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. As normal, we'll talk through the presentation and then allow some time for questions at the end. I'll now turn to Page 4, our group model. Most of you will have seen this and seen it many times when we've covered it off in detail, but a few points that are worth emphasizing: You know our brands. If we move down to our product offering, I think the important here is the strength and the importance of our product offering. The tech we sell is very much integral into our customers' lives, such as mobile phones, computers. And therefore, more of these categories fall outside the traditional discretionary spend, combined with the fact we do have a younger customer who typically always wants to upgrade to the latest. With home appliance offering, which we have in both brands, we are focused on the replacement market, which is less impacted by economic conditions and again fall outside the discretionary spend, so our categories maintain high consideration regardless of the external environment. If we move down to our target customer, the key here is they're a highly engaged target customer. While it's very broad across both brands, we are skewed to a much younger customer, especially in JB. And these customers are less likely to hold off upgrading to the latest devices. Moving down to customer proposition. Again here it's the power of our value-driven customer proposition. We are known for great value and we are known for discounting and negotiability, and importantly, this is on the big brands. So when, if household budgets tighten, customers will increasingly turn to trusted, value-driven retailers such as ourselves. And of course, all of this group model is underpinned by 4 key competitive advantages, which I'll now turn to on Page 5. Again you will know most of these. I've covered them off many times before but again just a point maybe through each of them: When it comes to scale, our first competitive advantage, we will continue to leverage our scale and our significant buying power to access further deals from suppliers and pass these on -- pass these savings on to our customers. The significant size of our younger customer database drives ongoing brand importance to suppliers to maximize sales of newly released technology and innovation. And finally with scale, the high-volume web traffic, combined with a large and engaged, contactable database, provides a significant marketing opportunity and reach. Our low-cost operating model, number two. Look. It's a very efficient model, and we're really focused on eliminating waste and to ensure we can respond to market price activity and maintain focus on market share. Plus it allows us to compete effectively with traditional competitors and the newer market entrants. Plus, we're always maintaining, we always maintain a strong focus maximizing wage productivity in line with sales. This is in our DNA, so we can react fast and maximize this productivity when needed. And number three, multichannel capability. Over the last few years, we've really proven the power of our multichannel capabilities and its importance to our customers. Look. At the end of the day, it's about providing the customers with the ultimate choice on how they wish to shop with [ us ] -- and therefore cater for all their different shopping needs. Over to number four, people and our unique culture, I think the key here is dynamic and flexible environment allows us to pivot the business quickly, as has been demonstrated over the last few years, and adapt to any changing market conditions. We have knowledgeable and passionate team members who put customers first and are known and trusted in providing exceptional customer service. Plus we maintain our unrelenting focus on health and safety. Over to Page 6. We remain focused on generating long-term sustainable growth for the business; and are committed to having a positive impact on our people, community and environment. Some of the highlights through or achievements for FY '22: Our people continued a set -- to action a set of diversity and inclusion initiatives, to improve diversity and leadership and inclusion within the organization; launched an updated parental leave policy which supports all primary carers regardless of gender and doubles the amount of paid leave from 6 to 12 weeks; continued focus on safety, with a strong focus on mental health and well-being programs during the year. Achievements with the community. FY '22 workplace giving donations totaling $3.7 million, and $31.7 million since inception, across both the JB Helping Hands and The Good Guys doing good program. Updated and distributed our revised group ethical sourcing policy outlining the minimum standard we expect from our suppliers from their labor, safety, environmental and ethical practices, including a new requirement for social compliance auditing. With our environment. Solar power generation installed on 14 stores in FY '22, and 10 stores scheduled for FY '23 as the group works towards net zero direct carbon emissions by 2030. Improved -- we improved the management and recycling of waste generated by our operations. And improvements in sustainable packaging of our own-brand products in line with the 2025 National Packaging Targets. Over the page to Page 7, the group performance. We will talk through this in more detail as we move through the presentation, but it is a very pleasing result in what continues to be an extraordinary period. I mean these results reinforce the enormous trust our customers have in our brand and the strength of our multichannel offer which continues to provide customers with the ultimate way to -- or choice to shop. What we saw during the year, we had total sales up 3.5% to $9.23 billion. EBIT was up 6.9% to $794.6 million, NPAT up 7.7% to $544.9 million and earnings per share up 8.8% to $4.795 cents per share. Final dividend per share are up $0.46 per share or 43% to $1.53 per share, bringing the total dividend for FY '22 to $3.16 per share, up $0.29 per share or 10.1%. Through the total dividend for FY '22 and the FY '22 off share -- off-market share buyback, the group has returned $604 million to shareholders. Over the page, the divisional performance. Again