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

Good morning, and welcome to the JB Hi-Fi Group 2025 Half Year Results Investor Conference Call. Today's call will commence with a short presentation from JB Hi-Fi's Group CEO, Terry Smart; Group COO, Nick Wells; and Group CFO, David Giansalvo. Following the presentation, we will open to 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, remind you, we will only be taking questions from investors. Terry Smart is available for media comment after the call and can be reached on (03) 8530-7454. I will now introduce and hand over to JB Hi-Fi's Group CEO, Terry Smart.

Thank you. Thank you for joining us this morning. And as always, thanks for your interest in the business. We'll walk through the presentation, as you've heard, and then have some questions at the end. To start, we'll turn to Slide 4, the group model. You'll all be very familiar with this slide by now. And of course, the recent addition of e&s into that model as of September last year. If we just work down the left-hand side of the model, you know our brands, you know their purpose and their individual product offerings. And with the addition of e&s, it now gives us greater access to that premium home appliance categories. Also, you know the channels to market we have and our target customer base. And again, with the addition of e&s, this is helping to broaden this customer base and reach with access to builders, architects and the large commercial customers, among others. Our value proposition, that is big brands, big range and importantly, low prices and the trust customers have in us to deliver this value is definitely supporting the sales growth in the half. And importantly, a passionate and knowledgeable staff. We know what is important to shoppers. They just want to derisk that purchasing journey. And to do this, they will turn to those they trust, that will have a large range and therefore, choice. Those that have confidence that the product will be in stock and those they trust will give them the service and advice they're looking for. And very importantly -- and very importantly, I should say, the confidence in getting the right price. This is a reputation our brands have earned over many years. And finally, supporting our ability to do this is our 4 key competitive advantages, which I'll deal with on the next slide. Over to Slide 5. Again, you're going to know this very well, but maybe just important to highlight a few aspects. Firstly, scale. That is our ability to leverage our strong supplier relationships, both globally and locally. We have a large, engaged and diverse customer base, which gives us and the suppliers the ability to execute promotions and new product launches at scale. And a high-volume website traffic, which provides significant marketing opportunities. Secondly, low cost. It's a constant focus on productivity and minimizing unnecessary expenditure. And this efficiency that we get through this model allows us to maintain low price and drive value for our customers. Thirdly, multichannel. Ultimately, this is about giving shoppers convenience and easy access to the brands. It gives customers a choice of how they wish to shop with us, be it stores, which are not only transactional, but they are destinations for discovery and advice and significant impulse purchase opportunities. Online, that's used for research and convenience when purchasing and phone, chat or video gives easier and convenient access to staff knowledge and advice along with price negotiability. And lastly, our people and culture. The knowledgeable and passionate team members provide exceptional customer service and our ability to pivot the business quickly and adapt to any changing market conditions and our unrelenting focus on health and safety. Over to Slide 6. Our FY '24 sustainability report outlines our commitment to having a positive impact on our people, our communities and our environment. As set out in the report, we are committed to for our people, we are committed to health, safety and well-being of our people by creating and maintaining a safe and healthy workplace and also fostering diversity and inclusion. For our communities, it's making a positive impact in our communities in which the team members live and work via our helping hands and doing good workplace giving programs, and it's working with supplier partners to protect and further human rights. And for our environment, a commitment to net zero direct carbon emissions by 2030 and proactively reducing our waste consumption and improved sustainability of all packaging. Turning to Page 8. While we'll talk through this in more detail as we move through the presentation, we are pleased to report strong sales and earnings for half year '25 in what continues to be a challenging trading environment combined with ongoing heightened competitor activity. Our focus remains on maximizing demand through always driving value for our customers and providing consistently high levels of customer service. Turning to Page 9. This is the overall group performance. I'll take this as read, as we'll cover off in more detail as we move through the presentation. Now on to divisional performance on Page 10 and starting with JB Hi-Fi summary page. I will take this one as read as well as again, we'll cover off in detail as we move to the next page, Page 11. So JB Hi-Fi Australia half year performance. Total sales increased by 7.2% to $3.88 billion, with comparable sales up 7.2%, driven by the continued demand for technology and consumer electronic products and supported by well-executed Black Friday and Boxing Day promotional periods. Some of the key growth categories for mobile phones. This continues to be a strong category for us, particularly in Apple. We continue to see strong unit growth in the category, albeit some decline in handset ASPs. Small appliances, the momentum in this category remains strong with products such as robotic vac, stick vacs and coffee continuing to perform well. We have also seen strong growth from the newly expanded personal care categories. Computers, it was pleasing to see computers in growth. New AI-enabled devices and MacBook performed well during the period. With televisions, the category returned to growth in the half. Customers continue to gravitate to large-screen panels, but pleasingly, we also saw total unit volume growth. Cameras, another category, we continue -- included in this category products like drones and gimbals, which had strong results, along with traditional cameras, which are also performing well. Software sales, that's music, movie and games were 3.2% of total sales. Online sales increased by 16.4% to $682.7 million or 17.6% of total sales. Gross profit increased 6.4% to $846.4 million with gross profit margin down 17 basis points to 21.8%, driven by a combination of sales mix and competitor activity. Cost of doing business was 11.8%, down 10 basis points and in absolute terms, grew 6.2% with disciplined cost control. Depreciation increased by $2.8 million with an increase in depreciation on right-of-use assets, offset by a decline in the depreciation of fixed assets. EBIT increased 7.5% to $316.5 million with EBIT margin up 2 basis points to 8.2%. On to JB Hi-Fi New Zealand on the following page. Again, with Australia, I'll take the summary page as read as we'll talk about it in greater detail on Page 13. For JB Hi-Fi New Zealand, total sales increased by 20% to NZD 202.5 million with comparable sales up 6.9%. The key growth categories were mobile phones. Similar to Australia, Apple results were strong, but also we saw solid results in other key brands. Computers remained a strong growth category, again, with Apple and new AI devices performing well. Camera saw growth across all subproduct groups. Audio results were driven by Apple and the solid results across our airport locations. Small appliances continue to grow, combined with strong results from personal care. Software sales, music, movie and games were 5.3% of total sales. Online sales increased by 58.4% to NZD 32.4 million or 16% of total sales. Gross profit increased by 22.4% at NZD 34.5 million with gross margin up 33 basis points to 17%. Cost of doing business was 13.8%, down 137 basis points and in absolute terms grew 9.2% with disciplined cost control, helping to manage inflationary cost pressures and continued investment in new stores and strategic initiatives. EBITDA was NZD 6.5 million, up 155.5%. EBIT was NZD 2.2 million, up NZD 2.7 million. Underlying EBIT adjusted for depreciation that would have been recognized if right-of-use assets and fixed assets had not been previously impaired was $0.8 million, up $2.9 million. Now turning to Page 14, the Good Guys. Again, I'll take the summary as read as we'll talk about the detail on the next page on Page 15. For the Good Guys, total sales increased by 9.2% to $1.52 billion with comparable sales up 8.8%. The key growth categories were floor care, with growth across robotic vacuums and hard floor cleaners. [ Video ], good unit growth, resulting in increased sales across all panel sizes, in particular, strong growth in larger panels. Portable appliances with strong growth in most subcategories, cooking, growth driven by induction cooktops along with in-built and upright ovens. Refrigeration with growth in French door, side-by-side and upright freezers. Online sales increased by 8.9% to $233.3 million or 15.4% of total sales. Gross profit increased by 8% to $351.1 million with gross profit margin down 25 basis points to 23.1%, driven by ongoing competitor activity. Cost of doing business was 13.6%, up 1 basis point and in absolute terms, grew 9.3% with an investment in store wages to support the important peak period trading periods. Depreciation increased by 3.7% with an increase in both depreciation on right-of-use assets and depreciation on fixed assets. EBIT increased by 7.5% to $99.5 million, with EBIT margin down 10 basis points to 6.5%. Turning to Page 16, e&s performance. As you'd be aware, on the 2nd of September 2024, the group completed the acquisition of 75% of e&s. Total sales in ownership were up 7.6% to $92.3 million with comparable sales up 7.2%. Sales growth was driven by the Commercial division. EBIT was $1.9 million, in line with the group's expectation with EBIT margin of 2%. I'll now hand over to David to cover off the balance sheet and cash flow.

