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JB Hi-Fi's NZ 1H earnings slump on margin squeeze, attracting management's gaze

Monday 13th February 2017

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ASX-listed discount electronics good retailer JB Hi-Fi's management is keeping an eye on the New Zealand business after first-half earnings halved on this side of the Tasman as rising costs eroded the firm's margins. 

New Zealand earnings before interest and tax fell to $1 million in the six months ended Dec. 31 from $2 million a year earlier, the Melbourne-based company said in a statement. Sales slipped 1.7 percent to $125.1 million, although the year-earlier period was boosted by "market-wide demand for third-party prepaid content cards" in the wake of Dick Smith Electronics' liquidation. 

The washing through of the impact of those cards and "underlying improvements in a number of categories" helped fatten the New Zealand arm's gross margins by 113 basis points to 19.2 percent, however it was at a slower pace than the cost of doing business which increased 179 basis points to 17.11 percent. 

"The overall performance in New Zealand is an ongoing focus for the management team," JB Hi-Fi said. 

Government figures show New Zealanders spent $3.1 billion on electrical and electronic goods retailing in the 2016 March year, up from $2.81 billion a year earlier. 

The New Zealand arm has 16 stores, one of which was opened in the period, making it a small player for the wider group's network of 302 stores. Net profit for the group rose 16 percent to A$110.4 million on a 24 percent increase in sales to A$2.62 billion, which included about a month's contribution from JB Hi-Fi's recently acquired The Good Guys division. 

The local division's margins lagged behind the larger Australian division business with gross margins of 22.22 percent and a cost of doing business ratio of 13.93 percent. 

The board declared an interim dividend of 72 Australian cents per share, payable on March 10 with a record date of Feb. 24. The ASX-listed shares last traded at A$28.47 and have gained 32 percent over the past 12 months. 

JB Hi-Fi forecast annual sales of A$5.58 billion, of which A$4.33 billion will come from the JB division and A$1.25 billion from Good Guys, with underlying earnings of between A$200 million and A$206 million.

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