Good morning, everybody, and thanks for taking the time at a busy time of year to join us to discuss JV twenty twenty one half year results. We'll talk through the presentation and then allow some time at the end for questions. At the open, while there's certainly a very pleasing set of numbers we've delivered today, just as pleasing is the group's continued commitment to health, safety and well-being of the team members and customers throughout COVID-nineteen. Our continued investment in online and supply chain operations, including upgrades to the group's websites and expanded delivery and warehouse options. Following the launch of our sustainability plan in FY 2020, the group continued its focus on having a positive impact on its people, its community and its environment.
And our workplace giving programs raised $1,700,000 in the half with JB Hi Fi's Helping Hands program, winning workplace giving Australia's 2020 Best Overall Program and Best Innovation Awards. Particularly, I'd like to thank our 13,000 team members who have continued to do an incredible job and worked tirelessly throughout this period.
As I've said before,
our team members are our number one asset and our most important competitive advantage. Their dedication and deep product knowledge continues to delight customers every day. Now turning to Slide four and the group model. This slide highlights the group model and how it supports our two leading retail brands. We have differentiated customer bases underpinned by the best brands, the biggest range and low prices, which is delivered with exceptional customer service provided by our passionate and knowledgeable staff.
We deliver this in store, online, over the phone and via our commercial teams. All of this is enabled through a group support function, which leverages our five competitive advantages, which I'll touch on in the next slide. These competitive advantages are scale, low cost operating model, quality store locations, partnerships and multichannel capability. As we've talked about before, these five unique competitive advantages are scale, we have the number one position in the market and we are globally relevant to our suppliers as you can see from that graph. Low cost operating model, this underpins everything we do and is a key enabler.
We have quality and diversified store locations, which has certainly helped during COVID-nineteen. Deep supplier partnerships, which again has been critical to securing stock as we've been through the last twelve months. Multi channel capability, we operate across our brand's integrated high quality in store online and phone offers that provide customers a choice how they shop with us. Our store network gives us the ability to achieve fast online fulfillment times and click and collect. And we're also continuing to see pleasing growth in our commercial businesses.
Turning to Slide six. And I'll talk to this in more detail later, but it's a very pleasing result with record sales and earnings in what's been an extraordinary period. Our continued focus on our customers' investments in our online business and our supply chain have enabled us to seamlessly meet our customers' increased demand both in store and online. Just to reiterate that all results disclosed today are statutory results, which reflect the adoption of the new accounting standard AASB 16 accounting policies. I'll take Slide seven as read, but it is pleasing to see lots of green and all divisions seeing strong sales and earnings growth for the half.
As I turn to Slide eight and the group financial achievements. Sales were up 23.7% to $4,900,000,000 with continued elevated customer demand for consumer electronics and home appliances throughout the period. Particularly pleasing was the exceptional growth in online with sales up 161.7% to just under $700,000,000 representing 13.7% of sales compared to the last half of 6.5% or the comparable half. Excluding Victorian sales during the period when the stores were temporarily closed, online sales represented 10.3% of total sales. EBIT was up 76% to $483,000,000 driven by strong operating leverage from elevated sales and disciplined cost management.
Net profit after tax and EPS were up 86.2% to $318,000,000 and CAD 276.5 respectively. The interim dividend per share up CAD $0.08 1 or 82% to CAD 180 per share. From an operational achievements perspective, as I've mentioned before, health, safety and well-being of our team members, customers and business partners and the wider community remain the group's highest priority. We had exceptionally well planned and executed promotional plans during the half, including Black Friday and Christmas. Our stores, online and supply chain remained at high levels of customer service despite the COVID related challenges and significantly increased volumes.
We continue to invest in online supply chain, including upgrades to websites expanded delivery and warehouse options. The group did not receive any government wage subsidies and continue to pay team members and landlords throughout the half, including the periods when stores were temporarily closed. Turning to Slide nine. As we highlighted in FY 2020, we have given a huge amount of thought to what generating long term sustainable growth means for us. We have adopted our sustainability policy outlined our commitment to having a positive impact on our people, our community and our environment.
Some of the key half year 2021 focus areas and achievements are as follows. We prioritized the safety of our team throughout COVID-nineteen. We rolled out updated equal opportunity and workplace behavior policy and training to all store team members and launched a support office well-being and mental health program with the support from the Resilience Project, which was really well received. From a community perspective, as I touched on earlier, our workplace giving programs totaled 1,700,000 and since inception since inception, a massive $26,000,000 with JB's Helping Hands program winning workplace giving Australia's Best Overall and Best Innovation Awards. We've been joined by our newest charity partner, Earthquad, that comprises partners two thousand forty and carbonate and focuses on supporting initiatives have the greatest impact on our environment.
And we've continued to work with suppliers to enable our ethical sourcing policy. From an environmental perspective, we've trialed with a partner 100% recyclable and sustainable packaging for selected products to continue to explore environmental initiatives, including solar power generation and e waste recycling, established an operational waste and recycling working group. Now turning to the divisional performance and starting with JB Australia on Slide 12, and I'll take Slide 11 as read with those numbers. So Slide 12, turning to our half year sales. For JV Australia, total sales grew 23.3% to $3,360,000,000 with comparable sales up 24%.
Sales momentum was strong through the half with continued elevated customer demand for consumer electronics and home appliance products. The power of the JV model is highlighted as we're able to enjoy solid market sorry, enjoy above average growth in new categories as customers see us as the destination for new products, but also saw solid gains in established categories. Hardware and services sales were up 25.8% with comparable sales up 27% driven by communication, computers, visual games hardware and small appliance categories. Communications had a very strong result with both outright handsets connections with our offers continuing to resonate with customers. Product sales drove growth with a particularly strong period with Apple.
After a strong half to FY 2020, Computers had another strong half with customers continuing to see products for working and learning at home with MacBooks and laptops performing well. Visual had a great half despite some stock challenges. We have seen an increase in sales of larger panels as customers move to 75 inches and above panel sizes. And our Falcon exclusive range continues to resonate well with customers. But again, we would have liked to get more stock.
Games hardware performed very well and assisted by new console sales in quarter two. Small appliances had a fantastic half with growth in stick backs, coffee and kitchen appliances. With a number of competitors closed, it was good to engage with our customers in a relatively new category. And online sales grew 20 sorry, and online sales grew 201.9% versus 18% in the prior half to $515,000,000 or 15 percent of total sales. Excluding Victorian sales during the period where stores were temporarily closed, online sales represented 11.3% of total sales.
