Thank you. Good morning, everyone. Thanks for your interest in the business. As per the standard format, we'll talk through the presentation and then allow time for questions at the end. I'll start now by turning to Page four, which is our group model. Many of you are gonna be familiar with this slide, so I'll just highlight some of the key points as I see them. We've got two iconic brands with their distinct brand personalities. They have different category leadership focus. For JB, it's technology and consumer electronics. For The Good Guys, it's home appliances and consumer electronics. The brands have different target customer groups, which gives us and our suppliers access to and appeal to a wide and diverse customer mix.
For JB Hi-Fi, it's a young, tech-savvy consumer, but also a broader appeal to those who are early adopters of new or evolving technology. Many of these tech and CE products are seen as staples in people's lives nowadays. For The Good Guys, it's family and homemakers, with significant appeal to the replacer customer and first-time homemaker. Both businesses have a common value proposition of big brands at low prices, combined with a customer-centric approach, which is provided by a passionate and knowledgeable staff. All of this combined highlights the strengths and the benefits of the model, which are especially relevant in a more challenging retail environment that we are potentially facing into.
All of this is supported through our combined group functions, helping us to leverage the scale of the brands further underpinned by our four key competitive advantages, which I will detail on the following page. On to Page five. We've summarized our key competitive advantages here. Firstly, scale. I guess the key benefit here is our ability to leverage our number one market position and the scale that gives us to drive best value for our customers. We are a number one player in the Australian consumer electronics and home appliance market, with local and global relevance to suppliers. We have strong and engaged relationships with these suppliers. Large, engaged, and diversified customer base across two brands, provides suppliers with the ability to execute promotions and new product launches at scale.
A younger customer base drives ongoing brand importance to suppliers to maximize new technology and innovation launches, and high volume website traffic provides significant marketing opportunities and reach. Our second competitive advantage is our low cost operating model. Key benefit here is keeping cost low, also assists us in driving even further value for our customers. Constant focus on productivity and minimizing unnecessary expenditure. High productive floor space with high sales per square meter. The efficiency of the model allows us to respond to market price activity and maintain focus on market share, and also to compete effectively with traditional competitors and new market entrants. Third competitive advantage there is our multi-channel capability.
The key benefit here is we are accessible wherever or however a customer wants to shop with us, vastly expanding our reach, convenience, and appeal to shoppers. You know, here we focus on providing the customer with an integrated and frictionless shopping experience regardless of their chosen sales channel. We give a customer choice in how they wish to shop: in-store, online, over the phone, even live chat. We have fast fulfillment via in-store shopping, click and collect, or delivery from our store network or HDCs. The fourth one is our people and culture. I guess the key benefit here is our team's ability to quickly and easily adapt to a changing retail environment, as we have done many times before. We have knowledgeable and passionate teams who put customers first and provide exceptional customer service.
Dynamic and flexible environment allows us to pivot the business quickly and adapt to any changing market conditions. Our unrelenting focus on health and safety. Over to Page six. We remain focused on generating long-term sustainable growth for the business and having a positive impact on our people, community, and environment. Some of our first half achievements are, for our people, continued a set of diversity and inclusion initiatives to improve diversity in leadership and inclusion, continued focus on safety with mental health and wellbeing training programs. For our communities, half 2023 workplace giving donations totaling AUD 2.1 million and AUD 33.8 million since inception across the JB Hi-Fi Helping Hands and The Good Guys Doing Good programs.
Released our 2022 modern slavery statement outlining the progress we are making to assess and address the risk of modern slavery in our operations and supply chain. For our environment, solar panel generation installed in seven stores in the first half of 2023 and six stores scheduled in the second half as the group works towards net zero direct carbon emissions by 2030. We improved the management and recycling of waste generated by our operations and continued improvements in sustainable packaging across our own brands. Turn to Page seven and the group half year performance. Total sales up 8.6% to AUD 5.28 billion. Demand continued to be elevated during the half. The teams then implemented a strong, well executed Black Friday and Boxing Day promotions.
