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

Good morning, and welcome to the JB Hi-Fi Group 2024 Full Year Results Investor Conference Call. Today's call will commence a short presentation from JB Hi-Fi Group's CEO, Terry Smart, and Group CFO, Nick Wells. Following the presentation, we will open the questions from investors and the call will conclude around 11:30 a.m. We welcome representatives of the media to this call. And as with previous calls, we will only be taking questions from investors. All media inquiries can be e-mailed to [email protected]. I'll now introduce and hand over to JB Hi-Fi's Group CEO, Terry Smart. Please go ahead.

Thank you. Good morning, everyone, and thanks for your time today. As per usual, we'll be talking through the presentation and, as just mentioned, questions at the end. I'll start the presentation on to Slide 4, the group model. Look, I know everyone is going to be very familiar with this slide by now, so I'll just cover off briefly. You know our brands, you know their purpose and their individual product offerings. You know our channels to market, which are multiple channels to market, and our target customers. And given what we'll announce today, we'll need to add in e&s into this. And it swaps in neatly targeting a different customer base and customer segments that our existing brands don't reach today. Value proposition, that is big brands, big range and, importantly, low prices and the trust customers having us to deliver this is definitely supporting our sales growth. This is enabled by 4 key competitive advantages, which I'll detail on the next slide. So over to Slide 5. Again, most of you will be very familiar with this by now, so just a couple of call-outs. Foot scale, the large, engaged and diversified customer base across the 2 brands and, obviously soon to be 3, provides suppliers with the ability to execute promotions and new product launches at scale. High-volume website traffic provides significant marketing opportunities and reach, such as our newly launched marketplace on JB Hi-Fi. With the second one, low-cost operating model, it's a constant focus on productivity, especially in those noncustomer-facing roles combined with a focus on minimalizing any unnecessary expenditure. On to multichannel capability. Look, it's really about choice in how customers want to shop with us. It's about reaching a broader audience in a single channel alone and providing convenient shopping experience through the multichannels we have, such as stores, online, over the phone and then also including online chat and video chat. Now this is combined with fast fulfillment with multiple delivery options, again, giving customers the ultimate choice. For people and our unique culture, the key there is it's that knowledgeable and passionate teams to put customers first. It's a dynamic and flexible environment, which allows us to pivot the business quickly and adapt to any challenging market conditions and our unrelenting focus on safety. Over to Slide 6. We remain focused on generating long-term sustainable growth and having a positive impact on our people, community and the environment. And today, we released our FY '24 sustainability report. Some of the progress we have made in FY '24 is for our people, continue to improve gender diversity across the group with an increase in the number of women in leadership positions at Board, senior management and store management level. Continue to invest in leadership development that included launching a new women in leadership program in Australia and New Zealand, plus ongoing focus on safety, including mental health and well-being, psychosocial hazard and aggressive customer training programs. For our communities, FY '24 workplace giving donations totaling $4.2 million and just shy of $40 million since inception. JB Hi-Fi Helping Hands program won the Gold award for the Best Workplace Giving Program of the Year at the 2023 Annual Workplace Giving Excellence Awards. The Good Guys Doing Good program welcomed 2 new charities, Clean Up Australia and Black Dog Institute, and we engaged an additional 68 suppliers on modern slavery, reviewed social compliance audits of 74 factories on a supplier watch list and completed an on-site review of 5 factories supplying a JB Hi-Fi private label products. For our environment, solar panel generation installed on 7 stores in FY '24, bringing the total number of stores to 30 and added green power to the group's energy mix as the group works towards net zero direct carbon emissions by 2030. Improved JB Hi-Fi's core private label range packaging, with 100% recycled packaging used across 77% of the range, up from 56% in FY '23. JB Australia transitioned to 100% recyclable paper bags, with all single-use plastic bags now phased out nationally, and completed the implementation of battery, phone and small e-waste recycling kiosks at JB Australia and the Good Guys stores, with 16 tonnes of battery -- batteries and e-waste received for recycling. Turning to Page 7, the group performance. I'll take this one as read, as we'll be going through more detail through the presentation. However, today, we also announced we have entered into an agreement to acquire E&S Trading, with an initial acquisition of 75% of cash consideration of $47.8 million. Plus, we have also declared a special dividend of $0.80 per share fully franked or $87.5 million. And together with the final dividend, we distribute $200 million to shareholders. Turning to Page 8. Again, with the summary of the group's performance, I'll take as read as we'll get into the details as we go through. So turning to now Page 10 and JB Hi-Fi Group's performance. The summary page there, I'll now go over to Page 11 because I'll give you some details through that -- through the summary pages. So on to 11. Sales for JB Hi-Fi -- sorry, sales for FY '24 for JB Australia, total sales increased by 1% to $6.61 billion with comparable sales up 0.6%. Sales driven by continued customer demand for technology and consumer electronic products and supported by well executed and successful Black Friday Boxing Day and Tax Time promotional period. The key growth categories, mobile phones, we saw growth from Apple with our promotional activity and supported by good stock levels assisting sales run rate. Our small appliances, good growth driven by range and brand expansion, combined with improved in-store execution. Cameras, we saw good growth from cameras and associated accessories. Game hardware, good growth in console and associated accessories, including the successful launch of new handheld gaming devices and for services growth in telco incentives, installation and other services. Software sales, that is music, movie and games, was 3.6% of total sales. And online sales increased by 2.8% to $1.03 billion or 15.5% of sales, up slightly as a percentage from last year. On to Page 12 and the JB Australia earnings results. And gross profit decreased by 0.9% to $1.47 billion with gross profit margin down 42 basis points to 22.2%, driven by sales mix and increased level of on-floor discounting. Cost of doing business was 12.6%, up 54 basis points and in absolute terms grew 5.5%, with disciplined cost controls helping to manage inflationary cost pressures. Depreciation increased by 2.8%, with an increase in depreciation on right-of-use assets, offset by a decline in the depreciation of fixed assets. EBIT decreased 11% to $491.2 million, and EBIT margin down 100 basis points to 7.4%. Now on to JB New Zealand on Page 14. Again, the summary performance there. I will opt to add the summary of its performance. I'll take that as read, and we'll move on to Page 15. FY '24 sales of JB New Zealand, total sales increased by 12.3% to NZD 327.9 million with comparable sales up 1.6%. The key growth categories, which are very much reflected Australia, with mobile phones with good growth in Apple and solid in-store execution. Audio, driven by headphone sales. Games hardware, good hardware availability assisting with sales. IT driven by smart home and accessory sales. Small appliances, with strength coming from categories such as personal care, vacuum and coffee. And we saw software sales, again, that's music, movies and games, was 5.6% of total sales. Online sales increased by 32.4% to NZD 42.6 million or 13% of total sales, benefiting from the investment in the new Shopify platform. 5 new stores were opened in FY '24. Over to Page 16, earnings. FY '24 earnings for JB New Zealand, gross profit increased by 18.8% to NZD 55.5 million with gross margin up 93 basis points to 16.9%, an improvement, albeit off a low base as we really leverage that sales growth with suppliers. Cost of doing business was 15.6%, up 141 basis points. In absolute terms, cost of business -- cost of doing business grew 23.4% as we continue to invest in new stores and strategic initiatives, with comparable cost of doing business up 5.1%. EBITDA was NZD 4.4 million, down 17.1%. EBIT was negative NZD 2.3 million and down NZD 6.7 million. Underlying EBIT adjusted for depreciation, that would have been recognized if right of use assets and fixed assets have not been previously impaired was negative NZD 5.5 million, down NZD 3.3 million. Over now to The Good Guys and turning to Page 18. Again, with a summary, I'll take it as read. We're talking some details as we move through. On to Page 19. FY '24 sale performance for The Good Guys, total sales decreased to 4.8% to $2.68 billion, with comparable sales down the same. The brand's core home appliance categories remain resilient, with good growth from categories such as portable appliances and floor care, with refrigeration and laundry remaining very solid. Consumer electronics and tech categories, especially categories like TV, were softer cycling elevated demand in the prior period. Online sales increased by 1.3% to $387.2 million or 14.5% of total sales. On to Page 20, The Good Guys earnings. Gross profit was $621.2 million with gross profit margin down 22 basis points to 23.2%, driven by on-floor discounting. Cost of doing business was 14%, up 117 basis points and in absolute terms grew 3.9%, with disciplined cost control helping to manage inflationary cost pressures. Depreciation grew 4.3%, with an increase in both depreciation on right-of-use assets and depreciation on fixed assets. And EBIT was down 25.8% to $158.1 million, with EBIT margin down 167 basis points to 5.9%. I'll now hand over to Nick to cover off balance sheet and cash flow.