Our ability to scale and maintain a high level of customer service and online delivery through the half was really pleasing. And our commercial business continued to record record sales as we expand our product and service offering. Turning to Slide 13. A key element of our customer promise is the biggest brands at the lowest prices in store and online, coupled with passion and knowledgeable staff delivering great customer service. Online, we strive to ensure our site simplifies the journey for customers, whether they are researching or transacting.
We work with our suppliers to build a relevant and agile promotional plan, which coupled with JB's ability to bring products to life in store and online, creates our unique customer proposition. It is this that enables us to maintain our price and market leadership. It was pleasing to see gross profit increased to 7 and $37,400,000 or 22.7%, while gross margin was down nine basis points to 22% driven primarily by sales mix as a result of an acceleration in the growth of low margin technology products. Cost of doing business was 10.1%, down 180 basis points. Cost of doing business grew in absolute terms 4.6% with disciplined cost control throughout the half.
EBITDA grew 43.9%. Depreciation grew 2% as an increase in depreciation on right of use assets was offset by a decline in depreciation from fixed assets as we continue to manage our investment in the store network. EBIT was up 57.5% to three and twenty nine point eight million dollars with an EBIT margin up two fourteen basis points to 9.8%. Turning to J. B.
Hi5 New Zealand performance for the half, and I'll jump to Slide 15. Total sales were up 9.1% to New Zealand 141,900,000 with comparable sales 9.1%. The key growth categories are visual, games hardware, small appliances and computers. Online sales grew 70% to New Zealand $16,300,000 or 11.3% of total sales, up from 7.3% in the prior comparable period. Gross margin was down 23 basis points to 17.1%.
Cost of doing business was 12%, down 117 basis points and in absolute terms declined by 0.7 as store wages remained well controlled. EBITDA was New Zealand at $7,600,000 up 32%, driven by sales growth and cost control. You remember in June 2020, the group recorded a noncash impairment of the J. B. Huffai New Zealand right of use assets and fixed assets.
As a result of this impairment, J. B. Hoffa New Zealand's EBIT was benefited from a $2,800,000 reduction in depreciation expense. As a result, EBIT was $6,900,000 Excluding the benefit of the noncash impairment, EBIT on an underlying basis was New Zealand 4,100,000 up 173%.
And as we look forward to FY 'twenty
and turning to Slide 16, we continue to focus on the safety of our team throughout COVID and continuing to respond and adapt to our customers' changing needs. From a sales perspective, we will continue driving sales across all our channels, in store, online and commercial. We will always focus on growing top line sales and gross profit dollars. For our store network, we continue and invest in and optimize the store network to maximize profitability and continue to trial ultimate store formats to increase market penetration. We will leverage our new e commerce platform and continue to build on capability, which will enable us to meet changing customer needs through our online offer and continue to integrate the in store and online customer journey.
We'll expand communications, connected tech and pop culture product category and optimize category space allocation to maintain the productivity of our floor space. We'll build on partnerships with major suppliers to extend our capabilities. In New Zealand, we'll continue to execute on our strategy to improve performance. We'll expand and extend our service offerings and continue to enhance and develop the in store experience. And as always, simplify processes drive productivity with a focus on improved stock flow into store and back of house operations.
Now turning to the good guys and slide 19. Total sales grew 26.4% to 1,450,000,000 with comparable sales up 26.4%. Sales momentum was strong through the half with continued elevated customer demand for home appliances and consumer electronics products. The key growth categories were refrigeration, portable appliances, laundry, floor care, television and computers. It was particularly strong for home appliances where there was significant growth throughout the half, including refrigeration with strong unit sales across refrigeration and freezers alike, portables, laundry and floor care.
With Consumer Electronics, we saw significant growth, which included television with unit sales growth across all categories. Computers, again, growth across all categories and ranges. And we continue to focus on telco and building out our partnership with Telstra. Online sales were up 86% to $148,000,000 or 10% of total sales, up from 6.9% in the prior period. Excluding Victorian sales during when the stores were temporarily closed, online sales represented 7.9% of total sales.
Strong sales on the Good Guys website were partially offset by a decline in third party marketplace sales. Our ability to scale and maintain a high level of customer service and on time delivery through the half with significant increased volume was very pleasing. Turning to slide 20. Gross profit was $324,600,000 with gross margin up 167 basis points to 22.4%, driven by strong improvements in key categories. Cost of doing business was 11%, down 195 basis points and in absolute terms grew 7.3% as store wages remained well controlled throughout the half.
EBITDA growth was 85.4%. Depreciation grew 5.2% with an increase in depreciation of assets on assets and depreciation of fixed assets in line with last year. Strong operating leverage from the elevated sale growth and disciplined cost control drove strong EBIT growth, up 142% to $126,600,000 and an EBIT margin up four seventeen basis points to 8.7%. The GoodGuide team continues to leverage its unique offering capability with opportunities for improvement. As we look forward to FY 2021, the team continues to prioritize the safety of its team members and customers, and it continues to respond and adapt as customer needs change.
Sales as we focus on sales and continue to drive sales for all categories, in store, online, phone and commercial sales. The store network has had considerable upgrade program to focus on adjacencies, supporting growth categories and showcasing the home appliance category. And it's particularly exciting during the COVID period that we've had such an amount of increased customer traffic, which you've got to see much of the hard work that's been done within the Good Guys business and that is really resonating. And we think that will stand the test of time. So that's a great outcome.
From an e commerce perspective, we continue to leverage multichannel capability to further connect online and in store experience. From a category evolution, we established leading position in growing home connected home appliance market. We've continued to expand our relationship with Telstra across the group and particularly for the good guys. We have strong relationships with suppliers as you can see from new brands such as Mueller and Premium Cooking, Smiggy and Portable Sciences and Louver and Television. The investment in home delivery centers has enabled the group to provide customers enhanced delivery experience throughout the elevated sales period.
We've rolled out technology to streamline install processes and we've continued to focus on inventory efficiency, the right product, right time and at the right price. And as we've always said, retail is about detail, and there's a lot of detail there. I'll now hand over to Nick to talk through the balance sheet and cash flow.