Thanks, Terry. On Slide 18, the balance sheet and starting with inventory. Inventory was $1.32 billion, up 13.5% or $157 million year-on-year. When you exclude e&s, inventory was up 8.4% or $98 million, in line with sales growth. Inventory turnover was down 9 basis points to 7.1x. When you exclude e&s, inventory turnover was 7.3x, which is up 10 basis points on the prior year. Payables were up 16% or $161 million year-on-year. Excluding e&s, payables were up 14.2% or $143 million as strong Black Friday sales drove incremental buying in December to replenish inventory levels. On Slide 19, we have some highlights on the cash flow statement. Operating cash flows and operating cash conversion continued to be strong. CapEx was $38.7 million, up 5.9% or $2.1 million year-on-year with investment in the store portfolio, online and strategic initiatives. Investing cash flows include the $47.8 million cash consideration for the purchase of 75% of e&s, less $6.8 million of cash balances that were acquired at completion. Dividends paid of $200.1 million includes a special dividend of $0.80 per share or $87.5 million that was paid in September. Net cash was $555 million, in line with prior years' net cash at 31 December is seasonally high. On Slide 20, capital management. The interim dividend is $1.70 per share, fully franked, up $0.12 per share or 7.6% and represents 65% of NPAT. The record date for the interim dividend is the 21st of February, with payment to be made on the 7th of March. The group continues to maintain a strong balance sheet, and the Board will continue to review the group's capital structure with a focus on maximizing returns to shareholders and maintaining balance sheet strength and flexibility. Handing back over to Terry for the January sales update.