EBIT was up 14% to AUD 479.2 million, with strong sales growth and improved gross margin partially offset by increasing cost of doing business as we cycled COVID-19 related store closures from the prior period. NPAT was up 14.6% to AUD 329.9 million. Earnings per share was up 20.4% to AUD 3.018 per share. Interim dividend per share up AUD 0.34 per share or 20.9% to AUD 1.97 per share. I will now turn to Page eight for the divisional performance. I'll take most of this page as read, as we'll be discussing in greater detail as we move through the presentation. It's pleasing to see sales across all divisions. Now on to JB Hi-Fi Australia on Page 10.
This page shows the summary of JB Hi-Fi Australia performance. I will take it as read as we'll be covering in detail as we move through the following pages. On to Page 11. Sales for JB Hi-Fi Australia. Total sales increased 9.1% to AUD 3.59 billion, with comparable sales up 8.5%. As compared to pre-COVID half 2020, total sales were up 31.8%. Hardware and services sales were up 9.2%, with comparable sales up 8.6%. The key growth categories were communications, with strong sales in the half across both Apple and Samsung, and it was pleasing to see both unit and ASP growth. Audio saw solid growth, with growth across home theater and wireless headphones. Accessories, we saw sales. Sales were driven by good attach to the primary communications product.
Computers, pleasing to see growth across all major product groups, driven by good stock availability. Again, it was very pleasing to see both ASP and unit growth from the category. Finally, fitness, which continues to perform well with strong results from Apple Watch during the period. Software sales were up 5.7%, with comparables up 5.4%. Software sales were 4.8% of total sales. Online sales declined by 34.8% to AUD 537.3 million, or 15% of sales. While down on the prior year as customers returned to stores, the context when compared to pre-COVID half 2020, online sales were up to just shy of 215%. Over the page to Page 12 and JB Hi-Fi earnings results.
Gross profit increased by 14.5% to AUD 820 million, with gross profit margin up 108 basis points on the prior period. However, as compared to pre-COVID half 2020, cost of doing business was down 51 basis points, driven by continued disciplined cost control. Depreciation increased by 2.8%, with an increase in depreciation on right-of-use assets, partially offset by a decline in depreciation on fixed assets. EBIT was up 16.7% to AUD 341.3 million, with EBIT margin up 62 basis points to 9.5%.
I'll now turn to Page 14 for JB Hi-Fi New Zealand. Page 14 shows a summary, as with Australia, I'll take most of this as read as we'll cover in greater detail as we move through. Excuse me. Over to Page 15. Our first half 2023 sales for JB Hi-Fi New Zealand. Total sales increased by 16.1% to NZD 160.6 million, with comparables up the same. As compared to pre-COVID half 2020, total sales were up 21%. Hardware and services sales were up 15.7%. The key growth categories were communication, with strong sales from Apple. Audio, with solid growth in headphones and portable speakers. Computers and fitness, both with solid results driven by strong Apple sales. Accessories, which benefited from the good attach to the primary communication product.
Software sales were up 21.2%. Software sales were 7.7% of total sales. Online sales declined 34.7% to NZD 19.3 million, or 12% of total sales. As compared to pre-COVID-19 half 20, online sales were up just over 100%. I'll now turn to 16 for earnings. Gross profit increased by 7% to NZD 25.9 million, with gross margin down 137 basis points to 16.1%, driven by price competitiveness in the key categories and a negative sales mix. Cost to do business was 12.6%, up 40 basis points on the prior period. Compared to pre-COVID-19 half 20, cost to do business was down 46 basis points, driven by continued disciplined cost control.
