Retailers surge as JB calls truce
JB HI-FI boss Terry Smart has called an end to the aggressive price war in home electronics that last year delivered shoppers big discounts on TVs and other entertainment goods but which hacked away at retailer margins and cost hundreds of millions of dollars in sector profits.
12 Feb 2013 THE AGE - ELI GREENBLAT
Mr Smart said the consumer would still be in the box seat to get great deals, although they should not expect the kind of steep discounting battles that sometimes included a buy-one-get-one-free offer as leading retailers panicked and dumped stock at any price.
"In six months last year we saw very aggressive and unsustainable discounting going on in the market as retailers were clearing stock and trying to drive sales," he said. "The industry is in a better position this year and it doesn't feel like there is much stock in the channel, and what we have witnessed so far from December and January is just a return to a more normalised level of discounting."
Hopes of rational pricing and fatter margins for players such as JB Hi-Fi, as well as signals that consumers could soon be ready to open their wallets and replace plasma TV screens with newer models, helped spark a rally by discretionary retailer stocks on Monday.
The buying frenzy in some shares was further fuelled by hedge funds furiously trying to cover their costly short positions.
JB Hi-Fi, one of the biggest shorted stocks in the sector, led the pack and was helped along by its better than expected half-year profit result that showed interim profit had risen 3 per cent to $82.1 million.
Providing further good news was the forecast by Mr Smart that JB Hi-Fi would return to profit growth this financial year, after recording a 4.6 per cent fall in profits in 2011-12 when the TV price war, bloated electronics inventories and the collapse of a key retailer in Queensland slashed margins and sank earnings for most players.
JB Hi-Fi shares rocketed nearly 18 per cent on the profit result, hitting a high of $12.95 before closing up $1.88 at $12.89 - a 12-month high. Late last year, retailers made up five of the top 10 most shorted stocks, JB Hi-Fi being the most shorted stock in the ASX 200.
The upbeat earnings report from JB Hi-Fi also buoyed investor hopes that other discretionary retailers would deliver bullish forecasts for the remainder of 2012-13, with key retailers such as Wesfarmers, Woolworths, Myer and David Jones reporting soon. Shares in Harvey Norman, which has a large exposure to home entertainment, rose 13¢ to $2.33, David Jones rose 7¢ to $2.70 and Myer lifted 8¢ to $2.67.
Mr Smart said the outlook for the second half of 2012-13 was good, with total sales growth for branded JB Hi-Fi stores 11.7 per cent in January as comparable store sales improved 4.2 per cent for the month.
This was a turnaround from the first half when comparable store sales dropped 3.5 per cent (of which 85 per cent was from TVs).
JB Hi-Fi is now forecasting its full-year net profit to be in the range of $108 million to $112 million, up from the previous year's $104.6 million.
"The main driver of that will be around our margins stabilising," Mr Smart said.
Pre-tax margin was flat at 6.81 per cent for the first half.
"We are not saying we are not discounting," Mr Smart said. "We are just saying the market is still aggressive, it's just not doing the unsustainable [price] levels that we were witnessing last year.
"The consumer is still in the box seat for getting deals and we are as primed as ever to make sure we are taking all of those, but it's cycling events from last year that were just not long-term and sustainable."
Mr Smart said earnings this year would also be bolstered by the release of new products, including computer hardware and a new Samsung smartphone.
JB Hi-Fi declared an interim dividend of 50¢ per share, up 1¢, to be paid on March 8.