Thanks, Dave. Moving to Slide 22 for January sales update. So sales update for the period 1st of January 2025 to 31st January 2025. Total sales for JB Hi-Fi Australia was 7.4% with comparable sales growth of 7.1%. Total sales growth for JB Hi-Fi New Zealand was 20.4% with comparable sales growth of 10%. Total sales growth for the Good Guys was 6.4% with comparable sales growth of 5.9% and total sales growth for e&s was 8.1% with comparable sales growth of 7.5%. We are pleased with that momentum that we continue to see into January, but we do remain cautious given the uncertainty in the retail market and the continued competitor activity we're seeing. Over to Page 24, the group focus areas. Again, some of this will be familiar to you, but I'll just pick out a few of the key highlights as we move through rather than read the whole -- read it all. Some of the key focus areas, retail execution and value promotion. That's -- we just need to drive value and stay highly focused on driving value to the customers. We need to enhance visual merchandising to ensure we have a real engaging in-store shopping experience and we need to improve conversion rate. That's making the most of that existing traffic we have coming into the store, all of which we're focusing on. Multichannel growth, new stores. We continue to look for the opportunities for new stores, expand the membership program. We need to continue to leverage JB Hi-Fi Perks membership program, which is now sitting at about 2.1 million, and we've got to continue to grow that base. Marketplace, that's capitalizing on the significant JB Hi-Fi web traffic to enable us to drive additional sales. In New Zealand, with New Zealand, our focus areas is to drive gross profit margin improvement, and that's about leveraging the growing scale that we have in that market. New store openings, targeting 5 new stores in FY '25, 2 were opened in the first half. We want to develop the commercial sales in New Zealand, and we want to continue to invest in people and systems, and that's to support the ongoing growth. Over the page to 25, commercial sales. Expand our customer base, continue to grow our active customer base across corporate, government and education sectors, leverage the new AI device opportunity, potential for AI-enabled device tech upgrades. We want to integrate with retail, and that's integrating with the retail, focusing on business customer lead generation and enhancing delivery experiences through the stores. Supply chain optimization and the focus area is enhanced delivery options. We need to continue to create best-in-class delivery experiences for our customers. We want to enhance the system, constant review of the system, including the launch of a new transport management system; optimize inventory flow; improve inventory flow during peak periods to enhance stock availability; and ensure the safety of the teams and streamline bulky purchase flow, improve the flow of bulky products into regional stores to maximize stock position and ensure safety of the teams. And finally, e&s, we want to focus on the basics. We were integrating -- it's an integration -- focus on integration of the business within the group, ensuring that we maintain the e&s high levels of customer service. Leverage -- we want to leverage the group, that's maximize the available synergies and review systems and processes, where appropriate, align systems and processes with the group to facilitate future growth. Over to investment checklist. Again, you know this very well by now. So I won't be covering that off. But thank you, and we can now go to questions.

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

Just a question on the comments you make around increased competitive intensity. Can you maybe just talk to whether you're having to fund a bit more promotion and then in which categories you're noticing that increased competition come through?

Yes. It's -- we call it increased, but it's probably more maintained competitive activity that we're really seeing out there. And yes, you can see that in that gross margin. We do talk about the fact that gross margin down slightly in both brands. So that is -- that's really coming from those investment on the floor that the staff need to make to close deals. We're seeing it across the board, to be fair. I mean -- but definitely in categories like computer is very, very competitive.

Yes, cool. And then just second one, business is obviously trading really strongly, and there's talk around the market that we're going to have a rate cut or 2 or 3 this year. How do you see that potentially impacting the business? I know you guys aren't macro forecasters, but just based on your -- I guess, your history and learnings over the past, how do you think that will impact the business?

Look, I guess it just becomes a positive for retail in general. And if it's positive out there and consumer sentiment improves, then hopefully, that continues to be good for us.

Your next question comes from Michael Simotas with Jefferies.

Can I follow on, on gross margin, please? And I noticed, Terry, you -- JB is always known for price and value, but you seem to emphasize it a little bit more in today's presentation than usual. And if I look at your focus areas slide, driving value is now the first point on the list. I think 6 months ago, it was more like fourth or fifth on the list. Is the dynamic changing? And are you willing to give up a little bit more gross margin to continue to drive the very strong sales momentum that you've got at the moment?

It's always been #1 internally on our list. We're very, very focused on top line growth and to get top line growth, we're very focused on ensuring that we get price right. So I mean, look, it's an interesting observation. I must admit I didn't think of it myself like that. In reflection, it hasn't really something that's increased. It's just that we're seeing a lot more competitive activity. Therefore, we're talking about it a little bit more, but it's just something we think about every single day and have for the last 25 years.