I will take most of this slide as read, as we'll discuss in greater detail as we move through the presentation, but it's pleasing to see growth across all divisions. As discussed on the previous slide, sales momentum was strong through the year with total sales of just over $9.2 billion. Second half total sales were up 9.9%, as COVID-19 restrictions eased and customers returned to shopping in store whilst continuing to shop online. Online sales were up 52.8% to $1.63 billion, representing 17.6% of total sales. In the second half, as restrictions eased, online sales represented 11.9% of total sales. Now over to Page 9, divisional earnings performance. EBIT was up 6.9% to $794.6 million. Second half FY '22 EBIT was up 33.4%, benefiting from both the elevated sales growth as restrictions eased and the improvement in gross margin. Our ability to continue to grow sales and EBIT despite the ongoing disruptions to all areas of business, including stores, online and supply chain, continued to highlight the strength of our model in being able to deliver value to our customers. Over to Page 11, now turning to the divisional performance, starting with JB Hi-Fi Australia. I will take this slide as read, as we'll be covering off in greater detail as we move through the presentation. So over the page to Slide 12, FY '22 sales for JB Australia. Total sales increased by 4% to $6.2 billion, with comparable sales up 3.4%. Sales momentum was strong through the year, particularly in the second half with sales up 11.7%. Hardware and services sales were up 5%, with comparables up 4.3%. The key categories were Communications, largely driven by strong Apple iPhone 13 launch in the first half with growth in both units and ASP; Visual or TV, which was particularly pleasing, giving the stock challenges we faced. And we continue to see customer preference to purchase larger screen panels. Small Appliances continue to perform well off the back of strong FY '21, with strong growth coming from stick vacs, robot vacs, coffee and kitchen appliances. And Smart Home continues as a growth category with strong sales in security. Software sales were down 11.9%, with comparables down 12.4%, as a result of a decline in movies, music and Games Software categories. Sales were not helped with store closures during the period as -- software sales were 4.7% of total sales. Online grew 52.3% to $1.19 billion or 19.2% of total sales. In the second half, with all stores open, online sales represented 12.5% of total sales. We also saw the commercial business record solid sales growth as we continued to improve its customer offer. On to Page 13 and earnings results. Gross profit increased by 4.7% to $1.39 billion, with gross profit margin of 15 basis points to 22.4% driven by strong improvements in the key categories, particularly in the second half. Cost of doing business was 11.4%, up 21 basis points. Cost of doing business in absolute terms grew 6% with disciplined cost control through the year. Depreciation increased by 0.8% with an increase in depreciation of right-to-use assets, partially offset by a decline in the depreciation of fixed assets. EBIT was up 4.2% to $544.9 million, with EBIT margin up 1 basis point to 8.8%. Second half EBIT was up 30.7%, driven by elevated sales growth and improvement in gross margins. Now turn to New Zealand on Page 15. Again, as Australia, I'll take most of this as read, as I'll move through it in greater detail in the coming slides, so over to 16, FY '22 sales. Total sales improved by 0.3% to NZD 262.4 million, with comparable sales up the same. Second half sales were up 6.3%. Hardware and services sales were down 0.1%. The key growth categories that we saw were Visual or TVs, Games Hardware and Smart Home. Software sales were up 5.9%, with software sales -- software sales were 7.4% of total sales. Online sales grew 56.7% to NZD 43.3 million or 16.5% of total sales. In the second half, with all stores open, online sales represented 11% of sales. Over to 17, our earnings, so FY '22 New Zealand earnings. Gross margin was down 43 basis points to 17.4%. Cost of doing business was 12.8%, down 36 basis points; and in absolute terms declined 2.5%, as store wages remained well controlled. EBITDA was NZD 12.2 million, down 0.9%. EBIT was up 51.7% to NZD 8.8 million, with EBIT margin up 114 basis points up -- to 3.4%. Underlying EBIT, excluding the impacts of the impairments in the current and prior year, was $4.7 million, down NZD 1.3 million. Over to now Page 19 and The Good Guys' results. Again, in previous slides, this summary slide, I'll take as read, as we'll move on to the detail in the following slides. To Page 20, FY '22 sales for The Good Guys. Total sales increased 2.7% in to $2.79 billion, with comparable sales up 2.2%. Sales momentum was strong through the year, particularly in the second half with sales up 6.7%. The key categories we saw were Laundry, which had solid growth in large-capacity washers and heat pump dryers; good growth in portable or small appliances. We saw good, strong growth in unit sales across coffee machines and cooking preparation. Floorcare, with growth across stick vacs, robots and steam cleaners as we continued to expand our offer across this category. And Visual, which -- or Visual or TV, which as with JB saw an increase in larger panels generating growth. Online sales were up 53.7% to $397 million or 14.2% of total sales. In the second half, with all stores open, online sales represented 10.8% of total sales. Over to Page 21, earnings, Good Guys earnings. Gross profit was $649.9 million, with gross profit margin up 89 basis points to 23.3% driven by strong improvement in the key categories, particularly in the second half. Cost of doing business was 11.8%, up 12 basis points; and in absolute terms grew 3.8% as store wages remained well controlled through the year. Depreciation grew by 3.3%, with an increase in both depreciation on right-to-use assets and depreciation on fixed assets. EBIT was up 12.5% to $241.4 million, with EBIT margin up 75 basis points to 8.7%. Second half FY '22 EBIT was up 36.5%, driven by elevated sales growth as stores reopened and improvement in gross margin. I will now hand over to Nick for balance sheet and cash flow.

