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JB Hi-Fi: Earnings Fail to Lift Share Prices Amid Market Dynamics
JB Hi-Fi (ASX: JBH) illustrates a significant trend in the current reporting season: robust earnings alone may not guarantee rising share prices. Despite achieving revenue, earnings, and dividend growth in FY25 that reflected mid-to-high single digits, the stock faced a stark sell-off, plunging as much as 9.7% on Monday.
This scenario underscores an essential market trend to monitor, particularly for investors tracking high-performing stocks. Let’s delve into the specifics of JB Hi-Fi’s performance and the broader implications.
FY25 Overview
JB Hi-Fi’s FY25 results largely surpassed market projections, marked by impressive figures:
- Sales: Increased by 10% to $10.6 billion, compared to estimates of $10.49 billion.
- Gross Margin: Decreased by 21 basis points to 21.99%, slightly below the expected 22.13%.
- EBIT: Grew by 7.3% to $694.1 million, falling short of the anticipated $700.6 million.
- NPAT: Rose by 5.4% to $462.4 million, also lower than the $472.2 million forecast.
- Earnings Per Share (EPS): Up by 5.4% to 423 cents per share, just shy of the 431 cents estimate.
- Dividends: Total full-year dividends increased by 5.4% to 275 cents per share, maintaining a payout ratio of 65%. A special dividend of 100 cents per share was also declared.
- Notably, when excluding one-time ACCC expenses, EBIT and NPAT saw a 9.4% and 8.5% increase, respectively, both exceeding estimates.
Additionally, JB Hi-Fi revealed plans to enhance its dividend payout ratio from 65% to a range of 70-80% of net profit starting FY26.
Positive Start for FY26
JB Hi-Fi kicked off FY26 with promising growth trends surpassing the previous period:
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Sales Growth: Total sales in Australia were up 6.1%, reflecting improved performance compared to July 2024’s 5.6%.
- Comparable sales growth: 5.1%, slightly down from 5.2% in July 2024.
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New Zealand Sales: Flourished with a whopping 38.1% increase (previously 12.2%).
- Comparable sales growth surged to 24.0%, compared to the prior year’s decline of 4.9%.
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The Good Guys: Showed steady growth, with total sales up by 4.2% and comparable sales growth remaining at 3.8%.
- e&s Performance: Total sales growth was minimal at 1.0%, with comparable sales down by 2.7%.
Heightened Valuation Concerns
In this reporting cycle, "valuation" has become a predominant theme—perhaps even overshadowing discussions around AI. JB Hi-Fi experienced a dramatic 31% stock price increase year-to-date and nearly 70% over the past year prior to the results announcement. However, this surge occurred despite only modest earnings growth (5.4% in FY25 following a 16.4% drop in FY24), leading to virtually stagnant earnings over two years, while the stock price surged.
Consequently, the price-to-earnings (P/E) ratio escalated from approximately 18x a year ago to 28x before the results, raising alarms among analysts. Adding to the situation, CEO Terry Smart’s announcement of retirement and a slight miss in gross margin expectations (by 14 basis points) further fueled investor concerns.
Conclusion
Initially, the market reacted positively to JB Hi-Fi’s solid FY25 results, with stocks climbing 2.0% at opening. However, the subsequent sell-off highlights the volatile environment faced by many ASX stocks during this reporting season. As numerous companies hit record highs amid fairly modest earnings growth across various sectors, there is little tolerance for missteps. Even strong performance may fall short if valuations become disconnected from fundamental realities.
As investors remain vigilant, JB Hi-Fi’s experience serves as a crucial reminder about the precarious relationship between earnings and market expectations in a landscape where valuations may lead the charge ahead of concrete financial performance.