And Michael, what you see at the moment is customers are clearly searching for value at the moment. And so we're just making sure we're really doubling down on proving that value to customers at the moment.

Yes. No, that makes sense. And I guess related to that, some of the industry feedback we've had is that sales are really being concentrated around promotional periods. And I noticed that in your category across both JB and the Good Guys and a couple of your competitors as well, Boxing Day sales started the week before Christmas, for example. Do you think JB is leading the market on that? Or is the whole market moving at the same time and you just need to respond?

Yes. I think it's more that the whole market is moving. It's a small industry and people talk about when promotions may be or maybe not starting. So we just want to ensure that we're not out of step with any of our competitors where we can and where we know it. So no, it's more around just making sure we're meeting the market.

Your next question comes from Lisa Deng with Goldman Sachs.

Terry, congratulations on a strong set of results. I just wanted to follow on with the seasonality or the concentration of sales around certain periods as well. So looking at our, I guess, promotional calendars into the second quarter and potentially even into January, has any of this shifted compared to '24? And then also, how are we thinking around the first -- sorry, the third quarter sort of seasonality between the different months? Because if we look in the '24 third quarter, like Jan was strong, but then for JB Australia, Feb and March was actually weaker. So are we kind of expecting similar in sort of quarter trends?

Look, I think if you think of our planning process, our planning process starts by ensuring that we are comping the promotions we ran in the previous year. So that's the starting point for it. And then we overlay any additional supplier promotions that they may run. There's not necessarily an increase in promotional activity coming. So I can't really think that there's any real change. I mean we've got -- we've -- in Feb, we've got 28 days in Feb this year back to normal versus 29 last year. So that's something that we'll probably want to ramp up some promotional activity just to try and ensure we can comp that. But apart from that, it will be pretty much what we've run in previous years.

Got it. And then another one to do with the recent Aussie dollar weakness. How will that sort of affect our cost of goods sold or from our inventory costing perspective looking forward, please?

Yes. We're starting to get talk from suppliers coming through about price rises. Mainly, that's coming through as it typically does with the HA, the home appliance suppliers because of that big and bulky product. So we are getting some feedback. No one has actually gone yet or called out exactly how much it may -- the prices may go up. I think the thing to remember, of course, we buy locally like all our competitors do. So we're all buying from the same supplier. We're all -- the whole market will go up if that is the case, if they do decide to raise the prices. Nothing is yet, but plenty of talk that they'll need to.

Your next question comes from Adrian Lemme with Citi.

Look, just my first question was about robot vacuums. I mean some of the data we've seen seems very strong in terms of growth rates. And -- but I think household penetration is still quite low at maybe 10% to 15%, well below, say, dishwashers. So where do you think you can take this category over the longer term? And just noting also, it seems at the moment, it's kind of complementary to stick vacuums, which you noted are also growing well?

It definitely become -- it picks into that tech space that is very much the sweet spot for JB. And the Good Guys is -- it's really performing well. To say we're forecasting it out, what we are doing is merchandising it so that it's giving much more prominence in the store to make sure that if it does continue to grow at the rates that it is, and we agree that there's probably some good growth ahead, we just want to make sure that we are seen as that destination for that category.

Yes, that sounds very sensible. And look, just a question I had, too, on e&s. I understand it's still early days and you're focusing on the basics. But has your thinking on rollout opportunities across the country evolved yet? And when might we expect to hear a bit more about that, please?

Yes. What we're just focused on at the moment, I don't think it's changed in real long term. But what we are doing is, as we mentioned there, is really just trying to make sure that we've got the systems and processes and the business integrated so that we can start rolling out in an interstate, if you will. But there's no -- we haven't got that -- we haven't got a solid plan on that yet. There will be a few stores that will open in Victoria. They're very easy to add into the brand. But it's more now about just getting those systems and processes right, which sets us up so we can then really start making good informed decisions on where we wish to open outside of Victoria.

Your next question comes from Shaun Cousins with UBS.

My question is just back on gross margin. So one of the features of your commentary was the mix impact. Can you talk a bit about how much of that was, say, category mix and then also mix to brands like Apple seemed to be quite an area of strength for you, but Apple is well noted as being a high velocity item that tends to generate lower gross margins. And so would the impact on the gross margin compression, was it sort of, say, 50-50 mix and funding more of the discounts? And then when you look at that mix, is it category or supplier, please?

Yes. I think your assumption there is fairly accurate on how we look at it. It is probably like that. It is probably 50-50. And look, we -- the great thing is we're seeing some really good growth and market share gains in some of that lower-margin tech categories. So we just got to keep pushing hard in that. We think there's really good growth opportunity still there. So a consequence of that is a little bit of mix, but it's the sales that we need. But yes, look, when we work it out, it's probably half and half.

