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

Thank you, and thanks for joining us this morning. And as always, thanks for your interest in the business. We'll talk through the presentation and then allow for time to a question at the end, as you've heard. I'll now turn straight in the presentation to Slide 4, our group model. Our 2 iconic brands with their distinct personalities, their different category leadership and their different target customer base gives us as a group access and appeal to a wide and diverse customer mix. Both businesses provide a common value proposition of big brands at low prices, combined with a customer-centric approach, which is provided by a passionate and knowledgeable staff. All of this is supported through our combined group functions, helping us to leverage the scale of the brands and then further underpinned by our 4 competitive advantages, which I'll detail over the coming pages. Over to Slide 5. First, competitive advantage scale, #1 player in the Australian Consumer Electronics and Home Appliance market. We have local and global relevance to suppliers, our strong and engaged supplier relationships, both locally and globally, large engaged and diversified customer base across 2 brands provide suppliers with the ability to execute promotions and new product launches at scale, a younger customer base, drives ongoing brand importance to suppliers to maximize the sale of new technology and innovation and our high volume website traffic provides significant marketing opportunities and reach. And finally, the group function enables the business to drive efficiencies across a large cost base. Over the page to low-cost operating model, a constant focus on productivity and minimizing unnecessary expenditure, highly productive floor space with high sales per square meter. Efficiency of the model allows us to respond to market price activity and maintain focus on market share, and compete effectively with traditional competitors and new market entrants. Over to 7, group model -- sorry, the multichannel capability. And we focus on providing the customer with an integrated and frictionless shopping experience regardless of their chosen sales channel or shopping needs. Customers choose on how they wish to shop with us. In-store, via our high-quality store locations that provide convenient and easy access. Online, high brand awareness and optimized digital experience drives high traffic through the websites. Over the Phone, convenient and personalized sales experience provided by a knowledgeable sales staff give customers the ability to negotiate a deal. We have fast fulfillment via in-store shopping, Click & Collect or delivery from store networks or home delivery centers. There is confidence when buying with the security of knowing after-sales support is available via any channel, and National Commercial business supports corporate, government and education customers. Over to Slide 8, people and our culture. Knowledgeable and passionate teams who put customers first and provide exceptional customer service, strong overarching culture that also reflects the individual brand personality. Dynamic and flexible environment allows us to pivot the business quickly and adapt to any changing market conditions. Highly engaged team who have a connection with the business, a focus on ensuring we have a diverse and inclusive workforce and our unrelenting focus on health and safety. Over to 9 -- Slide 9. We remain focused on generating long-term sustainable growth for the business and having a positive impact on our people, community and environment. Some of our half '22 achievements, our people continue to prioritize the safety of our team members through COVID-19, continue to action a set of diversity and inclusion initiatives to improve diversity in leadership and inclusion within the organization and continued focus on safety with mental health and well-being training programs. For our communities, the half '22 workplace giving donations totaled $1.8 million and $29.9 million since inception. We released our second Modern Slavery Statement outlining the actions that we'll be taking to address the risk of modern slavery, continue to work with suppliers to embed our ethical sourcing policy and commenced engagement with the investors against labor and trafficking initiatives. For our environment, solar power generation installed in 10 stores in half '22 as the group works towards net-zero direct carbon emissions by 2030. Continue to explore waste reduction, reuse and recycling initiatives led by the group's operational waste and recycling working group and improvements in sustainable packaging across our own branded products in line with the 2025 APCO Packaging Targets. Over the page. So turning to Page 10. We'll talk through this in more detail as we move through the presentation. But it's pleasing -- but it's a very pleasing result in what has been, and I know we say this, that continues to be an extraordinary period. We have also today announced a capital return of up to $250 million to shareholders by way of an off-market buyback, which Nick will cover off shortly. Over to Slide 11. Again, I'll take most of this slide as read as we'll be discussing in greater detail as we move through the presentation. But it is pleasing to see sales growth across all divisions over a 2-year period with continued heightened demand, customer demand for both consumer electronics and home appliance products. We had a very well planned and executed promotional programs throughout the half, including the important Black Friday and Christmas periods. The group has continued to invest in online and supply chain operations, including upgrades to its website and distribution centers and expanded delivery options. Online sales were up 62.6% to $1.1 billion, representing 22.7% of total sales. Excluding sales during the period where stores were temporary closed in half '22, online sales represented 14% of total sales, up from 10.3% in the prior period. Over to Slide 12. EBIT of $420.5 million, down 9.1% of prior year, but up 59.9% over a 2-year period. Strong EBIT growth across all brands over a 2-year period with significant operating leverage driven by the elevated sales growth, management of gross margin and disciplined cost control over the 2-year period. The strength of our model highlighted by our ability to respond and adapt to the challenges resulting from COVID-19. And with all areas of the business, including stores, supply chain and online, demonstrating resilience despite the ongoing disruptions. We will now turn to divisional performance, starting with JB HI-FI Australia on Page 14. I'll take this slide as read as, again, we'll be covering in greater detail as we move through the following pages. Over to Slide 15. JB HI-FI Australia. Total sales declined 1.9% on half '21 to $3.29 billion with comparable sales down 2.5 %. Over a 2-year period, total sales were up 20.9% with comparables up 20.8%. Sales momentum was strong through the half with continued heightened demand for our categories. Hardware and Services sales were down 0.3% (sic) [ 0.7% ] on half '21 with comparables down 1.2%. The growth categories in the half were Small Appliances, which continued to perform well with solid growth coming from Stick Vacs, coffee and kitchen appliances. Home -- Smart Home devices continue to be a growth category for us. Games Hardware, which was up on half '21, driven by the availability of next-gen gaming consoles. Accessories had a good half with growth across all major product groups. And Visual had a solid half, which was particularly pleasing given the stock challenges that we faced. Software sales were down 21.2% with comparables down 22.5% as a result of a decline in Movies, Music and Game Software categories. Software sales represented 5% of total sales. Online sales grew 59.9% to $823.9 million or 25% of total sales. Excluding sales during the period where stores were temporarily closed in half '22, online sales represented 15.1% of total sales, up from 11.3% in the prior year. Our ability to scale and maintain a high level of customer service and on-time delivery via our diversified fulfillment model was pleasing. The commercial business recorded solid sales growth as we continue to expand our product and service offering. On to Page 16, and JB HI-FI Australia's earning results. Half '22, gross profits declined on half '21 by 2.9% to $716.3 million, with gross profit margin down 21 basis points to 21.8%. Cost of doing business was 10.8%, up 71 basis points. Cost of doing business in absolute terms grew 5% with disciplined cost control through the half. Depreciation declined 0.7% with a decrease in depreciation on both right-of-use assets and fixed assets. EBIT was down on half '21 by 11.3% to $292.4 million with EBIT margin down 94 basis points to 8.9%. Over a 2-year period, EBIT was up 39.7% and EBIT margin up 120 basis points. Over the page and now on to our New Zealand performance. Again, for Australia. I'll take this slide, #17, as read, that we'll turn over to 18. Half -- New Zealand half '22 sales. Total sales declined by 4.5% on half '21 to NZD 138.4 million with comparable sales down the same. Over a 2-year period, total sales were up 4.2%, with comparables up again the same at 4.2%. Hardware and Services sales were down 4.7% on half '21 with comparable sales down the same. The key growth categories for New Zealand were games, Games Hardware, Visual and Smart Home categories. Software sales were down 2% with comparable sales down the same as a result of declines in Movies and Games Software, partially offset by growth in Music. Software sales were 7.7% of total sales. Online sales grew 81.5% to NZD 29.6 million or 21.4% of total sales. Excluding the sales during the period where stores were temporary closed in half '22, online sales represented 11.8% of total sales, up from 10.4% a year prior. Over the page, half '22 earnings. Gross margin was up 37 basis points to 17.5%. Cost of doing business was 12.2%, up 31 basis points, but in absolute terms declined by 2% as store wages remained well controlled. JB Hi-Fi New Zealand received $0.5 million from the New Zealand Government Wage Subsidy scheme, which supported team members' wages while the New Zealand stores were closed. EBITDA for New Zealand was NZD 7.4 million, down 3.4%. EBIT was up on half '21 by 6% to NZD 7.3 million and EBIT margin up 52 basis points to 5.3%. Over to Page 21, and on to The Good Guys. Again, we pass summaries on this page. I'll take it as read, as we'll go into more detail as we move through. Over to Page 22. Good Guys half '22 sales, total sales declined by 0.8% on half '21 to $1.44 billion, with comparable sales down 1.3%. Over a 2-year period, total sales were up 25.4% with comparable sales up 24.7%. Sales momentum was strong through the half, with continued heightened demand for consumer electronics and home appliance products. The key growth categories were portable or small appliances, which had a strong unit sales growth seen across coffee machines and cooking preparation. At Floorcare with significant growth across Stick Vac, robot and steam cleaners as we continue and expand our offer across this category. Laundry with solid growth in large capacity washers and heat pump dryers. Dishwashers, with strong unit growth across all price points. And cooking with solid growth in unit sales. Online sales were up 69.8% to $251.3 million or 17.5% of total sales, excluding the period where stores were temporary closed in half '22, online sales represented 11.8% of sales, up from 7.9% prior year. Over the page to gross profit. Gross profit was $324.9 million, with gross profit margin up 19 basis points to 22.6%, driven by strong improvement in key categories. Cost of doing business was 11.4%, up 45 basis points, and in absolute terms, grew 3.3% as store wages remained well controlled through the half. Depreciation grew by 1.4%, with an increase in depreciation of right-of-use assets, partially offset by a decline in depreciation of fixed assets. EBIT was down on half '21 by 4.3% to $121.1 million and EBIT margin was down 31 basis points to 8.4%. Over a 2-year period, EBIT was up 131.8% and EBIT margin up 386 basis points. I'll now hand over to Nick to talk through the group balance sheet cash flow.

