JB Hi-Fi warns of marked slowdown in sales growth in January

The snowballing momentum of interest rate rises, high inflation constricting household budgets and eroding Covid-19 savings has finally forced consumers to rein in spending.

The snowballing momentum of nine interest rate rises, decades-high inflation constricting household budgets and an eroding Covid-19 savings pile has finally forced consumers to rein in spending, with JB Hi-Fi lifting the lid on emerging cracks in the confidence of shoppers.

Reporting its half-year results on Monday, which confirmed record sales and earnings for the first half, JB Hi-Fi chief executive Terry Smart warned that sales growth had begun to moderate in the new year.

In January, sales growth at its flagship Australian JB Hi-Fi network was down by more than half while at its Good Guys chain, which specialises in more expensive whitegoods and home appliances, same-store sales growth had ground to a halt.

“If January sales are anything to go by, then it does suggest the consumer is becoming more ­cautious,” Mr Smart told The ­Australian.

“While we are pleased with the January trading result, with sales continuing to be well above pre-Covid January 2020, we have seen sales growth start to moderate from the elevated levels seen in the first half of fiscal 2023.

“The businesses continue to perform well, it is just the level of growth that is starting to slow. What we are seeing is consumers are just potentially being a little bit more cautious. We are still seeing strong numbers but just not the growth that historically we had been seeing.”

The emerging fragility of the consumer comes as Reserve Bank governor Philip Lowe pushes on with the central bank’s aggressive interest rate tightening, which is yet to achieve its aim of crushing stubbornly high inflationary pressure but which could finally be causing headaches and hesitation for consumers.

JB Hi-Fi boss Terry Smart has revealed a marked slowdown in sales growth for the retailer in January. Picture: Arsineh Houspian.

However, there are also signs of a bifurcation of spending habits as consumers pull back spending in some areas, such as consumer electronics and whitegoods, in favour of other pursuits such as socialising, or non-discretionary spending on cars and insurance.

On Monday, Dan Murphy’s and pubs owner Endeavour Group said it had not witnessed any signs of a slowdown of spending at its bottle shops, pubs and restaurants in January as consumers still clung to the idea of a meal with friends and family washed down by a glass of beer as still an affordable luxury.

It was much the same for the market for used cars, with Carsales chief executive Cameron McIntyre testifying at his earnings conference that aggressive interest rate rises had failed to dampen ­demand for used cars or car-buying habits.

“At the moment, we haven’t seen any change in intent,” Mr McIntyre said.

“I think we’re probably not at the level where we’re seeing consumers changing or moving away from or deferring their car buying choices.”

IAG chief executive Nick Hawkins also painted a picture of the consumer directing spending to “must have” items led by insurance products, arguing that retention rates still remained strong, led by home insurance retention rates of 95 per cent.

As the reporting season takes off, JB Hi-Fi’s glimpse of the state of the consumer is one of the first tangible signs the shopping frenzy experienced during the pandemic, and partly fuelled by the more than $250bn in stored savings, is gradually giving way as rising prices and steeper mortgage payments keeps wallets and ­purses closed.

While still early in the year, JB Hi-Fi CEO Mr Smart said it was possible that shoppers at both JB Hi-Fi and The Good Guys could be beginning to trade down to cheaper products as they tighten their belts in the face of multiple economic headwinds led by steeper interest rates.

“You can see that play out when it does get a bit tighter in the economy,” he said. “It is a bit early for us to call that out as a driver yet, and we will have a better idea in the next few months whether that is a driver. However, intuitively that’s generally what happens when a consumer starts to tighten their belt. They do tend to trade down and look for value and that’s where we are just so well positioned for that.”

JB Hi-Fi said sales growth at its Good Guys chain had slowed to a complete halt in January. Picture: AAP

JB Hi-Fi became the latest ­national retailer to warn of slowing sales in January and a challenged consumer, following similar warnings from furniture chain Nick Scali last week, as bumper sales growth heading into Christmas hits a brick wall in the new year.

“The cracks are emerging for retailers now, and for bigger-ticket (items) which tends to be the products that people economise on or stop buying first,” Barren­joey analyst Tom Kierath said.

“So for JB Hi-Fi and The Good Guys, the January comments were a lot softer than what we thought they would be and where they were trading against the second quarter.

“I think the RBA, and others, have been expecting this and looking for it … even the JB Hi-Fi guys said on the earnings call today they were expecting a more subdued year this year and I think that is starting to play out now. It has taken a while but we are finally seeing some signs of it.”

JB Hi-Fi said total sales growth for its Australian JB Hi-Fi chain was 2.5 per cent in January, against growth of 4.3 per cent for the same month last year, with comparable sales growth dropping by more than half in the month to 1.5 per cent.

At its Good Guys retail chain, sales growth was flat, against 2.5 per cent in January last year, while comparable sales growth was also zero, against 1.9 per cent in January 2022.

Shares in JB Hi-Fi fell more than 5 per cent to $44.25 on Monday, with the market focused on its more bearish outlook than its record results for the first half.

JB Hi-Fi confirmed that the huge appetite for its range of electronics, gadgets, home appliances and whitegoods was the dominant driving force for its performance in the December half after it reported record revenue of $5.278bn, up 8.6 per cent, and a 14.6 per cent leap in half-year net profit to $329.9m. JB Hi-Fi declared an interim dividend of $1.97 a share, up from $1.63 for the ­December half last year, and payable on March 10.

In terms of the first-half results, JB Hi-Fi’s Australian arm reported that group sales lifted by 9.1 per cent to $3.59bn with same-store sales better by 8.5 per cent. Gross profit increased by 14.5 per cent to $820m, with gross margin up 108 basis points to 22.8 per cent, driven by improvements in key product and service categories and positive sales mix

The Good Guys’ sales rose 7.3 per cent to $1.54bn, with gross profit rising more than 10.3 per cent to $358.4m.