The shares of JB Hi-Fi Limited (ASX: JBH) have jumped higher by 6% to $30.80 in morning trade following the release of its half-year result for the period ending December 31 2016.
Key highlights include:
- Record half-year sales of $2.6 billion, up 23.6% on the prior corresponding period.
- Record underlying net profit after tax of $125.4 million, up 31.7% on the same period last year.
- Underlying earnings per share up 22.4% to 116.3 cents.
- Interim dividend up 14.3% to 72 cents per share
- The $870 million The Good Guys acquisition completed on November 28 2016.
The key driver of the strong first-half performance was the company's Australia-based JB Hi-Fi stores.
Total sales from these stores grew 11.7% to $2.2 billion, with strong growth witnessed in its Communications, Audio, Cameras, Accessories, Computers, and Home Appliance categories.
This led to JB Hi-Fi's Australian store network posting comparable store sales growth of an impressive 8.7%.
Comparable store sales is the key metric I look for when judging a retailer's performance, so JB Hi-Fi gets a big tick from me today.
The company earned another big tick with its whopping online sales growth of 40.4% on the prior corresponding period. Online sales now represent approximately 3.8% of total sales for its Australian stores.
Unfortunately its New Zealand operations didn't perform to the same high standard. Total sales were down 1.7% to NZ$125.1 million, with comparable store sales dropping a disappointing 11.2%.
But as the segment only contributes a small amount to overall sales, its poor performance isn't too much of a concern at this stage.
Finally, the newly-acquired The Good Guys brand didn't have a lot of time to make an impact. Total post-acquisition sales came in at $263.1 million, up slightly on the prior corresponding period. Comparable store sales fell slightly by 0.7%.
Management expects both sales and earnings for The Good Guys between November 28 2016 and June 30 2017 to be in line with the prior corresponding period.
With the Christmas and January sales now behind the company, management intends to start to integrate and leverage the scale of the group. It has reaffirmed its synergy assumptions of $15 million to $20 million per year after a three-year integration.
For the full-year management expects total company sales of $5.58 billion, with JB Hi-Fi contributing $4.33 billion and The Good Guys contributing the remaining $1.25 billion. Underlying net profit after tax is forecast to be in the range of $200 million to $206 million, an increase of 31.4% to 35.4% on the previous year.
Is it a buy?
I've been very impressed with JB Hi-Fi's first-half performance and believe that even after today's jump its shares are still reasonably attractive at 17x estimated FY 2017's earnings.
But I am concerned by the potential impact that the much-speculated launch of Amazon in Australia would have on the company and its peers Harvey Norman Holdings Limited (ASX: HVN), and Kogan.com Ltd (ASX: KGN).
If history is anything to go by, these retailers will see margins and profits squeezed considerably. So as tempting as it is to invest in a quality company like JB Hi-FI, I'm going to sit this one out for now.