Thank you, Terry. And on Slide 25, the balance sheet and starting with inventory, which in December finished at $1.065 billion, down $71 million year-on-year as a result of continued COVID-19-related supply shortages. Compared to half year '20, inventory was down $68 million or 6% versus sales growth of 21.7% over the same period. We typically manage inventory levels of sales, so that difference really highlights how significant the inventory supply challenge currently is. Inventory turnover was down 64 basis points to 7.5x, but still considerably above our pre-COVID and historical inventory turnover of circa 6x. Payables, which would ordinarily move in line with inventories were up significantly year-on-year due to increased purchasing and inventory late in the half to meet the heightened customer demand and continue to replenish inventory levels where we could. As a result, at 31 December, net working capital was circa $600 million below the historical levels. We have included the net working capital balance in the bottom row of the balance sheet table there, so you can see it and particularly that very material swing from half year '20. Moving to Slide 26, highlights on the cash flow statement. Operating cash flows and operating cash conversion are up significantly due to that reduction in net working capital that I just talked about. CapEx remains in line with our expectations as we continue to invest in our store portfolio, our online offerings and key strategic initiatives. And closing net cash was $844.5 million at 31 December. So after net working capital reverts to historical levels and the payment of the interim dividend and the buyback, which I will talk to on the next slide, we still expect to maintain a very strong balance sheet position. On Slide 27, capital management, we today declared an interim dividend of $1.63 per share fully franked, representing 65% of NPAT in the half. While this dividend is down 9% last year, it's 65% up over a 2-year period. The record date for the interim dividend is the 24th of Feb, with payment to be made on the 11th of March. We've also today announced a capital return of up to $250 million to shareholders by way of an off-market buyback. As a result of our continued strong financial performance and cash flow generation over the last 2 years, we currently have surplus capital at a significant franking credit balance. We considered a number of ways to return the capital, and believe the off-market buyback is the most effective and appropriate given the high fully franked dividend component for those that take up the offer and a reduction in shares on issue, improving earnings per share and return on equity for ongoing shareholders. The buyback reflects the Board's commitment to maximizing returns to all shareholders, whilst importantly, maintaining balance sheet strength and flexibility for future growth. As you can see in the graph, we are pleased to be able to return a significant $437 million to shareholders through the combined interim dividend and buyback. Turning to Slide 28, which outlines the key features and important dates for the buyback. Broadly, the terms and structure of the buyback are largely consistent with current market practice. The buyback will be conducted by our tender process, which shareholders able to tender at a range of discounts from 8% to 14% of the market price. The capital component of the buyback is $3.18, and the balance is a fully franked divide. As an example, at a share price of $50, this means a very significant frank event for shareholders and a distribution of approximately $99 million of franking credits. With regard to the timetable, the 22nd of Feb. is the last day of shares can be acquired to be eligible to participate in the buyback and for franking credit entitlements, and the 24th of Feb. is the buyback record date. The tender period will open on the 7th of March and will close on the 8th of April, and the buyback date will be the 11th of April with the buyback price to be paid to shareholders on the 20th of April. More information is available in the buyback booklet, which is available on the ASX announcements platform. I will now hand back to Terry.

