JB Hi-Fi Beats, But What About Next Year?

Australia | Jul 20 2022

Following above-consensus preliminary FY22 results for JB Hi-Fi, some brokers remain concerned by a looming consumer spending slowdown.

-Preliminary FY22 results for JB Hi-Fi exceed forecasts
-Brokers on average leave target prices unchanged
-Macroeconomic and competition concerns weigh 
-Citi upgrades its rating to Buy from Hold
-The case for a consumer spending slowdown

By Mark Woodruff

Ahead of FY22 results scheduled for August 15, JB Hi-Fi ((JBH)) has released preliminary results. Earnings outpaced consensus forecasts by double digits thanks to strong consumer demand, rising market share and gross margin expansion.

Sales rose by 3.5% on the previous corresponding period, while online sales climbed by around 53%.

However, the market’s lacklustre response to the results suggests to UBS the current focus rests more upon macroeconomic issues and how consumer discretionary covid plays will compete in a post-covid world.

While brokers set both higher and lower 12-month target prices in response to the earnings 'beat', the average target price in the FNArena database remains relatively unchanged at $46.36.

Only days ago, Goldman Sachs, not one of the seven brokers updated daily in the database, cut its forecast earnings for JB Hi-Fi due to an expected softening in the housing sector. Consumer electronics and appliance spending was deemed to be vulnerable to declining household expenditure from rising cost pressures.

Following yesterday’s result, the broker retains its Sell rating and notes it had expected strong comparative sales in the second half, as negative macroeconomic drivers are not expected to hit until FY23, along with rising cost inflation and increasing competition.

The analysts feel the challenges facing the company are both cyclical and structural. Despite this view, the broker’s 12-month target price rises to $34.90 from $32.00 in reaction to a slightly better-than-expected gross profit margin.

Underweight-rated Jarden, also not one of the seven, agrees on looming competition headwinds in the form of direct-to-consumer, bricks and mortar (Bunnings, Kmart), online (Amazon) and business-to-business commerce. Additional concerns stem from the need for increased investment or partnerships in fulfillment and data capability.

While JB Hi-Fi Australia, JB Hi-Fi New Zealand and The Good Guys recorded like-for-like sales growth on the previous corresponding period of 3.4%, 0.3% and 2.2%, respectively, Macquarie feels this was largely due to emergency monetary policy settings that are rapidly being unwound. This broker retains its Underperform rating and $40.90 target price.

Presenting an opposing view, Citi upgrades its rating to Buy from Hold and highlights resilience in spending by households, which are seen as well-positioned to deal with a higher cost of living in FY23. While Citi's FY23 earnings forecast rises by 9.6%, its target falls to $47 from $52 on a de-rating of multiples for the market and industry peers.

Add-rated Morgans agrees that strong sales momentum can be sustained into FY23 and raises its target price to $50 from $48. It’s thought JB Hi-Fi will not be the last retailer to report better-than-expected sales and margins for FY22.

The case for a slowdown in consumer spending

Macquarie believes sales at JB Hi-Fi will potentially suffer as consumers become more cautious on the economic outlook and as rising inflation and interest rates eat into disposable incomes.


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