JB Hi-Fi ‘On Target’ But Discounts Bite

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Sales up, but profit down. A cautious JB Hi-Fi expects to achieve its yearly sales target of $3.1 billion as sales “improved progressively” over the March quarter.

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Sales growth for the March quarter FY12 for JB Hi-Fi branded stores (Australia and New Zealand) was 8.8% (7.5% including Clive Anthonys stores) while comparable sales for JB stores was up 1.3%.

JB’s sales improved incrementally over the first three months of the year with January comparable sales slipping -5.5%, while February was up +4.9% and March +5.2%.

Sales growth for JB Hi-Fi stores for the 9 months to 31 March was 7.3% (6% including Clive Anthonys branded stores) while comparable sales fell -1.3%, an improvement from -2.2% figure recorded at the half year.

Online sales were “strong”, up 76% on the prior period to March as it got aggressive offering factory scoop and direct imports on items including cameras. 

The yellow retailer also has 965,000 online vistors per week.

Gross margin was “very challenging” during this quarter due to primarily market-wide discounting which is not sustainable, warned the retailer who praises itself in discounting.

Gross margin was down 200 bps for the March quarter compared to 30 bps down at the half year.

But City Index analysts warns, heavy discounting is now the name of the retail game:

“Heavy discounting is a new reality and JB Hi-Fi is becoming a victim of its own success, when in prior years it was able to grow earnings and insulate its margins despite a very touchy consumer electronics market,” Peter Esho told The Australian.

“There will be widespread downgrades (by analysts),” he added.

“JB Hi-Fi believes that the high level of discounting is the result of increased tactical activity as its competitors fight for market share, seek to clear excess and aged inventories and close stores, and is not sustainable,” said JB Hi-Fi CEO Terry Smart. 

“The market remains very competitive but, with our core everyday low price (EDLP) message central to our customer proposition, we have maintained our market leading position.”

The electronics retailer anticipates this level of discounting will continue over the next quarter but doesn’t t believe that “this is a long term structural change.”

And the discount king vowed to “react aggressively to maintain our market leadership,” Smart added.

“Our low cost of doing business is one of our core competitive advantages and enables us tooperate at healthy profit margins notwithstanding competitor activity. This is driven by high sales persquare metre and an obsession with not letting waste and inefficiency creep into our cost structure.”

JB Hi-Fi NOW, its fledgling music service, continues to gain traction with the April launch of mobile streaming apps for Apple iOS and Android devices with an app for Windows devices to follow.

“We believe the combination of online and digital delivery will provide the most compelling out of store experience to match the success of our in-store program” said Smart.

The retailer also expects to achieve its previously announced FY12 sales target of circa $3.1 billion.

 

However, it expects net profit (after tax) for the 12 months to 30 June 2012 to be between $100- $105 million due to the “challenging gross margin environment” – down from last year’s $109.7m figure.

It wasnt all bad news in the market with on going industry consolidation presents a good opportunity for JB to market share, it said, citing  the closure of WOW Sight and Sound, which the retailer is currently negotiating for former site leases, as well as the closure of several Dick Smith stores.

JB’s target of 214 branded stores (currently 161 stores open) ensures that it will have solid growth over the next few years, combined with our unique and high energy retail format, gives JB Hi-Fi a customer proposition that its competitors cannot match.

The company expects to open 16 new JB Hi-Fi stores in FY12 with 10 of these already open. Two stores are expected to open in May and four in June.

In spite of massive store growth, April sales are anticipated to finish with negative comparable sales growth, the retailer warned, the result of both cycling unusually high sales in April 2011 and the volatile trading environment.

However, stores remain highly profitable, although admitted in a statement the last year has been “challenging” due to softer consumer sales.

 

“While this has put additional short-term pressure on both sales and gross margin we believe that it will lead to a good opportunity for JB Hi-Fi to expand and increase its market share in FY13 and beyond.

“The continued success of our recently opened stores combined with our growth online and expansion intodigital services will see us continue to grow into the future” said Terry Smart, CEO JB Hi-Fi.

Company shares fell to $10.17, following today’s results.

The retailer is to release its full year yesults on 13 August.

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