Thanks, Nick. Moving to Slide 30, the outlook slide. January sales update for the period 1st of January to 31st of January, as we continue to cycle the extremely elevated sales from the previous year, we are pleased with the performance. JB Hi-Fi total sales were up 4.3% with comparables up 3.6%, but over a 2-year period, total sales were up 22.4% and comps up 22.2%. New Zealand, total and comp sales were down 1.8%, but up 19.5% over 2 years. The Good Guys table sales were up 2.5% with comps up 1.9%. Over 2 years, total sales were up 17% and comps up 16.4%. In January, despite the disruptions to our supply chain and operations as a result of COVID-19, we continue to see heightened customer demand and strong sales growth rates of 2-year period. Whilst we are pleased with the start to the second half in view of the ongoing uncertainty arising from COVID-19, we do not currently consider it appropriate to provide FY '22 sales and earnings guidance. Over to Slide 32, the final slide, investment checklist. In closing on the presentation, we've got an investment checklist. I'm sure many of you know this, so I won't cover it off in any detail, have a few comments. This has been a difficult and challenging period for all our teams. It has, however, from a business perspective, demonstrate the strength and relevance of our model, along with providing many learnings that will continue to benefit us into the future. As a group, we work hard every day to maintain our market leadership and are positioned as #1 destination for technology, CE and home appliances. The JB technology and consumer electronics is at its core and front-of-mind purchase for our customers. So, The Good Guys, they have a market leadership in home appliance categories, but also cater for families -- for the families consumer electronic needs. Our focus on our multichannel capabilities has definitely served us well over this extraordinary disruptive period for our customers. The combined power of our physical locations, well-integrated online offering, phone sales and commercial teams ensure we remain connected and ready to assist shoppers. However, they wish or need to deal with this. We are focused on maintaining a resilient and highly relevant retail model. But also having -- sorry, also having a business that is a desired place to work for our team members and ensuring we continue to attract high-quality staff into the future. We will continue to deliver our commitment to our customers of big brands at low prices, while continuing to invest for the future and ensuring we do so in a sustainable and ethical way. Thank you, and we will now go to questions.

[Operator Instructions] Your first question comes from David Errington with Bank of America.

I've got 2 questions. But my first question is on the balance sheet, and probably directed to you, Nick. I'm trying to get an understanding with the big swing in the payables. You basically had a big swing there in the second quarter. Can you go into elaborate a few details on what actually happens in the business? Like did you just get all of a sudden available inventory that you wanted to get earlier? Or is it planned for future sales in this coming quarter? What -- can you just give a bit of detail as to what's going in there? And are you at the inventory levels that you want to be? Or do you think you're still short of inventory going in?

Yes. So David, generally, I'd say we would like to -- we would like to land inventory well ahead of the key promotional events that Terry called out. So Black Friday, into Christmas into Boxing Day. What we are seeing this year is just supply mix is so constrained that EBIT is later and later basically throughout the half. So what happened is we bought a whole lot of inventory basically end of November into December just to try and keep up with that demand, whereas in prior years, that would have been received a lot earlier, and therefore, your payables balance would have been must be some of it paid before 31 December. So it is said about the timing of when we've landed the stock and the fact that we're just purchasing all the way through that half to continue to make demand. To your point on the inventory balance, it is absolutely lower than where we would like it to be. So looking at the sales growth over that 2-year period, when you're talking about sales growing 21% year-on-year, as I said in my [indiscernible] we do just manage inventory to sales. And so typically, you'd expect to see inventory, so it's fully set up year-on-year up on 3 years. At the moment, it's still a real challenge. So we are actively engaging with suppliers to get stuff where we can. I suppose we feel like we're getting a good share of the stock. But I think across the industry, it's still tight. Terry, I don't know if you got any into that.

