JB Hi-Fi Limited (JBH) Earnings Call Transcript & Summary

Good morning, everybody. And thanks for joining us for the full year results. Obviously, we talk through the presentation. We appreciate it's a busy morning. There's a lot of companies releasing. So we won't keep you till 11:30, we'll probably try and get this done by 10:30. So I'll now turn to Slide 4, which is the group model. This slide highlights the group operating model and how it supports our 2 leading retail brands. We've obviously been using this structure for a little while now. We've got differentiated customer bases, underpinned by the biggest brands at low prices, delivered with exceptional customer service from our passionate and knowledgeable staff, and we're achieving that in-store, online, over the phone nowadays. So we achieved this by our group support functions, which leverages our 5 competitive advantages, which I'll touch on, on Slide 5. As we've talked about before, we believe these are 5 unique competitive advantages. The first is scale with our #1 position in the market, and we are globally relevant to our suppliers. Low-cost model, which is -- underpins everything we do and stands us in great stead. Quality and diversified store locations, which has certainly stood us in good stead over the last few months and deep supplier partnerships. We operate across our brands integrated high-quality in-store, online and phone offers that provide customers with choice on how they shop with us. Our store network provides the ability to achieve fast online fulfillment times and Click & Collect. Turning to Slide 6 and group performance. We're obviously going to go through this a few different ways. So I won't talk through the numbers. It's just -- it is a very pleasing result in what is being a most challenging time. We're pleased to report strong sales and earnings. And importantly, we have provide -- done this in a period where we've provided our customers with the products they require, they spent more time working, learning and upgrading their home appliances and entertainment solutions at home. We have kept our team in jobs with an absolute focus on health and safety. I would like to recognize and thank the over 13,000 team members across Australia and New Zealand, whose hard work and continued focus has delivered another record result in FY '20 in a pretty unique period. In short, we've protected our team, we've protected our customers, and we've protected our business. I'll now just touch quickly on Slide 7. And obviously, that talks through both the sales and EBIT and EBIT margin for the divisional results, which we're going to go through when we get into the divisional results shortly. Turning to Page 8 and the group highlights slide. Sales were up 11.6% to 9 -- sorry, I wish, $7.9 billion, particularly pleasing with total online sales across the group, grew 49% to nearly $600 million, representing 7.5% of total sales, with Quarter 4 online sales up 134%. Underlying EBIT was up 30.5% to $486.5 million. Underlying NPAT EPS and dividend per share was up 33%. Our group operational achievements included, as I mentioned earlier, absolute focus on health and safety throughout COVID-19. In June, we've had a recognition bonus of $1,000 to all full-time store and warehouse team members, pro rata for part timers and casuals in appreciation of the incredible contribution they have made during COVID-19. We have commenced consolidation of 18 bulky good DCs into home delivery centers with the transition in Sydney in September '19, Melbourne in March '20 and Brisbane just completed in May '20. We've implemented our sustainability policy, which details our commitment to having a positive impact on our people, our community and our environment and the continued expansion of our commercial business. As I turn to Slide 9, this year, we have given a lot of thought to what generating sustainable long-term growth means for us. During 2020, the group adopted a sustainability policy outlining our commitment having a positive impact on our people, our community and our environment, and today, we released our first sustainability report. Some of the key areas and achievements, and I'll take some, as we've addressed earlier as read. From a people and culture perspective, we've provided mental health training to 332 store managers and launched our flexible work policy. We are really proud of the positive impact we've had on our community. This year, our workplace giving programs across the group raised $3.4 million for our charity partners and since its inception, we've raised over $24 million. Together with our customers, we've raised an amazing $557,000 for bushfire release, and we launched e-mails -- e-mails, a recycling initiative that turns e-waste into meals for, people in need. And we're the first Australian retailer to join the responsible business alliance. Turning to our environment. JB Hi-Fi launched a reusable $1 bag as well as $0.15 user pays plastic bag option in February 2020, resulting in a 72% reduction in plastic bag usage. This has been, we've handed out 6 million fewer plastic bags will result in the elimination of 59 tonnes of plastic waste. I really encourage you to read our sustainability report. We're really proud of it. I will now turn to Slide 10 and touch on how we've been managing the business through COVID-19. The group's highest priority is the health, safety and well-being of our team members, customers, business partners and the wider community. And so we think about it in 3 areas during COVID-19, health and safety, responding and adapting and financial sustainability. I've touched already on the health and safety response. And this slide details the measures -- sorry, puts in more detail the measures we've taken, both in-store and at support office. In addition to health and safety, we responded and adapted by adjusting our operating model to meet customer needs of working, learning and upgrading their home appliance and entertainment at home. We have redeployed staff and stock to stores and categories with heightened customer demand. Scaled our contactless, Click & Collect and home deliveries, increased the proportion of digital marketing and leverage the existing investments in infrastructure and technology to support sales online and supply chain. We have maintained our financial stability by our low-cost culture and focus on minimizing unnecessary expenditure, working capital and maximizing liquidity. We have continued to pay suppliers, landlords and team members, strengthened our balance sheet with an additional $260 million short-term facilities. We've continued to invest for the future across technologies to enable our sales, our home delivery centers, store upgrades and digital initiatives. The group did not receive any Australian government COVID-19 subsidies. The group received NZD 3 million from the New Zealand government's wage subsidy scheme, which supported team wages while the New Zealand stores were closed. I'll now turn to the JB Hi-Fi Australia results. And I'll jump to Slide 13. So turning to JB Hi-Fi, we saw sales growth of 12.5% to $5.32 billion, with comparable sales up 12.2%. Sales momentum was strong through the year and accelerated in quarter 4. The power of the JB model is highlighted, as we saw solid growth in new categories as customers see us as a destination for new products, but also saw solid gains in established categories. Hardware and services sales were up 14.6% on a comp basis, driven by communication, computers, visual, audio and small appliance categories. Communications had a very strong result with both outright handsets and connections with our offers resonating with customers, product sales drove growth with a particularly strong period for Apple. Computers also had a very strong year, particularly in quarter 4, as customers sought products for working and learning at home. Visual had a great year, again, performing very well in quarter 4. We have seen an increase in sales of larger panels as customers move to 75-inch and above panel sizes. We launched our exclusive FFALCON range earlier in the year, and this has been well received. Audio continues to perform well. Headphones, both in-ear and over-ear performed well, particularly in the wireless categories. Small