Thanks, Richard. So starting on Slide 23, the balance sheet and starting with inventory. Inventory at December ended flat year on year with inventory availability improving gradually throughout the half, but noting we are still seeing variability by category and supplier, particularly in television. Inventory turnover was up two zero one basis points to 8.2 times, driven by the strong sales growth throughout the half. Payables were up year on year due to the increased supply of inventory late in the half, which was needed to continue to meet that heightened customer demand and replenish inventory levels.
Payment terms with suppliers have been maintained with all part suppliers paid in line with their terms in full and on time. Receivables were down year on year pleasingly as we continue to actively manage receivables. On Slide 24, highlights on the cash flow statement. Operating cash flow and operating cash conversion continue to be very strong. CapEx at $28,000,000 remains in line with our expectations as we continue to invest in the store portfolio, our digital propositions and strategic initiatives.
On net debt or net cash, we were in a net cash position of $472,800,000 at thirty one December as a result of the abnormally low level of net working capital. We expect net working capital to revert to historical levels as inventory availability improves and the timing of purchasing returns to normal. This normalization of net working capital will ultimately have a corresponding impact on net debt. The group performance indicators summarized there in the table all continue to be very strong and in line with our expectations. On Slide 25, capital management.
As Richard mentioned earlier, we've today declared an interim dividend of $180 per share fully franked, up $0.81 per share or almost 82%, representing 65% of the half's NPAT. The Board will continue to regularly review the company's capital structure with a focus on maximizing returns to shareholders and maintaining our balance sheet strength and flexibility. The record date for the interim dividend is the twenty sixth of Feb with payment to be made on the March 12. I'll hand back to Richard.
Thanks, Nick. And moving to Slide 27, the sales update and outlook slide. January 21 sales update. Total sales for JB HiFi Australia was 17.3% with comparable sales growth of 18.6%. For JB New Zealand, sales were up 21.7% with comparable sales the same.
Total sales growth for The Good Guys was 14.1% with comparable sales the same. We are really pleased with the strong sales momentum that's continued into January across all our brands. Whilst we are pleased with the start of the second half in view of the ongoing uncertainty arising from COVID-nineteen, the group does not currently consider appropriate to drive sales and earnings guidance. And just reflecting on that, as I reflect reflection on Victoria and Auckland lockdowns, there's no doubt our teams are getting pretty practiced at responding to these lockdowns. An example of this challenge and what really says to me more about how JV operates and what the group is trying to achieve is JV's door to door initiative.
This is where our staff undertake rush deliveries in higher vehicles. It is very aggressive. We enabled this in Victoria. So in the car, we got the announcement from the Victorian government Friday afternoon. By 07:40 on Friday night, we had store to door enabled in the car.
And by Saturday morning, we had 40 SUVs on the road. And over the weekend, they made nearly 1,000 deliveries with amazing customer feedback. Now distorted or work outside of pandemic, well, that's a great question. And certainly, as we moved out of lockdowns on Stage 2 for Victoria, the volumes did drop. But it's a great customer proposition, but also keeps the teams engaged.
And it certainly says how we're thinking about the new world of testing and learning. And certainly, as I said before, the customer feedback is amazing. So again, pleasing start to the second half, but certainly with as always, there's a few estimates and changes. So as I close out the presentation and turn to Slide 29. In closing, both brands work hard to maintain their market leadership.
The JV, its technology and consumer electronics is a staple and front of mind purchase for our customers. For the good guys, they have market leadership in home appliances and a strong position in CE. The group works hard to maintain our position as the number one destination for technology, CE and home appliances in the market. We are focused on maintaining a resilient retail model that rewards our team and customers for their loyalty and reinvest for the future. As we close out this section of the presentation, I just wanted to again emphasize those key investment checks, Lee.
And we are very proud of this result. And I'd again like to recognize and thank our team members across Australia and New Zealand, who have delivered another record result. In what remains an uncertain environment, we will continue to focus on what we can control. And with a number of opportunities ahead of us, we remain excited about the outlook for the business. So thanks again for your time this morning.
We're obviously going to hit heads up head out on the road virtually, but now maybe some time for questions from the operator.
Thank you. As a reminder, we will only be taking questions from investors. Media comments are welcomed once the call has concluded by contacting Group CEO, Richard Murray. Your first question comes from Michael Samotis from Jefferies. Please go ahead.
Good morning, everyone.
Good morning.
First question from me, I was just hoping we could talk a little bit more around the comments on inventory availability. So clearly, it did improve and we can see that in the numbers, but then you called out some specific categories like televisions. Is inventory availability weighing on sales at the moment? And I'd be particularly interested in the slowdown in sales in the Good Guys in January relative to the second quarter and whether inventory availability in particular categories was a factor there?
I can give you some very quick answers. Yes, yes, yes. So yes, stock has been a constant challenge for the last twelve months. If you think about the buying teams in Good Guys and JB, stock availability is their number one focus. And I actually have to say, I'm personally blown away with what the team's achieved with the sales numbers and adjusting time stock arrival.
I think I said in at the FY 'twenty results, I never thought we'd be able to achieve sales strong sales numbers with this level of inventory. So the teams have done an amazing job. That said, coming in, so we did receive JV received a fair bit of stock late in the half. Good Guys did certainly struggle on some key areas. Both businesses struggled on TVs, but Good Guys probably had more challenges in that front.
Not anything to do with just sort of the way the cookie crumbled. And certainly, we did notice those out of stocks impacting January sales.
And then Michael, if there's anything I'd add, just the difference between JM and Good Guys. And whenever I say it, I don't love saying it, but Good Guys also had seasonal in January, which weighed on sales in Good Guys as well.
Yes, yes. That makes sense.
All right.
And then the second question I've got is on the very large gross margin uplift from the Good Guys. Can you give us any color on how much of that was mix, I guess, category and premiumization within categories versus like for like gross margin increase on particular products? And how much of that uplift do you think you'll be able to hold on to when the market does eventually normalize?
Michael, that is just a great question. Okay. So there's no doubt customers' missions were very efficient. And so therefore, that did help gross margin. There's no doubt the Good Guys team are executing really well and suppliers value that execution.
We would like to think that element of it is sustainable. And then there's just the usual moving parts of mix. So certainly, with a strong home appliance mix for the half that is good for gross margin, we obviously have been pushing very hard for the good guys on building out their CA offer, not replicating the JV one, but a CE offer that makes ensures they're relevant for their customers. And obviously, that traditionally would be at lower margin than home appliances. But the strength in home appliances has certainly helped their gross margin, But better buying and continued good execution has all contributed to solid gross margins.
