Friday 27th April 2012 |
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Electronic goods retailer JB Hi-Fi expects to meet its previously flagged A$3.1 billion annual sales target but its profit margins are under severe pressure due to aggressive discounting.
It expects net profit for the 12 months ending June 30 will be between A$100 million and A$105 million. For the previous year, JB Hi-Fi reported an A$109.7 million net profit which included a one-off restructuring charge of A$24.7 million.
JB Hi-Fi said its gross margin for the March quarter was down 200 basis points compared with a 30 point drop in the six months ended December 31.
The company, which owns 161 JB Hi-Fi-branded stores in New Zealand and Australia and is planning to grow to 214 stores, said the margin pressure is short-term and due to a number of competitors exiting the market or reducing store numbers.
“This consolidation, whilst impacting on gross margin in the short-term, is yet to be reflected in the company's sales to a positive degree, but presents the company with a good opportunity to continue to grow its market share in the medium to longer term,” said chief executive Terry Smart.
Dick Smith Electronics, with about A$1.5 billion in annual sales, plans to close up to 100 stores before February 2014. And Queensland-based WOW Sight and Sound, which operated 15 stores and reported A$250 million in sales last year, went into receivership in February and has since ceased operating.
JB Hi-Fi said it is negotiating on leases for two former WOW sites.
“Other players have significantly reduced or put on hold their expansion plans,” Smart said.
Total sales in the March quarter, including its Clive Anthonys-branded stores, rose 7.5 percent, taking sales growth for the nine months ended March to 6 percent.
Excluding the Clive Anthonys stores, sales growth in the quarter was 8.8 percent and 7.3 percent in the nine months. However, same-store sales growth, stores open 12 months or more, for the JB Hi-Fi-branded stores was just 1.3 percent in the March quarter, although it improved from January's 5.5 percent decline during the other two months.
Nevertheless, the company expects the current level of discounting will continue into the June quarter.
“While the impact on our earnings is clear, as a market leader with an everyday low price proposition, JB Hi-Fi will react aggressively to maintain our market leadership,” Smart said.
The company doesn't believe the margin pressure is a long-term structural change, he said. The company said its profit forecast assumes June quarter same-store sales will be flat to falling 2.5 percent and that margin pressure will be in line with the March quarter.
“JB Hi-Fi believes that the high level of discounting is the result of increased tactical activity as its competitor’s fight for market share, seek to clear excess and aged inventories and close stores and is not sustainable,” it said.
The company didn't separately comment on its New Zealand operations, their sales and profit performance were a high-light of its otherwise lacklustre first-half results.
JB Hi-Fi shares closed yesterday at A$10.71, up from their low at A$10.01 earlier this month but sharply lower than A$19.59 this time last year.
(BusinessDesk)
BusinessDesk.co.nz
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