appliances had a fantastic year, and again, quarter 4 was strong. We saw growth in 6-pack air purifiers and coffee. This period was particularly important for JB, with a number of competitors closed that was good to engage with our customers on a relatively new category to the business. Online sales grew 56% to over $400 million or 7.6% of total sales, with a significant acceleration in quarter 4 up 155%. Our ability to scale and maintain a high level of customer service on-time delivery during quarter 4 was pleasing. The commercial business recorded strong growth through Q3, but it was a little bit impacted in quarter 4 with the slowdown in business spending. I'll now turn to Slide 14 and JB's earnings performance. A key element of our customer promise is the biggest brands at the lowest prices in-store and online, coupled with passionate and knowledgeable staff delivering great customer service. Online, we strive to ensure our site simplifies the journey for customers, whether they're researching or transacting. We work with suppliers to build a relevant and agile promotional plan, which coupled with JB's ability to bring products to life in-store and online creates a unique customer proposition. It is this that enables JB Hi-Fi to maintain our price and market leadership. We are a sales-led organization with a focus on growing top line sales and gross profit dollars. Gross profit increased 11.7% to $1.17 billion, while gross margin was down 16 basis points, driven primarily by sales mix as a result of the acceleration of growth in low-margin technology products to support customers, living, learning and working from home. Cost of doing business was 14.1%, down 20 -- sorry, down 80 basis points. Cost of doing business in absolute terms grew 6.5% with cost control more than offsetting the additional operating costs associated with ensuring that our team members remain safe during COVID-19. EBITDA grew 22%. Depreciation declined by 5%, as we continue to manage our investment in the store network. EBIT was up 26% to $380 million and EBIT margin was up 78 basis points to 7.2%. Turning to Slide 15. The Group is focused on continuing to improve our performance in New Zealand. However, as a result of past performance and the ongoing uncertainty arising from the current environment, the Group reviewed the carrying value of certain New Zealand assets. This review resulted in a one-off $25 million noncash post-tax impairment, which we announced previously. I'll now turn to Slide 17 and our underlying performance in New Zealand. Total sales were down 5.7% to NZD 222 million, with comparable sales down 5.7%. Quarter 4 sales were materially impacted by temporary closures of stores resulting from the New Zealand government restrictions. We estimate the lockdown in New Zealand from late March to early April for approximately 7 weeks resulted in a missed sales opportunity of circa $20 million. Adding this back to our sales result, we would have achieved a slightly positive sales growth. It was really pleasing to see online sales grow 53% to 9.1% of total sales with quarter 4 online sales up 145%. There was an EBIT loss of $2 million, which was in line with the prior year. Turning to Slide 18. As we look to FY '21, we will continue to prioritize the safety of our team members and customers and respond and adapt to our customers' changing needs. We will continue to drive sales across all channels, in store, online, phone and commercial. We will continue our category evolution, including the expansion of Communications and Connected Tech and optimized category space to maintain productivity on our floor. We have stores in diversified locations from centers, strips, homemakers, small format and airport locations. We have continued to enhance our -- we will continue to enhance our partnerships with major suppliers to extend our capabilities and build on those already strong relationships. In New Zealand, we will continue to execute on our strategy and improve performance. We remain focused on expanding and extending our service offerings in store. Our investment in e-commerce across the business has continued to see excellent returns. We've leveraged our new e-commerce platform for JB Australia Shopify and building on our capability. We continue to evolve our offer to meet the changing needs of customers, and we continue to integrate the in-store and online experience. We remain focused on simplifying processes and driving productivity with a focus on improved stock flow into store and our back of house operations. I'll now turn to The Good Guys on Slide 21. Total sales grew 11.2% to just under $2.4 billion with comparable sales of 10.8%. Sales momentum improved through the year and accelerated in quarter 4, as customers spend more time working and learning from home as well as upgrading their home appliances and entertainment products. There was strong growth for the year across most categories. Within home appliances, portables continued their strong performance from the first half, with strong unit sales growth seen across coffee machines and cooking and food preparation. Floorcare saw significant growth achieving both ASP and unit growth, Laundry performed well with strong offers across both drivers and washers. Within Consumer Electronics, highlights included computing, experienced strong growth throughout the year as we continue to build our offer nationally expanding range and gaining relevance in these categories. Television sales growth would have delivered through unit growth in large-screen TVs. Online sales were up 33% to $174 million or 7.3% of total sales. With quarter 4 online sales up 91% as strong sales on The Good Guys website was slightly offset by a decline in third-party marketplace sales. Our ability to scale and maintain a high level of customer service and on-time delivery during quarter 4 was really pleasing. I'll now turn to Good Guys earnings and Slide 22. Gross profit was $490 million, while gross profit -- gross margin was down 9 basis points to 20.5%, with sales mix offsetting gross margin improvements as we expanded our CE and tech offering. Cost of doing business was 15.4%, down 121 basis points, and in absolute terms grew 3.2% as store wages remained well controlled through the year. Strong operating leverage from the elevated sales growth and cost control drove strong EBITDA growth of 42%. Depreciation grew by 11%, driven by the continued investment in the store upgrade program and accelerated depreciation impairment of an underperforming store. EBIT was up 47.8% to $107.8 million while EBIT margin was up 112 basis points to 4.5%. Now turning to The Good Guys focus areas. The Good Guys team continues to leverage its unique offer and capabilities with opportunities for improvement. As mentioned earlier, the group's highest priority is the health, safety and well-being of our team members, customers, business partners and the wider community. The team continues to drive sales across all channels, in-store, online, phone and commercial. The team continues to drive category evolution, focusing on maintaining its leading position in home appliances and focusing on the growth of connected home appliance market and continuing to grow their telco product and service offering with Telstra. The team continued to invest in our stores, focusing on adjacencies, supporting growth categories in showcasing home appliance categories. The team continued to build on supplier relationship with a focus on being a launch partner, and a launch partner of choice of our suppliers and enhancing and evolving the product offer with improved ranging and the introduction of new brands like Miele in Premium Cooking and SMEG and portable appliances. The team continues to evolve the delivery experience, utilizing our group supply chain capability to provide customers an enhanced delivery service. The team continues to drive productivity improvements, rolling out technology to streamline in-store processes and focus on inventory efficiency, ensuring we have the right product at the right price at the right time. And finally, The Good Guys team are leveraging its multichannel capability to further connect the in-store and online experience. I'll now hand over to Nick to talk through the balance sheet and cash flow.