Thank you, Terry. So on Slide 23, the balance sheet and starting with inventory. So FY '22 inventory finished at $1.14 billion, up 20.9% or $196 million year-on-year as inventory availability continued to improve from the low closing inventory positions in FY '21 and FY '20 driven by COVID-related supply shortages. When compared to FY '19, inventory was up 28% versus sales growth of 30% over the same period. As we've always done, we will continue to manage inventory levels in line with sales, where the flexibility in our sourcing model and the nature of the product we sell allowed us to quickly flex up and down when required. Payables, which ordinarily would move in line with inventory, were up 7.9% or $53 million, as supply improved and inventory was purchased earlier in the second half to replenish inventory levels. As a result, at 30 June, net working capital at $121 million has returned to be more consistent with our historical levels, which you can see in the 5-year balance sheet in the appendix, where pre-COVID net working capital was circa $150 million. Turning to Slide 24 and highlights on the cash flow statement. Operating cash flows and operating cash conversion were impacted by those increases to working capital to replenish inventory levels from the low FY '20 and FY '21 closing positions but do remain very strong over 3 years. So in aggregate over the 3 years FY '20 to FY '22, cash conversion was 103%. Moving to CapEx, which was in line with the prior year as we continued to invest in our store portfolio, our online offers and our other strategic initiatives. In addition to the significant dividends, we returned $250 million to shareholders via the share -- off-market share buyback, which I'll talk to on the next slide. And we are pleased to close in a positive net cash position, even after the buyback, with net cash of $66 million at 30 June. Moving on to Slide 25, capital management. We've today declared a final dividend of $1.53 per share fully franked, up $0.46 per share or 43% on the FY '21 final dividend, bringing the total dividend for FY '22 to $3.16 per share, up $0.29 per share or 10.1%. This represents 65% of NPAT. The record date for the final dividend is the 26th of August, with payment to be made on the 9th of September. As we announced previously, the $250 million off-market share buyback was completed on the 11th of April and comprised a $232 million fully franked dividend and $17.6 million capital component. Importantly, the high dividend component distributed $99 million of franking credits to our shareholders. As Terry called out earlier, through the total dividend for FY '22 and the off-market share buyback, we'll have returned $604 million to shareholders while still maintaining a very strong balance sheet with closing net cash of $66 million at 30 June. The Board will continue to regularly review the group's capital structure, with a focus on maximizing returns to shareholders and maintaining this balance sheet strength and flexibility. I will hand back to Terry.