EBITDA was NZD 5.7 million, down 22.5%. EBIT was down 26.5% to NZD 5.4 million, with EBIT margin down 194 basis points to 3.3%, with strong sales growth offset by declines in gross margin and investment in strategic initiatives to drive growth. I'll now turn to The Good Guys on Page 18. Again, this page showing a summary, which I'll take as read as we'll cover on the following pages. Over to 19. The Good Guys total sales increased 7.3% to AUD 1.54 billion, with comparable sales up the same. As compared to pre-COVID half 2020, total sales were up 34.6%.
The key growth categories were refrigeration with solid growth in French door, side by side, and bottom mount fridges. Laundry, with solid growth in larger capacity washers and heat pump dryers. Floor care, with solid growth across robot vacuums and steam cleaners. Visual had a solid half with increased sales in larger panels. Audio, with growth in home theater and also wireless headphones. Online sales were down 21.5% to AUD 197.2 million, or 12.8% of sales. 12.8% of sales as the customers returned to stores compared to the prior period. As compared to pre-COVID half 2020, online sales were up 148%. Over to Page 20. The Good Guys earnings for the period.
Gross profit increased by 10.3% to AUD 358.4 million, with gross sales up 64 basis points to 23.2%, driven by improvements in the key categories and a positive sales mix. Cost of doing business was 11.9%, up 45 basis points on the prior year. Compared to pre-COVID half 2020, cost of doing business was down 106 basis points, driven by continued disciplined cost control. Depreciation grew by 6.9% with an increase in both depreciation on right-of-use assets and depreciation on fixed assets.
Thank you.
EBIT was up 9.8% to AUD 133 million, with EBIT margin up 20 basis points to 8.6%. I'll now hand over to Nick to talk through balance sheet and cash flow.
Thanks, Terry. Starting on Slide 22, the balance sheet. Inventory was $1.21 billion, up at 13.8% year-on-year as inventory availability did improve following the COVID-related supply shortages in the second half of 2020, half year 2022. Compared to pre-COVID half year 2020, inventory was up 7% versus sales growth of 32% over the same period. Inventory turnover was down 63 basis points to 6.9 x, up 73 basis points on half year 2020. As we have always done, we continue to manage inventory to sales and are very happy with both the quantity and the quality of inventory on hand.
Payables, which would ordinarily move in line with inventory, were down 15% year-on-year due to cycling an abnormally high payables position in the prior year, when COVID-related shortages drove increased purchasing late in half year 2022. Moving on to Slide 23 and on the cash flow statement. Operating cash flow and operating cash conversion, again, well down on the PCP due to changing the working capital, which is primarily the payables, continue to be very strong. CapEx remained in line with our expectations as we continue to invest in the store portfolio, our online offerings, and other strategic initiatives. We closed with net cash of $391.2 million at 31 December. On Slide 24, capital management.
We have today declared an interim dividend of AUD 1.97 per share, fully franked, up AUD 0.34 per share or 20.9% and representing 65% of NPAT. It is pleasing to see the accretion benefit for ongoing shareholders from the buyback completed in April last year with net profit after tax up 14.6%, and EPS and dividend per share both up over 20% due to the reduced number of shares on issue. The record date for the interim dividend is the 24th of February 2023, with payment to be made on the 10th of March 2023. We continue to maintain a strong balance sheet with closing net cash of AUD 391 million at 31 December .
The board will continue to review the group's capital structure with a focus on maximizing returns to shareholders and maintaining our balance sheet strength and flexibility. I'll hand back to Terry.
Thanks, Nick. Moving to Page 26, the trading update. January sales update for the period 1st of January to the 31st of January 2023. Total sales growth for JB Hi-Fi Australia was 2.5% with comparable sales growth of 1.5%. Total sales growth for JB Hi-Fi New Zealand was 20% with comparable sales growth being the same. Total sales growth for The Good Guys was flat to last year of 0% with comparables being the same. While pleased with the January trading result, with sales continuing to be well above pre-COVID January 2020, we have seen sales growth start to moderate from the elevated sales seen in the first half of FY 2023.