No.

So that's why discounting -- Terry, you were pretty strong that you thought discounting would return clearly with tight inventory with you and the industry it's unlikely to return at least for the foreseeable future. Is that a fair call?

Yes. And when we talk about discounting, we are still continuing to promote and drive customers into store with great deals. It's more -- it's that on-floor discounting that tends to tends to reduce again for every region sake, which is just the lack of availability stock continue that stock out.

My second question, if I may, is on your cost performance, which clearly, given the increase, where I'm really quite intrigued is you've had a fantastic performance in online sales. You've been able to contain your cost of doing business. In fact, with The Good Guys, only 3.3% increase in cost of doing business, JB only up 5% despite online sales being, I think, 25%. How have you been able to do that? I mean, how -- everyone's saying tight labor, labor costs are hard -- people are hard absentees and high supply chain, although that's not a cost of doing business issue for . But I know that you're disciplined and I know that you've got good control of costs. But just how well have you -- what have you been able to do to really keep control of those costs in a changing world where online is increasing, you've got omnichannel, you've got so many different ways to get goods to the customer. Just how you've been able to retain those costs to the level that they're at in such a disrupted world?

Well, so I guess first thing is understanding the model that we use stores as distribution centers, in many cases, we use a mix of distribution locations. So a lot of it run through the stores. So what you're doing is you're utilizing the existing store labor that may not be focused on customers because they -- especially when we're closed, they are not there. So they then focus on fulfilling the online orders. And we've got lots of ability to continue to scale that without having to put on a lot of extra wages into the business as we even stand today.

And I suppose the customers pay for delivery and stuff like that, too. So it's a great model.

Yes. I think that's relative to some other retail sector. It's a relatively small basket size. You're talking one or 2 items in a basket. It's pretty efficient for our team members to pick it and to pack it and in contrast to what was potentially previously an in-store sale where our staff members having 15 to even longer and Good Guys, I mean, a conversation with the customer. So online for us is quite efficient and very profitable.

Your next question comes from Adrian Lemme with Citi.

Look, I just had a question on the January trading update. We've heard that retail, just in general, has been experiencing lower foot traffic, particularly in shopping centers during January given like higher COVID cases discouraging some customers. Can you just talk to that what you've seen you put traffic? I imagine whether online is made up for that lower foot traffic and just whether traffic is improving into February as the case of the declining please?

Yes. Look, we definitely saw that last part of December into that half of Jan. probably, to be honest, probably most of the way through Jan. where shopping center stores we were seeing a decline in foot traffic. But that was being made up. To your point, coming out of stand-alone stores and online. So definitely down in shopping centers, but the others were absolutely able to make that up. And I just think customers are making a choice on where they're going. They were still going out, but they were choosing to go to stand-alone style destinations.

Right. And can I just ask one further follow-up, please? Maybe for Nick. Just following on from the balance sheet question. Just looking ahead to the end of this fiscal year as the working capital largely normalizes. Should we expect post the buyback that the balance sheet is back to sort of broadly a net-zero debt? And does that -- does that suggest that's where you're sort of happy to be? Or could that imply further potential capital management down the track, please?

Yes. So obviously, at 31 December, the $845 million of cash. So I think the question is to where it is. It's really going to be driven by the availability of stock, how quickly that working capital reverses. Like we -- we know it needs to come back in at a point, but availability is still tight. So it's hard to guide exactly as to where the balance sheet finishes because of that. But, yes, broadly, as you said, $845 million today, at some point, that $600 million working capital reverses. You've got $437 million between the dividend and the buyback to come out. I think it still leaves the balance sheet in a very strong position. And given the current environment, we feel like that's a good place for the balance sheet to be.

Your next question comes from Shaun Cousins with UBS.

Maybe just a little bit around CODB. Just JB Australia continues to remain very low, and I think part of it was due to online. But the [indiscernible] can you talk a little bit about how you think about the sustainability of a low CODB? Because it seems as though you're benefiting from consumers coming into stores being very much more educated and then also not really wanting to dwell in store and not really adding a lot of inventory from which they can sort of start haggling on price and effectively, engaging with sales staff. So it looks like your store sales are happening a lot quicker. Do you think some of this could last, and hence, that lower CODB sales could last? Or do you expect it to sort of go back to the higher levels it was in the first half '20 once we get more inventory and consumers get more comfortable shopping in store place?

Look, Shaun, I've got to say, I think your assumptions, the way you're thinking about it is correct. But you've got to feel that it's got to start to return, I'd say, to normal. But I think it will -- you'll start seeing consumers come back in, you'll start seeing them shopping and browsing and our sales people continuing to serve them. So what that says that it will return back to a fairly steady state what it was prior.

Got you. And maybe another question, just a little bit, again, other longer-term question. Just curious around what do you see the long-term benefit for JB, again, JB Australia in particular around more work from home effectively as purchases shift from commercial to the consumer? And how does that really support a higher sales base for JB Hi-Fi relative to a pre-COVID level because you've just got a much higher market share of consumer purchases relative to, say, commercial to I'm typically thinking around, I guess, the computer category and other categories as consumers update their technology more because they've got to support their own work from home. I'm just curious how you're thinking about the broader sales base to JB just becoming -- just being larger than where it was pre-COVID, please.