Thanks, Terry. So starting on Slide 22 and with inventory. So inventory was $1.09 billion, up 5.1% or $52.7 million year-on-year, as we deliberately invested in stock to improve availability during the end of financial year sales and into July. Inventory turnover was up 14 basis points to 7x compared to 6.8x in the prior year. Payables, which would ordinarily grow in line with inventory, were up 9% or $60 million year-on-year, as strong tax time sales led to incremental buying late into June to replenish inventory. As a result, at June 30, net working capital was below its normal levels. Turning to Slide 23 and highlights on the cash flow statement. Operating cash flows and operating cash conversion continued to be very strong. CapEx was $74.4 million, up 3.8% or $2.7 million year-on-year, with investment in our store portfolio, online and strategic initiatives. Net cash was $302.7 million, driven by that continued strong cash generation and the low net working capital position. Moving to Slide 24 and capital management. The final dividend is $1.03 per share, fully franked, down $0.12 per share or 10.4%. The total ordinary dividend for FY '24 was $2.61 per share, down $0.51 per share or 16.3% and represents 65% of NPAT. Taking into account the strong financial position of the group, in addition to the ordinary dividend, the Board has today declared a special dividend of $0.80 per share fully franked. The combined final dividend and special dividend will distribute $200 million to shareholders, while continuing to provide the group with balance sheet capacity to invest in organic and inorganic opportunities. The record date for the final dividend and special dividend is the 23rd of August, with payment to be made on the 6th of September. I'll hand back to Terry.