Thanks, Richard. On Slide 25, the balance sheet and focusing on working capital, where we've seen some really material movements year-on-year. Starting with inventory, inventory levels were down significantly on last year due to supply shortages arising from that very strong customer demand in Q4 that Richard outlined earlier. We were, and we still are, buying everything we can, but no one anticipated this level of demand. And as a result, suppliers have had significant stock shortages across the country, which is flying on to us. Moving on to payables, which were up significantly on last year due to the increased purchasing of inventory late in Q4 to continue to meet that heightened demand and replenish inventory levels. Ordinarily, we would purchase the bulk of our inventory for the June tax time sale period in April or May. So it would be paid for by the end of June. This year, given that elevated demand, we purchased significant amounts of stock all throughout the quarter and particularly in June, as supplier availability improved slightly, resulted in payables being elevated at June 30. As we've highlighted there on the slide, payment terms with suppliers have been maintained, all suppliers have been paid in full and on time. On receivables, they are down year-on-year pleasingly as we've actively managed receivables periods during COVID-19. Turning to Slide 16, highlights on the cash flow statement. Operating cash flows and operating cash conversion are obviously up significantly due to the movement in working capital arising from the change in the timing and level of inventory purchasing, which I just outlined. CapEx was down year-on-year as our quarter 4 store capital projects were delayed by accessibility issues resulting from the social distancing restrictions. And then finally, on net debt, we are in a net cash position of $251 million at June 30 due to those working capital movements. These movements will reverse when inventory availability improves and inventory can be replenished. Following that, we will return to a more normal net debt position. On Slide 27, capital management. We today declared a final dividend of $0.90 per share, fully franked, up $0.39 per share or 76.5% on last year's final dividend. This brings the total dividend for the year to $1.89 per share, up $0.47 per share or 33%. We have maintained our dividend payout ratio of 65%. And I want to highlight that we have elected to pay the dividend based on the higher underlying earnings of $332 million rather than the statutory earnings of $302 million. The record date for the dividend is 28th of August, with the payment to be made on the 11th of September. On Slide 28, AASB 16 has required, and as I'm sure you'll all be well aware, we adopted the new accounting standard on the 1st of July. The impact of the changes set out on the slide, I won't go through it in detail. As we've said previously, the standard has significantly changed the reported results. However, it has had no impact on the group, its cash flows, debt covenants or shareholder value. I'll hand back to Richard.

