JB Hi-Fi boss eager to lure bargain-hungry shoppers as profits drop 20%

JB Hi-Fi will focus its sales on promoting affordable products to bargain-savvy shoppers and seek to strike better deals with suppliers over the next six months, after posting a significant profit drop.

The electronic retailer’s half-year net profits of $264.3 million represented a 20 per cent drop compared with the same time last year, while total sales came to $5.2 billion, down from $5.3 billion, as customers haggled for better deals.

JB Hi-Fi chief executive Terry Smart.Credit: Arsineh Houspian

JB Hi-Fi chief executive Terry Smart said margins declined due to an increase in “on-floor discounting”, such as customers seeking to price-match offers from other retailers, and said Australians were still focused on value.

“Consumers were trading down, so we do need to ensure that we’re marketing the right products, we’re advertising and promoting the products which are relevant to them, and that we also modify our ranging to ensure that we cater for their needs,” he told this masthead.

Gross profit fell 3 per cent and gross margin also declined, with retail staff instructed to lower prices to close a sale. “We’re having to match a lot more deals on the floor,” Smart said.

Despite the sales and profit drop, the half-year figures were better than market expectations, sending JB Hi-Fi’s share price 7.1 per cent higher to $60.58 at the close.

Smart said it had been a more challenging and competitive trading environment, but also noted that inflation was settling, interest rate rises were slowing and tax cuts appeared to be on their way. The electronics retailer is also relying on new product launches to go some way to improving sales.

“It is as much around doing price promotions as it is about new product coming out. We’re seeing a regular annual release of new products continuing to hit the market, be that TV upgrades [or] mobile phones; we just need to keep seeing those, which we will, and that will be positive for the business,” he said.

The retailer, which also operates in New Zealand and owns The Good Guys chain, saw its total sales from its Australian business rise 0.7 per cent to $3.6 billion, benefiting from Black Friday and Boxing Day sales. Mobile phones, gaming hardware, small appliances and white goods sold well.

The Good Guys’ total sales slid nearly 10 per cent to $1.4 billion, but gross margins rose slightly to 23.4 per cent – stronger than JB Hi-Fi Australia’s 16.7 per cent – in part driven by the take-up of telco connection services offered by The Good Guys.

The company has trimmed its interim dividend by nearly 20 per cent to $1.58 per share fully franked, which will be paid on March 8.

Analysts described trading momentum as better than expected and flagged upgrades of 4 to 9 per cent to the company’s earnings expectations.

“Another strong, clean result from JB, highlighting in our view the quality of execution,” Jarden analysts wrote in a note issued on Monday morning.

MST Marquee senior research analyst Craig Woolford said he expected the share price to rise, but queried the dividend payout ratio of 65 per cent given the net cash balance of $488 million at the end of the half-year.

“JB Hi-Fi has delivered a solid result under the circumstances of weaker sales and higher operating costs,” he said. “While the result is decent, there has been some anticipation of a better result.”

January sales have tracked well for JB Hi-Fi, with total sales growth in Australia inching up 2.5 per cent and New Zealand notching 8.2 per cent, but not for The Good Guys, which saw sales growth slide 2.2 per cent.

The ASX retailer posted a 3.7 per cent dip in its 2023 financial year profits to $524.6 million as cost-of-living pressures meant customers shopped around more for bargains.

The company is facing a class action for selling extended warranties that allegedly had little or no value because customers already had those rights under Australian Consumer Law, and has not amended any of its practices in light of the lawsuit.

“We certainly believe we haven’t done anything wrong,” Smart said, adding that he would not comment further as the matter was before the courts.

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