And within that, just the idea of the increased promotions, is that just responding to the consumer that wants a deal? Or is it also an indication of the larger retailers seeking to sort of gain market share at this time because you can, dare I say, sort of flex your muscle somewhat around the scale advantages that you enjoy. And so hence, you might have competitors that are less able to compete in the future. So it could be a positive for you?

Yes. Look, this is really driven by -- I think if you -- promotionally, it's very similar. A lot of that is on-floor piece when a customer is standing in front of a salesperson, and we just -- we need to take the deal. They might have got a price down the road from a competitor. We just take the deal. So that's really what -- that's returning. And we've said this in the past, it feels like it's just returning to a little bit more normal sort of environment that we would have been used to pre-COVID of this real aggressive on-floor discounting -- or I shouldn't say real aggressive, this on-floor discounting that we're seeing now, which is impacting the gross margin.

Great. And my second question is just maybe one for David. Your D&A grew below in both JB Australia, I think it grew at 2.8%, CODB grew at 6.2%, the Good Guys' D&A grew 3.7% versus 9.3%. Can you just sort of amplify the reasons that sort of occurred? And then maybe how we should think a bit about D&A growth for the second half as depreciation and amortization is proving to be more difficult to forecast these days. So if you could help with that, please.

Yes. Thanks, Shaun. So there's a few things playing out within depreciation. So there's a bit of timing there when stores roll off. And then in addition to that, you've got SaaS accounting change, which means items that were previously capitalized within IT are probably more likely to run through CDV these days, particularly when you think about Shopify as an online platform and a shift to more cloud-based IT infrastructure. So it's a bit of a combination of those things. In terms of expectations, I wouldn't expect it to be as material as what you've seen there from a good decline.

Your next question comes from Josephine Forde with BofA.

My question is on the Good Guys. You've delivered a very strong sales result, especially in the second quarter. Just interested to know whether that's market share gains or you're seeing category growth, particularly in Floor Care. And then secondly, on the gross margin, I think you've historically guided that, that should fade back to 22%, but it's held up very strong around 23%. Just interested in your comments there and particularly what you mentioned about the competitive activity for the Good Guys?

Yes, maybe touching on that last one first. The -- yes, look, I have to say that the team are doing a great job keeping gross margin up where it is. And I think that's something we'd like to continue to see. We'll have to just see how it does play out with competitor activity, but they're definitely leveraging that scale they've got to help improve the gross margins. So doing a really good job in that too. Potentially, that is something they can continue to maintain. As far as growth, what we did see, especially into the last -- sorry, the second quarter and that lead up to Christmas for the Good Guys, it's consistently been seeing really good growth in home appliances. And the feedback is -- and I think we've got to be cautious with it, but the feedback is we are seeing some market share gains. I'm always a little bit nervous to say that we are, but we are told at the times that we are gaining some market share in that. So that remained fairly good growth over the half. What changed into the second quarter was we saw some really good growth come back into the consumer electronics categories, especially TV. And so seeing TV growth helped the overall sales profile of that business into that second quarter and the key promotional periods.

Your next question comes from Caleb Wheatley with Macquarie.

My first question, just keen to understand if you can provide some additional color on underlying consumer trends, just given how strong those comp sales numbers continue to be. I know you called out some key categories, but just keen to understand if there's a trend around particular product features? Or is there a particular customer type really driving that? What are you sort of seeing from an underlying basis that's driving those sales?

Yes. I think it's going to be a hard one to give you a lot of color. I still come back to the categories that we sell. It is -- it just comes back to those tech categories, the phones, the computers. We are seeing computers getting back into some growth there, which is really positive after coming off a fairly tough few years. So computers seems to be returning, and maybe that is a little bit of what we're talking about this replacement cycle and the amount of devices that went in during COVID, now starting to be replaced. And of course, the AI-enabled devices are in there, which will be helping to assist that. But it's really those -- it's just the categories we're in. They're just -- consumers just want the latest, and if there is a deal to be had there, then they would do it. And we've seen that with the likes of Apple and MacBook. When they go on promotion, it's really -- we really see some good uptick in volume. And then on the other side, we talk about this all the time with the Good Guys. We're very much focused on the replace-a-customer. And unfortunately, for consumers, products still breakdown regardless of what the economic conditions are. So people are still replacing, but they just want confidence on value. And that's where both brands resonate really well. And obviously, in the HA space, the Good Guys resonates really well, but people will get value if they come to the Good Guys.

That's great. And then my second question, just on broader EBIT margins. So they've been maintained conscious of your comments around what's happening at the gross profit margin line. But just keen to hear your thoughts on initiatives on managing CODB and maintaining margins at the EBIT level? And any color you can provide on the outlook for CODB as we think about the second half of '25?

