JB Hi-Fi sales fall in July, despite record full year profit

Electronics retail giant JB Hi-Fi recorded a 26% increase in net profit to $118.7 million for the year ending June 30, but the market leader is wary about the next six months as it prepares to battle a subdued retail environment in the lead-up to Christmas.

One retail expert also says the company must look at its in-store performance, given that it opened 23 new stores during the year and recorded comparable store growth of 4.5%.

But the 2010-11 year is not off to a great star – JB said this morning that like-for-like sales actually fell during the month of July.

“There are retailers who would be happy with that result, but as a large company they really need to start getting more out of the stores they already have,” Retail Doctor chief executive Brian Walker says.

“They appear to have cut costs, and that’s good supply-side management, but it’s not a long-term strategy. It’s no wonder they are getting cautious about the second half of the year.”

In the first full-year results since Terry Smart took over the chief executive role from Richard Uechtritz, the company announced sales were up by 17% from 2009 to $2.73 billion, and Smart forecasts a further 17% growth for the next year to $3.2 billion.

But it’s going to be a difficult next six months, with the company reporting comparable sales actually fell in July.

“We expect sales growth in the first half of 2010-11 to be challenging as consumer spending remains subdued,” Smart said in a statement.

Smart was contacted for comment, but no reply was received before publication.

The company has attempted to combat this frugal environment by keeping its low-cost culture alive, with its cost of doing business down to 14.5% from 14.7%. Its gross margin is also up by 0.2% to 21.8% from last year.

EBITDA was up from $160.7 million to $198.4 million, while its total fully franked dividend is up by 50% to 66 cents per share.

“We are pleased with this solid result, especially given we were cycling against strong prior year growth driven by the government stimulus packages and low interest rates,” Smart said in a statement.

“While our strong retail model remained very resilient throughout this tough economic period, it’s a testament to the strength of our team in not only maintaining, but improving the company’s… performance metrics’.”

JB Hi-Fi is well known for its focus on low-costs and constant discount retailing, a focus many analysts believe was perfected under Uechtritz’s reign.

Walker says Smart appears to have continued that tradition, but says it’s not a guarantee they will succeed in delivering continued record results over the next year.

“They’re focussing in on their supply chain, and they have continued to have taken out costs. But that’s not a long-term strategy.”

JB opened 23 new stores during the year, a record number, with another 18 to be opened during the next financial year. It already counts 131 stores in Australia and 10 in New Zealand, with a target of 210 and 13-15 openings per year respectively.

Walker says JB Hi-Fi needs to continue doing solid business at these existing stores over the next six months in order to meet its ambitious sales target.

“It’s interesting that they are targetting a 17% increase in sales for 2010-11 but like-for-like stores in July are slightly negative. They are quite conservative given their results.”

He points to the opening of 23 stores, saying the company is now reaching a point where it will have to focus more on existing store growth, and less on how these new stores will perform.

“They’ve been on a growth cycle for quite a few years, and have produced some remarkably good results. But the challenge now is to get more out of their existing stores, given they are now starting to reach a more mature place in the market.”

“With the stimulus from last year gone and spent, it’s right to be a little cautious. Everyone went out
last year and bought TVs and so on, so that native demand has gone. They are doing well in other categories, but I can rationale their concern for being conservative.”

Nevertheless, the company is confident it can perform well during the upcoming Christmas period,
given its focus on low-key, no-frills-style of discount retailing.

“Our proven unique retail model is best equipped to take advantage of the expected increase in consumer spending in the lead up to the critical Christmas trading period,” Smart said.