JB Hi-Fi CEO Terry Smart warns of ‘heightened uncertainty’ in retail sector

The consumer electronics giant posted record annual sales and a profit slightly ahead of market expectations, but has warned of ‘heightened uncertainty’ in the retail sector.

JB Hi-Fi CEO Terry Smart says “heightened uncertainty” is plaguing the retail sector as rising interest rates strangle household budgets, but says his flagship chain is dodging the worst of the downturn as key devices such as smartphones are viewed by shoppers as a “must have”.

Mr Smart said this unsettling state was likely to continue to affect consumer confidence for the rest of the year, with larger purchases, such as fridges and washing machines sold by his Good Guys chain, moderating as some shoppers delay upgrading big-ticket whitegoods.

However, this was not evident in key personal consumer electronics and devices as sold by JB Hi-Fi, where mobile phones and gaming consoles continued to trade well despite the “heightened uncertainty” fuelled by rates, and the soaring cost of living.

Unveiling its full-year profit on Monday that showed a profit of $524.6m, down 3.7 per cent, but ahead of market expectations of a profit of just over $507m, JB Hi-Fi said recent trading activity ­reflected weakening sales mo­mentum for the new fiscal year.

Underlining that uncertainty now swirling through the economy and households, JB Hi-Fi said sales for its flagship Australian JB Hi-Fi stores were down 2.9 per cent on a comparable basis since July, and down 1.8 per cent on total sales. This was stronger than many analysts had expected. However, like-for-like sales and total sales at The Good Guys, a whitegoods specialist potentially more exposed to a consumer pullback, fell 12 per cent. In New Zealand, its JB Hi-Fi sales were up 10 per cent since July.

“The heightened uncertainty is around how does it continue to play out through financial 2023 and there is uncertainty about what interest rates might do and continue to do, and how that may continue to affect household budgets,” Mr Smart told The Australian. “So we still hold some concerns around that.”

Chief executive Terry Smart says JB Hi-Fi’s brands are ‘well positioned’. Picture: Arsineh Houspian

However, Mr Smart said he believed the business model of JB Hi-Fi, which owns 216 JB Hi-Fi stores across Australia and New Zealand and 106 The Good Guys stores, would help bolster it from the worst impact of the retreat in discretionary spending.

“With the heightened uncertainty in the retail environment, both our brands remain well positioned to leverage their low-price market position as shoppers look to maximise value from their purchases,” he said.

“As we have continued to demonstrate, we will adapt and respond to the changing retail conditions to ensure we remain the No.1 destination for shoppers and grow our market share.”

For now the retailer is still delivering investors strong results. On Monday, JB Hi-Fi reported that revenue rose 4.3 per cent to $9.626bn, a record result.

But the dividend was cut sharply, reflecting the company’s payout ratio policy, with JB Hi-Fi declaring a final dividend of $1.15 a share, down from the final dividend of $1.53 paid at the end of the 2022 financial year. The final dividend will be paid on September 8. The total 2023 dividend of $3.12 a share was down 1.3 per cent.

Mr Smart said he was pleased to report record sales and earnings per share for 2023.

“In a challenging retail environment, we remained top of mind for shoppers and grew our market share by continuing to drive our value offering, leveraging the strength of our multichannel offer and maintaining our high levels of customer service,” he said.

Mr Smart said weaker July sales were in line with the company’s expectations, cycling the elevated period from last year. While total sales continue to be well above pre-Covid July 2019, the group had seen increased variability in category performance. This was also matched by uncertainty running through the economy and retail sector.

At its flagship JB Hi-Fi Australian stores, sales rose 5.6 per cent to $6.55bn with like-for-like sales up 4.8 per cent. Gross profit increased by 6.7 per cent to $1.48bn, with gross margin up 23 basis points, driven by a positive sales mix. Cost of doing business was 12.1 per cent, up 68bps, but remained below pre-Covid 2019, driven by disciplined cost control. At JB Hi-Fi New Zealand, sales rose 11.3 per cent to $NZ292.1m ($269.3m).

For The Good Guys, total sales increased by 0.8 per cent to $2.81bn, with comparable sales up 0.8 per cent. The key growth categories were refrigeration, laundry, floorcare, personal care and audio.

Mr Smart said the company wanted to increase its Good Guys store numbers, particularly around the northern Sydney beaches region, but finding a suitable block of land was proving difficult.

E&P Capital retail analyst Phillip Kimber said JB Hi-Fi’s share price over recent months had generally held up better than those of most other listed discretionary retailers, but the share price could drift from here.

Mr Kimber said that, with “weakening sales and earnings momentum and no material change to consensus forecasts expected, we expect the share price to drift off following the 2023 ­result”.

Shares in JB Hi-Fi closed up $1.30, or 2.8 per cent, at $48.51 on Monday.