Thanks, Nick. And I'll turn to Slide 30, the group FY '21 trading update. I think I've said Slide 30. So July 2020 sales update. Total sales growth for JB Hi-Fi Australia was 42%, with comps comparable sales growth of 44%. Total sales growth for JB Hi-Fi New Zealand was 9%, and total sales growth for The Good Guys was 40%. Just an update on where we're at with COVID-19 temporary store closures. Following the Victorian government's announcement of Stage 4 restrictions in Metropolitan Melbourne, 46 JB Hi-Fi stores and 21 Good Guy stores were temporarily closed to customers from the sixth of August for a minimum period of 6 weeks. Following the New Zealand government's reintroduction of the Alert Level 3 restrictions in Auckland, 7 JB Hi-Fi New Zealand stores were temporary closed to customers from mid-day the 12th of August, for a minimum period of 2 weeks. In Metropolitan Melbourne and Auckland, our online and commercial operations continue to trade with fulfillment by Click & Collect and home delivery from our store network and warehouses. August 2020 sales update and outlook. The group has seen significant acceleration in online sales in Victoria in the first 11 days following the Stage 4 temporary store closures. These, combined with continued sales momentum across the rest of Australia has resulted in group -- sorry, has resulted in the group achieving strong sales growth in August today. While we are pleased with our start to FY '21 and current trading, in view of the uncertainty arising from COVID-19, we do not currently consider it appropriate to provide FY '21 sales guidance. And just as we close out this section of the presentation. I'll turn to Slide 32 and our investment checklist. It's been in there for a while, so I won't go through it in detail. But in closing, both brands work hard to maintain their market leadership. For JB, technology and consumer electronics is a staple and front-of-mind purchase for our customers. For The Good Guys, they have market leadership in home appliances and a strong position in CE. The group worked very hard to maintain our position as #1 destination for tech, consumer electronics and home appliances. We are focused on maintaining a resilient retail model that rewards our team and customers for their loyalty and reinvest for the future. We're obviously really proud of our results and want to, again, call out the team for what's been a massive period over COVID-19, and they just keep on giving. And so it's a massive acknowledgment to the team. Really pleased with the results. And operator, if we could move to Q&A, that would be terrific. Thanks, everybody.

[Operator Instruction] Your first question comes from Michael Simotas with Jefferies.

My question is regarding costs. Can you just give us some sense, please, of how much cost you've put into the business directly related to COVID, so not the cost to service the extra sales demand, but the safety cost that you put in as well as other things like staff incentives.

Look, you can probably -- the one you can call out is obviously the recognition payment. So if you think about staff numbers, the amount we paid, I'm sure you can back off that number. As to the other costs, regularly see bills for mass of $400,000. So yes, there's material lines going through, but we're -- obviously, with this elevated sales, we're pretty comfortable how we're paying for that. But we're not calling out a big-bucket number because we feel we're more than handling that across the sales growth. Obviously, you would appreciate with the sales we're seeing at the moment. That's what we're able to absolutely compensate for that and still see strong earnings growth. As we've always said, we cut our cost to fit the environment. And at the moment, customers are coming -- I mean, the one thing I would say in when we think about wages is you can imagine at the moment, the customer journey is very efficient. Customers are coming in, knowing exactly what they want. And browse times are down because customers are pretty -- in a pretty can-do mood. That's the only comment I'd make around what the -- I guess, the efficiency and productivity of wages at present.

Okay. So you won't quantify the staff incentives?

It's like a number like $12 million.

Including on cost because the $1,000 is before on cost, including our cost you get to north of $12 million.

Your next question comes from David Errington with Bank of America.

Richard, Nick, I am amazed at your cost performance, it's terrific given your sales are growing at $600 million, you contain your cost to the level that you're saying. My question is on the supply chain. You mentioned availability difficulties. You don't seem to be seeing stressing cost of goods sold or it doesn't appear to be. Can you call out what some of these difficulties are because it doesn't appear to be holding up your sales. Can you call out what items you're having difficulties in? What areas you're looking -- you're finding it difficult to get it and where it is causing some difficulties in your cost of good line?

