JB Hi-Fi’s figures a blip or a hint at good tidings

Terry Smart of JB HI Fi

Below is an extract of the original article published by The Australian on the 20th January 2023. 

JB Hi-Fi is not your average retailer, as this week’s better-than-expected profit numbers showed, but reaction to the results is an ideal segue into next month’s interim results season.

Some fund managers, sometimes known to talk up their own book, used the numbers to talk up their credentials as long-term seers against what they called the doomsayers – otherwise known as bank economists.

The latter group tends to have the benefit of having market-wide credit figures against a captive audience to what a company might tell them. Time will tell who is right , but the context is important because the coming earnings season will enjoy the upside of the post Covid-19 bounce and inflation driven cost hikes before the coming economic slowdown.

JB’s Terry Smart reported unaudited earnings before interest and tax up 14 per cent on an 8.5 per cent lift in sales , highlighting the retailer’s stellar performance.

Throw in the fact JB boss Smart has done a great job building momentum at the Good Guys and overall , according to UBS’s Shaun Cousins, has grown market share in expanding market categories.

Costs are being held in check while the price of goods being sold are rising, which means JB’s Smart is both riding a wave and continues to surprise on the upside.

In the past six months JB Hi-Fi has outperformed the market by 5.5 per cent in total return terms but over 12 months the stock traded in line with the market, albeit with a handy 8 per cent gain.

The impact of inflation will the prevailing theme for consumer goods companies, who benefit from high selling prices but like every other company faces higher input costs.

Margin compression will be a key issue.

Cost control will be crucial and for many companies it is largely out of their control , with energy and other costs higher for well advertised reasons.

Covid-19 recovery will mean the last six months have looked better but the true measure is against the same period in the 2019 financial year, before Covid-19 hit.

Software behind the scenes

JB Hi-Fi’s Terry Smart is the first to tell you one reason the retailer has performed well is thanks to software company V Net Solutions.

The 20-year-old Australian-based company boasts an extraordinary customer list – including Microsoft, Amazon, Target, Big W and Intel.

That tells you something about competition in the space for its product, which is an artificial intelligence-based software to help companies manage supply chains in a way which boosts sales, because the products are always on the shelf and reduces inventory because the goods are placed better.

The difference between V Net’s product and others lies in the algorithms which help it predict what future demand needs will be.

The founders include former AC Nielsen executive Remo Barducci and former Liquorland executive Tony Bugge, who both recognised the problems with existing software solutions in managing product lifecycles.

In 2021 another founder wanted to move in and sold his share to growth fund Armitage.

It was a classic Armitage play, effectively de-risking the company by providing supporting capital and management support, with former Lion chief financial officer Jamie Tomlinson coming in as chairman of the company.

Bugge told The Australian that the V Net Solution’s track record showed sales increased by 10 per cent simply by being available while inventory was cut by 20 per cent.

John Durie

John Durie

Senior business commentator at The Australian.