Yes, we're definitely seeing, as you pointed out, a significant amount of increased penetration of computers, et cetera, into homes, with the work from home. And then we -- well, we believe what we've also then seen is once it seems like it's settled in, people upgrading. Once they realize maybe what the first purchase wasn't as good. But longer term, if you think about longer term, all these products then fall into that funnel that will be upgraded at some point. And you would think that the consumers will probably upgrade quicker than maybe corporates do. But we would anticipate then that upgrade funneling will be much larger, and we'll start to see that flow through and be positive for the business in the long term.

Next question comes from Michael Simotas with Jefferies.

Terry and Nick, first one for me is on the buyback, just around the timing and the size. I mean, you've had excess capital for a while, but you've been fairly conservative. What's changed now to give you the confidence to pursue the buyback now? And just in terms of the size of the buyback, there's a comment that you will retain flexibility to pursue growth opportunity haven't really heard that sort of language from you before. So just wondering if you could elaborate on that as well, please.

In terms of timing, Michael, so the -- and I can say it into January, I suppose the consistency in the demand, I suppose, has given us confidence on the outlook, and I'd say we've got a clear view on where the balance sheet is sitting today and what capacity we have. And based on everything we can know today, we feel like we've got the capacity to do it that's the catalyst for doing it and making sure we maximize the returns. In terms of the comment around opportunities for future growth, look, and we may not have called it out as explicitly in previous presentations, but we remain very committed to trying to identify opportunities for growth, whether that be organic or inorganic. And having a strong balance sheet, I think, is important to enable us to do that. So I don't think the shift internally. It's maybe we just called it out a bit more publicly this time than we had previously.

Okay. And then the second one for me on the gross margin for the JB Hi-Fi Australia business. I know mix is a very important driver of your gross margin shift away from hardware into software. But it is certainly the lowest gross margin we've seen since the guy synergies have been in the business, notwithstanding that in-store negotiation not really being part of the margin mix at the moment. How should we think about the gross margin going forward? Will it fall further? What are you thinking you maintain the store's closures levels depending on where it makes sense?

Well, when you obviously -- and I know you're asking about JB, because it's very different between the 2. JB has benefited from the discounting and obviously mix. But it's been offset especially well, wind stores, when we've had the closures, the store closures, the impact on their ability to attach services to sales, such as telco. So that has really impacted that -- sorry, that has impacted them during that time. So once the stores are back open, we can keep reattaching and we've seen that once the store is opened, that levels can return to normal. But yes, we were -- they were impacted during those store closure times.

And then Michael one thing to add to that is when the stores were closed as well. And again, that period of closure, we pushed hard online, and we did free freight during that period. And that has, again, a significant impact on gross margin in that period.

Your next question comes from Thomas Kierath with Barrenjoey.

Just a question on price increases. Looks like suppliers are starting to lift prices. You said to know what the extent you've seen those come through if they're in the market at the moment, how are you thinking about demand elasticity to the price increases?

Yes. We're definitely -- that's starting to come through. But as you know, they've obviously had the significant supply chain cost increases. So that's been passed through. And when the price rises, we're looking and it's mainly focused in the home appliance categories. In fact, to be honest, most of the increase as that's where they're coming from. Their bearing, I'd put it at sort of 8% increases if you had to pick some sort of an average that we're starting to come through. We don't generally see price rises coming through in consumer electronics due to the rapid model changes that you see there. It can be somewhat buried into model changes, if that's the case with the consumer electronics, even though we are getting feedback that there may not be any sort of price rises there based on the fact that some of the technology coming down as well. Look, price rises are never ideal. And however, when you think of what we try and do with price rises, especially in home appliances is really ensure that those highly relevant key price points remain. And if they can remain and then, generally, we don't see too much of an impact from the price rise. The other thing is it's a competitive world out there. Supplies pushed through these price rises. Will they stick? It's hard to know. But it's -- sorry, it's the HA we're seeing the price rises.

And volumes held up after you've lifted the prices, Terry?

I beg your pardon?

Have volumes held up like as you lifted prices so far?

Yes. Look, so in the past, in HA, generally, again, yes, because we are maintaining those relevant price points. And us and the suppliers work hard to do that. So the price rises, we say it's 8%, but it might be 10% or 12% on some and 4% on others. So -- but generally, it's been okay. The challenge we've got now of trying to predict that is just such a strong market.

Your next question comes from Grant Saligari with Credit Suisse.

Terry, just first question, I guess, for you thinking sort of longer term as we sort of cycle through all these COVID impacts. Are you confident that you can grow the top line faster than category growth? And I'd be interesting if you just sort of generally elaborate on some of the major levers you could pull there.

Look, I think if you think through these last few years, I mean, we have learned a lot. So there's been a lot of learnings that are coming out of COVID. We've strengthened our online capabilities, so that should continue to be positive for the business going forward. We've improved our delivery and delivery options. We've created new ways for customers to deal with the business, be it phone sale, dedicated phone sales teams now, which is something we never had before. We spoke about that increased penetration of computers into the market, and they should funnel into that replacement cycle and lead to longer-term sales opportunities. We've really seen some great exposure into the good -- especially The Good Guys business, from all the work that the team had done in the business over the years. We've spent a lot more customers in it, and that should, I'm confident, that will good for the business in the long term. I think -- so there's lots of positives that should come out of being able to grow and continue to grow the top line. But I'd say that one thing I remain confident on is our ability to maintain our market share and grow our market share. Now what that means in the next year or 2 or 3 with the consumer, I don't know. But I have absolute confidence that we can that. And with a lot of these learnings that we've got that I do think there's a lot of goodness that will help us drive that.