Now as to what proportion of that elevated gross margin remains, that's obviously a great question and time will tell, but we will be working hard to keep as much of it as we can.
Thank you.
Your next question comes from David Arrington from Bank of America. Please go ahead.
Richard, hi Nick. Richard, your online sales are performing very, very well. And one of the things really pleasing is that it appears that it's come at absolutely no dilution to margin. How much latency if online continues at these elevated levels at around that 10%, how much latency will you be able to continue to to follow your existing model, which is, you know, picking from in stores, etcetera, compared to when you might have to consider looking at a new model where you might have to look at your warehouse model. And I think you called it out that you might look at doing that.
Where do you where do you see that you might have to start putting some added investment in so as to continue to service? It's costing you nothing at the moment. It looks like your margins are at the same as in store, if you could confirm or deny that. But when do you think you might need to look at maybe investing in your warehouse model?
Yes. You can imagine we put a lot of thought into that whole question. So I'm trying to give you as much as I can. I think it actually the threshold issue it comes down to is that as much as I'd like to say, we sell as many items in a basket as a supermarket. Unfortunately, on this occasion, we don't.
So it's more like two, which is not dissimilar to the store network. And so therefore, picking two items and packaging them is relatively efficient. So when I think about other business models where if I imagine when I go to the supermarket and I think how many items I put in a basket, I can I really sort of feel for Coles and Woolies on trying to get online to be efficient and they're obviously investing in that? For us, the flip side is we only have to worry about one or two items. So it's incredibly efficient.
The guys can go out and pick 10 of one product, walk out the back, put it in a satchel and off it goes. So our online model is and if you think about warehouse rents, it is really around the edges, the rent of a warehouse versus the rent of a store. Yes, there were differences. But traditionally, we've been able to achieve our online sales in the in store network. But I will say certainly when I was in the stores post Black Friday, some of the volume going through our stores in Black Friday is certainly incredibly elevated and right up against my comfort levels or the Cameron and my comfort levels.
And so there's a lot of work being done about thinking about Black Friday next year. Obviously, the challenge we have is those elevated days like Black Friday or Black Friday week are only single digit percentages during the year. And so we need to enable a distribution model that works all year round and doesn't become a cost burden for the business. So micro fulfillment centers, direct a portion that comes direct to store, I think you'll always imagine our rural our regional stores will do a lot of their own fulfillment. In our metro stores, there's no reason to be fulfilling out of a CBD because it just takes well, they are pretty quiet at the moment unfortunately.
In a steady state, you really they are our hardest stores to get into. Imagine Bourke Street. Getting stock into that store is hard. We really don't need to be doing online deliveries except rush out of that store, whereas found doing online deliveries from Southbank into the Melbourne CBD has worked really well. So we literally have solutions for every city, every state and every store, but there's no doubt we will try and take some of the big volume leaks out of the stores and understand whether we can do that in quieter stores or using our home delivery centers or do your question, which is a good one is, will we eventually see which Best Buy has online small online delivery centers located in strategic locations?
We feel we can achieve all this within our cost base. So when anything we're looking at, we go, okay, that's right up against our cost comfort level. But that being the reason it's up against our comfort level is because then we believe we can do it more efficiently and in fairness, at times more safely or more efficiently or more productively in a different way of achieving that, then we explore that. And there is a lot of work going into that side of business.
And just to add, when you think about the 10%, I think it is important that you sort of break it down and say, of that 10%, there's a component which is Click and Collect, and that will obviously always remain in the stores. There's a component which is big and bulky, which is getting fulfilled out of our centralized home distribution centers already. And then there's obviously the remainder, which goes through the stores, and it's that remainder how we continue to maybe use the stores for that fast fulfillment, those rush options. And to Richard's point, if you could take the peaks when there's a new release or a promotion, take those peaks out of there, acknowledging, no, it's probably not as big a number as you initially imagine when you dig into that whole 10%.
Yes, yes, yes. My second question for Richard and Nick is on the Good Guys on Slide 21. You know, the Good Guys has been a fabulous performer, really pleasing. You must be really pleased with the performance of the Good Guys, you know, now. You you said that retail's detailed, and this is not a a tongue in cheek, smart alecky question, but there's a lot of things there you're focused on still.
In terms of latency, is that, you know, following a bit on from Michael's question where you had a great uplift in gross margin. But of those key drivers there, and you listed about six or seven of them, in terms of latency in earnings in the next, say, six, twelve, eighteen months, what do you think is the most important? What would be the number one, two, and three? Now I know you're probably gonna say all of them, but if if we need to think about what is the number one area that's going to really surprise us on the upside with the Good performance, in which areas of those categories do you think it will come from?
I would like to think it comes down to how the business has been repositioned. So if you think about a GoodGuide customer versus potentially a JV customer, obviously, traditionally, a little bit less at the moment in shopping centers because they're a bit quieter. But traditionally, JV's model has been destination stores or half the stores been destination stores and half the stores been in shopping centers where you have access to more traffic flow. Now a great question for JV is what's that traffic do over the next couple of years in shopping centers. Importantly, for the Good Guys, we've never had a Good Guys store.
We haven't had to close any Good Guys stores temporarily during this period aside from government mandated. But whereas in CBD stores, we have had to make tough decisions in Victoria and sorry, in Melbourne and Sydney. So the good guys, what you see is a store network that customers are really comfortable shopping at. And because of all the changes we've made, we think this has probably leapfrogged us two or three years in customers understanding what the good guys bring to the market. And that's certainly what you're seeing at the moment with those elevated sales.
And also, we have obviously simplified the business. We've got we have relayed stores back to what you would call is just the basics of retail. And I don't mean that in a condos anyway. Mean that in there were some initiatives that had previously taken up sort of high value space. We've got back to the basics of retail.
What do customers want when they come to Good Guys? What are they expecting? And what do we want to get them excited about? So we focus on that. And then the team, I think, has just continued to grow over the years since the acquisition, obviously led by Terry, but as much the area management team, the buying team, the directors in the Good Guys business, we have taken the best part for JV, but we haven't turned it into JV.
