JB Hi-Fi boss Richard Murray has defied the gloom dominated the nation's retail sector thanks to a well-timed acquisition and the collapse of his biggest rival.
JB Hi-Fi's push into the high-margin appliance sector through the $870 million acquisition of The Good Guys is in its early days but there are early signs the move is already paying off. The collapse of Dick Smith last year is also working in Murray's favour although the benefits of the rival's demise will eventually moderate.
However, the electronic retailer's strong sales and earnings momentum is also due to the fact that it is selling products its customers actually want, something a lot of discretionary retailers have failed to do. Products like the new Google phone, gaming consoles, cameras and audio products are selling well. This is contrast to the racks of DVDs and CDs which dominated JB Hi-Fi's shelves just five years ago.
JB Hi-Fi's half-year results are a sharp contrast to the rest of the discretionary retail sector which is limping along after a tough Christmas.
Net profit rose 16 per cent to $110.4 million. Underlying earnings after stripping out the costs of The Good Guys acquisition completed in November jumped 31.7 per cent to $125.4 million. There are not many retailers around posting double-digit earnings growth at the moment except for Solomon Lew's Premier Investments.
JB Hi-Fi has now upped it full-year sales guidance to $5.58 billion. About $4.33 billion of that will come from JB Hi-Fi and $1.25 billion from The Good Guys. The company has previously said JB H-Fi sales would be around $4.25 billion.
It expects underlying net profit to be in the range of $200 million to $206 million, which is 31.1 per cent to 35.4 per cent higher than last year.
JB Hi-Fi shares rose 6.8 per cent and are now trading at their highest level since September last year.
It was the kind of result Murray needed as he beds down one of the most ambitious acquisitions in the Australian retail sector for years. With the deal only completed in late November, the real works starts in the current half when JB Hi-Fi works out how to integrate and leverage the scale of the combined businesses. JB Hi is targeting $15 million to $20 million per year in savings after a three-yer integration period.
Marrying the country's top home appliance retailer with the number one consumer electronics retailer was a logical deal but Murray now has to deliver on a transformational acquisition which did not come cheap. The mooted synergies will take time to implement.
The Good Guys' December like-for-like sales were down 0.7 per cent and trading last year was impacted by the ownership change and market declines in heating and cooling. But trading from December has improved and this is expected to continue in the second half. Margins were weaker in December but this is because customers are buying less high-margin large appliances at that time of the year in favour of smaller gifts.
michael.smith@fairfaxmedia.com.au