Thanks, Nick. Now to the trading update on Page 27, July sales update for the period 1st of July to the 31st of July. Total sales growth for JB Australia was 9.7%, with comparable sales growth up 9.2%. Total -- so total sales growth for JB New Zealand was down 0.9%, with comparables of the same. And the growth, the total sales growth, for The Good Guys was 7.8%, with comparables of the same. We are pleased with the start to FY '23 with continued sales momentum and strong sales growth over the 3-year period. I'll turn to Page 29 now. Look. To finish off the presentation, I just want to give you an overview of the ongoing focus areas for the business. As we move into what is an increasingly uncertain retail environment, we know we must stay focused on those areas that will continue to see us as a trusted destination for big brands at great value pricing. So the areas we're focusing on we will continue to do is multichannel. When we look at stores, we -- stores remain an important shopping channel for our customers, especially with the high-involvement purchases. And that was evidenced by what we saw during the COVID lockdowns, and once the lockdowns ended, people flooded back to stores. We will stay focused on evolving the in-store experience and the store layouts to maintain the high level of in-store engagement, education and entertainment that our customers love. When it comes to online, look. It's an increasingly important and a vital part of the overall customer proposition in conjunction with the physical stores. We will continue to improve and enhance the online shopping experience along with delivery options that meet customers' needs. We will also continue to offer new ways to engage and to deal with our customers. We will continue to innovate our offer to ensure we cater for our customer's evolving need and different access channels to the educational content that we produce. Over the page to Page 30, again with multichannel. Continued -- we want to continue to -- we have an ability, I should say, to leverage our website traffic and database; the nearly 6 million weekly website sessions across the group, which provides us ongoing opportunity to further leverage this traffic and provide both access and education to new and expanding sales categories to this traffic. With over 9 million and growing rapidly of database of engaged customers, who have requested to hear from us in order to get the latest updates on new products, hot deals, et cetera -- will continue to give us opportunities to drive sales and greater value to these customers. Second point there is personalizing the customer experience. Understanding our customers across all the channels gives -- will provide us and provide them with a more personalized shopping experience. Trialing: We are also trialing a new JB membership program, called JB Perks, which is designed to provide additional value to these members. And we'll continue to enhance The Good Guys Gold Service Extras program. Over to Page 31, supply chain. The key here is that customers want a choice on how they shop. They want the in-store experience and expertise. They want [ to be able to live chat ] with an experienced salesperson. They [ want to call or ] negotiate for a deal [ all via ] online, but then delivery becomes a vital part of that overall customer experience. And fast and flexible options are a must for our customers. We are about to launch an improved delivery options for the Good Guys customer which will focus on increasing certainty and transparency plus choice. In JB, we are continuing to refine our [ partialized ] delivery options for our customers. Significantly, we will shortly be launching an on-demand delivery solution which will see approximately a 90-minute delivery via our partnership with Uber. This complements our existing next-day delivery through our closed or dedicated network courier solution. We have our standard delivery, Australia Post, et cetera; 1-hour click and collect; and of course, the ability to buy in store and take home immediately across a wide range of products. Secondly, we've got that big and bulky enablement. We're going to continue to develop the big and bulky or -- home delivery center sites to improve the customer availability and delivery experience. Over the page to 32, commercial. Commercial continues to be a focus for us, and really now it's about setting the commercial business up for that next phase of growth. And the team have done a great job in restructuring the business to allow this growth. 3 of the key areas are evolving the brand. We're repositioning the brand or have been repositioned from traditionally what was known as JB solutions to much clearer brands that align with our key market segments of JB Hi-Fi business, JB Hi-Fi Education and The Good Guys Commercial. Continued channel development. New e-commerce platform has been launched, which will provide greater access and ease and convenience for SMB markets; plus expansion of a dedicated telco business channel. And then lastly, deliver a better customer experience: We want to tailor services to businesses, government and education. The multichannel or omnichannel experience for -- will be expanded to all business, be it small, medium and large. And greater integration of the brands to allow greater ranging and operating synergies. Over the page to New Zealand. So really focused on New Zealand and the growth opportunity. We've done a review and see the opportunity to grow and expand the business. Look. The key to success has always been for the JB group [ aligning the talent and the skill ] of the team, but we've been very fortunate to secure Tim Edwards as our new MD in New Zealand. Tim has a proven track record of retail success and a deep understanding of the New Zealand retail market. This gives us great confidence in moving forward that we can maximize the New Zealand opportunity and drive greater relevance of our brand to the New Zealand consumer. To do this, we'll be refreshing the network. We'll be expanding our reach via new store locations. We'll update the New Zealand website platform and continue to develop the local team. Over the page to retail execution. Look. Unashamedly, this slide focuses on calling out our strong and highly trusted brand reputation across both brands as a customer-focused value-driven retailer. When we look at delivering value, we have strong brand loyalty built up over years of continuing to drive value range and service to our customers. We operate in categories that have constant -- that have seen constant innovation, and we remain top of mind for customers when this innovation is launched. We have the scale to continue to drive suppliers to find deals and pass these savings on to our customers. And our passionate and knowledgeable teams work hard to meet the customers' ever-evolving needs. Secondly there, leveraging our efficiency. It -- we have multi-brand inventory sourcing direct from supplier. This gives us the flexibility to quickly adjust range and order volumes to meet our customers' needs. We have a low-cost culture that focuses on eliminating unnecessary expenditure. And our multichannel strategy provides the ultimate convenience and reach to service our customers. I'll now turn to the final slide, our investment checklist. Look. Just in closing: I -- you've seen the investment checklist. I'm not sure that I need to cover it off. However, I do just see it as a good reminder of the business strength that we have. So thank you, and we'll now go to questions.