Okay. And maybe just second, just specifically on The Good Guys, I think it's sort of interesting that Bing Lee has made a successful foray in Victoria with an online-only model. Good Guy sort of remains fairly underpenetrated, I guess, compared with Harvey Norman on total store numbers. So just interesting how you're thinking about sort of the growth options for The Good Guys. Do you need to expand the store base? Or do you need to go after online more aggressively? Just how you're thinking about that, please.

Well, we continue to focus on the -- we will look for store opportunities, and we do -- we are -- we always are looking for new store opportunities. So we'll continue to do that. where we tend to focus though on The Good Guys has been around our categories and product mix and our -- so in other words, our offering to the consumer is where we see the continued opportunity. We're very focused on with online. The team there are very focused on that and being able to drive online more from an aspect of being able to sell up online, add on online, utilize, I guess, those customers, we've got there. Look, we just -- we were confident with all the work the team did with the business. And the way the stores are laid out, the categories, the higher ASPs that are in there that over time, as customers got to see it, we would see -- continue to see some growth in that business. And I've got to say, Coke is probably turbocharge that a little bit in the sense of a lot, a lot of shoppers into stores at the moment and seeing it. So yes, I guess that's our thinking of The Good Guys.

Your next question comes from Craig Woolford with MST Marquee.

Just wanted to ask a question around The Good Guys gross margin. It's up 187 basis points on 2 years ago. How much of this gross margin gain do you think can be retained?

Yes. It's obviously a great question, which we knew as well. We -- look, I think when you see where it's coming from, it's definitely -- there is definitely some product mix coming there like -- and it's smaller in The Good Guys than JB. There's a bit of product mix coming in there. This lower market-wide in-store discounting is definitely assisting margin. But I have to say that the team will continue to do a great job with suppliers in increasing that support from them. And I think that's just a reflection of how the suppliers are thinking The Good Guys and the importance to their business. So that side of it will stick. How much we've -- even in the last time, I said we know some will stick. Will it start its current levels? Well, you've got to expect discounting to return. So -- and mix to return so that comes down. It definitely has got this new high watermark and again, I just come back to the confidence in the team that they never like to go backwards. And they continue to work with suppliers, continue to work on product mix and promotions to try and maintain it. And I say all that, though, I know I need to say this, they will never lose sight of the customer. So they will make the right decision, not just for gross margin, but to ensure we're competitive and grow our market share. But we anticipate that it should a minimum amount of sale somewhere in between where it was and where it is today.

It is a tough one to call, I get it.

Yes.

Semi related, the -- just wanted to flesh out a bit further the inventory situation. But maybe just ask it in a different way. What are your suppliers telling you about inventory availability this calendar year? There's obviously been on your press reports about semiconductor shortages. Do you think there will be a risk to your sales with inventory shortages in calendar '22?

So the feedback from the consumer electronics side is generally positive. It's not going to be -- we're not going to be able to get everything we want, and the teams would love to be able to get more. But generally, there's a much more positive feeling there on stock availability going forward. I say that as a bit of a commitment that suppliers themselves have really struggled to really get their arms around the stock situation, too, based on the fact that what they think might be coming all of a sudden gets diverted and doesn't come or whatever. However, broadly, there's much more confidence in CE. HA, there is more concern of stock coming into the country and that's sort of the -- we're sort of March, April sort of time frame that signal could be a little bit more challenging. But that's supplier by supplier. I think the benefit of our model is because we do buy from multiple suppliers. If the teams can plan far enough out, they can substitute product in. Now -- so generally, we can substitute product in. I mean, that doesn't work when you've got high loyalty, low substitutability type product like an Apple or a Dyson. However, broadly across most of the other categories, we can substitute in. So we're not -- we're cautious of HA sales during that period, but we feel that we'll be able to get the appropriate price points and appropriate models in for consumers, may not be exactly what people want in the sense of a brand, but we feel we'll be able to get enough stock in.

Your next question comes from Mark Wade with CLSA.

Terry, it's been 6 months since you took back the range. Curious to see if your views of the business needs and opportunities are scheduled over that time. We've got the buyback today. I'm just trying to think of the hypothetical in what would you spend $250 million on the business? Like how much better could that offering be?

Look, we would expect the $250 million if there was something there to do. I think what we're doing in the businesses is really appropriate for the moment. That's not to say we're still going to be left with this very strong balance sheet, as Nick has pointed out. So it doesn't preclude us from doing that if it was necessary now or into the future. So don't think we're doing it at the expense of the business, because that's absolutely not the case. How do I think about the business? I mentioned before that I think there's some good learnings that have been trust upon us from COVID that we'll continue to be able to drive forward and benefit the business. I think we all get a lot more -- we hope the market gets a lot more confidence in our ability to execute the online piece, which was always in my mind. Previously in the business, people didn't seem to give us any credit for what we were doing with online and the new people coming into the market. We've really seen that consumers seamlessly switch between those channels. And I think that should give us all confidence that we can continue to grow both channels or all channels into the future. So how has it changed? Just we've got some learnings. We'll continue to implement them. We'll continue to drive forward. We've got a strong balance sheet, which will enable us to take advantage of any opportunities, strategic or opportunistic, that may come along. So I think there's still plenty of opportunity to do things.

And one more. When you look across the Tasman, I mean, business has produced the most profit it's ever made or certainly in a long time, has it turned the corner? Have you finally got the recipe right there? Or is it time to quit while you're ahead and let it go?