Thanks, Nick. Moving to Slide 26, the trading update. So sales update for July total sales growth for JB Australia was 5.6% with comparable sales growth of 5.2%. Total sales growth for JB New Zealand was 12.2% with comparable sales growth of negative 4.9%. And total sales growth for The Good Guys was 2.7% with comparable sales growth of the same. And look, it was pleasing to see that positive momentum in Australia continuing into July. Now over to Page 28, acquisition of e&s. I guess, for those of you in Victoria most likely know this brand, but still give you a little bit of detail. So e&s overview, established in 1962 by the Sinclair family, premium offering across kitchen, laundry and bathroom product segments. 10 showrooms in Victoria, plus online, plus 1 showroom in ACT to open this month and really delivering a highly personalized customer service. They're -- they have a strong customer delivery capability, established commercial offering in Victoria service -- servicing builders, developers and architects with the recent opening of a commercial office in ACT. FY '24 revenue of circa $230 million and normalized pre-AASB 16 EBITDA of circa $7 million. So the strategic rationale for the acquisition, e&s is a highly complementary -- is highly complementary to the JB Hi-Fi Group's existing brands, providing us access to new and expanded customer segments and product categories, including premium home appliance customer and category, the bathroom category, the large commercial construction customer and boutique and volume builders and architects. We expect to be able to continue to grow e&s both in Victoria and nationally. Transaction details, initial acquisition of 75% for cash consideration of $47.8 million on a cash-free, debt-free basis put and call option arrangement in place for the acquisition of the remaining 25% in September 2029. Rob Sinclair to continue as Managing Director of the business. The acquisition will be funded through existing cash reserves, and completion of the acquisition is subject to customary completion conditions as in -- and is expected to occur in September this year 2024. Over now to some group focus areas on Page 30. So just a little bit about some of our focus. Retail execution and value promotion, we're going to continue to stay focused enhancing visual merchandising, refine, improve in-store visual merchandising practices to ensure an engaging shopping experience. Improved conversion rates, that's just making the most of the existing traffic we have. A solid promotional strategy, focusing on strong promotional programs, especially during those key events like Black Friday and Boxing Day. Drive value, maintain a focused approach on actively promoting and demonstrating our exceptional value to customers. And operational efficiency, drive these efficiencies to reinvest in customer-facing roles and comprehensive training for staff members. Multichannel growth. New store openings, 2 new JB Hi-Fi stores to open and 1 Good Guy store to open in FY '25. Expand our membership program and continue to leverage the JV Hi-Fi Perks membership program and grow the existing base of 1.6 million customers. Launched -- or launch our online marketplace. We recently did a soft launch of marketplace on JB Hi-Fi website to capitalize on the significant web traffic and expand our range in core categories. And finally, enhance sales channels. Grow our phone, chat and video sales channels to meet the customers' changing shopping needs. On to New Zealand expansion. New store openings, targeting 5 new stores in FY '25. Develop commercial, sales channel there, identify and cultivate the opportunity for commercial sales. Improved gross margins, we need to now leverage the retail sales growth we're seeing and to enhance our overall profit margin and invest in people systems. We continue to invest in the workforce and systems to support the ongoing growth. Commercial growth for JB and The Good Guys, expanding the customer base, continue to grow our active customer base across corporate, government and education sector. We'll leverage the new AI device opportunity, leverage our scale and reach to drive new -- to drive sales of the new AI-enabled devices and continue to integrate with retail and focus on business lead generation through the stores and enhance delivery experience. And finally, supply chain optimization, enhance delivery options. We want to stay focused on creating best-in-class customer experiences, including implementation of a new transport management system. Optimize inventory flow, we want to improve inventory flow into the stores during peak period to enhance stock availability for customers and enjoy the safety of our team. Streamline the big and bulky product flow, we want to improve the flow of big and bulky into regional stores, again, to maximize our stock position and ensure team safety. And review supply chain network, we're continuously reviewing supply chain network to ensure it aligns with our multichannel strategy and enhances the customer experience. To finish off, we -- over on to Page 33, investment checklist. You all know this well by now, so I'm not planning on covering off. And I think that's -- that will finish us off, and we can move into questions. Thank you.

[Operator Instructions] Your first question comes from Tom Kierath with Barrenjoey.

Just a quick one on the July trading. There's one less weekend in July this year versus last year. I think your trading update is 1 July 1 to 31. Just checking if you have adjusted for that, because I presume that you would usually do a bit more sales on a weekend. I think Scali was saying 65% to 70% of their sales were in the weekend. So it'd just be good to get some color around that just on the July numbers.

So we -- whether we adjusted or not, Tom, no, we haven't. It's just a pure calendar month. So we try to avoid adjusting comps day that is a calendar month. So yes, you're right, there is one less weekend this year than the year before. Look, it's not as significant an impact on us as it is on someone like Scali. We do have a bit more of a balanced weekday and weekend portfolio. And I suppose there is a little bit of benefit in July this year from some of the strong written sales in June that were delivered in July this year as well.

Yes, yes. Cool. And then secondly, I think at the first half, you said that in-store label wasn't kind of back to your normal levels. In the second half, kind of was it? Or where are you kind of running there just in terms of like service levels, et cetera?

No, we are back to normal now, Tom. So that's all set.

Your next question comes from Shaun Cousins with UBS.

Maybe just a question on gross margins in JB Australia, just in -- particularly in the second half. Promotional frequency seems back to where pre-COVID levels are. Were -- is the quantum of promotions less? Or is there a mix to product categories that enjoy higher margins or even a mix to consumers trading down to brands where you make a higher margin? I'm just curious around what's driven the surprisingly strong -- stronger-than-expected second half gross margin in JB Australia, please.