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

The first question for me is around the gross margin. Second half gross margins in JB Australia and The Good Guys were very high, just over 23% for JB and just over 24% for The Good Guys on my numbers. Discounting has been subdued for a while. What was different in that half that pushed it up even further? It doesn't sound like it was mix, especially in JB Australia. Were there some [ stuck ] profits in there around the inflation or increases coming through?

So if we -- what was different between the 2 halves? If you take JB Australia, remember we're cycling off at the first half some lower margin that was coming from cycling some free freight that we were doing during that time and our inability to sell our services as the stores were closed. So it really returned what we thought was probably -- a little bit more to what it should have been during that time given the lower discounting or lower on-floor discounting that you have mentioned. When it comes to The Good Guys, there's definitely some mix impact appearing in there as we're seeing some good strength in the home appliances segment of the business. That's a higher margin, as you're aware. Look. We were just seeing that lower negotiation on the sales floor as that, with that lack of stock, really meant like customers were just keen to secure stock. So we've just seen some less discounting happening there. I should just remind you that, I mean, we did maintain promotional intensity during that period, though. It was more around that on-floor discounting in both brands that saw some benefit flow through to margin.

Okay. And then the second one is inventory. And obviously availability has improved a little bit -- or significantly, and your inventory to sales is back pretty much at normal levels. It is still well above 2019 on an absolute basis. And I think, Nick, you made the comment that you can be pretty nimble to adjust inventory in both directions where you need to. Are there any categories where there is a little bit of inventory appearing out there? I guess I'm not so worried about your ability to manage inventory, but historically, albeit with a different industry structure, the industry has had a couple of mishaps in terms of being stuck with a little bit too much inventory from time to time.

Yes, look. It's not that we're seeing at the moment -- Michael, I think the benefit we have, over the last 2 years, having run inventory so low is the quality of inventory. It's all new stock. It's all very relevant. And so no one, from what we can gather, is stuck with sort of old stock that they're trying to move through. It's all very fresh, and it's all in line with sales run rate at the moment.

Your next question comes from Shaun Cousins with UBS.

Just a further question on inventory, if I can, just in terms of how are you as JB Hi-Fi and The Good Guys and then also how are suppliers planning inventories. We understand that global supply is sort of opening up. And we're expecting more inventory to come later this calendar year as supply chains ease. And [indiscernible] around how that coincides with the potential sort of decline in demand there, but so maybe what are you hearing from your supplier counterparts around what they're planning in terms of inventory levels? Are they planning for a slowdown or ongoing strength, please?

