JB Hi-Fi scale and low-cost operating model to drive ongoing earnings growth

About JB Hi-Fi Limited

JB Hi-Fi Limited (JB Hi-Fi, the Group, ASX: JBH) is a leading retailer of technology and consumer electronics and home appliances in Australia. The Group operates stores at sites located in most Australian States and employs 14,500 people. Established in the Melbourne suburb of Keilor East in 1974, JB Hi-Fi listed on the ASX in October 2003. The $1.55 Initial Public Offering (IPO) share price commenced trading at $2.20.

Scale and low-cost operating model drives earnings growth

The key to JB Hi-Fi’s impressive long-term earnings growth history is the Group business model.

Since JB Hi-Fi listed on the ASX in October 2003, earnings per share have increased at an annual compound growth rate of 20.8 percent and the dividend per share (fully franked) has increased at a compound growth rate of 21.9 percent. Over the past four years earnings per share and dividend per share have each grown by an annual compound growth rate of 21 percent.

This consistent earnings growth is derived from the Group’s business model which is based on scale and low operating cost. JB Hi-Fi is the number one player in the Australian Consumer Electronics and Home Appliance market. This gives the JB Hi-Fi brand powerful engagement with suppliers and a large customer base over which to spread the cost of doing business. The Group’s large customer base across the two markets enables suppliers to execute promotions and new product launches at scale and generate high sales per square metre of floor space. This efficiency of the business model allows the Group to respond to competitor market price activity to maintain market share and to compete effectively with new market entrants. Consumer electronics and home appliances retailing success is like most industries in that the key is to avoid the deadly middle ground, by being either big, or niche. Niche players can differentiate themselves, while big operators succeed through scale of operations. JB Hi Fi is clearly a big operator!

Class action

On 11 December 2023 JBH was advised by Maurice Blackburn Lawyers that a Statement of Claim in relation to a class action relating to the sale of extended warranties had been filed in the Supreme Court of Victoria. The Claim relates to the Australian Consumer law in relation to the sale of extended product warranties to consumers.

The Statement of Claim asserts that JBH sold extended warranties that allegedly had little or no value because customers already had those rights under existing Australian Consumer Law. Consumer advocacy organisation Choice in a survey found that one in three customers had purchased the

warranties. JBH considers that it has always complied with the relevant consumer laws and intends to defend the claim.

The Future

JBH’s low price and discount heritage supported by its strategy of scale and low cost of operation should continue to serve shareholder’s long-term interests well. This core strategy is being augmented by an evolving focus on small to medium sized businesses (SMEs) and education providers. The evolving strategy involves leveraging the Group’s retail proposition of best brands, big range and low prices as well as the Group’s store network and supply chain capabilities into new market segments. In addition, JBH plans to open 3 to 5 new stores per year over the next 3 years in New Zealand.

As a large-scale operator and market leader with a proven shareholder return bias, JBH shareholders can look forward to shareholder value accretion at least over the medium term.