Yes. If I can, just on the overall gross margin on the second half and this plays out in the second half, I think a couple of things going on. There is services where we've been seeing some -- had some good focus on the services side. So that's things like telco commission and installation services have been positive and helped support margins. The other thing is good growth in whites and especially small appliances, which are higher margin. We're seeing some good growth come through in the JB business, again, helping to support the margin. As far as promotional activity, it feels like we're back to where we were in pre-COVID. It just feels like where suppliers are promoting as they were and supporting promotions. We're doing our own floor discounting as we would have been prior. So it feels very much like we're now back to a much more steady type of run rate.

Got you. Great. And then I guess, my second question is just around e&s. Can you talk if there are any brands that are exclusive to e&s in Victoria and how to think about interstate expansion? And I guess, more generally, your acquisition track record has been sort of sort of started a little slow with The Good Guys, but then sort of really -- was very much match-fit leading into COVID and did very well. Just how you're thinking about going -- managing the e&s business and even got how we disclosed a separate division or part of The Good Guys, maybe or just a few questions here on e&s, please.

Yes, yes. Look, it will be disclosed separately, so you'll get to see that separately. As far as brands that are exclusive, really, the only one that is that is going to be something real premium brand like a Sub-Zero and Wolf is -- would be exclusive and Victoria only, albeit potentially South Australia if we could have it there. But all the other brands, we can have interstate, but still to be discussed with suppliers. So I don't want to jump the gun too much as far as that's concerned.

Sorry. Go ahead, Terry.

No, no. Go on.

Have you had ACCC issues? Would guys need to engage with them at all?

No, no. We have engaged with the ACCC, and we've got, what they call it, formal merger clearance.

Your next question comes from Michael Simotas with Jefferies.

And well done on the results. A question on the July trading update. I know COVID is a long time ago, so our memories are probably fading a little bit, but there seem to be a lot more promotional activity in the market in the month of July than what I can remember. So just interested in any comments on whether there was, in fact, a bit more promotion this July than there has been in the past and whether that was funded by JB or suppliers.

I'm not sure there was -- again, it feels like I a bit of pre-COVID just being the level of promotions that are there. But look, the reality is, when it's tough, that's what you do. You go out and you promote. And it has been reasonably tough in the market. So the team sit down and work with suppliers on creating promotions that can actually drive sales and drive a result, and that's what's happened. But to say that it's too much different than pre-COVID, I don't think so. It's just the same as any month. When it's tough, you go out, you work with suppliers and create promotions that are going to drive sales.

Okay. That helps. And then a question on e&s. Just sort of trying to work out how that business is varying cyclically relative to your other businesses, which have proven to be pretty resilient. If we look at the EBITDA margins of that business now versus where they were before COVID, appreciating that unlisted accounts can be a bit patchy, it looks like margins are lower. So I just want to get an understanding for where earnings are in its cycle. And do you feel like you're buying this business on earnings that may be a little bit depressed?

To your point, I think it's a private business again, so it's always a bit hard to look at what is in -- what historically has been a private business. It's always a bit hard to look at what's being in the set of accounts. We know this business. The reason we want to own this business is it has exposure to construction customer, the commercial customer and probably a bit more of a housing exposure with renovations and new starts than Good Guys has. And so it definitely would be feeling that at the moment. we're very comfortable with the earnings that we reported in the presentation there, that they can be the base that we build it up and we grow from that.

Next question comes from Bryan Raymond with JPMorgan.

Great results. Just wanted to sort of talk more broadly about the margin profile. We've been talking a lot today about profitability and -- but particularly around promotional activity and other factors largely normalized now. Your margins are a fairway ahead of pre-COVID as it stands in FY '24, which was a reasonably challenging year for the consumer. '25 is looking probably a little better from a macro perspective with tax cuts and rate cuts and so on. Should we be thinking about anything that would -- we need to normalize in the FY '24 margins at 7.4% and 5.9% for JB Australia and Good Guys? When we're thinking about that go-forward margin because as I said, they are above fairway pre-COVID, is there anything there that we should be unwinding? Or should that be kind of the new baseline sites for the business when we're thinking about our forecast going forward?

I think if you, again, separate the brands when you can vary back to FY '19, when Good Guys back in FY '19 was running 2.5% EBIT margins, we were at that point, we were definitely looking for significant improvement in EBIT margins. And obviously, we've seen that over the last few years. In terms of what we're seeing in -- it's not -- look, to Terry's point, we sort of got the label back in the stores as to kind of where we expected it to be. Those gross margins in JB Australian, we've always said it sort of bounces around the 22% gross margin. So gross margins are largely we expected it to be. The cost of doing business is largely where it's expected to be. Good Guys, I think the team have done a really good job of holding on to the gross margin, that 23%. So it's probably -- that's giving us a bit of extra EBIT margin than what we probably originally anticipated in Good Guys back in FY '19. But overall, Bryan, it is -- that's largely easy for us about going back to a normal environment, and our job is to continue to make sure we maximize the opportunity from here.

That's really helpful. Just on JB Australia at 7.4%, I think pre-COVID, it was more mid-6s. Is that a similar comment there? It seems like it's more of an efficiency game in the CODB line given, as you said, you're at 22% on the gross margin. Is that in-store efficiency, the supply chain? Is there anything in there that's meaningfully more efficient than it was 5 years ago?

Definitely that sales -- to your point, around that sales dollars, there's definitely a little bit of leverage that's coming through on the sales dollars. And look, I don't know. I don't have it in front of me, but it's not that material, but that FY '19 number has also got a bit of pre-AASB 16 impact in it. So it's not -- from our perspective, FY '24 and FY '19 are not that materially different.