Well, I think the key here is that we are -- we do have some flexibility, in spite of that, in the sense of the forecasts we're putting in that we can change those over a relatively short period of time. And we're talking maybe 3 months, not weeks. So they are looking at it at the moment. They are thinking like taking the -- our forecast. We're at this point in time saying we're continuing to see some -- the market continuing to be reasonable. And therefore, we're forecasting that to continue on, but it does give us the ability -- and we can do that because we know we've got the ability to turn those forecasts down or reasonably quickly if we need to.

You're -- probably just to clarify that, Terry: You're forecasting the market to generally remain, I'd say, where it is at the moment, in terms of the existing sort of consumer demand to sort of broadly continue on. Is that -- did I get that right, please?

Yes. Look. That's how we're thinking of it when we're forecasting with suppliers.

Yes, perfect. And my second question is just around I'm thinking about your cost base, and possibly maybe one for you, Nick, just in that labor costs are going up. We're looking at [ a bit fair ] work. And then some of your stores are located in shopping centers [ and the like there, so rent ]. Can you just talk a little bit about how you're looking at your broader CODB, which not only has been benefiting from operating leverage and quick transactions but is now -- which may not continue, but is now going to potentially face higher labor and higher rent costs. How do you think about managing that, please?

Yes. So if you break CODB down, and maybe I'll use the old CODB method that actually includes rent, the 2 biggest ones are wages and rent. Wages are sort of 2/3 of your costs of doing business. To your point, yes, we are on the general retail award. And so the award increase does come through 1 July. And that is above [ what it started doing today at this ] sort of 4.6% range through to 5.2%. Again we -- it's very similar to how we manage sales. We absolutely manage labor to sales. When the sales are there, we roster. And we try and maintain flexibility in our workforce to enable that so that, when the sales are there, we roster on. And in the event the sales aren't there, then we need to be very focused on where that labor gets allocated; and making sure we can bring it back, if the sales aren't there. Rent, being the second one, is more difficult, yes. And to your point, we do -- the rents typically have annual increases in them. A significant portion of our rents are linked to inflation, so those inflationary increases will be coming through in the cost base. It is a bit strange with the AASB 16 accounting now because that will get pushed into right-of-use asset [ and right-of-use liability ] and will be spread out over a number of years basically.

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

Terry, Nick, first question is the performance of these stores, particularly in that fourth quarter. On my rough numbers, if you look at the second half, this is JB Australia, the sales increased by [ 300 ], but I think online only increased by [ 60 ]. And I'm assuming -- I suppose, Nick, this might be to you, but the third quarter, where Omicron hit pretty hard, online would have been pretty strong in that third quarter. I don't, Nick, know if you've disclosed that number, but the fourth quarter, where I'm going with this, it looks like the customer is just absolutely flowing back to your stores. Is that the right way of reading this? And then your costs haven't improved, so were your stores able to handle that increased traffic and that's an ongoing feature, do you think? Because most people that -- were being -- people were fearing that store traffic would be down, but it looks like that fourth quarter was a particularly strong quarter for in-store traffic returning. Could you give a bit of an update on that, Nick and Terry?

Yes. Look. I -- you're absolutely right. I mean remember the first half year. We were cycling some of those closures. And therefore, consumers had no other option but to buy online; and in those states where there wasn't closures, were probably a little bit hesitant to be out in sort of the public, so to speak, so -- but what we did see, as soon as stores reopened, we -- it almost returned back to what it had previously been. What we are seeing is that online is elevated above obviously the levels from pre COVID, but it quickly returned to a few percent higher than it was pre COVID. So in other words, customers [ just go strutting to ] stores.

Yes, yes. That's continuing right through now -- sorry.

[indiscernible] -- yes. [ And also point that sort of ] Q3 online percentage of sales was definitely higher than Q4. So that's right. And then the other point, around conversion, we are seeing customers coming to store and converting at a higher rate when they're in stores. So they're doing more and more research online and they're coming to store with that intent to purchase.

Which is just perfect for your business model, isn't it?

It's helpful with the service business, but again it's very helpful in terms of how we manage the labor.