We've taken the best of retail and some tools and things that JV has that we could help out with productivity measures, etcetera. But fundamentally, when a customer walks into a Good Guy store, I think they're getting a much better experience, a much clearer experience, a much simpler experience that's focused on the customer rather than maybe what the company was trying to achieve. If start with what the customer wants, it's a great place to start in retail.
It's certainly showing in the results. So thanks, Richard. Thanks, Nick.
Cheers. Thanks.
Your next question comes from Arianne Narose from UBS. Please go ahead.
Hi, guys. First one for me, I mean, if you look sort of medium to longer term, has the current environment changed the way you're thinking about your cost base structurally, whether it be in terms of labor, rent, administration or gross margin? I mean, what does that mean to your medium to longer term profit margins moving forward, please?
Well, I wouldn't like you to promise you these EBIT margins in perpetuity because they're pretty elevated at the moment. So if you sort of try to get back to and I'm sure you all the big question is what are the underlying margins through the cycle. We've always prided ourselves on kind of cutting our cost to fit. And so that means when things are tough, are pretty focused on our store wages. And when things are good, we've paid a few costs into the business, particularly in wages.
Obviously, it's been a unique period recently where customer journeys have been so efficient. We haven't probably had to put the level of labor and sometimes that's been because we haven't had the labor and other times that's been just us managing proactively. Obviously, the visibility is not always great at the moment. So from my perspective, the cost we're very comfortable with the cost base. What we want to do is say, we've got this pool of cost in the business, which reminding you, we take pride in the fact that is globally low cost.
And so we don't have that built into business to start with. So it's not about cutting costs, it's about doing it smarter. It's about being more productive. It's just it's a constant focus on review and understanding where opportunities present themselves and then picking a few things that we feel we can win on and chasing those. And once we finish those, we think about the next thing.
We're not big on labeling cost initiatives. We're not big on labeling anything. We just find opportunities, get on with them, sort those out. And we're quite happy to get 80% or 90% of the way there and go, yes, that's good. And let's focus on the next opportunity.
So I'm not going to give you numbers aside from the fact that I really feel that we will the constant focus on productivity in the business is the case. And that's enduring from my perspective margins will come and go depending on operating leverage driven by elevated sales.
Perfect. And second one for me, how is the Board thinking about capital management? I mean, you historically sort of mentioned the 65% payout ratio, which is adequate in previous presentations, but wasn't there this time. Is that something that is potentially going to change moving forward given your gearing position?
Well, the slightly cheeky part of me wanted to regurgitate 0.2 because it says how the Board is thinking about capital management, but I might let Nick talk to that.
Look, look and the 65% payout ratio is still there, think, probably the other thing to say. Look, we it sounds boring. We said it consistently as a discretionary retailer in an uncertain environment, it is good to have a bulletproof balance sheet. And as we enter some a challenging period to come from last year and given the current uncertainty with today, I think we've got almost 90 stores shut across Australia and New Zealand, I think having maintaining that flexibility and that balance sheet strength is key. So we'll continue to review it, and we're new to making sure we provide adequate returns to shareholders and maximize those returns to shareholders whilst maintaining that balance sheet strength.
Sure. Thanks, Art.
Your next question comes from Brian Raymond from Citi. Please go ahead.
Good morning, guys. My first one is just on how you're thinking about your store network longer term. Can you talk a bit to foot traffic transaction numbers in a physical environment, how they've gone over time and well, over the last twelve months or so? And what sort of levels of online would you need to see before you start thinking about do we need to close some stores or can we get more efficient with our store footprint?
Great question, Brian. And so why don't I get cover off the last part first. I think you will acknowledge we're not great on setting targets because every time we set targets, they become a road for your own back. So whether it's 10% or 20% is just not the way we think about it. So we want to maintain and grow our market share.
We want to delight customers how they shop with us, and we will have some internal targets and some internal focuses. We want to grow store sales in store, and we want to grow them online. And we think if we deliver to customers, we'll be able to achieve both. Rightly, there are breakpoints in your cost structure where you start thinking about more centralized. The only cautionary note I'd say is it's not hard to make up the math around centralized fulfillment centers.
Where at times, I think is the qualitative thing is, it's around we have a store network that we really believe in. And most of those stores turn over $20,000,000 So they are material stores and they generate good earnings. And we want to make sure that we keep them relevant. And so that's probably why you haven't seen a lot of new stores over the last couple of years, be it at the Good Guys or JV because we are thinking about that store footprint of 200 for JV and 100 odd for the good guys is really powerful. Yes, there are some stores we're looking at, but we're not rolling them out like the 20s we were a decade ago.
So really feel comfortable that the store network is sustainable. Absolutely see opportunities to go faster in online and there's a big focus around our supply chain and logistics. But as we've always said, it's just continuous improvement rather than sort of dramatic big leaks of either CapEx or sort of big big changes in strategy. We will I have no doubt over the next couple of years, find opportunities to do some centralized fulfillment and understand what that opportunity is. But you've seen many and you know we do a lot of work with our overseas peers.
So many of our overseas peers are moving back to store based fulfillment because they found the big DCs are expensive to run. And as I said earlier, when you're only picking one or two products, the cost of us getting out of our warehouse versus sorry, the cost to serve on a delivery sort of versus an in store customer transaction is remarkably similar. The harsh reality is when customers come in store, we sell them more and they buy more. Now I think that's because fundamentally, an in store customer is having a more engaged journey. So maybe I'd say you're coming in, you're thinking about I want a TV, I want put I'm thinking about it being put on the wall, I want to get a surround sound system, etcetera, what's all the cables and brackets, etcetera.
And so you end up with a more solution sell. There's another sale where you go, I just need a new watch band for my Fitbit or Apple Watch. I'm just JB has got great delivery. It arrives next day. The delivery cost is reasonable.
And so I just think its customers have different shopping journeys at different times, and we need to make sure every time they engage with us, we deliver.
Yes, absolutely. And I guess the second part of this question is around small format strategy. You sort of started talking about, I think it was just pre COVID, You rolled out, I think, one new head office in Melbourne. How are you thinking about that? Is that just on hold given CBDs and everything else at the moment?
Or is that something you're still looking to explore down the track?
Yes. Well, I think Nick and I are the only ones in the office today. So there's not a lot of traffic for that store downstairs just at
the moment.
