JB Hi-Fi (JBH) posted a better than expected 36.5% lift in underlying profit for the 12 months to June 2017 to $207.7m. The result - which was slightly above the discount retailer’s own guidance - was boosted by the collapse of Dick Smith (reduced competition) and the near $900m purchase of The Good Guys announced in September 2016. 

Net profit rose by a more modest 13.3% following write-downs of its New Zealand unit and costs associated with The Good Guys acquisition amounting to $22.4m. 

JBH will pay eligible investors a 46c/share final dividend on 8 September 2017. The ex-dividend date (key date which determines eligibility) is 24 August 20017. This takes annual distributions (the interim plus final dividend) to $1.18; an 18c increase on the prior year and represents 65% of its underlying profit. JBH currently has a 4.4% dividend yield. 

The JB Hi-Fi Australia business (its biggest earner) performed strongly over the year. Sales across its 185 stores surged 10.9% to $4,148.6m (circa 75% of total sales) while earnings rose by almost 20% (85% of profits). Hardware and Services (includes sale of Music, Movies and Games Software categories) improved impressively and continues to account for a larger portion of total revenue. Its gross margin rose by 16bps to 22.2%. Six new stores were opened in FY17. 

JB Hi-Fi New Zealand’s performance remained sluggish over the year. Total sales fell by 0.3%, largely due to market wide demand for third party content cards in FY16, which substantially boosted revenue in the prior year. Gross margins in FY17 worsened to 18.2%, and its challenging financial performance resulted in A$15.8m impairment charge. JBH is finalising a two year turnaround strategy for the division. The Good Guys purchase was completed on 28 Nov 2016. Its 102 stores contributed $1.25bn in sales and $46.4m to EBIT. Its low cost of doing business remains a competitive advantage. It expects synergies close to $20m by FY19. 

Online sales continued to become a more important part of the business, growing 38.4% to $158.9m for its Australia unit. This accounted for ~4% of total sales thanks to ‘continuous improvement across many aspects of our digital assets’. Amazon’s expected debut in Australia over the next year is likely to alter the retail landscape however and remains a risk. 

JBH signalled that trade has kicked off in positive fashion this financial year. In July 2017, sales for the JB Hi-Fi business grew 8.8% over the month and lifted by 6.8% for The Good Guys division. Looking forward, JBH expects to open five new JB Hi-Fi stores and to monitor opportunities for new The Good Guys stores in FY18. It expects total sales to be ~$6.8bn over the year (JB Hi-Fi: $4.65bn and The Good Guys: $2.15bn). 


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