As we enter an uncertain period, our business remains well-placed with a proven ability to adapt to any changes in the retail environment and our highly trusted value-based offerings that will continue to resonate with our customers and grow our market share. I'll now turn to Page 28, an update on the group focus areas. The group focus areas, we've done a summary here to show our group focus and some of our achievements in the first half. With multi-channel, and look, this is about ensuring we maximize our reach to grow our customer base and remain top of mind and relevant to our existing customers. A few of the key achievements. Four stores opened in half 2023, including a smaller curated range JB Hi-Fi stores in Parkmore, Victoria, and the Gold Coast International Airport.
Upgraded The Good Guys website to improve customer experience. National launch of JB Perks membership program for JB Hi-Fi Australia, with 405 customers joining the program since launch in November. Strong growth in additional sales channels such as phone and online chat. With the supply chain focus, this is about meeting and most importantly, exceeding our customers' expectation with product delivery and product availability. Some of our achievements, we remain highly focused on customer delivery solutions, launched an on-demand delivery service in partnership with Uber in JB Hi-Fi Australia in September, with a strong take-up and a 39-minute average delivery time. Launched improved delivery options for The Good Guys customers, focused on increasing certainty, transparency, and choice.
Commercial focus, this is about growing our share of the significant sales channel, where investment in our sales team and expansion of our inside sales channel. We drove solid growth in e-commerce via our new JB Business website, attracting new SMB customers, and we developed a new Tech on Demand service for enterprise customers. Over the page, to Page 29, with New Zealand, this is about growing our share and reach of the brand through store rollout and improved execution. Some of the achievements, successful transition to new MD and investment in key hires to strengthen local capability. The increase focused on retail execution is delivering strong market share gains.
We improved customer shopping experience and engagement with six existing store relays completed and actively identifying potential new stores and relocation opportunities to expand our reach. Finally, retail execution. This is about staying focused on the retail basics and doing what we do best. That's leveraging our scale to drive great value for our customers. We delivered a strong promotional program, particularly the key Black Friday and Boxing Day promotional periods. We stayed highly focused on actively promoting and proving great value offerings to our customers, and greatly improved our in-stock position while stringently managing the overall position. We'll now turn to 31, our investment checklist. Look, in closing the presentation, we have our investment checklist. I'm sure most of you know this by now, so I won't cover it off.
Just a few points to finish off. You know, as a group, we never take our current market leadership position for granted. Our experienced teams work hard every day to enable us to remain the number one destination for technology, CE, and home appliances. For JB, technology and consumer electronics is at its core and front of mind purchase for our customers. Today, many of these tech products are not used as luxury, but as necessity as they are integrated into our customers' everyday lives. For The Good Guys, they have a market leadership in home appliance categories, also cater for family consumer electronics needs. They are a trusted value destination for replacement products, this trust in our value become more important should pressure on household budgets continue to build.
Our focus on our multi-channel capabilities has now been proven, especially during the challenging times of the COVID lockdowns. The combined power of our physical locations is well integrated online offering online chat, phone sales, and commercial teams ensures we can continue to grow our reach and remain connected and ready to assist shoppers however or however they need to deal with us. We are focused on maintaining a resilient and highly relevant retail model. Also, having a business that is a desired place to work for our team members and ensures we'll continue to attract high quality staff into the future. We will continue to deliver on our commitment to our customers of big brands at low prices while continuing to invest for the future and ensuring we do so in a sustainable and ethical way. We will now move to questions.
Thank you. Your first question comes from Michael Simotas with Jefferies.
Good morning. Good morning, guys. The first question from me is on your January sales. If we look at sales relative to pre-COVID levels, there seems to have been quite a sharp step change, especially in The Good Guys, and it was running at 30%-40% above pre-COVID levels. It was only 17% in January, and JB was around 30% or a bit above, and it's 25% in January. Is there anything peculiar in the month that you saw, whether it be competitor activity or something in the promotional cycle, or is this more around consumers starting to pare back a little bit?
