JB Hi-Fi New Zealand's first-half earnings slump on margin squeeze

JB Hi-Fi chief executive Richard Murray

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 December 31 from $2 million a year earlier, the Melbourne-based company said in a statement. Sales slipped 1.7% 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%. However, it was at a slower pace than the cost of doing business which increased 179 basis points to 17.11%.

"The overall performance in New Zealand is a 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% to $A110.4 million on a 24% increase in sales to $A2.62 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% and a cost of doing business ratio of 13.93%.

The board declared an interim dividend of 72Ac per share, payable on March 10 with a record date of February 24. The ASX-listed shares last traded at $A28.47 and have gained 32% over the past 12 months.

JB Hi-Fi forecast annual sales of $AA4.33 billion will come from the JB division and $A1.25 billion from Good Guys, with underlying earnings of between $A200 million and $A206 million.


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