Okay. Great. And just a final one for me just on the balance sheet. You've obviously given us the capital return as well as there's an acquisition in there. Your starting point is a bit higher than I thought in terms of net cash at $300 million. There might be some temporary factors in there, so I can't understand if there's anything we should be unwinding in particular around timing. But just more broadly, you're going to be in a pretty strong net cash position going forward, I would think, given those 2 other factors. Should capital management continue to be on the agenda, do you think, for the market, given do you need a really big net cash position is, I guess, where I'm heading with this? What's the right level going forward?

I think in -- 2 comments. I think you probably -- you only get to see cash position at 2 points in a year in June and December what it's worth there, both the seasonal high points. So it's not that high throughout the year. I think what you're seeing from us today, we're pretty proactive. And if we don't have a use for the capital, then we will return it. Ideally, we'd like to be investing in our business or a business like e&s and continuing to grow top line and grow earnings. But in the event we don't, we will consider it each period. Just reverting back to the $300 million, it is a bit higher than -- and just specifically on June. It is a bit higher than normal. We try to go out with the working capital. It's -- we bought late, so this is a bit of an elevated higher position. And inventory, even though we put inventory in, we still would like to close on a higher inventory number. We still feel like we've got stock availability challenges because we're trying to -- remember again, the -- our 2 reporting periods are right at the end of 2 key promotional periods. So trying to get that inventory balance right is tough. And so we still think we'd like to invest a bit more back into inventory. And so there is some working capital to go back into the business as of June as well.

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

If I may dig a bit deeper into the very strong sales growth in that fourth quarter and particularly into July, that's what surprised me today. Most of our macro guys have been telling me -- most of our macro guys are telling me how soft that period was, yet you guys seem to be doing extremely well. Can you go into a little bit of detail -- a bit more detail what categories was really in that strong -- what's driving that? Is it category growth? Or is it market share growth? And the second part of the question is, what categories are there that you have? I'm assuming it's probably going more in telephones and mobiles. But what areas do you think that you're still under that are growing strongly, but you still think there's a lot of runway in terms of market share growth? Could you answer that, please? Because that's the thing that surprised me is the strength in your fourth quarter sales and particularly leading into July. You seem to be doing a lot better than what I was thinking you'd be doing given the current macro environment.

Yes. Look, it's different between the 2 brands, definitely. JB just continues to -- and we would anticipate we're gaining share here. But it's very hard for us. At the end of the day, I don't want to be flippant about whether we're getting share or whether the category is growing. We -- but if a customer is out there shopping, we just do whatever it takes to actually get that customer to shop with us. So -- and that's just how we operate. It doesn't matter how many customers are out there. We just want them shopping with us. But when you think of JB, those tech categories continue to perform really well. Things like TV was quite soft, but the tech categories continue to perform strongly. And again, that just comes down to, I think, a -- the fact of how -- when we talk about there's a lot less discretionary, those categories are becoming like mobile phone, et cetera. So JB was really tech. And also we saw some really good growth coming out of some categories like small appliances, which in JB include vacuum. And you've got things -- you got -- smaller clients is growing really strongly. And here is like vacuum, believe it or not, really growing strongly with Dyson and coming out with a bit of Godfreys, I guess, closing there. If you then come over to The Good Guys, they saw some really good strength in the home appliance categories. And I would anticipate in that case, while they operate the same, whoever is out there buying, we just want to get them shopping with us, but that would have been some market share gains in those categories, definitely. And I think for The Good Guys and for JB, when you think of the market as it is today, consumers are very conscious of price. They want value. And over so many years, that's what the brands have built in consumers' minds. And no doubt, we're benefiting from that during these tougher times.

What about the runway, Terry? Which categories do you think you got more runway? And is artificial intelligence starting to kick in that you see that you could gain even further runway?

Yes. Look, definitely, the AI-enabled devices are going to give us some runway in that respect. And they're probably playing out like as we anticipated, and that's coming through more in the strength of the ASP. They are delivering to that computer category. But come midyear, you're going to see some more brands or some of the silicon players come out like Intel and AMD are going to be launching silicon (IV) that is capable of the AI. And you'll see models -- model numbers increase -- availability of models increase to something like around 40 models. So -- and also, while still premium, you will see pricing come down a little bit in that, down to more the $1,400 mark or starting at $1,400, so still premium, but just becoming more affordable and just a greater range of models coming in. So we would anticipate that, that will be positive for that category in computers. Telco, we still maintain that we have a low share, albeit that share is held with the carriers. So we still feel there's some opportunity to continue to gain some share there. And then over in The Good Guys, it remains smaller clients as it remains back to -- and just continuing to see we can grow the share in laundry and refrigeration.

Nick, just a very quick second question. You're going to get this for the next 2 to 3 years, a bit of a forewarning, but the margin in e&s, if you look at the EBIT margin, it's pretty low. It's probably at 1% or 2%. So how are you going to handle that question when it comes to every question about the margin being really low? And is there any quick wins that you might be able to get that's going to happily satisfy us going forward that the margin is going to improve? Because I can see it coming in the next 2 to 3 years, you're going to get hit about that low margin.