We did reopen it last Wednesday. So if it's open for two days, that was a lot of trouble. So look, the store be it the we had we thought about around different locations around CBD, transport locations at airport stores. Obviously, it's a bit rough of us to complain given how well things are going. But if you're in the airport airline industry at the moment, it's pretty tough.
So we've worked really well with the airports that we've worked with and the other partners we have in those spaces to make sure things we're able to operate the stores on a given the reduced traffic, so we're comfortable with that. But as to smaller store formats, we've always we always want to test and learn and understand can we get stores with lower turnover to work on a different a slightly different model. So we obviously we do not want a scenario where we've got a store with two staff and customers come in and don't get the right service. So we've always believed that we needed a certain amount of scale to make it work. Southbank actually was going reasonably well subject to its obviously the lack of traffic in CBD locations at the moment.
So certainly but it's as much about testing and learning and then identifying where we can just build out the store network because, for example, obviously, stores traditionally have suited telco sales, whereas you obviously, in a small format store, don't do as well with visual. But in the last couple of years, visual has been flying. So we need to we don't want to end up in a situation where customers come in, don't sorry, my main concern with small format stores is customers come in and they don't get what they want. Obviously, the way we solve for that is online and saying, okay, well, it's not at this store, but we can deliver it to you. But yes, there's a lot of people in our space that just want to click and collect or come in store, and we want to make sure that we don't find where they come in and go, oh, actually, it's not here.
We'll send it to you because that's where our products are very here and now and very impulse driven. And I think there's a lot of gratification from that purchase, and we want to lean into that.
Excellent. And just my final question, actually, a bit of a segue from what your previous comment is around the communications category. It's obviously been a real winner for you guys of late. Can you just talk about some of the structural changes that have happened in that category between your relationship with Telstra evolving, the OEMs and how the unbundling has sort of impacted that? Because I think that's been quite a meaningful driver of growth for you guys over the last year or two.
Can you just give us a bit more color around how you're managing that category and what potential you see ahead there?
Acknowledging three questions was probably OTT, but given how important telco is, I'll go with it. Probably they can keep it in check. Okay. So Telco, like, we've an amazing relationship with Telstra. They're the number one player in the market.
Obviously, JV is an acquisition tool for Telstra to grow its market share and maintain its market share, and we really feel that we have a very strong relationship. I look at it at the plans over the next few months, and I'm really excited by that. We also obviously have traditionally people go into a telco retailer thinking about their contract and then buy a phone. The JV model is us being the largest unit seller of mobile phones in the country and then people often then when they're talking to us about that new handset, connected to a Telstra plan, which is a great outcome. And that's a key part of our telco model.
So very comfortable with how and you're right, telco has been a winner for us. We are pleased with how the rollout of the Good Guys has gone. So we did wonder how we could continue with the JV strong numbers and with Good Guys, we've just seen and I know Telstra is pleased with it, continued strength across the JV brand and the Good Guys brand, which obviously reinforces in our mind that Good Guys are catering to a different customer. So really pleased where we're going with Telco. We obviously have some unique advantages in the sense of just the sheer number of handsets we sell.
And that obviously means that the supply our supply partners work very hard with us to grab value for customers. And we as we've always said before, couple that with an agile promotional plan, great in store execution, we kick a lot of goals in this space.
Awesome. Thanks, guys.
Your next question comes from Ben Gilbert from Jarden. Please go ahead.
Hi, good day, Richard and Nick. Just the first one for me, just interested around discounting and what you saw there in the first half and then particularly towards the back end. So it looks like inflation on the CPI is sort of 4.5%. Just how you're thinking about category deflation looking forward, particularly some of the lower Aussie dollar starts to be cycled through this year as well?
Okay. Maybe we'll cover off the lower Aussie dollar or the strong Aussie dollar. So it's always a challenge to see how you see the exchange rate play more out in home appliances traditionally than in consumer electronics. Secondly, suppliers obviously have different hedging policies. So sometimes that evidences itself in different ways.
And some suppliers are not that phased about the Australian U. S. Dollar and are more interested in, say, the Korean won. So there's always a lot of moving parts in the exchange rate. There is no doubt at times when the dollar is weaker and that's harder for our suppliers, maybe price deflation slows.
And sometimes when the dollar is stronger, it drives price deflation. There's no doubt then if you then sort of flow that into an outlook on gross margins. One, I probably don't love this question at the best of times anyway, so but I'll give it a go. There are so many inputs into gross margin, how we are executing in the market, discounting or the competitive marketplace. The reality is customers have been, as I keep saying, and it's not it's just a it's a fact, customers want to come in store, pick up their products and get out.
And that's exactly how customers have continued to think about the world for the last it's only grown over the last twelve months. So obviously, on one hand, we don't love that because we believe in a model where customers browse and have a longer in store experience and we then work with them to deliver a solution sale. The reality is in the market we operate at the moment, customers are very mission driven. And so therefore, they're not having long conversations with salespeople. They think, great, I've got that product.
I'm in and out. And so we obviously mirror our customers' shopping behavior because we need to get them in and out as efficiently as possible. And so that does, at times, help the gross margins because the customer engagement might be shorter and more efficient.
That's helpful. And just second one for me. Just I appreciate all the comments you guys have made around supply chain, but just into some new views around CRM and not necessarily talking about an explicit JV, School Guys loyalty system, but to your point around potential risk looking forward to traffic through site centers and how large JV has been, when do you think you need to start actually mining the data you're collecting and understanding the shop behaviors and communicating a little bit more directly and targeted with your customer base? And is that a costly exercise? Or is that something else that can be absorbed in your C2B, similar what you talked to a supply chain?
Yes, it's comfortable it can be absorbed in our cost of doing business. We are mining the data. We probably just don't share a lot of what we're doing. We post the Shopify rollout, there's a bunch of initiatives on the website. We're running multiple vendors, providing us with different intellect into customer journeys and attachments.
I feel we've achieved some great results online, but there are like everything we do, it's just constant improvement. So, comfortable we can achieve it in the cost of doing business. I think there's lots of exciting things. We'll probably update you more when we go to a particular conference in May and talk through some of those things we've seen over the journey of COVID.
Okay. Thanks guys.
Your next question comes from Sean Cousins from JPMorgan. Please go ahead.
Thanks. Good morning, Richard and Nick. Maybe just on online, can you just talk did online drag on EBIT margins in the first half twenty twenty one? Or was the scale such that you actually enjoyed an EBIT margin neutral outcome from your online sales relative to store sales, please?