Yes, yes. And second question, Terry -- and this -- Terry and Nick -- and look. I know it's a pretty hard question to answer, but you opened the door a bit, I suppose, Terry, with your opening comments about [ forwarding ] the resilience of your customer base. It's not of discretionary. It's resilient. Can you elaborate a bit, please, on that? Because again [ it's aligned ] with my view. It's that a lot of these products are not defensive products, but they are resilient in that young people do want the most up-to-date. I noticed in your Good Guys a lot of that stuff, refrigeration, Laundry, Floorcare, Portable Appliances. It's not -- it's sort of like products there that you do with a renovation. It's not a discretionary type of item. Can you give a bit of an overview, one, how resilient do you think your sales are? Two, what are the replacement cycles likely to be, particularly in those The Good Guys area and in those new electronic-type products? And three, what areas do you think that you've actually grown the category that we can expect that -- more resilience in sales? Because the million dollar question is everyone thinks your sales are just going to fall off a cliff as soon as the economy comes off, but I'm not sure that that's necessarily the case. But I'd be interested if you could elaborate a bit on that, please.

Yes. I think, first and foremost, we're a value-driven retailer. So if we're assuming sales do slow, then consumers will gravitate to those, to value; and we're absolutely known for that. And then if you think of our categories, you're right that a lot of the tech categories like phones, definitely phones, and computers are very much so integrated into our customers' lives these days that they are very -- they don't fall into that discretionary. They're a must have for a lot of the consumers, especially [ if it breaks ], but they also want the latest tech. And we see that every time Apple launches a phone, Samsung launches a phone or there's an upgrade in the computer side of the business. So we absolutely see it as being -- becoming less discretionary as time goes on just because it's so integrated into their lives. When we think of The Good Guys and JB home as well but The Good Guys, very much focused around -- it always has been focused around the replacement business. And the opportunity for us has always been to sell up, but it's focused around the replacement business. It's focused around providing just great value for first timers but more importantly for those where a washing machine has broken down. Of course, if a fridge, washing machine breaks down, you have to replace it. And that's where we see the benefit of our model.

The next question comes from Adrian Lemme with Citi.

Terry and Nick, first question I had was just how prices are being -- price rises are being accepted in the market at the moment and what your inflation outlook for the next 6 months might be given that obviously we're hearing that supply constraints are easing.

Yes. Look. So far, price rises, and look, it's mainly coming through on those HA products, have stuck. So they're being accepted. And I guess consumers are not -- it's not a frequent purchase, so there's probably not a lot of relativity of the prices changing when they're coming into store, but importantly we'll also make sure we maintain those key price points for consumers as well. So at this stage, they seem -- it seems to be -- they seem to be sticking. One thing -- the one comment I will make around that is that suppliers are very fixated on their market share, so if they do find themselves out of step with their competitors, they will adjust. And we're price protected in it, but they will adjust fairly quickly if they need to. So there's that safety net, if you will, in -- built into our model. As far as the outlook, there has been some talk that there may be some further increases in home appliances, but that seems to be going down a little bit at the moment. So there is a potential we may see some brands do some smaller price increases, but we're not -- if -- we're not facing what we have done over the last 12 months. That's for sure.

Okay, great. And just one other question I had, please, was just looking at New Zealand. I think investors have been looking at that as a market that might be the sort of canary in the coal mine for Australia given that they started on the path of rate increases earlier. It looks like to us, if we looked at a 3-year stack growth, it might explode a little bit in the trading update relative to where it was in the fourth quarter but still pretty strong. And we have heard that mask mandates have hurt things a little bit, but can you talk to what you're seeing in New Zealand and any sort of read-throughs for Australia?

It's a little bit hard. We haven't looked at it, yes, in that -- through that lens of trying to pick up trends that are happening in Australia because, I guess, New Zealand has been through its own challenges as us with business with -- over the time, closing some stores and now looking to relocate stores. It appears to have stabilized. We've got some benefits in New Zealand coming too, which has not been replicated in Australia, where The Warehouse Group has pulled out of software. And therefore, we've become a real destination, so we're seeing some opportunity there to keep growing it, but look. Overall, New Zealand seems to be tracking fairly consistently, and I think that's pleasing in our mind.

Your next question comes from Bryan Raymond from JPMorgan.

Just on some of the key work-from-home categories, which obviously performed very well during COVID, of computing. How are you seeing them at the moment? I don't think they were called out in the slide deck. Given we've pretty much entrenched work from home, it seems, across most of the office-based workforce, are we -- are you seeing that sort of stabilize at a high level? Or is it going back to where it was pre COVID? Just it'd be good to get a feel for that category if possible, please.

