In morning trade the JB Hi-Fi Limited (ASX: JBH) share price has stormed 7% higher to $24.17 following the release of its half year results.
Here is how JB Hi-Fi performed in comparison to the prior corresponding period:
- Total sales up 4.2% to $3,843.7 million.
- Positive comparable sales growth across all brands.
- Earnings before interest and tax (EBIT) up 4.8% to $236.6 million
- Net profit after tax (NPAT) increased 5.5% to $160.1 million.
- EPS up 5.4% to 139.4 cents per share.
- Interim dividend up 5.8% to 91 cents per share.
- Outlook: Full year NPAT in the range of $237 million to $245 million, up 1.6% to 5.1%.
Overall, I was pleasantly surprised by JB Hi-Fi's performance in the first half and can't say I'm surprised to see its shares charge higher.
According to a note out of Goldman Sachs, it was looking for first half group sales of $3,842 million and EBIT of $232.3 million. This means the company has just beaten on the top line and delivered an EBIT result almost 2% ahead of the broker's forecasts.
The JB Hi-Fi Australia business played a key role in its strong result. It grew sales by 4.7% on the prior corresponding period to $2,591.3 million. This was supported by a 5.8% lift in sales by JB H-Fi New Zealand to NZ$131.8 million and a 2.8% increase in sales for The Good Guys to $1,130.7 million.
Segment EBIT growth was strong for all segments, with JB Hi-Fi Australia growing EBIT by 4.5% to $191.9 million and The Good Guys achieving EBIT growth of 3.9% to $43.7 million. The JB Hi-Fi New Zealand posted EBIT of NZ$1.1 million.
What drove the sales growth?
Management advised that Hardware and Services sales in the first half were up 6%, with comparable sales up 4.4%. This was driven by the Communications, Games Hardware, Audio, Fitness and Connected Technology categories.
It offset weakness in Software sales, which were down 5.6% overall and 7.2% on a comparable basis. This was the result of the continued declines in the Movies and Music categories, partially offset by strong growth in the Games Software category.
Another key driver of growth was the company's online business. Online sales in Australia grew 21% on the prior corresponding period to $144.4 million. This means they now account for 5.6% of total sales, compared to 4.8% this time last year. Management pointed to its investments and the evolution of its online offering as the catalyst for this growth.
A further positive was its Solutions business. It recorded double digit sales growth during the period and remains on track to deliver on its long term aspirational sales target of approximately $500 million per annum, through both organic growth and strategic acquisitions.
Outlook
The company has had a reasonably positive start to the second half. Although sales have declined in New Zealand, JB Hi-Fi Australia and The Good Guys both delivered top line and comparable sales growth in January. Though management warned that it has seen increased volatility and a bias in customer purchasing towards key promotional periods.
Based on its half year performance and start to the second half, management expects full year sales to be ~$7.1 billion. This is expected to comprise JB Hi-Fi sales of $4.73 billion, JB Hi-Fi New Zealand sales of NZ$240 million, and The Good Guys sales of $2.15 billion.
On the bottom line management expects full year group net profit after tax in the range of $237 million to $245 million, which will be an increase of 1.6% to 5.1%.
Should you invest?
Based on today's result, JB Hi-Fi's shares are changing hands at around 11x trailing earnings and offer a trailing fully franked 5.9% dividend. While I'm not a huge fan of the company, at this level I think they are very attractively priced given its ability to continue to grow profits in challenging conditions.
This could make its shares worth considering along with Kogan.com Ltd (ASX: KGN) and ahead of rival Harvey Norman Holdings Limited (ASX: HVN).