In terms of CODB, look, we haven't changed the way that we run the business, and that's fundamentally that we try and manage the cost in line with the sales, and so you can see that in the first half result. When the sales are there, we believe in giving customers good service and good customer experience. So we put wages in when the sales are there. If the sales aren't there, then we need to find ways to manage the cost in line with the sales base. And so we look forward, there's no change from our perspective. We just continue to manage costs in line with sales. Gross margin, Terry touched on how we're thinking about Good Guys previously and in JB, we've always said that gross margin is around 22%. That does move around a little bit with mix and other things sort of half-on-half. But fundamentally, at a key metric level, continue to maintain the business the same way we have always done.

Your next question comes from Ben Gilbert with Jarden.

Just looking forward, just keen on how you're thinking about the next 6 months or so, I'm not looking for sales guidance, but it feels, Terry, you sort of given you're expecting some price increases coming through in appliances, IT sounds like it's kicked into Q2, which presumably a big chunk of that replacement cycle as well as some ASP early from AI. It feels that sort of your run rate that you're sitting at plus you're obviously coming through some easy comps, the market could conceivably growing mid- to high singles at least over the next 6 to 12 months. Just interested in sort of your thinking how you guys are putting together the market, how you guys are thinking about ordering because it feels that maybe we're starting to really kick into a pretty solid period of top line growth in the market based on some of the trends and what you're talking about with pricing, et cetera?

Yes. I mean I think one thing though that we are very conscious of is that we're -- this second half, we're cycling a better half last year. So if you broke the first half, second half up, first half last year was a bit softer, and it started to improve this time last year. So I think underlying, we've got to just remember that, that we're cycling, I say, more challenging comps. I appreciate some of the Good Guys might have been slightly negative comps, but it wasn't quite as bad as it was in the first half. So that also means that it's a little bit more -- it's going to be a little bit more challenging into this period. All we can do, whether there's price increases, who knows? There's just a lot we don't understand yet, whether it's going to be price increases, whether there's going to be rate drop, interest rate drops. We just got to stay focused on just driving value and continuing to just drive that promotional activity to make sure that the brands are just the only choice that the customers will consider. That's all we can do. I'm sorry, I know that doesn't answer your question on the detail how we think about it. But we, like you, probably a little bit unsure exactly how it's going to play out.

That makes sense. That makes sense. Maybe you can just ask about telco specifically. It's always been an absolute cracker category for you over the last few years. It's probably what is your biggest category than JBs now. You must be obviously getting to a pretty decent level in terms of penetration, in terms of new accounts, you've driven Telstra. And obviously, when you switch, it's where you make your nice margin in particular. Are you seeing any signs that you're starting to peak out in telco or seeing increased competitor activity, particularly as Optus is trying to gain a bit of momentum, just given obviously how important the category is for you. Is that a risk that, that slows? Or are you feeling more confident that sort of IT and other categories can pick up the slack as we look forward?

Yes. We still feel we've got some good opportunity in the telco, in the hardware space, selling the boxes, if you will. It's relatively lower market share than it may be for some of our other categories. So we do think there's some upside that we can continue to push into. And we're doing that by giving up more space in stores, better merchandising in stores, really trying to stay focused on it as a category of opportunity. So we think there is still opportunity there, definitely in telco.

That's great. Maybe just final one I'll sneak in is just around capital management. So you did one last year. You got a very strong cash position, looking like you'll probably end the year again. How are you sort of feeling in terms of M&A opportunities versus willingness or decide to return capital again?

Thanks, Ben. I think just to note the December position is seasonally high, as we always say. And I guess it's an uncertain retail environment. So we're comfortable with the flexibility that the strong balance sheet provides at the moment. Over the last year, as you know, we've put our capital to work with the e&s acquisition and then also returned capital to shareholders through the $88 million special dividend. So I think we'll just continue to monitor it and focus on either returning the capital to shareholders whilst also maintaining that balance sheet strength and flexibility.

Your next question comes from Bryan Raymond with JPMorgan.

Just back on the cost side. Just interested in the wages comments you've made so far on the call, particularly in Good Guys. I just wanted to understand how much of the increase in wages that you've sort of called out is coming from a low base last year and sort of normalizing store wages versus tactically adding wages to maximize the sales opportunity that was clearly there given the strength in sales that you saw. I'd just be interested if there's a structural step-up that we should be thinking about going forward or if it's really just sales dependent?

Yes. Look, and we actually did make the comment, maybe it was more on the road last year when we're going around. We just felt that the Good Guys went a little bit tight on wages leading into peak last year into those key promotional periods. So they didn't take it. We felt there was an opportunity to take more advantage of the customers that were in the store at the time. So it's more around that peak promotional period, and we would see we do the same again next year. It's not necessarily a step change in any way, just a point in time.

Yes. Okay. So -- but where you're at now. You're obviously comfortable with, like this is -- you've obviously been able to execute on the sales line. So the current level of wages you've got in store, now you're happy with?

Yes, yes. I mean we've definitely -- we're comfortable now, yes, we are.