Yeah. I think the challenge even we have with, you know, especially, well, Jan and Feb is when we're comparing it, there's a lot of challenges with related to stock cycling on the period. I understand you're talking about pre-COVID. I get that, it sort of makes it hard for us when we're looking through the figures. What we are seeing, though, is, you know, intuitively we're starting to see customers really drift back to, I guess, those retailers that they have that enormous trust in. You know, when that comes to categories like consumer electronics or tech in The Good Guys, you really see that JB picked a lot of that up.
However, you know, we saw good solid growth continue in The Good Guys in the home appliance categories. You know, that's what it just feels like as customers are really focusing on value and really that trust on that value.
Okay. Then the second question for me is around margin. You've had another very good half of gross margin across both JB Hi-Fi Australia and The Good Guys. Your CODB margins ticked up a bit even though you've had a pretty good year-on-year sales growth. How should we think about that going forward? Do you think you'll need to start to fund some discounting, potentially taking a little bit away from gross margin going forward? Is there any fat in the cost of doing business lines? I mean, JB's historically run on a very lean cost base. Has there been some investment put into the business that you can potentially pare back if sales start to come off a little bit more sharply?
Yeah. I think, if I just address the gross margin piece. Look, you know, we anticipate as the stock is starting to return, you know, to more normalized levels in the industry, then we will see some of that on-floor discounting start to build or continue to build. Therefore, we could see that, you know, some of that elevated margins will start to return, especially in JB, perhaps back to some more historical levels. The Good Guys, we've always said we expect it to, you know, there has been some structural changes in The Good Guys and their buying terms. However, we do expect to give a little bit of that back, you know, as we see this on-floor discounting continue to grow.
I guess the big unknown is, you know, if it, if we see it continue to be fairly tight out there as far as retail is concerned, you know, who knows how competitors may react. One thing we'll always do is be competitive. We do expect we'll give some of those back, some of that back. When it comes to cost of doing business, you know, well, you know, I guess, you know, we've always been so lean in this business. It's always harder for us to give some of that back, you know, to cut that. We do have flexibility with since, you know, pre-COVID, we've seen our casuals, percentage increase of casual staff. There is a little bit of flex on that.
We do have some ability to flex with the rosters. However, I will say that depending, you know, we will always stay focused on the customer. I'd rather be having a conversation about slightly higher cost of doing business than cutting our service levels too much. We're not in that stage yet. We do have a little bit of flex there.
That's really good color. Thank you.
Your next question comes from David Errington with Bank of America.
Morning, Terry. Morning, Nick. Terry, Nick, can I just go a bit further on your gross margin comments? When we look at your gross margin, say, in first half 2019, which I suppose is as clean as what we can get pre-COVID compared to where they are today. I mean, JB, your pre-COVID GM was 22.1%. Today it's 22.85%, but The Good Guys, 20.6%, and this half was 23.21%. Now, I get the fact that you're saying that when things do get a bit competitive, when stock does normalize a little bit, things could get a bit competitive. Are you prepared to come out and say, "Look, how much structural improvement there has been in the business?" Because you know, and how much good?
I would have thought that first half things were getting pretty, you know. Like, I'd heard that there was a fair bit of excess inventory in the industry coming into Christmas there. I mean, I heard one of your major competitors was sitting on a fair bit of excess stock. Can you come out and say how much you'd reckon that was structurally improving? Are you prepared to do that? I suppose the second part, the one thing that did give me the spooks a little bit was the drop in gross margin in New Zealand. Now, I know it's a completely different market, and New Zealand's a very immaterial market to JB, but there was such a dramatic drop in gross margin. Can we just rule that off as it's just separate conditions there? Hopefully you understand where I'm going with that question.
I'm trying to delve a bit more into how much structural improvement there has been in the GM with both your Australian businesses.