I think we've said historically, and it holds for this period, that we're relatively neutral to whether a customer wants to shop online or in store, and the margin's remarkably consistent overall. Again, when you sort of work through those lines, as Richard mentioned earlier, it's an incredibly efficient peak process. We're only talking one or two items for a store predominantly a store team member to pick and dispatch relative to an assisted sale process in store when that can span for particularly good guys, fifteen, twenty, thirty minutes. And then from a gross margin perspective, the benefit So we get a little bit more gross margin on the discount, lose a little bit because we probably don't attach as well online as we do in store. So overall, Sean, pretty neutral between store
And so you're not getting any scale benefits?
It's probably a drag on no, no, it's giving you a scale benefit, but not a drag on it into the half.
Got you. Okay. And my second question is just further around attachments. Given you've got the consumer that's doing much more of a mission type shop where they're much more efficient, are you seeing that result in a lower rate of attachments being sold in store where they come in now maybe more for a single item, or are they still attaching to the same level, just conscious that attachments are generally higher rather than lower margins? And I'm curious whether that was a factor that sort of contributed to some of the moderation in gross margins in JV Australia in particular, please?
So I'd say, Shaun, yes, but at the margin, and I'm always conscious that these things sort of take on a lot of their own. So it is generally at the margin. From my perspective, it's nearly anecdotal. And two, it's as much some of those margin categories would have been driven by, for example, portable power, right, which is people obviously haven't been out and about as much. So they haven't been buying batteries, the rechargeable batteries for their phones and stuff like that.
So yes, some of those accessories are just good margins. So certainly, the broader accessories category hasn't grown as fast as some of the other product categories.
Okay, great. Thanks, Nick. Thanks, Richard.
Your next question comes from Ross Curran from Macquarie. Please go ahead.
Hi, Richard. Hi, Nick. Thanks for the time today. Can I firstly just ask around maybe your planning process? And notwithstanding you don't want to provide sales guidance, but given we're coming up to the April replacement cycle on audio equipment, how are you thinking about your inventory levels into that cycle?
Are you using FY twenty nineteen as a base year or FY 2020? Or how does your planning process work?
Our planning process has a healthy amount of mass and a little bit of management overlay. So the reality is, at the moment, we don't sell fresh fruit. It's all that happens in our business is if we have too much stock, we stop purchasing. And then we wait till it normalizes and sells through and then we purchase again. So as much as I don't want to dismiss it as being simplistic, it is remarkable.
So the art is making sure we get the stock in the right place at the right time, so I. E. Being out of stock. That's the frustrating thing. If at the moment we had a little bit too much stock for a period, that would be a small price to pay for the sales that we've been capturing over time.
And for what sort we haven't been overstocked lately, so it hasn't been an issue. So I don't worry at all, and I would never worry about coming to you and saying we're a tad heavy at this point because it literally solves itself in a month if we choose to. And as you heard at the start of COVID, we were pretty focused on our inventory levels. And there was some feedback in the market of have we reacted quickly. Well, we can react very quickly when we need to.
I guess when the working capital we have at the moment, we're very relaxed and also the cost of carrying that inventory versus the opportunity to sell it is a no brainer at the moment. So we are taking all the inventory we can get our hands on within our usually incredibly well executed inventory management systems. And that sounds very trite. But I mean, I think the business over both Good Guys and JV manage their inventory incredibly well. At the moment, the stock's never been healthier, and we're obviously working very hard at times to use different vendors or work hard with our existing vendors to get as much stock into the system as we can because there's been a lot of demand.
So really comfortable that even if sales did slow that we would we're absolutely the old processes sorry, the processes we haven't had to use for little while, which is inventory management on the downside, just kick in. It's just it's all about open to buy. It's if we've got the stock and we just buy what we think we're going to sell. If we're out a little bit, we just slow the next week's order. Remember, most of our orders are coming in weekly.
Sorry,
it's 11:30, and I normally get lots of negative feedback once we get past 11:30. So I'm going to try and be really efficient with the next few questions.
I ask one follow-up. Just on consumer behavior, if at the start of COVID, you're seeing consumers quite happy to take whatever product was in store, are consumers starting to get a
bit
more picky around price and margin and brand?
Anecdotally, it's just I mean, let's be honest, and I hate to say it, but obviously there were some pretty dark periods back in March, April, May, June. And understandably, were pretty uncertain. And so if you were just trying to set up your home office or your kids learning from home, you took what you could get. Obviously, as now we're in a more steady state where there seems to be a fair bit of money washing around the economy from people not traveling overseas, etcetera. And we're pretty excited how that just rolls out the general consumer sentiment.
Good guys, the housing cycle and the renovation market seem pretty solid at the moment. And for JV, when people have money to spend, they tend to shop at JV. So very comfortable at the outlook for both the businesses. Thank you.
Your next question comes from Grant Saligari from Credit Suisse. Please go ahead.
Hi, Grant.
Yes, good morning. Thanks. Just one on the Good Guys gross margin, Richard, if I could. So the 22.4%, think you probably wouldn't want us recalibrating our models to that sort of uplift that you got in that half. Can you just give some quantification of what you think the sort of the one offs might have been in the half in lower price matching, etcetera, so that we can have some broad calibration there?
Well, I don't really mind if you recalibrate, but Terry is going to have a real issue with me when we get off the call. So I'd love to give you the answer. It's just it would be disingenuous. The reality is we do we believe that the numbers the earnings we can generate in the Good Guys business over the medium term are going to be slightly ahead of what our older expectations would have been pre COVID? Yes.
And that will be be it through sales, gross margin or cost management. And I'm probably not going to answer your gross margin question in any more detail than that. But I just feel we feel that the customer proposition, the execution of the Good Guys team, sometimes you need to see things to believe it. And I think the Good Guys team now believe they can achieve more than they might have been able to twelve months ago. And that's through a lot of hard work internally and which is really awesome.
And so that sets them up for success moving forward.
Okay. Good luck to Terry and the team. Thanks.
Your next question comes from Niraj Shah from Morgan Stanley. Please go ahead.
Hi guys. Just a quick one for me as well. Obviously, strong sales growth numbers overall, but just keen to understand the variability within that. In particular, do you think you could comment on the performance of Metro stores versus the regional store performance during the half and into January?