I don't want to be flippant, but when you've got 40% sales growth across the business, you're pretty much working pretty -- the guys are working full time to just get stock into the business. It's just a full-court press. So obviously, in our model, we can -- when customers are in it, they're looking for a particular product, we can help -- if we don't have that, we can, obviously, as a sales-led business, help them understand what the other options might be. So we feel more comfortable in this environment that you can actually have a conversation with customers. Yes, globally, suppliers like us, are having a pretty good time, particularly around working and learning from home. So you can imagine at times, that will be well telegraphed. You couldn't get a monitor, you couldn't get a keyboard. Obviously, suppliers have ramped up production. I'm pleasantly surprised with the inventory we have on hand that we can drive the sales numbers we are. But that's what I love about the team across JB and The Good Guys. They get stuff done. But it is, if you would ask me 12 months ago, could we achieve significantly double-digit sales growth with these inventory levels, I wouldn't have thought so. So it's certainly a great outcome.

The cost of good line, Richard? Do you...

Oh, cost of good line, we -- so just in cost of doing business, I'd actually just go back to, customers are really efficient at the moment because they know what they want. So we're absolutely over -- all over the health and safety, but actually making that a little bit easier is, I mean, we always got traffic counters, but when -- with traffic counters and queues at the side of -- queues at the front of some stores at times, obviously, you can sort of handle the flow in the store really well. So it is actually remarkably efficient.

And the cost of goods, is that -- are you seeing stress there like increased freight costs or anything like that?

Well, you remember, everything for us is direct to store. So suppliers are no doubt incurring freight costs, and some of that is being passed through in price rises. And so that's coming -- yes, there'll be some price inflation in the comp number.

Your next question comes from Grant Saligari with Crédit Suisse.

Richard, can you elaborate, please, on the benefits you expect to get from the DC conversions that you're undertaking to support your online fulfillment and I guess, within that, what the practical capacity for your online fulfillment will be once the new model was in place?

Okay. So if I take a step back, just so the home delivery centers, we call them internally big and bulky. So they are primarily -- The Good Guy team actually use the facilities a lot more proportionately than the JB team, but just because of the volume of large product they push through. So it is only a big product. So it's basically, let's call it, home appliances and TVs. For JB, it frees up space in the back house, which is obviously constrained. And for Good Guys, it's just -- has enabled us with all the re-merchandising. We've done The Good Guys stores and particularly OH&S, to be honest, in the short term, they cost us money. Because some of the warehouses previously were pretty cheap and cheerful. And given our focus on OH&S, these are modern, clean, safe warehouses, and they are the next evolution for what the group needed. But they are primarily focused on big and bulky. We haven't got to the stage of, do we believe in a world of a centralized online warehouse for sort of under 25-kilo product? At the moment, we find it pretty efficient getting those out of stores. It's obviously a watching brief as to how we want to balance that over time.

And the practical capacity for online fulfillment?

Well, the practical capacity, given most of the online fulfillment, well, we're very comfortable in the sense it's -- the biggest constraint we've got in online sales and absolute sales is stock. The system can handle it. The warehouses are operating fine. The stores are operating fine. And I know there's been a lot of feedback, but I reckon Australia Post and Toll are doing an amazing job at the moment and INCO or the carriers, they all are carriers, are doing an awesome job. Our delivery times are amazing. The customer feedback is amazing. I can't get over how well we're doing. When we all know that, obviously, particularly in Victoria at the moment, so there's a lot of -- the only way to get product is Click & Collect and delivery, and the guys are doing a great job. So it is a very fit-for-purpose model. And all it means is in the warehouse, for example, in the warehouse, you just might be getting more deliveries, but we're certainly managing that.

Your next question comes from Bryan Raymond with Citi.

Congrats on the great result. Just on the gross margin, I'd just be keen to get your thoughts around the underlying promotional environment with -- our feedback indicates, it's been pretty light on promotions given stock levels, just surprise to see gross margins down in the second half. And I understand mix is to be part of that. But -- and you did mention Apple has done well and some of the categories have done well, lower margin. But could you give us a bit of color around whether on a like-for-like basis, like essentially adjusting for mix, you've seen better gross margins like category by category? Or if I'm missing something there?

No. You answered the question pretty well, mate. So yes, I would say was obviously, good opportunity to clear through any slightly slow-moving stock. Every -- we pride ourselves on that. But certainly, both -- across both businesses, I don't think the inventory has ever been cleaner. So that is -- that's an awesome outcome. And sometimes when you want to clear through that stock, customers are keen, but you've got to make sure you're giving to them a good value. You called out Apple. It's been remarkable period in Apple. And thankfully, we've been able to get a reason on our stock. Obviously, there has been store closures, Apple closed some stores or closed their stores, other competitors closed some stores. We have actually -- I mean, if you're on our EDM thing, we certainly haven't taken our foot off the promotional plan. And remembering, given our promotions are funded by suppliers, it probably doesn't really change the gross margin exit number. And customers are still negotiating, and they're pretty focused, but they're in and out. And sometimes, if anything, the challenge has been the attach, which often we obviously tend to put a bit of margin into the deal, customers just come in, just want one product and they're out. So some of our -- the metrics we might normally call out as sort of a strength of the underlying model, we're probably just customers, and we are a little less focused on that at the moment because the customer journey is very efficient in these COVID times. But yes, put it all -- taking into account mix and then you're saying we'll strip out mix, it's pretty business as usual, but mix was really material.