Yeah, when we talk about that structural improvement, just to be clear, that was in The Good Guys, we're talking about.
Right.
You know, in JB in the half, we did see some positive sales mix come through. Of course, there's just that little bit of less discounting on the floor while stock was still a little bit tight. JB, just to be really clear, we're not talking about structural improvement, we're just talking about it, you know, probably returning to more historic levels as the industry and the discounting returns to more normal levels. With The Good Guys, we've always spoken about, even at previous meetings, previous releases, from that early 20% that it was up into the 21%, that we felt it would finish somewhere in between. You know, what's that mean?
At the moment it feels like it's going to settle around where JB Hi-Fi traditionally would be sitting. That structural change that's happening there is really, it's a reflection of now how the suppliers are viewing The Good Guys, and the importance that The Good Guys is bringing to the suppliers. When I talk about that, I'm talking about, you know, the way we can launch products now, the way we advertise the products, the way we represent our brands in store, the way we execute our promotions and the way we collaborate with the suppliers is very different to it was pre JB owning it. There is some structural changes in there. They are viewing the business differently, and they are supporting it differently.
You know, while it's high at the moment, because they are benefiting from less discounting, and they also in that half benefit from mix because of, I mentioned before, CE was a little bit lower in The Good Guys. Or sorry, tech was a little bit lower in The Good Guys, but they still had a solid HA result. You know, that's been positive for the margin.
Mm-hmm. Sorry.
Hopefully, that gives you a little bit of color on that. As far as New Zealand is concerned, I guess the challenge with the New Zealand business is, you know, we're low margin to start with, and so you don't have a lot of opportunity to, you know, a little bit of a hit there is, you know, is significant in the sense of the percentage that it comes down. Really what we've seen in New Zealand play out is a few things. Two of the major competitors there, or just to be honest, all the major competitors there, but mainly Harvey Norman and PB Tech, went really hard in computers. We can only assume overstocked.
That's the feedback, have gone, you know, super aggressive in computers. The difference with New Zealand is we're a number four player. You know, we're going to improve that, but we're a number four player, so getting support from suppliers is a lot harder. In Australia, we're a number one player. If somebody really goes hard on computers, generally we can work with the supplier to get some support to really match and be as aggressive. We don't have that ability as yet in New Zealand. That's one thing that was happening. The other thing is, we, you know, the changes we've made in New Zealand, and you can see the market share growth we're getting in New Zealand, the competitors are reacting to that.
They're reacting to, you know, the management we've got there, Jim. They're, you know, there's a little bit of reaction going on as far as that is concerned. Obviously, they're pulling the discount lever fairly hard over there. Again, not having that support that we enjoy in Australia, it's, you know, a little bit harder for us to recover that margin. However, we'll absolutely go in and compete, and that's delivering in the sales. If you haven't got sales, you haven't got anything to work with. We tell them to take it and get it.
Guys.
We're very comfortable, David, that that New Zealand margin isn't an indication of anything that might happen in Australia. We think it's very, very different, and we're very comfortable with how we're trading in New Zealand, and particularly the share we're gaining in the period.
Excellent. Just a quick second one, Nick, and it's just a quick one to you. One thing that's really pleasing, as you said, you're up 34% sales with only a 7% increase in inventory. That's all pre-COVID. Your stock turns are amazing. You commented that you're very happy with the quantity and quality. What does that mean? You've loaded up with Apple and Samsungs? What do you mean by happy with your quality? Can you give a bit of sugar on that?
Yeah, a little bit of color. If there's one, you know, ongoing benefit of COVID is basically any age stock, any old stock was sold over the last two years. The stock that we have today is all new, good quality stock. I think we just look at it and go, we've bought well, we're happy with what we're holding. It's new current stock and, you know, for that reason, we think it's probably helping us maintain that sales growth at the moment 'cause the quality of stock's good and it's fresh and it's resonating well with customers.
Yep. You're running beautifully, gents. Good work. Thanks.
