Shock profit downgrade sends JB Hi-Fi shares down 7%

JB Hi-Fi shares have fallen as much as 7% this morning after the company announced yet another profit downgrade, with the company confirming heavy discounting has hurt its margins.

The announcement comes after a shocking reporting season for retailers, with major companies including David Jones and Myer announcing poor results in same-store sales and profits as consumer sentiment remains low.

JB Hi-Fi chief executive Terry Smart said this morning the business would produce a full-year net profit of between $100-105 million, below analysts’ expectations of as much as $119 million, “as a result of the challenging gross margin environment”.

The downgrade comes after JB Hi-Fi announced a similar profit downgrade late last year, warning its half-year results would be lower than expected.

Other electronics retailers have complained falling margins for electronic equipment is hurting profit.

Shares have fallen as much as 7% to $9.96 in morning trade.

“We anticipate that this level of discounting will continue over the next quarter, but we do not believe that this is a long-term structural change,” Terry Smart said in a statement.

“While the impact on our earnings is clear, as a market leader with an everyday low price proposition, JB Hi-Fi will react aggressively to maintain our market leadership.”

The company also said it’s been affected by the closure of Dick Smith stores, after Woolworths announced it would shut several shops and sell the business off. It also noted the closure of WOW Sight and Sound, and said that although these closures haven’t affected sales just yet, “it presents the company with a good opportunity”.

Finally, Smart said April sales are expected to finish with negative comparable store sales growth, a result of “cycling unusually high sales in April 2011 and the volatile trading environment”.

“We will be cycling softer prior year growth in May and June, with comparable store sales growth being -3.8% for those two months last year.”