Online boom backs JB Hi-Fi’s 21pc lift in full-year profit

The electronics goods retailer has seen a sales surge as customers have been spending more time at home through the coronavirus pandemic.

Ella Fleck, the telco sales coordinator for Brisbane central, at JB Hi-Fi has had a surge in sales due to people working from home. Picture: Steve Pohlner

JB Hi-Fi chief executive Richard Murray has proved the consumer electronics chain can punch out record revenue and profitability even at the worst of times for the Australian economy, as a catalogue of must-have tech gadgets combined with tight cost control make it the envy of the retail sector.

It also stole the spotlight from the market’s traditional big dividend payers, such as the banks, as it diverted its rivers of cash into bumping up its final dividend by almost 80 per cent with its fellow retailer Kogan.com similarly rewarding shareholders on Monday for a strong year of revenue and profitability.

JB Hi-Fi, which also owns The Good Guys, kicked off earnings season for the nation’s biggest retailers on Monday to set the benchmark high for those that follow as the pandemic and economic fallout couldn’t stop its earnings momentum.

 

The retailer posted a 21 per cent lift in full-year net profit to $302.3m for fiscal 2020 as sales improved by 11.6 per cent to $7.9bn, slightly ahead of guidance provided in June of $7.86bn. Underlying earnings were up 30.5 per cent to $486.5m.

The retailer was able to overcome a spike in costs caused by the pandemic that included in-store hygiene systems, a special bonus of $1000 to its staff for their hard work, which amounted to about $12m, and bills for face masks that were $400,000 at a time.

But in the broader economy, job losses, store closures and Australia lurching into a recession didn’t look to lay a glove on JB Hi-Fi or The Good Guys with many of its customers swapping visiting a bricks-and-mortar store for shopping online, with people facing lockdowns and home isolation grabbing for tech equipment to fit out home offices or fridges and freezers to stock up on food.

“I just think we are very good on managing the downside, because in a low margin, high turnover business you need to pivot very quickly,’’ Mr Murray told The Australian.

“And so that actually then at the start of the pandemic when things were very uncertain we increased our facilities, we made sure we had plenty of working capital for capacity and when sales are a little softer you adjust your rosters and that is why we have a good mixture of full-time, part-time and casual staff so we can be flexible up and down.’’

Ruslan Kogan, founder and CEO of Kogan.com, was telling a similar story to his shareholders with a breakaway pack of retailers now dominating online sales and able to enrich investors with dividends and a rocketing share price.

JB Hi-Fi shares leapt immediately as the full-year result was released and rose $2.27, or 4.8 per cent, to a record high of $49.60. The retailer now has a market capitalisation of $5.45bn and dwarfs traditional retailers such as Myer, whose value is less than $200m.

JB Hi-Fi said its flagship Australian arm for fiscal 2020 grew sales by 12.5 per cent to $5.32bn, ahead of guidance of $5.26bn, with like-for-like sales up by 12.2 per cent. Sales momentum was strong through the year and accelerated in the fourth quarter as customers spent more time working, learning and seeking entertainment at home.

This sales bonanza, with like-for-like store sales growing by more than 40 per cent into July, has helped JB Hi-Fi enrich its shareholders with fatter dividends. JB Hi-Fi announced on Monday a final dividend of 90c, up 76.5 per cent, to give it a total 2020 dividend up 33.1 per cent to $1.89 per share. The higher final dividend will be paid on September 11.

Mr Murray said JB Hi-FI had always stuck to the policy of paying out 65 per cent of underlying earnings to shareholders, and said he kept to the philosophy that the money belonged to shareholders.

He said that despite the retailer experiencing booming online sales there were no plans to pull back on store rollout plans or close down existing bricks-and-mortar stores to focus more on its digital platforms.

“We are doing $600m in sales online and growing 50 per cent, which is awesome, we do $7.1bn across 300 stores and I think they do OK. The thing that we need to be reminded of is the way the brand, the equity, the trust in JB Hi-Fi and The Good Guys was built was real people, at store level, talking to customers and fixing their problems and delivering solutions.

“And in a short period when our stores are closed obviously customers take that trust and shop online, but that trust is built often in the bricks-and-mortar environment and we believe that bricks and mortar and online is a really powerful combination.’’

For the group in 2020 the key growth categories were communications, computers, visual, audio and small appliances.

JB Hi-Fi New Zealand sales were down 5.7 per cent to $NZ222.8m ($203m) as closures across the country because of COVID-19 dented its performance. It booked an impairment of $NZ25.6m on the carrying value of the business. The Good Guys business saw sales rise by 11.2 per cent to $2.39bn, in line with guidance provided in June.