The JB Hi-Fi Limited (ASX: JBH) share price is moving higher today after providing a second quarter and subsequent first-half sales update.
As a result of the news, the JB Hi-Fi share price is up 7.25% to $50.02.
Elevated demand endures
Originally, the spike in sales JB Hi-Fi incurred over 2020 and 2021 was thought to be temporary.
But now nearly two years into the pandemic, management confirmed continued strong demand for consumer electronics and home appliance products.
For the first-half ending 31 December 2021, JB Hi-Fi achieved:
- Sales of $4.86 billion, down 1.6% year-on-year (YoY)
- Earnings before interest and tax (EBIT) of $420.5 million, down 9.1% YoY
- Net profit after tax (NPAT) of $287.9 million, down 9.4% YoY
Despite sales falling marginally in HY22, JB Hi-Fi recorded second-quarter growth across JB Hi-Fi Australia and The Good Guys.
Online continued to be a growth driver, now representing over $1 billion of group revenue, a 62.6% improvement on a year ago.
Today’s result is subdued by a bumper HY21, where sales increased 21.7% leading to a big profit jump of 68.8%.
But the company has effectively maintained its sales momentum from FY21 into FY22, demonstrating the temporary boost to sales may not be a one-off.
The company will release its audited HY22 results on February 14.
My take
Today’s update demonstrates the inherent operating leverage for retailers.
JB Hi-Fi has a largely fixed cost base (e.g. rent, utilities, and staff).
Therefore, if sales increase significantly – as they did throughout the pandemic – the business’s expenses increase at a much slower rate.
Subsequently, more of the incremental sales drop to the profit line, illustrated by JB Hi-Fi’s results over two years.
“EBIT was strong at $420.5m, down 9.1% on last year, but up 59.9% over a two-year period with significant operating leverage driven by the elevated sales growth, management of gross margins and disciplined cost control”
But the opposite is also true. If sales fall, as they did during the latest half, profit will usually fall by a larger amount.
Overall, it’s a strong result for JB Hi-Fi and makes the company look very cheap on a price-to-earnings ratio of just 10.
If the business can maintain the sales momentum, the JB Hi-Fi share price will likely keep moving higher from here.
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