Okay. Great. And then just maybe a broader comment just on the sales line. We've seen obviously fantastic sales momentum this period in what's otherwise a reasonably challenging environment for a lot of retailers. How important do you think innovation is and the pace of innovation within these categories in order to maintain a higher cadence of sales growth. This is innovation coming from the OEMs, of course, in terms of the product features. The AI cycle is being talked about a lot in computing and mobile, but I'm sure it's broader than that from a category mix. Is that something that we should expect to continue to play out? And are you seeing a faster pace of innovation? Or do you think this is more cyclical in terms of the benefit you've seen over the past 12 months?

Yes. Look, it's a good question. I probably need to think a little bit more about it. But are we seeing -- it feels like maybe post COVID, there was a bit of a lull of some innovation coming into the categories. That definitely has ramped up over the last few years. So I don't know if -- I would think at the moment, it's just more -- what we are seeing is just what we've seen in the last few years, and that's just incremental improvement in products and AI is one of those features that's now starting to come through and should add some benefit into the future. It's not -- I'm not sure it's adding a hell of a lot today, but it's definitely one that will continue to drive some benefits into the future.

Your next question comes from Craig Woolford with MST Marquee.

Just my first question, if I could, around the acceleration in sales despite some macro headwinds. It was a great first half '25. So you're looking at flat comps back in second half '24 and 7% or 8% for first half '25. Can you just give us a bit of an attribution of how much of that improvement might have been additional transactions versus the ASP of those transactions going up? Some of it sounds like the mix towards televisions, big screens and that might have helped the sales line?

Yes. Look, there is a combination of both going on in there. At a total level, there was a slight increase in ASP, individual categories, not necessarily the case, but that mix, which you're getting at, but we definitely saw volume increase, and we saw that volume increase during those key promotional events. I mean, significant. People -- again, we've said it, everyone says it, that people are really reacting to promotional events. And Black Friday this year just seems to again show that people absolutely get what it is here in Australia, and it's becoming a really entrenched event.

Right. Okay. So the greater majority was transaction count, which is quite pleasing about the consumer backdrop. And then the second one relates to promotional events and discounting, a lot of questions on gross margin on the call. Can I ask more of a numeric question? In second half '24 for JB Hi-Fi Australia, gross margins were 22.4%. The half just gone, it was 21.8%. So that's like 60 basis points or so lower in this first half '25 than the second half '24. I would anticipate there's some seasonality. But if I look at history pre-COVID, it was a bit more skewed positively in the first half compared with the second half. How should we think about what a typical second half gross margin is for JB Hi-Fi Australia, given it looks quite healthy from second half '24?

Again, without giving guidance, Craig, I take your point. It looks like a pretty healthy gross margin [indiscernible] in the second half. And so we'll be working pretty hard to try and cycle that gross margin.

Intuitively, should gross margins be higher in the second half because we now have such a big Black Friday and other promotional events? Just generally, not for second half '25, but if we think about the seasonality of gross margins, would you expect a typical second half to be higher than the first half?

Not particularly. Again, you come back to ordinarily, we'd be very focused on making sure our promotional activities are supplier funded. To the point we made throughout the call, it's pretty competitive at the moment. And even when there is supplier funding for promotions, other retailers are going below that promotional funding price. So that's what's creating the challenge for us at the moment.

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

Two questions. The first one is just around, say, E&S and the commercial business in terms of what you're seeing from a pipeline point of view. Everyone's been talking about a housing construction market that's been a bit subdued. Have you seen some signs of life from those 2 businesses?

I'd say, Phil, we're obviously very Victorian focused at the moment, and it's been tough commercial construction in Victoria for a while. And that's why we're starting to cycle that. Yes, you are seeing some signs of life there. The e&s commercial team actually -- and they're also doing a good job of winning work in the [ APT ] as well, which is the other state where we are currently. So yes, reasonably optimistic on the written business in the commercial division in e&s at the moment.

Great. And in one of the key focus areas in supply chain optimization that talks about a new transport management system that you're launching. Can you just remind us about that and what you're looking to achieve with that?

Yes, that's a tool that we use to help route our deliveries from both our HTCs and from our stores. We've trialed it in South Australia at the moment. We're looking to roll it out across the other states in the next few months. [indiscernible] how we route and schedule our deliveries and then how we give the customer visibility and tracking over their order and their deliveries. So it's a good tool, and it will be really significant improvement in customer experience.

So but it's only for product that you've got going through a DC, so big bulky product, because I thought most of your product was getting delivered to store?

It is predominantly -- in terms of where it will have the most impact, it will be through our HTC, so big and bulky, and that is significant because if you think about anything that's large free TV, any sort of big box white goods, they come out of those home delivery centers. It will move to what we call our personalized products, but that will still go through the existing carriers. So Australia Post and Team Global Express.

