JB Hi-Fi Expands with E & S Acquisition, Strong FY25 Outlook

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 and New Zealand. The Group operates 330 stores at sites located in most Australian States and employs 15,000 people. Established in the Melbourne suburb of Keilor East in 1974, JB Hi-Fi listed on the ASX in October 2003 when the $1.55 Initial Public Offering (IPO) share price commenced trading at $2.20.

Acquisition of E & S Trading Co (Discounts) Pty Ltd

On 2 September JB Hi Fi completed the acquisition of leading kitchen, bathroom, and laundry retailer, E & S, through the purchase of 75 percent of the shares in E & S Trading Co (Discounts) Pty Ltd. JB Hi Fi paid $47.8 million cash for its initial 75 percent stake, with the option to purchase the remaining 25 percent in September 2029.

E & S provides a premium offering across the kitchen, laundry, and bathroom product segments and has an established commercial offering in Victoria servicing builders, developers, and architects. E & S generates annual revenue of $230 million and normalised EBITDA of about $7 million.

The acquisition provides access to a new customer base in the commercial construction market that includes large commercial construction customers and boutique and volume builders and architects.

Scale operator generating sustainable long-term growth

JB Hi Fi adopts a large-scale operating model that drives efficiency and generates high sales per square metre of floor space. This efficiency model enables the Group to quickly respond to competitor market price activity to defend market share and to compete effectively with new market entrants.

The other advantage of adopting a large-scale operating model is that both local and global suppliers can jointly execute promotions and new product launches at scale. This marketing activity strengthens the JB Hi Fi brand and this is important to suppliers seeking to maximise sales of new technology and innovative products.

By conducting its operations on a large-scale JB Hi Fi does not have to compete with niche retailers which are typically small but highly specialised and focus on a smaller group of customers. As Australia’s largest electronics retailer, JB Hi Fi does not have a lot of direct competition in that the market participants which are neither large scale nor niche players are caught in the middle ground in a ‘pincer’ position and find it difficult to compete in the consumer electronics market against a dominant market participant like JB Hi Fi. This market structure has proved to be highly favourable for JB Hi Fi shareholders who have benefited from an earnings per share compound annual growth rate of 18.6 percent since listing in 2003 and compound earnings per share growth rate of 13 percent since 2019.

Conducting business operations at scale represents a significant barrier to entry given the relatively small size of the Australian consumer electronics retail market with a population of about 26.7 million people. This compares, for example, to the population of the USA at about 347 million where competition is far more intense.

Positive outlook

In a sales update released to the ASX on 31 October 2024, JB Hi Fi reported a solid start to the 2025 financial year with comparable sales growth of about 5 percent across the Group for the September quarter. It is the all-important second quarter which includes Black Friday and Christmas sales that will have a more significant impact on FY25 reported results.

However, the Group’s leading retail brands comprising JB Hi Fi, the Good Guys and the recently finalised acquisition of E & S, the premium Home Appliances and Bathroom retailer, should ensure continued earnings reliability. Combined with the Group’s zero debt and net cash position, high operating profit to cash conversion ratio and a substantial franking account balance, shareholders can also look forward to consistent dividends in the foreseeable future.