Yes. I get it. I get the -- it is lower than the existing. As I said, The Good Guys was lower than we're in today, though. So I don't have any answer for you. We could get the opportunity to [indiscernible]. And I'll let the question for the next couple of years.

It's coming your way, Nick. So is there any quick wins that you can get it up a little bit? Because it's coming, you know that, don't you?

We just need to get in there, David. I think we'll definitely -- if there are quick wins to be had, we'll find them.

I'm sure you will do your best.

And also as a category in the commercial space, which would generally be a little bit lower margin, but we're really keen on growing that. So we'll get in there and really understand this business and see what we can do.

The next question comes from Adrian Lemme with Citi.

The first question I had, sorry, I don't know if there's been a lot of questions on gross margins in JB Australia. We detected a lot less Perks deals, those storewide deals in the second half on the PCP. So I'm just wondering if that directionally was in line with what you've seen. And also I assume that you haven't had to do as many of those in the fourth quarter because you've had such a strong tax time. If you can just talk to the -- how significant that is, please.

It's not. Look, the Perks didn't have any significant points on gross margin. Like it's -- when we're doing Perk deals generally, it's about customer acquisition and building that Perks membership base. It's not significantly impacting the overall gross margin otherwise, Adrian. In terms of Q4, it is just Q4 is an important quarter for us. It is end of financial year sales and Mother's Day in May. So it's a big period generally, and it's sort of we can clearly see customers are lining up behind those promotional periods and waiting for those promotional periods. And so we -- as Terry called out, with that retail execution base, we're just making sure we execute on those promotions really well.

Okay. Great. And second question was on e&s. So I can see it's got 9 stores in Victoria. Something like our Winning Appliances has 17 nationwide. Is that a good guide? Obviously, you're not going to give the proper guidance today on it. But is that something you could work towards over the next few years? And secondly, is there any material overlap in the brands that e&s has with Good Guys? Is there some benefits from harmonizing trading terms, please?

Look, store expansion, yes, again, we need to do a lot more work on store expansion, but it remains a really good opportunity. When you think of the number of stores just in Victoria, it indicates that, potentially, there is greater opportunity than what you're seeing there from Winnings. And as you know, Winnings, while these are around the country, it is really focused in New South Wales. So we see really good expansion opportunities. Numbers, hopefully, we can be clearer over in the future on how we're seeing that play out other than we know that there is a good opportunity. Brands that are -- and let me -- a lot of brands do overlap between The Good Guys and e&s. Obviously, the e&s products from those brands is more in the premium space and The Good Guys is probably more entry to me. But they're -- hopefully, and again, we need to get in and understand it, but that will be one of the things like we did with The Good Guys and JB is we would look to try and leverage that with suppliers to see if we can improve margin and those opportunities.

Your next question comes from Ben Gilbert with Jarden.

Just on the telco category, just interested in -- I know you don't give explicit [ switch ] by category software. But just any color on how material it contributed to the category that was and the ability to sort of maintain that momentum? Because there are some numbers floating around for the March and June quarter showing that telco was up sort of mid-20s across the industry, and then up by 30s in the June quarter, which, given I think its biggest category in JBs now, it was quite a significant contributor. But you obviously got a lot to comment and Google is full of this for them and iPhone, all the sort of stuff with AI. Just any color you could give us around that and, again, the runway you continue to see there?

It's -- to your point, it's an important category, JB. I've seen some of that market data that you're talking about. We're definitely not seeing that level of growth in our business, but it is still a strong contributor to the overall JB Hi-Fi Australia growth.

And how much -- I suppose how much scope to share -- to Adrian's question before, is that because you've obviously done such a good job building that and generating or driving new customer cohort for Telstra? Do you still see significant run rate or you're coming up against some more competition now? Do you think you've been helped a lot by Apple supporting -- providing more support in the market as well?

I'll just go to say on the hardware side, so separating out the Telstra piece, on the hardware side, we still have strong ambitions to continue to really grow that category and think we have opportunity, and we know we have opportunity to grow it. So we still see upside there. And I think you made also the point around things like AI. That's -- it will be interesting to see how that plays out in the telco space. I know it's in Samsung, but Apple is still yet to launch, and they've started talking about their Apple intelligence, they're calling it, but that will be -- there's not much detail on that, and that will come out. And if that can really say -- and if Apple generally do a really good job of demonstrating good use cases for that, then that could be a really good one for new product launches from them to drive an early replacement cycle. So there's potential in there. We're just going to see how that plays out. But we still remain that, there, we've got some really good growth opportunities in telco, the hardware side.

That's great. And just final one for me, just around CODB. I sort of talked to The Good Guys and JB together has spoken out. But just how are you thinking about the underlying rate of CODB growth into next year? Is the focus still very much around managing wages as a percentage of sales? Do you think you'll be able to get some operating leverage, for instance, in JB, if you can maintain your sort of level of comps? Just a good color on how you think that sort of underlying inflation for fiscal '25.

Yes. Look, it is largely the same, Ben. The biggest part of our cost base is the wages. And so as we've always done, we will try and manage that wage cost in line with our sales growth. So the easiest way to do that is to grow top line. So as I said, we remain very focused on growing that top line sales base. The -- and then obviously, the inflationary increases will come through in that wage base. Take away the award increase from a corporate perspective was less this year than it was last year. So it's slightly more manageable task, but still not an insignificant increase that we will need to manage.

And some of the other ones like rent, with -- obviously, with AASB, but you've -- the CPI type, so you've got, plus to rental increases that continue to plateau.