Yes. I mean, really good question. That business is performing at the moment. What we're going to do now is, at this point, we're having to sit tight, continue to see how it continues to perform. Obviously, it's getting some great benefit from COVID. How much of that sticks days and has it driven a higher consumer awareness of the brand, that's what we'll let play out over the coming in 12, 18, 24 months.

Our next question comes from Bryan Raymond with JPMorgan.

Just my question is just following on actually from [ Tom's around ] price rises and what we're seeing out there. So the 8% figure that you referred to, is that sort of based on ASP? Or are you looking more at like the regular retail price or shelf price and then we need to take off something from that for the discounting element? Obviously, the suppliers look to maintain those key price points you referred to.

It's the same. So it's -- the retail price is going up by the 8% to 10%, whatever it may be. That affects the ticket price as well by broadly a similar amount. However, I say that, that the ticket price, though, is driven by the market conditions of the market. But broadly, you can think they're both going up similar.

Right. So you're not seeing step-up in promotional programs to complement the price rises that are having to come through. It's -- I guess, a reflection on the elasticity of those home appliance categories being a bit lower. Is that a fair way to think about it?

Yes. I mean, we operate in half real key market for The Good Guys is that replacement market. So when you're in a replacement market, you've got to replace it. So I think you're right that elasticity is less.

And by the way, the only thing I'll add is that the price increases are pretty recent. So most of these price increases are probably coming through this calendar year, sort of January, even into early Feb. So probably still need to see how it plays out on elasticity.

Right. Right. And then just final one, and this is just how rational the market is being. It seems pretty rational out there given obviously enjoyed pretty good sales and earnings. But are you seeing it get passed through by your competitors in these early stages as well?

Yes. Yes. I mean, again, to Nick's point, these are all starting to flow through now. At this point, they are sticky.

Okay. Great. And then just my final question. Just on -- I know it's only 1 month, but in January, The Good Guys 2-year run rate slowed fairly meaningfully. I was just wondering if there's anything that we should be mindful of in terms of what was in the base? Or how should we be thinking about that slowdown from sort of circa 26% down about 16% on a 2-year view? Was it driven by stock shortages or anything else going on in The Good Guys business?

Yes. Look, definitely, definitely had some stock challenges with that business, especially in that big and bulky categories such as refrigeration and laundry for that matter. So that's probably disproportionately suffered with the stock side of the equation.

Your next question comes from Ross Curran with Macquarie.

I might just ask around software. So software sales down sort of 21% JB Hi-Fi Australia. Can you give us a feel for how much floor space is allocated to software and whether that still is a category that drives foot traffic if you still committed to it or not?

It's now store-by-store. So it's not actually in every store, Games Hardware and Software is. But it is reducing in the stores. So there's not a -- it's hard to give you a blanket figure of how much is in there because it's constantly being reviewed. It's constantly review where it makes sense, where we know we're getting sales. And where it's not producing, we are finding better use of that space.

Is there any potential uplift in sales per square meter across the group if you do manage to exit the category?

Well, you've got to think of categories like portable appliances, and JB continues to be very strong, especially when you think of the shopping centers. So we can devote space to that, there is opportunities to do that. We're always looking for space. We're always looking for space in the stores. So it's -- we'll be out to that space very, very quickly and feel comfortable with the sales we'll be able to achieve out of that space.

And I think, Ross, just to double down on what Terry is saying, we are constantly looking at the productivity of the space. And today, if we had a better use of the space, we would do it. And today, the reason it's still in a lot of the stores that you go to is because it is still productive and still an important part of the mix in those stores. So we'll continue to assess it if it declines further, but it is an ongoing focus and something we make sure it continues to be very productive today.

Our next question comes from Ben Gilbert with Jarden.

It's probably quick. Just first one, just on the gross margin piece for JB Australia, and Terry you led back the telco and the services piece is a big driver of that coming back. How much more competition you're seeing in telco now? I know Telstra gave up a bit of sales last year, but you got of this with Harvey's, I think Samsung is our partner with Amazon and Australia on the telco side. Is competition in that space heating up at all?

Well, it's definitely. To your point, there's some more locations. We're not experiencing that as such at the moment. I've got to say, working with Telstra, the team we've got, that's absolutely staying on top of and driving great value. So our big benefit, though, as JB Hi-Fi is we moved the boxes, we moved the phone, the physical phones. So that ability for us to attach is far greater than a lot of those, a lot of the other retailers. So that's our kit. I mean we continue to do that. It's gold for us.

And is the rent-to-buy type piece sort of Samsung [indiscernible] was in the press talking about the other day, is that an issue for you guys?

No. We've got options, spare as well in the market. If people want to buy it now, we've launched trading as well. So people can buy it. I mean, you can pick up the new S22 Samsung for pretty cheap now. If you trade one in and you get a bonus credit from the manufacturer, too, from Samsung as well. So no, there's lots of options to enable consumers to buy phones today.

Just a final one for me. Just in terms of supplier relationships, because I think, as you said, you guys have done a great job online. But I think a big function that's obviously been you've done such a good job keeping some of these brands haven't gone and partnered with some of these bigger players like your Samsung and LG. Are you seeing the bigger brands looking to sell across more channels? I know that they're doing more data. But how do you think about that? And I suppose where is the opportunity for you guys to keep pushing for more terms from the majors?

