JB Hi-Fi Falls Most in Four Months, Discounts Hit Profits

JB Hi-Fi Ltd., Australia’s second-largest electrical goods retailer, fell to its lowest level in three years after it forecast full-year earnings as much as 16 percent below analyst estimates.

The company slumped 6.3 percent to close at A$10.04 in Sydney, its biggest fall in four months. Net income will be A$100 million ($104 million) to A$105 million in the 12 months ending June, Melbourne-based JB Hi-Fi said in a regulatory statement, compared with the A$119 million average of 10 analyst estimates compiled by Bloomberg.

Discounting by competitors amid consumer confidence that has declined for seven out of the past nine months has cut profit margins by 2 percentage points in the March quarter, the company said. Woolworths Ltd. is closing stores and selling off its Dick Smith electronics chain, while closely held WOW Sight and Sound went into receivership in February. Myer Holdings Ltd., the country’s largest department store chain, has stopped selling games consoles and large household appliances.

“The level of discounting has been unusually high,” Jacqueline Fernley, an analyst at Wilson HTM Investment Group in Sydney, said by phone. “What remains to be proven is whether what’s occurring will help JB Hi-Fi.”

The decrease in competition should provide an opportunity to “react aggressively to maintain our market leadership,” JB Hi-Fi Chief Executive Officer Terry Smart said in the statement.

Price Discounts

While sales rose 8.8 percent in the March quarter, the company’s gross margin, which measures earnings as a proportion of revenue, fell 2 percentage points as retailers discounted shelf prices to revive revenue growth and win market share. The company had a gross margin of 22 percent in the 2011 financial year. Sales from stores open at least 12 months were up 1.3 percent in the March quarter.

“This level of discounting will continue over the next quarter but we do not believe that this is a long term structural change,” Smart said.

The company’s shares fell a record 15 percent on Dec. 16 after several analysts cut their ratings on the stock following a trading statement that predicted first-half earnings before interest and tax would drop about 5 percent from a year earlier.

JB Hi-Fi is set to release full-year results on Aug. 13.

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