Yes. So that will continue to plateau according to our plan. It's a bit lost with the accounting. But yes, the CPI prices will still flow through. And we'll just -- again, we just need to try and manage that [ lease ] base the best we can as they come up for renewal.

Your next question comes from Lisa Deng with Goldman Sachs.

Congratulations on a really good set of results. A couple of questions. Firstly, on the promotional calendar, can you talk us about the promotional calendar for the end of financial year sales compared to last year in terms of, for example, number of days? And you -- I think Nick mentioned some of the later June orders then floated into the July delivery. So can we better understand that? And then I guess, the flow on from that is the Black Friday, the November sales. Last year, I remember, was significantly larger than the '23. And so what are we kind of thinking for that promotion period again in November this year?

Yes. So tax time, look, it was very similar last year in the sense of the length of the promotions. Nowadays, promotion seem to go for the whole month anyway. It tend to be going for the whole month. So tax times, fairly much the same. Last year, Black Friday did creep out for a few extra days. So instead of the 1 -- instead of the week, it almost stretches out to 2. This year, we would anticipate that's going to be the same. It does get a bit closer this time into December, Black Friday this year. So that will be interesting to see if that -- some of that flows into December. We're still going to sit down and work all of that out in the sense of how the sales may flow through. But we anticipate Black Friday this year to be bigger again. It just seems to be getting bigger consumers absolutely understand what it is and then throw on top just that people are really looking for value. We anticipate that Black Friday will be another good period for us this year.

Yes. And just on July, we noticed that Prime Day this year was 6 days compared to last year. Did we extend any further sort of promotions into July that we normally wouldn't have or didn't do last year?

No, no. So it's always -- it's actually a good thing when others are promoting. JB and The Good Guys, for that matter, actually benefit during that time. And you can argue is it tough on margin, et cetera. But at the end of the day, all we care about is taking the sale. So Prime, you're right, it went for 6 days. The JB team just got right behind it. We're matching price. We're actually out there actively promoting and pushing deals as well. And they just took advantage of the hike that was around it, and it was a really good result for them. And they -- credit to them getting a really good job. And as The Good Guys, The Good Guys are good result out of it, too. And again, I just keep coming back to this fact that consumers expect both JB and The Good Guys, there's a lot of trust around the price. And they just anticipate if there's a sale in the market from anybody, that we're going to be bringing it to the market as well or having our own deals running at the same time. So we always get customers, at least checking us for price and shopping us as well during those times.

Great. And just one last one for me. In terms of supplier-funded promotions, we've heard from a lot of places that Apple has been very promotional. I'm trying to sort of clear the, call it, iPhone 14, 15 in -- to create runway for the Apple intelligence enabled like 16. Do we have a firm date for them launching? And do we have any sort of exclusivity, not just for Apple, but around some of those AI product lines that you mentioned to get that opportunity ahead of other people?

So firstly, on Apple, no, we don't have any dates as yet other than September, as you mentioned, as a potential. So we don't have any opportunity. Apple have been very promotional. We've seen that over the past 12 months and that's all -- as all part of that margin that you're looking at there today. So that is Apple being promotional. So that's about Apple. As far as AI getting exclusivity, not necessarily getting exclusivity. It's just that when it comes to JB, again, no one is first to new. And what we have seen with the current AI devices that are actually in the market, JB has picked up the lion's share of those sales based on the fact that, again, consumers just first thing they think about is JB when they think of these new devices. They're coming in. Our staff are trained. Again, the team did a great job of running a training program for all staff around the country just prior to the AI devices coming in, that consumers were walking in, expecting to see it and then actually getting great service from the team. So we'll continue to do that as this new -- as the new silicon rolls out, which is sort of midyear.

Your next question comes from Craig Woolford with MST Market.

Two questions, I'll keep it brief and we're all on time. Firstly, just what's been the progression of, I guess, average selling price or average transaction value as you move through FY '24? It was a great second half result. Was that more about more transactions coming through? Or is ASP and mix being a more positive influence?

It's -- when you think of an average transaction in tech, it was -- or for JB, it was actually slightly up. And volume was slightly down. So it's not too dramatic, but ASP has held up, and that's more to do with the mix of the products that are going through than the individual categories. Categories like computer and telco have held up. Others might be slightly lower, but the average that a consumer is buying from us is just slightly up. It's reversed in The Good Guys, and that is that volume was up, ASP was down. And that's, again, that real flight to value that consumers are doing with white goods. But the volume was up again with the -- we'll just say that trust that's coming to The Good Guys are going to get the right price. And so that's how we sort of play out.

Yes. So just to clarify on Good Guys, it would be trading down to a potentially a cheaper brand or a lower spec model or something like that.

Yes, yes, yes. It's more the value brands or value models that are on the floor.

Okay. And because everyone is asking on gross margin, I feel like I've got one on the JB Hi-Fi Australia specifically. The first half gross margin was 22.0% and the second half was 22.45%. I know it's -- might be small in the scheme of things in your world, but it is a meaningful enough difference that I just want to know whether you feel we should be extrapolating 22.0% or 22.45% because that could give quite a different result for FY '25.

There's a bit like -- I try not to say it out loud, but it does move with mix, Craig. And so it's a little bit -- for example, visual -- TV sales were a bit tougher in the first half than they were in the second half. Nature of the product means slightly higher gross margins, so that's helpful in the second half. So it moves around with mix. We're pretty comfortable as we're talking around sort of that 22%, and it is going to bounce up and move around depending on the period.

