JB Hi blames discounts for downgrade woes

Reported by AAP
Friday, April 27, 2012
Topics in this article:
Woolworths,Jb Hi-Fi

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Electronics retailer JB Hi-Fi has blamed unsustainable discounting of televisions, computers and tablets for an expected fall in full-year profit, pushing the company's shares down to a three-year low.

JB Hi Fi chief executive Terry Smart said April sales would finish in the negative as gross margins fell due to widespread discounting.

Harvey Norman and other competitors were engaging in aggressive tactical discounting while Dick Smith and the failed WOW group cut prices to clear stock.

"You can't keep getting support to sell below cost," Mr Smart told analysts on Friday.

"There will just have to able a point where it can't be done. You can't get support to that."

Mr Smart said the new iPad had been hit hard and rivals were offering unsustainable discounts of 30 to 50 per cent on computers and handheld devices.

At 1610 AEST JB Hi-Fi shares were down 5.98 per cent at $10.07.

The home entertainment retailer says it expects comparable store sales over the three months to June 30 to be down by as much as 2.5 per cent as gross margins fell due to discounting.

As a result, net profit for the year to June 30 is forecast to be $100 million to $105 million, which would be down from $109.7 million in the previous financial year.

Mr Smart predicted the same level of discounting would continue this year as the company faced weak consumer sentiment, new online players and difficulties obtaining stock.

"We expect discounting to continue on for the next quarter at least," Mr Smart said.

A pick up in sales volumes in the recent quarter was unlikely to lead to softening demand in the quarter ahead.

However, Mr Smart said the recent placement of Queensland-based WOW Sight and Sound into receivership, plus the closure of Dick Smith stores, presented JB Hi-Fi with opportunities to grow its market share.

He said JB Hi-Fi had no plans to buy any part of the Dick Smith chain.

Still, the company will press ahead with rolling out 53 new stores in high foot traffic locations.

Merrill Lynch analyst Silvia Spadea said she was concerned about the potential damage of price cutting over the long-term.

"My concern is that the current discounting might be accepted by consumers to be a permanent shift," she said.

"This could go on for a little while."

Any decision by Woolworths to sell off more Dick Smith stores would put further pressure on sales, she said.

Patersons securities senior adviser Marcus Padley said JB Hi-Fi was the latest consumer discretionary company to realise it would not make its full year or interim numbers.

25/07/2014 05:08Sydney, Australia. 25 July,2014
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