Certainly, well, just as a data point, when we're in when Metro Melbourne stores were in lockdown, I was surprised at the strength in our regional stores. There is no doubt across the country, especially in regional areas, sales momentum has been good. But then at times, can have metro stores that are flying and some that are little bit quieter, and that's just obviously more, for example, major shopping centers are not as busy as they used to be at the moment as customers are not as comfortable shopping there. It's not the end of the world. It's like sometimes I've been out of some of the major shopping centers being surprised how strong they are as in what the traffic is, but maybe that's just I'm getting used to a slightly quieter traffic volume than they once might have been.
So I don't know that we're going to get into rural sorry, regional versus metro. The reality is for the good guys, stand alone stores has been having all your stores basically stand alone has been a great outcome during this period because customers are probably more focused on stand alone centers than shopping centers as well.
Fair enough. Thank you.
Your next question comes from Phil Kimber from Evans and Partners. Please go ahead.
Hi, guys. Quick one was on non trade receivables. They actually fell year on year quite significantly, and I think they're the lowest they've been as a percent of inventory for the last three or four years. Is there anything that you can call out there that's unusual? Because my understanding is nontrived receivables is basically your rebates.
Yes. You're right. It is primarily rebates, and we are very focused on making sure we claim those rebates and offset them against supplier payments as quickly as we can. That's why they're so much that up.
Even though you
saw that up compared to twelve months ago.
Right. Okay. So basically, more of them have gone into your p and l rather than sitting in your inventory at the balance sheet, though?
No. It doesn't impact p and l. It just means they they've transferred to payroll sooner, basically. So we deduct them off payments sooner than we were previously.
Right. So no P and L impact. It's just different parts of the balance sheet.
Just different parts of the balance sheet. Yeah.
Yeah. And can one quick one. Online, you mentioned was ten percent, which is significantly higher than the six pre COVID. Is the exit run rate falling? And I think you guys had said previously that you've been surprised how quickly when stores reopened, the customer shifted back to stores.
Is that a was that bit more or is that continued?
I guess I reflected on what obviously, when people have been locked down, suddenly people get out and about. And so yes, you saw stores very strong. The question for me was what does it settle at in the medium term? The numbers are still pretty volatile. I don't want to sort of volatile is probably a strong word.
I don't think we've got the medium term trend yet as to post a lockdown, what happens?
Other than those states that have been that have had restrictions relaxed, I suppose, the longest are definitely lower than those states that have had restrictions for longer. Like Victoria, percent
of sales is higher than WA and Queensland online. And I would suggest that Victoria, given the prolonged period of the lockdown, more people have decided to shop online and maybe got more comfortable with that than other states. So I expect Victoria's percentage to remain higher through the cycle just because of customer experience.
Yes. All right. Thanks, guys.
Your next question comes from Andrew McLennan from Goldman Sachs. Please go ahead.
Good morning, guys. I'll keep it to one. We haven't had the opportunity of seeing the good guys trade through a property cycle. I'm just wondering from your experience and seeing how the business has performed financially over a long period of time post requisition of the business. Is there anything you can guide us to just in terms of mix, etcetera, from a household appliance perspective and how that changes and how the potential for gross margin changes through the cycle?
Because obviously, we're seeing some pretty unique trading in the last twelve months. But if we continue to see this property cycle ramping up, that should further mix implications. So I just wanted to have a question around that property cycle exposure.
I'm going to try and keep it simple. Obviously, a property sorry, a renovation cycle is good for Home Appliances. Home Appliances are higher margin than CE. But obviously, we'd like to think when customers are talking to us about Home Appliances that given the increased exposure and increased both in store and the Good Guys team being comfortable selling it, we've got an expanded range of say, and I think customers can leverage that as well. So it will be interesting to see.
But yes, a renovation cycle is good for the Good Guys because all the appliances that are replacement continue to need replacing and then more customers upgrade, which is a good outcome.
And just to add, I think what we've been seeing over the last couple of years is as we've grown consumer electronics like that, there's been a negative mix impact on Good Guys. As we entered the last six months, and hopefully, to your point, if we enter a cycle, the growth in home appliances helps to offset that mix impact. So I sort of see it as neutralizing the CE growth rather than anything too significant above that.
Got you. Thank you.
Your next question comes from Mark Wade from CLSLA. Please go ahead.
Thanks, guys. Just trying to understand how the business has become better. Look, imagine with COVID, mean, it's changed aspects of customer behavior and the way you run your business. Can you just share with us some of the major long lasting operational changes to the business, which mean that the business should become better and stronger, capable of making more money in a couple years' time once things settle down than it has pre COVID?
There's part of me that wants
to say yes. But then actually, I think this is
exactly how we run the business for the last nearly twenty years that I've been part of it, from Richard Yu to Terry to me. It's about our focus on growing sales, maintaining margin, working hard within every category to make sure you're delivering the margins you can and focus on the customer. Not yes, some products are lower margin. That's the reality of life and you lean into that and then an absolute obsession with waste and productivity. And so those things at times I mean, the pandemic a lot of people are doing it tougher than we are, so I don't want to be disingenuous, but by our store teams, we issue a whole bunch of directives around how to keep safe and then they interpret it in an amazing way in store that keeps customers safe, keeps the team safe, but keeps everyone motivated.
And the fact that our store managers, both across the Good Guys and JV, have kept 13,000 staff motivated during an incredibly uncertain period. Majority of the times, all our stores have been opened but we've kept on delivering. The store to door initiatives, things the teams have achieved on the website, our supply chain things, it's just constant improvement. And so I don't look at it and go, hey, this has taught us. It's just reminded me what an awesome team we have at JB and good guy.
And one of the things that I've said to many people, it's very hard to build a culture, but it's very easy to break it. And obviously, what we achieve at J. B. Is absolutely about the DNA of the business and the people on the team. And so we just need to make sure we continue to reward the team and look after them because they're delivering to our customers every day.
All right. Thanks, Matt. All the best.
I think actually we probably at 11:40 need to call it. So otherwise, I get nasty texts. So thanks, everybody. We're obviously able to take calls if we need to. Nick or I are available.
We obviously got the we're on the road for the next few days virtually. And again, thanks for all your interest in Jabi. Half other morning, and thanks for hanging on to a slightly longer call than
usual.
Thanks again.