So do you think the mix effects that you saw in the second half is representative. Because some of the commentary earlier in this call seem to suggest that all the other dimensions of mix have largely normalized than perhaps the second half is more representative.

Yes. 22.45% is a bit higher than what it's historically run. We're probably more comfortable closer to 22%.

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

Just a question. Obviously, June -- well, the fourth quarter and July were very strong. Are you seeing a material change in consumer behavior? I guess, I'm trying to understand, is this sort of the Black Friday experience all over again, where consumers come out for key promotional categories and then sort of went back into the shell a little bit afterwards? Or is this -- are you seeing sort of a fundamental change in the consumer, and this is the start of a more buoyant period? I just wasn't sure if you've got any insights on that from what you can see.

No doubt, we're cycling though some lower comps from the year before, I think, is assisting us as far as that is concerned. So there's no doubt, though, that we had a really solid tax time promotional period. Again, consumers are really reacting to that discounting. However, that last quarter into July, it's -- we're just cycling less challenging comps as well.

Yes. And just the second one and as a small point. You've given pre-AASB EBITDA for e&s in FY '24 of $7 million. Is -- can you give us a sense? Because you're going to report a post-AASB basis. What that number would be? Would it be -- is there $2 million or $3 million of D&A and maybe a little bit of interest on the leases to sort of come down to that $4 million, $5 million sort of range?

I appreciateiwe haven't given all the color today. I would say it's only small overall in the context of the group. But you're right, there will be a bit of D&A and high interest that has to come out of that number as well.

Okay. Yes, I might said a small number, but just want to get a sense. And you're going to report it separately post...

Yes. We'll report it in separate segment. Like we said, it -- Rob will run that business as Managing Director. And it will sit alongside JB and Good Guys.

And can I ask on the way you're reporting it, the 75%? I assume you're going to report 100% of the earnings and then there'll be a put-call option on the balance sheet side that moves up and down. Is that the way it will be reported?

We need to finalize how we account for the put and call. To your point, we probably have to recognize 100% and then have a noncontrolling interest for the remaining 25%.

Your next question comes from Mark Wade with CLSA.

Well done on the results. Just on these legal proceedings that are afoot, is it just a bit of a case of a bit of bad luck to have 2 in a row there? Or do you think there's something more deeper going on governance-wise? It may be a bit too aggressive on things that's led to that situation.

Just bad luck.

Okay. And has it changed the practices in the businesses today?

We've got a really strong compliance program in here, but it doesn't -- of course, it makes you just review and just be -- make sure that you're comfortable with it. But we hold ourselves to a pretty high -- I'll say, a very high account internally. But it doesn't stop you from just going back and revisiting and just being really sure that you've -- that your compliance is up scratching. Again, we feel it is, but we just remind ourselves.

Okay. And just to clarify, you would have incurred some costs to date that you've just expensed that, and there's no provision taken more generally for any future cost, right?

Yes, that's correct. Yes.

Your next question comes from Ross Curran with Macquarie.

I realize most things have probably been covered up on that. But just on New Zealand, you've committed to opening another 5 stores this year. The business is still sort of hovering around breakeven though. Is it progressing to plan, those store rollouts? And when can we expect that business to start contributing to the overall group?

Yes. Look, it's -- obviously, we'd like to have seen the gross margin come up a bit stronger, but that's as much a function of just how tough it is in New Zealand and being competitive. We're seeing good sales growth. So I've got to say getting good growth out of that business has been really pleasing. You know well how others are performing over there, and to get that comp is really good. Now it's all about leveraging those sales. It's all about working with suppliers, putting in stretch rebates, doing deals, leveraging the volume we've got and growing the gross margin in that business. And then we'll start seeing some improvement.

And then just a point of clarification around e&s. Do you need to put any more capital in just in terms of rebuilding inventory or anything like that into the business?

And we're required a capital investment, yes. So it will require some inventory that will be -- and Terry talked about it, we're looking to grow the business. So there'll be some capital investment from a CapEx perspective as well.

Your next question is a follow-up question from Michael Simotas with Jefferies.

I just wanted to clarify something. It looks like your software sales in JB Hi-Fi Australia were abnormally low in the second half. I think it fell a bit below 3% of sales and fell 30% year-on-year. I just want to check, firstly, is that just rounding, messing up that math? And also is that the run rate going forward? Or is there something unusual that happened in that half, just thinking about implications for gross margin?

I'm just trying to recall, but I would put it down if it -- I must admit, we haven't looked in great detail, but it would be software releases, gaming.

It will be gaming.

Gaming, there was -- we weren't cycling some software releases from the previous year, and we knew that was going to have an impact on the category. And obviously, that's what you're seeing, and you're seeing that play out.

Yes. Because it just makes that second half gross margins seem even stronger in that context, I suppose.

Yes. I think you've got to remember the gaming software release last year. So it's not particularly good gross margin. So it's one particular game. And so that gaming category was down by 50% in Q4 as a result of not cycling that [indiscernible] the year before.

There are no further questions at this time. I now hand the conference back for closing remarks.

Well, thank you. Thanks, everyone, for your time today. Really appreciate it. And no doubt, we'll be seeing some of you out on the road. Thank you very much.