Dick Smith's fall reinforces JB Hi-Fi boss' view on value of product diversity

JB Hi-Fi's boss says the collapse of rival electronic retailer Dick Smith has reinforced his view that his company has the right strategy in carrying a diverse range and not investing too heavily in private label products.

Chief executive Richard Murray also said JB Hi-Fi would make the most of any opportunity to gain market share if Dick Smith could not be sold and closed.

JB Hi-Fi interim net profit up 7.5 per cent

JB Hi-Fi has delivered a strong half-year result.

One analyst suggested that scenario could net it as much as $106 million in extra sales a year.

JB Hi-Fi upgraded its 2016 profit forecast on Monday off the back of strong sales growth in the second half of last year, especially in November and December, during the all-important Christmas and Boxing Day sales period.

Chief executive Richard Murray believes JB Hi-Fi's sales growth is the result of having the right product range.
Chief executive Richard Murray believes JB Hi-Fi's sales growth is the result of having the right product range.  Photo: Wayne Taylor

Mr Murray said it was unclear whether Dick Smith – now in the hands of receiver Ferrier Hodgson – would shut its doors, but his company would take the opportunity to increase sales growth if it did.  

"Our job is to maximise the opportunity . . . we want to gain market share," he said. 

"We want to do it sensibly, we want to do it profitably. If there is an opportunity, we always look to maximise that opportunity."

Citigroup analyst Craig Woolford had predicted $106 million in additional sales and $19 million in profit could flow to JB Hi-Fi if Dick Smith shut.

Rival retailer Dick Smith is in the hands of receiver Ferrier Hodgson.
Rival retailer Dick Smith is in the hands of receiver Ferrier Hodgson.  Photo: Edwina Pickles

Strength in diversity 

Mr Murray said Dick Smith's collapse had reassured him that JB Hi-Fi had the right strategy by carrying a diverse range of popular branded products and not following Dick Smith's lead in investing heavily in private label products.  

"I do believe the diversity of the JB model lowers our risk," Mr Murray said. 

"Customers look to JB to bring them, within each category – be it fitness, visual or computers – the 'now' product . . . but it's also quality products.

"We're not sticking our neck out on large private label plays."

Mr Murray said a liquidation sale or more heavy discounting at Dick Smith would have little effect on JB Hi-Fi, given much of Dick Smith's stock was out-of-date private label products. 

JB Hi-Fi bucked the damp mood in the discretionary retail sector by reporting 7.7 per cent sales growth and 5.2 per cent same-stores sales growth in the second half of last year, hitting $1.97 billion across its 194 stores in Australia and New Zealand.  

Net profit rose $95.2 million in that six-month period, up 7.5 per cent on the same time last year. 

It revised its projected sales for the 2016 financial year up by $50 million to $3.9 billion and expected profit to be between $143 million and $147 million. 

He said Dick Smith stores, which were for sale, were too small for JB Hi-Fi and the opportunities for expansion by acquiring the stores were "immaterial".

JB Hi-Fi further diversified its range by introducing small appliances such as blenders, juicers and coffee machines to 22 stores in the second half of last year, and recorded "really pleasing" sales, Mr Murray said. 

JB Hi-Fi also converted nine stores to the larger, appliance-focused HOME stores and opened another four, putting it on track to meet its target of 75 JB Hi-Fi Home stores by 2017. 

A trend towards buying mobile phones outright rather than signing up to more profitable telco contracts had reduced JB Hi-Fi margins, making that one area of recent weakness.  

Goldman Sachs analyst Adam Alexander said JB Hi-Fi's half-year report was "overall a good result, ahead of our estimates".

"The business appears to have negotiated the difficult iPhone product cycle and competitor discounting well," Mr Alexander wrote in a note to clients.  

Macquarie analyst Bryan Raymond said the results met the firm's expectations, while January – when sales grew 10.2 per cent – was an "outstanding result".  

Mr Raymond said there was an upside risk to guidance if JB Hi-Fi maintained its momentum through the last five months of FY16. 

JB Hi-Fi's interim dividend will be 63c. It is payable on March 4.  

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