No. Look. The -- in JB, that category continues to perform well, so we're seeing that, other than we ran into some fairly -- we were fairly tight on stock in some periods during the financial year last year, but once stock is back in, it's continuing to perform and perform well.

Right. So will that be settling at a much higher level than pre COVID, that category, now? Or is it sort -- remain very elevated or...

Look. It has. It is remaining at those levels, at the higher levels. And we're seeing [ continuing sets of growth ], but again we've -- over the year, of course, that work from home has continued. And I think what we continue to see is, while people have probably got a computer for home, they're probably now thinking they're upgrading it. They're continuing to upgrade their technology in the home considering they're probably settling into their home for a lot longer periods now.

Yes, yes, absolutely. And then just my second question, just on some of the supply issues you called out in Visual. I'd just be interested how much of that is driven by external factors [ and it's ] global supply chains or supplier-led issues. Or how much is driven by potentially some of the issues you may be having with bigger screen sizes going through [ on ] delivery centers? Is that creating any challenges given how much that category has expanded in recent years in terms of screen size? So yes, interested to get a bit more detail around that.

Yes. It was all -- it's all been supply, as in supply into the country, for all the brands even if they were seeing such strong demand around the world. Ships weren't -- were being -- were not coming to Australia, basically, so they were going into the other markets. So it's challenging for the Australian, the likes of Samsung, LG, to access stock and get stock into the country. That's starting to improve. We still would like more of that stuff, but it's definitely starting to improve. So it's all supply, supply chain issues, if that makes sense.

And -- yes. And our staff in our home delivery centers, Bryan, are working pretty hard to receive that stock and get it out to customers quickly.

I'd imagine so. Just to clarify your commentary just on starting to normalize: You've seen -- obviously we've talked a lot already about inventory. I don't want to rehash all of that, but with that 20% step-up in inventory, is that also coming through in the Visual category? Or is that driven by others given you haven't yet seen Visual really ramp up in terms of stock?

It's starting to build -- it's starting to improve, so it still form part of that [indiscernible].

Your next question comes from Ross Curran with Macquarie.

It's Ross Curran from Macquarie. Just a quick question just around New Zealand and your strategic review. Are you able to give us a bit of color around that store rollout potential in New Zealand, how much capital you might be committing to that business over the next few years? And really what hasn't worked in the past that you're going to be changing going forward? And where you see the opportunity for EBIT there.

So we've done a lot of work on New Zealand. And obviously, with Tim's appointment, I think that's -- demonstrates we think there's a significant opportunity. When you look at the market, we're a #3 or #4 player in the market. When you look at the key competitors, a business like [ Noel Leeming ] has 60 to 70 stores. Harvey has got 30 to 40 stores. We're currently at 14. We will -- we do think there's a good opportunity. We've got great brand awareness there and we've got some good momentum in the business. We will look to roll out stores over the next few years. We pretty measured, Ross. As you know -- are aware, we want to make sure we're getting a return on the capital we're deploying, but I think you could expect to see somewhere between a $5 million and $10 million investment in capital over the next -- sort of per annum over the next 3 years.

The next question comes from Craig Woolford with MST Marquee.

And so your sales are up 30% on 3 years ago, and inventory up 28%. And I know this might be difficult to be precise, but can you give us a sense on what those 2 metrics would be on a units basis? Like how much inflation and mix is in your sales, and how much inflation and mix is in your inventory?

Yes, it would be. And I'm just pulling things that go back to '19, Craig, but if I look year-on-year, we are seeing about 50-50, say; about half ASP, half unit growth. And [ that's like ] '22 on '21. We'd have to go back [ further to ] '19.

It would be directionally that's sort of just looking for a rough range. It's because it is -- I mean this concern about sales slowing is partly about volumes reverting to normal, but there is both mix and price inflation in your sales in there, yes.

Yes, look. And the part of the price inflation, we'd probably more refer to it as average sale price internally, but there is a deliberate strategy from us to sell up into higher price points as well. So we -- yes, we would be looking for ASP growth over that 3-year period regardless of what's happened with price increases more recently.