JB Hi-Fi dips and rips: Earnings beat and dividend hike ease valuation fears

JB Hi-Fi (ASX: JBH) experienced a 10% swing in share price within the first four minutes of market open, reflecting mixed signals as the retailer beat earnings estimates and issued a generous dividend, though January trading showed softer momentum.

Despite the initial volatility, the stock is currently up 7.3% and on-track to mark its best day since August 2024.

The lead in to the result was equally as volatile, with JB Hi-Fi shares down around 35% since October. Though this decline helped ease its valuation from record highs of almost 30x to around 19x.

For Atlas Funds Management's Hugh Dive, the valuation reset, coupled with today's robust earnings, a big jump in dividends and increased store efficiency, demonstrates why JB Hi-Fi continues to outperform competitors and take market share despite the broader headwinds facing Australian retail.

1H26 at a glance

• Revenue up 7.3% to $6.09bn vs. $6.04bn ests (1% beat)
• EBIT up 8.1% to $454.0m vs. $446.2m ests (2% beat)
• NPAT up 7.1% to $305.8m vs. $302.6m ests (1% beat)
• Gross margin of 21.95% vs. 22.2% ests (25 bps miss)
• Interim dividend up 23.5% to $2.10 per share vs. $2.04 ests (3% beat)
• January trading update: JB Hi-Fi Australia total sales up 4.0% (comparable +2.4%), JB Hi-Fi NZ up 26.4% (comparable +16.7%), The Good Guys up 2.7%, e&s down 4.6% (comparable -7.9%)
• Board increased dividend payout ratio from 65% to range of 70-80% of NPAT from FY26

Do you currently hold the stock and what is your rating?

Yes, we do and we've been adding to it going into this result. We reduced the holding mid-last year when there was less valuation support, but JB Hi-Fi came off quite a lot with many of the retailers in the last three or four months due to concerns about higher interest rates. When it was hitting around $80, we started to add back into the portfolio, taking the view that whilst higher interest rates have hurt a range of retailers historically, JB Hi-Fi hasn't been that impacted. We looked at when rates were rising in 2022-23, and their sales were still very robust. 

What were the key metrics from the results?

So the key things we're looking at:

• Record sales up 7%, which translated to a similar move in EBITDA - all very good. 
• One of the things we look at very closely is dividends, because talk can be relatively cheap. If a company's increasing their dividend, that's a very keen sign that the wolves aren't hammering at the door, the bankers aren't calling to ask for money, and they're pretty confident about the outlook. So the 24% increase in dividends was very solid, and that reflects a very high payout ratio and the fact that JB Hi-Fi aren't really adding too many more new stores or a lot of capex. They're driving a lot more sales through their existing assets, which is pretty good.
• Looking to January, that was pretty good - up 2.4%. January is generally not the most meaningful of months because it's coming off the post-Christmas period, but given that was moving on a very solid prior January which was up 7.5%, that was a bit ahead of expectations. 

How do those outcomes affect the outlook?

It's generally looking pretty good. Our thesis was that higher interest rates wouldn't impact JB Hi-Fi as much as others, and that's really coming through. Consumers are prioritising electrical goods, and JB Hi-Fi – as the lowest cost provider – continues to take market share. They have a very strong brand and are the cheapest in the market. Walk into their stores and you'll see they're stacked high, which reflects how efficient they are as a retailer, much more so than their competitors. This efficiency, combined with their lack of debt, allows them to offer products at lower prices while still maintaining the same profit margins – something their competitors simply can't match. 

In this tighter environment with higher interest rates, JB Hi-Fi is well positioned to keep taking share. We're pretty happy with the results, and you can see that reflected in the share price today.

JB Hi-Fi continues to trade at a forward PE of 20x, well-above its historical average. Is valuation an issue here?

JB Hi-Fi have been very good at pivoting out of categories over time. They've been exceptionally focused at growing sales through their network, moving out of declining categories, like CDs or games, and pivoting into wearables and phones. They've been relentless at driving sales through stores. While we were selling at much higher prices, we're happy to be buying now. Profits are looking very strong and they're very generous with dividends, which we like.

They're just exceptionally good operators. If you look at some of the metrics, they're one of the most efficient retailers globally, up there with Best Buy and some of the European and Japanese retailers, an exceptional outcome given the much higher wage costs we have in Australia. 

Happy to own that. It's clearly best in class, and you can see that compared to other retailers whose results were a bit weaker last week.

The key thing for us now is looking at JB Hi-Fi compared to Harvey Norman, which will really show how they're tracking. Harvey Norman's not reporting for another couple of weeks, so we'll be keen to look at that. But what we're expecting is that JB Hi-Fi will continue to take market share from Harvey Norman.

What should investors be paying attention to as the story unfolds?

Following on from that, we're comparing JB Hi-Fi to their competitors like Harvey Norman to see if they're gaining market share. It's a pretty good result with comparable sales up 7%, but what does that look like relative to competitors? If Harvey Norman is up 15%, that's not a great outcome for JB Hi-Fi. But if they're flat or up one to two per cent, that's a pretty good result. That's what we'll be looking at when Harvey Norman reports in a couple of weeks.

Secondly, we're looking at efficiency. Are they driving more sales through their existing network? Not growing sales by adding stores, but putting more sales through existing stores plus online. We saw online sales grow 11% in this result, which reflects them taking on Amazon. 

JB Hi-Fi got absolutely hammered around 2018 when everyone said Amazon would make bricks and mortar electrical retailing redundant. That hasn't quite happened. They've been very good at adapting.

The key is whether they can do more without having to add more staff and stores, and that's what they seem to be doing. I think they're only adding a net three stores to their network over the next year, which is relatively small.

A good analyst knows where their blind spots are: What could you be wrong about?

Where we could be wrong is if there's a fundamental change in the retail environment. If "Amazon comes in and takes over". We periodically hear that brick-and-mortar retailers are finished. I spent a lot of time in Germany over the years, lived there for a while and go back quite often. The retail landscape there is quite different to Australia. Amazon has really taken over with a much tighter network where you're buying things and getting them delivered that afternoon. This has caused a significant change in the retail landscape with large retailers such as Karstadt and Kaufhof disappear as electrical good retailing moved online and Amazon took a 60% market share.

But even there, there's still a company Saturn that looks a lot like JB Hi-Fi. I think where I could be wrong is if the whole thing changes, but I think humans still actually want to touch the goods and have a look at them. Good retailing still has a place. There is room for JB Hi-Fi, just not room for a lot of competitors.