JB Hi-Fi (JBH) $72.98

JBH -6.28%: was hit today after its March quarter update missed expectations, with the Australian business delivering positive but underwhelming comparable sales growth. The result was not bad in absolute terms, JB Australia and The Good Guys are still growing in a tougher retail backdrop, but the market was positioned for better, particularly given the stock’s recent bounce from the lows. The bigger concern for us was around margin pressure, with management calling out supplier cost inflation, stock shortages and heightened competition across technology categories going into an important sales period pre-June 30.

Sales Highlights:

• JB Hi-Fi Australia comparable sales: +2.6% YoY
• JB Hi-Fi New Zealand comparable sales: +15.2% YoY
• The Good Guys comparable sales: +2.5% YoY
• JB Hi-Fi Australia sales growth: slight acceleration from February, but below consensus

While the sales growth was positive, it was not strong enough to offset concerns around margins and the consumer outlook with CEO Nick Wells talking up pressures on the supply side.

Electronics retail is highly competitive, and if suppliers are pushing through component-related price increases while consumer demand softens, JB may have to absorb some of that pain through gross margin pressure or increased promotional activity.

The New Zealand business was the standout, with comparable sales up 15.2%, but it is a smaller part of the group and not enough to shift the broader mood. The core Australian JB Hi-Fi business remains the key driver, and at +2.6% comparable sales growth, it was solid rather but not great.

Morgan Stanley retained its underweight view, flagging gross profit margin pressure from PC category inflation and a weaker consumer outlook, while Citi noted that sales growth was below consensus and the retail environment had become more uncertain amid heightened competition.

We continue to think JBH is one of the best-run retailers on the ASX, with a strong brand, disciplined execution and a proven ability to take share through the cycle – but clearly times are tough although we though much of this would have already been baked into the cake, that wasn’t the case today. We own JBH across both the Growth & Income Portfolios.