Yes. Okay. So just finally to follow up on that then. The amount of margin you'll normally leak on the floor just through negotiation with the customer, given stock levels. I'd imagine that has moderated a bit? Or are you saying that's being pretty consistent?

There might be a little bit in that, but then you add clearing through some stock. The mix, it's -- I think to your point, it's a little bit less what we call effective discounting in the store, but the offset to that is a little bit less funneling and attached. So you're not getting the attach with the higher-margin accessories and things. So not material at all. I feel like we say it every time, but in our business, mix is the biggest impact by far.

Your next question comes from Andrew McLennan with Goldman Sachs.

Congratulations to you and the team for a momentous effort and a very strong result here. Just wanting to ask a question around online, you probably couldn't ask for a better way of stress-testing the online capabilities of the business. Just wondering, as you've gone through that experience and are evolving, just what step changes in addition to that supply chain optimization program you referred to earlier. What kind of preparations can you make now with respect to online to beef up the scale. And also, I noticed, I think it was 4 JB stores closed in the second half. If you could just talk about what's happening on the store front as well, please?

Okay. So -- and I know you understand it, but just -- I appreciate there's people on the call that don't do it every day. So we do not have online -- we have a small amount of online fulfillment out of a facility in Truganina in Melbourne. And then we have bulky good centers around the country that do home deliveries of large home appliances and TVs. So from the supply chain perspective, there is no doubt as we look out, we're sort of in what we would call supply chain 1.0. We had a whole lot of stuff to do post the acquisition of The Good Guys. We wanted to leverage the scale of the group. The team that's doing it are doing an awesome job, but it's pretty just BAU. To what do we see the future of supply chain and it being a competitive advantage that's how -- that's something -- that's the thinking we'll do over the next 12 months, but that won't start to be implemented in my mind for a period post the consolidation of the facilities. Do we -- I mean, we -- as many of you know, we do a lot of study too in overseas, not so much at the moment and see others -- and do we see a world of a contactless sort of online fulfillment center? Yes. They cost a lot of money, but there are opportunities at the moment. We are very comfortable. And actually, the store network and I don't mean this in a negative way, I mean, in a positive way. So I think we've got 300 disaster recovery centers. They're called stores. And they operate really well in an environment like COVID-19, where you want to have -- you want to spread your delivery solutions across a broad thing. If you lose one warehouse, well, we've got a lot of backup capacity in the network. So I think that has enabled us to achieve some great fulfillment times. And the customer feedback we're getting online and with our deliveries at the moment is off the chart because so many are struggling. Whereas I think the investments we've made in Shopify, e-commerce. Likewise, The Good Guys team, have an existing system, but continue to invest in it. I'm actually thrilled with the results. And the ability to run basically boxing day in our warehouses for basically half the second half. I think aside from the team being a bit tired, which -- and I appreciate their efforts. It's been a great outcome for customers.

And Richard, stores?

Sorry, Nick, you have -- go.

So on stores, Andrew, so if you break down that 4, 2 of them were just small CBD stores, 1 in Melbourne, 1 in the Perth. The Melbourne one, we just got some more space. It was the camera store in the city in Melbourne, and we got some more space next to our Elizabeth Street store. So we just consolidated it into the Elizabeth Street store. And in Perth, again, we've moved into a pretty premium site in Forrest Chase, and, again, just consolidated locations. The other 2 were just -- are stores where we had 2 stores in sort of close proximity. Where we've just, again, at the end of the lease, closed one with a view that the volume will fund it when together. Looking forward, there's not -- we don't have any real plans to materially alter the store network or change any stores.

Your next question comes from Mark Wade with CLSA.

I can imagine over the period, I mean, the brand has become a lot more relevant as people spend more time at home. I'm just kind of keen to understand, can you share your thoughts here on some of the expected changes in customer behavior that have occurred? What are we fleeting? When all kind of go back to normal? And what will be more of a permanent change and as a adjunct to that, how are you really planning to run the business as we move into more like Black Friday and Christmas, given the longevity of this surge in sales that may last?

