Money JB Hi-Fi margins under threat from Amazon

23:20  13 february  2018
23:20  13 february  2018 Source:   msn.com

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JB Hi - Fi has started to feel Amazon 's anaconda-like squeeze and is cutting prices at the expense of profit margins to maintain its market share and continue to grow sales. “We’ve always needed to be sharp on our prices," chief executive Richard Murray said on Monday. "At the moment there is a lot

JB Hi - Fi is Australia's largest home entertainment retailer with top products, great quality + value. Learn more about our product range online. JB Hi - Fi is Australia’s Largest Home Entertainment Retailer. Famous low prices, biggest brands and a huge range.

a close up of a piece of paper: Retailers beef up loyalty schemes ahead of Christmas© Provided by Nine Digital Pty Ltd Retailers beef up loyalty schemes ahead of Christmas Analysts predict JB Hi-Fi's operating margins will stagnate over the next decade as Amazon takes hold of the Australian retail market.

JB Hi-Fi's profit soared 37 per cent to a record $152 million in the first half of the financial year, but analysts at Morningstar say the company's full-year earnings forecast shows signs of strain from increasing competition.

The retailer has forecast a full-year profit in the range of $235 million and $240 million, which Citi analysts said was as much as three per cent below the market's expectations.

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But JB Hi - Fi chief executive Richard Murray said the company was committed to remaining the cheapest player in the market and it had significant JB Hi - Fi sales, which jumped 8.6 per cent without the impact of new stores, were driven by outright phone sales, computer games and drones, Mr

JB Hi - Fi is an interesting one. As you say, the company has been consistently under -estimated, and the stock looks superficially cheap on a number of measures. Historically, worries like what we are seeing today have been a sign that it’s time to buy the stock (but we’ve never plucked up the courage).

"JB Hi-Fi's fiscal year profit guidance suggests lower year-on-year operating margins and reinforces our view of an increasingly fierce competitive environment," a Morningstar analyst note said.

"We maintain our forecast of flat operating margins over the next decade."

Morningstar has a target of $23 on JB Hi-Fi's share price, well below their current value.

Its analysts said JB Hi-Fi's large network and lean cost structure won't be enough to protect it from Amazon, which they expect will make almost $1 billion in sales this year, equating to three per cent of all online sales.

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JB Hi - Fi has all the Music & Movies you love plus stacks of Games & Game Consoles. Check out the latest Hi - Fi , GPS nav, Digital Cameras, Action Cameras, Drones, Fitness Watches, Activity Trackers, Printers & Ink, Memory Cards and other Accessories. Grab a JB Hi - Fi Gift Card, it's the gift that

Amazon was 15 per cent cheaper than JB Hi - Fi and Harvey Norman, CITI said. Amazon would begin to bite into Australian retailers' earnings in the 2020 financial year, he said. But the decline would not be terminal, with retailers typically starting to recover margin about five years after Amazon

"As Amazon Australia grows its sales, we expect market share of the incumbent retailers to be under threat, offering little room for them to materially increase operating margins."

Deutsche Bank analyst Michael Simotas said JB Hi-Fi had delivered a robust half yearresult, and has a 12 month price target of $30 on its stock.

"Sales growth is the most important metric for any retailer, in our view, and we think it is sensible to take advantage of the current strong demand to better position the business for when things may become more difficult," Mr Simotas said in a note.

"The Good Guys' weakness is more of a concern to us but it is early days and management's strategy seems sensible."

Despite JB Hi-Fi's strong half year profit growth, the retailer's shares dropped eight per cent on Monday, as the company also said a focus on lower-margin goods would mean profit growth will fail to match sales growth in the second half.

JB Hi-Fi shares regained some of that ground on Tuesday, adding 56 cents, or 2.2 per cent, to $26.42.

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