain and logistics also continued with the addition of 3 new Home Delivery Centres.
Source: Company Filings dated 17 August 2020
Cash Position over Five Years
FY20 ended with a cash balance of A$251 million supported by healthy operating cash inflows. At present, the company has no debt on its balance sheet.
Source: Thomson Reuters
Operating cash flows and operating cash conversion were significantly up because of change in timing and level of inventory purchasing resulting from Covid-19. Inventory levels went down year one year due to supply shortages stemming from increased consumer demand.
Key Ratios on healthy trajectory
Source: Thomson Reuters
FY21 outlook
The company has started its FY21 journey with strong sales growth in July.
- Australian sales increased by 42.1%
- The Good Guys sales increased by 40.4%, and
- JB Hi-Fi New Zealand went up by 9.1%.
Impact on Australian Operations due to Covid: The stage 4 restrictions in Melbourne lead to a closure of 46 JB Hi-Fi stores and 21 The Good Guys stores, impacting sales. However, online and commercial business continues to operate with significant improvement seen in Victoria.
Impact on New Zealand Operations due to Covid: Post New Zealand Government’s level 3 restrictions in Auckland, 7 JB HI-FI New Zealand stores were temporarily closed from midday on 12th of August for a minimum period of 2 weeks, impacting New Zealand sales for the month of August.
In view of the uncertainty stemming from Covid-19, no FY21 sales guidance was provided by the company. Group CEO, Richard Murray said that in FY21, the company’s highest priority remains the safety of their team members, business partners, and customers.