Mark, that is the greatest one-line question. The one question with about 14 different parts. But that's -- and it's a really great question. So what I would -- what I'd say is, I guess, yes, every business in Australia has learned some amazing lessons. Continue on flexibility and support office, we've had the greatest test we've ever had. So the one thing I'd say in the JB Hi-Fi business, and I'll get on to The Good Guys in a minute. It just reminds me how resilient the team is like they just get stuff done. And internally, we'd probably have a little bit of French in there. They just get stuff done. And to rock up the stores, seeing plasma TVs, covered in black plastic with queuing solutions. Other retailers, that would have been an order for $1 million of queuing solutions. We've got a lot of cardboard boxes in our stores. We do -- we have a little bit of yellow plastic or red plastic. We're probably using a bit less in the future. And the guys just set it up and get on with it. So what I -- when I think about how they adapt to the environment, actually, the empowerment of the organization across everything we do, we -- yes, we have definitely come down with some very direct views around how we want safety and hygiene implemented at store level. So they are the nonnegotiables, but then how you set, how you do your queuing, but make it work for your store is what I love about our store managers. Now in The Good Guys side of things, they've got a little bit more flexibility because they've got higher -- larger stores. And obviously, the footprint for an average Good Guys store is about 2,500, 3,000 square meters of JB stores, 1,300 to 1,500. So they add different models. What have we seen with customers with the brand? What I'm actually -- it continues to see JB, where you see the online searches, you can do it with Google Analytics. There's obviously a range of things we use internally. We have continued to build momentum. Some of our competitors have seen some momentum during periods, and then that momentum has fallen away. So we can -- you're right, we've really been pleased with how the JV band -- brand has traded and resonated with our customers during this period. That also what we are over the moon about is for The Good Guys, you could not have bought the traffic with marketing dollars that they have seen in their business over the last 6 months. So how customers have come in to Good Guys, seeing their new store formats or evolve store format, seen that the tech. Our telco connections in The Good Guys have not impacted JB one little bit and The Good Guys team are flying in connections. We -- our thesis at the start of this journey was not about telco and The Good Guys. But the results, when you're talking connections of a 700 to 1,000 a week across their stores. That is literally a customer coming in saying, "I want to talk about my fridge, I want to talk about my TV, do you want to talk about your Telstra phone." And so those things we've certainly seen The Good Guys customer base absolutely fine.

But in terms of categories and trends going forward, Mark, I think the key ones we call out is work from home and sort of that home office setup. Obviously, the sense would be that, that trend continues. And that yes, we might have had a good establishment phase, but hopefully, that creates an ongoing sort of replacement cycle and things for that type of product. Small appliances and food preparation with people cooking and things at home. I think that -- and even extend into it like coffee machines and things. So I think replacement cycles on those type of products is great. And then gaming would be the last one. We've seen massive growth in gaming in what is the last generation of the existing consoles with new consoles to come. So again, you'd like to think that when those new consoles come through and hopefully, the next few months that we get a good replacement cycle out of that, too.

The next question comes from Shaun Cousins with JPMorgan.

Just a question regarding your commentary around August. You said that, that had still been strong. Have you noticed any sort of slowdown in the July trends into August given what's going on in Victoria? And particularly, are you seeing any of the, I guess, flowback of Stage 4 in Melbourne, starting to impact consumer confidence or willingness to spend nationally?

Certainly hasn't impacted the numbers nationally. You wouldn't assume we will run 40%, but -- and I'm not saying it has been remarkably strong. I just don't want to get into -- it's 40% forever as much as I would love that to be the case. I have been pleasantly surprised with our performance in Melbourne. The investments across the business, our store to door, how the team -- we have absolutely mobilized to comply with the Stage 4 restrictions, but deliver to our customers and thrilled with the results so far. And so then how that accumulated up to not having the impact on the consolidated result, I might have thought 2 weeks ago, has been a terrific outcome. So really pleased.

Your next question comes from Ross Curran with Macquarie.

Congratulations on great result. I'm just wondering, I'm trying to get my head around the sustainability of sales. Can you give us a feel perhaps for how customer mix might have evolved over the virus period. Are you seeing people spending, let's say, super annuation withdrawals or job seeker, job keeper payments? Or is the same customers as you had before? Like how has customer mix evolved over the last 4 months?

Macquarie has got more economist. I don't have any economist. So I just rely on you guys to tell me where the money comes from. So people are turning up into our stores and spending money, and it's a really good outcome. So I'm assuming there's been a range of stimulus measures injected in the economy over the last 6 months. But then the challenge is, we also know none of us are going overseas. So people's spending habits are changing. It's -- and we are proud of the fact that when people have some money to spend, they often spend it in our stores. And we work really hard to make sure that we engage with our customers to get them excited about the products we sell, but it's also underpinned by an awesome team who, when customers come into store, they get great service and knowledgeable advice. So I feel comfortable that while I really feel for some players in the market who, obviously, if you're exposed to travel overseas, it's pretty tough at the moment. So there's a lot of people in Australia, not doing as well as we are at the moment. So we're really conscious of that. But the reality is customers are changing their spending priorities. And certainly, from working and learning from home. Obviously, we've all done a lot of upgrading of kit for our families and our homes. But also, we have available cash to spend because they're not spending it on travel. And some other, I guess, things that are in a tougher spot. And so we seem to be seeing the benefits of that.

