JB Hi-Fi Retains Revenue Guidance Despite Challenging Trading Conditions

CEO Richard Murray reaffirmed fiscal 2015 revenue guidance of AUD 3.6 billion, which is in line with our forecasts, while acknowledging the market remains competitive. In August management reported a 5.5% decline in like-for-like sales for the month of July, reflecting a steep decline in digital tablet sales and weaker market conditions. Conditions improved in August and September with management reporting a fall in like-for-like sales of 2.1% for the first quarter of fiscal 2015. Despite weak like-for-like sales growth, we expect the opening of eight stores during the fiscal year, combined with the conversion of 26 existing stores to the larger JB Hi-Fi Home format, will ensure the company can deliver low single-digit revenue growth. This growth will help to fractionalise the operating costs as revenue growth grows at a faster rate than costs, to deliver earnings growth. We retain an underlying view that discretionary retail will remain weak while economic growth is low and household debt remains high. We make no change to our earnings forecasts or fair value estimate of AUD 12.00. This valuation is below the current share price and differs from the market because we expect the company will find it increasingly difficult to generate acceptable returns on capital as the stores portfolio reaches maturity.