JB Hi-Fi passes the vibe test despite thumping fall in profit

JB Hi-Fi reported a most uncharacteristic fall in sales and a quite thumping fall in profit; and investors promptly sent the share price rocketing to an all-time high.

The JB Hi-Fi brand saw sales up just under 1 per cent; The Good Guys dropped 10 per cent. Picture: NCA NewsWire/Joel Carrett

The great JB juggernaut rolls on. Sort of.

Somewhat bizarrely, JB reported a most uncharacteristic fall in sales and a quite thumping – near 20 per cent – fall in profit; and investors promptly sent the share price rocketing to a new all-time high!

In an investment world, where even solid profit increases can see share prices thumped – it will be ‘interesting’ to see what Commonwealth Bank unveils on Wednesday, and the consequent market reaction – you’d have to say this was, well, unusual.

It was all about expectations; analysts had been predicting worse. And the ‘vibe’; the conclusion that JB still had it.

That’s JB the brand and consequently also JB the overall listed entity. It’s The Good Guys offshoot – acquired as a ‘good idea at the time’ in 2016; and it very decidedly was – not so much, though.

The JB brand saw sales up just under 1 per cent; The Good Guys dropped 10 per cent. JB’s operating profit fell 14 per cent; The Good Guys one got slashed 30 per cent.

Good news for consumers, as both brands slashed prices.

But The Good Guys seemingly had to slash more, and paid a bigger profit price.

It also raises some initial, but still pretty fundamental, questions about the long-term future of the ‘two-brand’ operating model; especially as we go deeper into the online and digital reality.

On the broader economic front, the numbers go a long way to explaining what we’ve been seeing with household spending and inflation.

Overall household spending has been weak in dollar terms, with overall goods inflation falling sharply in the December quarter.

But drilling down, that’s mostly been driven by falling prices – discounting – in hard white and brown goods. Through the December half year we still had positive inflation in the supermarkets.

Again, the results from Woolworths and Coles will provide vital complementary information to the numbers from JB and Harvey Norman, on where we are spending our dollars; what businesses are doing to move product; and what the impact on inflation is, and what is developing for 2024.

Reserve Bank governor Michele Bullock has identified two key drivers of the inflation dynamic, and so the prospects for interest rates: the split between low-goods and high-services inflation, within an overall low productivity cross-economy envelope.

There is of course a dangerously developing third, which merges with that productivity failure – accelerating wage increases, and, which worse don’t even pretend to be offset by agreed productivity increases.

The two big ones are the 25 per cent – 6 per cent-a-year – increases given to the CFMEU and DP World wharfies.

The first will flow straight into construction costs, and so into housing, given the abysmal shortage of tradies.

The second will flow into the costs of just about everything, given our modern dependence on imported products. Fortunately, to be partially offset by emerging deflation out of China.

A final point: buying into JB was its own good idea. On Monday, the stock topped $60; back in Covid’s March 2020 it dipped below $24.

Originally published as JB Hi-Fi passes the vibe test despite thumping fall in profit