Maybe can I ask it a different way, is the average price point that the customers are spending, has that changed pre and post virus?

Yes. It's up because people sort of -- well, obviously, it's been a strong investment in big-ticket items, home appliances, computers, mobile phones, and a bit less in it in products that tend to attach to those, so cables, et cetera. There's a lot of stuff that you just impulse buy when you're in JB, when people are having shorter customer journeys, they're tending to focus on the primary product and The Good Guys, likewise.

Your question comes from Phil Kimber with Evans & Partners.

Just a question. In the remuneration report, you talk about the way you're going to -- or the Board talks about how it's going to plan for FY '21. And I think it's going to use the pre-COVID guidance as the base, which is a pleasing outcome. Can you talk a little bit about how you're planning to manage the business, given all the issues that you've talked about in that remuneration report about -- it could be good for a few months, but then there's potential for things to slow down. And as a sub question, I think you've talked about incentives are going to be measured against FY '20 earnings ex COVID. How are you going to try and strip COVID out of your FY '20 earnings?

Always tricky for management to talk about things the Board has said, but in short, what we've said in there is we had guidance out of the market pre-COVID of $270 million, and we're going to use that as the basis for next year. I guess if you look at it and go in '19, we made $250 million. And if we achieved -- we'd achieved $270 million, which was a strong result. We've obviously achieved a lot more of that with the COVID, the strong trading we received. So we're basically drawing a circle around that. We're not actually getting into a profound conversation around breaking up every element, saying, that's all COVID. What we're just saying is we thought the management team did a good, I guess, I'd say -- the management team has done a solid job. We've delivered, and therefore, that results in most people getting about 90% of their bonuses. That was the trade for having a start that was to grow off consensus -- sorry, our pre guidance, which was in about February, so that if we feel if we grow the business off that base next year, that, that will be a very solid result for shareholders over 2 years. And that's what the remuneration report articulate.

Yes. And Phil, just -- we've historically had this 10% growth as our target. And I think that the way the Board is articulated in that section is looking at that sort of almost 10% compound growth over 2 years. So looking at it growth over a 2-year period, it's probably the best way of thinking about it.

Now as to what happens if the world changes, well, if consumer spending drops, we sell less, and we adjust wages accordingly, and we adjust the business accordingly. The reality is the TV, the computer doesn't go out of date. So we would just -- we just adjust our open to buy. We trim our purchases. It takes a -- and so you just -- on Monday, when you do your replenishment orders, you replenish less. But I think, as I've said, all the way, for the last I don't know forever, this business actually is nearly a better performer when things are tough than when things are good, and you say, well, wow, the results at the moment look pretty good. Yet, but there's a lot of -- customers are coming in, they're pretty motivated. When things are tough, I think we do an awesome job of keeping our costs in check, adjusting the model, railing the truth and delivering. And I think that's what's seen us perform during tougher periods and during periods where it's a bit easier at the moment.

Okay. That's great. I mean I think it's good that base. It was also just something in there about how you're going to strip this COVID-19 impacts out of this year...

Phil, $330 million minus $270 million is in some ways trying to articulate that there is an elevated level of -- because we don't obviously know what we would have delivered ex COVID.

So there's no stripping out. The easiest way to think about it is when we gave guidance in Feb, prior to the onset of COVID, we guided to $270 million NPAT. We're saying that's effectively the -- if COVID had not happened, that's what we would have expected the full year result to be.

Your next question comes from Aryan Norozi with UBS.

Just a quick one for me. Deferred revenue was up from $166 million to $197 million year-on-year. Can you just please walk us through what drove the increase? And how do we think about the P&L contribution over the next 1 or 2 years?

It's a function of significant demand in June. And without all the stock to fulfill all of that demand. So we've got a lot of customer orders sitting there at 30th June. And that needs to be fulfilled in FY '21. So that will come through in sales in FY '21.

And if I can take a very quick one in there as well. How are you using the -- thinking about using the data you're collecting over this period? I imagine you've probably acquired a lot of new customers or customers that you've reengaged again. How do you think about sort of stimulating that growth if things do start to slow down in terms of EDMs or otherwise, please?

We're all very focused on trying to -- we collect lots of data. It's what we do with it. We certainly have invested in data both across the business, both in people and resources. And so I mean, it's a great opportunity, particularly when we talk about we connect those anonymous purchases in store, through e-receipts to online. The Good Guys have a great outcome because most of -- they tend to have less -- they have a lot less anonymous purchases. So they've got more connected data with their customers than the JB business. The JB business sort of does it through a receipt. And then connecting online. And so that's a good -- sorry, so that's something we continue to push into.

Thank you. There are no further questions at this time. I'll now hand back to Richard for closing remarks.

All right. Thanks, everybody. Thank you for your interest in JB today. I know it's a busy time of year. So we'll let you get on with it. Thanks, everybody.