So with our footprint, footprint number one, and you've got to remember, these -- all these brands, [indiscernible] and [indiscernible] by these new products at launching. And our customer base is just -- they just love all of these products. So suppliers know that we are a vital part of their overall mix in continuing to sell and to continuing to launch new products. So we work closely with them to try and understand what they want to achieve, how do they want to achieve it with, what are they trying to do in the market so that we can deliver that. We've also got massive -- some of the strongest out of the consumer electronic retail, the absolute strongest web traffic. And we've got that. Again, that just enables us to really promote the suppliers products, brands. So there's a lot of positiveness on why they need to keep working with us. I mean, they're trying to get more market share as well. So I have no doubt that they will continue to look for opportunities. We've just got to be better than all our other alternatives have got, so they'll continue to support us. And at this stage, that's seems to be what it is the case.

And do you guys think -- so final for me, do you guys think that you're sort of pushing that like if you push for terms, I noticed Best Buy just launched a media business as well. Is that something you guys would think about to leverage the traffic? Just trying to think about how you continue to maximize the margin you can pull out.

Yes. I think that leveraging the traffic to me is important. To me, to us, is important. There is a good amount of traffic there, and we need to think about ways that we can. We absolutely can leverage it. So again, we'll consider all options, and we'll continue to find ways to maximize it.

Your next question comes from Phil Kimber with E&P.

My question was just in relation to -- if I look at JB Australia and The Good Guys, between your sales growth up in that 20%, 25%, which is an awesome result. Can you roughly just round numbers break down for us, how much of that is volume and how much of that's price? I mean, is that 20% to 25% over 2 years are largely driven by volume? Or is there a decent price component in that?

Yes. Look, obviously, well, I haven't looked at it in over a 2-year period. What I can tell you, though, is that The Good Guys, our ASP has been growing for 3 or 4 years. So our ASP continues to grow as we launch into new products. And that's obviously good for growing top line sales. It has, through the period maintained its store traffic, through JB seeing some increases in ASP as well lately. So they have been seen some ASP. But I haven't looked at it in a 2-year period to be honest, Phil.

Yes. I guess, I was just trying to work out is that sort of like-for-like price rises? Or is that ASP going up sort of more product mix and less discounting? I'm sure it's a...

Yes, it is. But product -- product mix is a big key part of it. Absolute key part of it.

Yes.

But that's -- what we are trying to sell constantly, we're trying to sell into higher price points in both businesses.

But advertising still great value. But in store, it's all around how you demonstrate the value of the higher end product.

Yes. And then just in terms of -- second one for me on if I look in the half, store sales versus online sales, again for JB or Good Guys -- JB Hi-Fi Australia or Good Guys, so on significantly, it's a weird half. Obviously, you had the New South Wales lockdowns, Victoria lockdowns. If you look outside of those regions, are your store sales still declining? So like Queensland, SA, WA or is it a much different mix there? Because it's just -- the store sales declined materially, but obviously, stores were shut for a fair bit of that period in the 2 states. So I was just trying to get a sense if you could -- if you looked at it and stripped out that effect, our store sales to go backwards and all the growth coming from online in those states that weren't locked down.

I think the challenge we've got answering that is while some of the states were locked down, people still resident to go ahead. And, I should say, to go out shopping. So we definitely have seen online increase in states like WA where they have been locked down. But that's as much a fact that the whole people just self-isolating for that. So it's hard to draw any real conclusion at this point on -- is that long term, is that just a short-term blip with COVID. It's really hard to sort of pinpoint. But overall, the store sales in those stores that were locked down and been fairly consistent.

Fair. Exactly. So if they feel that -- it's what you'd expect those data that have been through lockdowns. That looks like the online penetration after the lockdowns is higher than those states that haven't had the same extent of lockdowns. And then when you're talking just state-by-state store performance, it does vary. But yes, absolutely, some of those states, the stores are up on 2 years, definitely.

Yes. And Nick, can I ask one last one. Just the trade payables, you also had a bit of a change in definition in relation to the rebates? I think they get reclassified out of non-trade, non-core.

Yes, receivables. Yes.

Yes. You talk about that. I don't think it impacted profit, but I wasn't sure if it impacted cash flow.

No, it doesn't impact profit or cash flow. It's just, historically, we presented them on a gross basis. So they have a receivable from a supplier and they pay it for the rebate and they pay it with supplier for the invoice. We did some work with it looking at market practice. And given we net settlement to suppliers, our market practice seems to be really net them off against payables. So it's just to have movement -- straight balance sheet movement from the receivable to the payable. No impact on cash flow or profit.

Right. Okay. Just going to be a -- when we're doing our work on capital analysis, obviously part of the reason why trade payables changed so much. Is that changed? If you're looking at historical numbers, I assume you've adjusted your historical numbers in this current release.

Yes. Looking that one -- yes, looking the one field, we adjusted -- we gave you the adjustment for each of the periods. So December '21, June '21 and December '20. And we'll do the same again in June so it's transparent as to how much it is and what is the back is on the prior period.

Your next question comes from Darsh Nair with Goldman Sachs.

Just a very quick one. In terms of the January sales, was there any impact from stock out? You did mention home appliances was a problem category, but like can you quantify the impact?

No. No. Look, it was -- we definitely know we lost some sales. But as I mentioned that while a brand might be out of stock, where you can -- that's fairly substitutable. So we can move them into other products. You definitely know you're losing sales, especially when you're out of stock of an Apple, a Dyson. A Dyson is a key categories. But the other -- the other categories as well, you might lose one in 10 because somebody won't substitute it. So it's near impossible for us to sit there and reclassify or try and calculate what is lost.