Great. And can I sneak one last one, and sorry, it's a bit micro level. But in the accounts, there's a P&L which breaks out at the group level within certain expense categories, one of which is called occupancy expenses, and it went from $167 million last year to $171 million this year. So didn't really grow much. But then I look in your divisional P&L and your rent D&A or your lease D&A and interest went up much more sensible sort of numbers. So just wondering why that line at the group level wouldn't have grown much? Is it that the -- I don't know what you call them, the occupancy type expenses, so non-rent payments to shopping centers and the like, you're making big savings on?

Yes, Phil. So within that occupancy line item would typically be security costs. And what we've done is sort of transition the stores out of what you have typically as a front-of-house security guard into our own staff that would be front of house greeters. And so it's a bit of a classification point then. So then that cost would have previously s as security costs in occupancy, which is now more likely to be in sales and marketing as our wages.

Great. So it's just a reallocation.

Correct.

Your next question comes from Chami Ratnapala with Bell Potter Securities.

Terry, David and Nick, congratulations on the results. In the interest of time, may I quickly go into the ASCs. I think there were a few questions asked about the ASCs, and you talked about the handset side of it. Just on computers, with those newer AI products and the higher price points, was there any benefit to the ASPs in that category? Or has discounting sort of weighed over here?

We did see -- definitely did see some benefit from the -- I'll say, the AI or Copilot+ PCs. There was some benefit into that whole mix from an ASP perspective. So it's grown the ASP in that category. And I have to say, and this is -- we've got a good opportunity coming into the future. Today, those devices, the AI-enabled devices have just got long battery life, like 20 hours of battery life and a really superfast processor on them and they've got AI capability. So if you're buying one, you're future-proofing yourself to a degree, but you're getting a really, really good machine. And that's why people are buying them at the moment. As AI becomes a little bit more mainstream, we'll start to really see -- and some use cases really become compelling, we'll really see some good growth coming out of that category. But the ASP is definitely benefiting that category. The other part of it is we're seeing some -- a lot of promotional activity coming out of Apple. And Apple run what they call demand generation, and they take it out to the market, and we participate in that and that can see some discounting on Apple Mac product. We've seen some really good results come out of that as well.

Perfect. And the next one is on net store openings for Australia. There has not been any quantitative guidance given for second half. Sorry for being short term here, but is the environment tougher or has this -- is this part of your overall FY '25 plan anyway now that -- to execute it in the first half? What's driving?

No. Look, we don't typically give guidance around store openings, but now we're still planning on opening stores, we expect subject to site availability and handover happening on time, but we expect a couple of stores to come through in the second half in Australia.

Perfect. Okay. If I can squeeze in one more question just on New Zealand January trading update. Seems to be -- have further ramped up slightly. I know the comps are pretty weak. But is it purely comps to you or anything to call out in terms of green shoots?

No, I think it's -- look, it is cycling a weak comp in the prior year, and it's definitely still very tough in New Zealand. I think the New Zealand team are doing a really good job in a tough market.

Your next question comes from Lisa Deng with Goldman Sachs.

Just 2 follow-ups. One is on New Zealand. It's already in slight profitability. And just given the strong balance sheet that we have, will we consider moving faster than the 5 stores potentially that we're indicating as an investment opportunity?

Look, New Zealand, we made money in the first half. [indiscernible] we will not make money in the second half. So for the full year, we would expect not to make money. In terms of investment, no, we're comfortable with the pace of investment in New Zealand. There is -- it's a small team, and there's only so much we can achieve. And so we're comfortable with that. 3 to 5 stores a year is the right level of investment given the capacity we've got at the moment.

Cool. Second one is ancillary revenue streams. I think we've talked about the marketplace. And also previously, maybe JB Perks reaching $2 million, you might think about retail media. How are we thinking about these 2 streams to scale in the next few years?

Yes. I mean marketplace, we've rolled that out. We're taking a cautious approach to marketplace. And that's -- we want to stay close to the core. We want the experience when somebody comes to buy a product from us, from marketplace to feel not off core from JB. It's got to be really on core, and that's what we're just spending a lot of time focused on that. So we're probably moving slower deliberately just to ensure that it's the right customer experience, but it is performing well. It's behind where we thought because we were hoping to add some more product, but we've deliberately slowed it down. But those products that are on there are actually moving along really well at the moment. So that's performing well. And retail media, yes, I mean, look, we are definitely doing work on retail media. We've talked to a lot of people. We're getting a lot of advice. We just don't -- we've really just got to start working with suppliers and understanding what the opportunity will be. If you think of retail media for something like a Best Buy, it's all sponsored ads on their website. I'm not sure that's us. We want to keep everything authentic. That's why customers come to us. So we've got to do a bit of work to ensure that however we approach this, the value that we can give suppliers fits in with the brand, and that's just what we're working through at the moment.

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

Thank you. Thank you again, everyone, for your interest. We really appreciate it. Thanks for the questions. And no doubt we'll see many of you out on the road in the coming days. So thank you.