Your next question comes from Adrian Lemme with Citi.
Good morning, guys. Just to look at the current performance a little bit more closely. Are you able to sort of, strip out, like, look at states that aren't cycling the lockdowns from last year? Are you seeing sort of underlying declines in those states where you've got maybe a cleaner look? If so, what categories are you seeing that please?
There's no, there is no lockdown, like, no formal lockdowns in January last year. It's what everyone is cycling is sort of a higher level of COVID in the community, and therefore people probably self-isolating to some extent last year, and then higher absentee and then staff in stores. What we can see, absolutely we can see in our numbers, you know, differences between shopping centers and homemakers and all those things that we've talked about previously in terms of customer preference in the prior year. We just look at the January, the one year, and it is difficult to look. Terry mentioned it earlier, the one year is difficult to review.
We keep anchoring to the three-year internally, and I know there's been some commentary that look, we've obviously said the three years moderated, but we're still doing 25% sales growth in JB in January over three years and 17% in Good Guys. Still pretty solid numbers. We're, you know, we're pretty comfortable with how we're trading, but relative to those pre-COVID numbers.
Thanks, Nick. No, I was getting at, I guess, the first half was impacted by cycling the lockdowns, and that was the thought.
Yeah. You're right. That's probably Q1, predominantly Q1. Q2 is reasonably cleaned a little bit at the start of October.
No dramas. Can I just ask, yeah, great commentary on all the sort of individual drivers. I guess the GP margin, can we confirm that, like, given that it is such a big jump this half compared to the levels of the last few years? I appreciate your comments that there's been mixed benefit then and a lack of discounting. I would've thought that there would've been a lack of broad discounting in the prior periods as well. Can you just confirm there's no like, I don't know, special supplier rebates or stock deals that maybe have also driven it up this half please?
This half is, there's nothing driving it up in isolation in this half. If you compare JB Hi-Fi Australia to half year 2022, and I think you'll remember we said this at the time, half year 2022 when the stores were closed, we were doing free freight online, so that was weighing on the margin in half year 2022. You know, we weren't doing as significant as services attached when the stores are closed. We really struggled to do telco connections as an example. The one year comparison, the prior year is low. If you go back and keep again, we try to anchor to the pre-COVID half year 2020 comparison, we think that's a pretty clean comparison. The benefit there is sales mix.
You know, one of our material suppliers had some stock challenges, for example, in December, and then, sales mix, and Terry talked about still seeing a little bit less of that discounting, albeit we are seeing that starting to return.
Okay, great. Thanks very much, Nick. Cheers.
Your next question comes from Tom Kierath with Barrenjoey.
Morning, guys. Just ask on stock profits and where that's at and if that is normalizing now? Then secondly, just how you're seeing price rises playing out through 2023 for the business?
Yeah, look, a good question. We're not seeing, you know, the feedback from suppliers is we're not gonna be seeing any price rises. You know, I think for a few reasons that or the main reason I should say is, you know, stock is returning to normal. You know, suppliers are gonna be, you know, fighting amongst themselves for share as much as retailers. Yeah, we're not anticipating any price increases coming through and no feedback that there will be any.
Yeah. Okay. Sorry, and stock profits, was that a driver of the first half gross margin, just given the price rises that you've seen?
Look, the price rises we saw, if you go back, were predominantly in white goods. It's that benefit was principally in The Good Guys. If you track it through, if you look at The Good Guys gross margin second half last year, actually, you know, higher than what we've reported first half this year, that's I'd say more of the stock profits are in second half of last year. We wouldn't say there's a lot of stock profit in first half of this year.
Okay, cool. Thanks, guys.
Our next question comes from Shaun Cousins with UBS.
Great. Good morning, guys. Just a question I think around how you look around generating sales as you're cycling tough comps on this multi-year basis, and particularly around two areas. One, what are the big sort of category opportunities? Is it telco, but are there others that you could talk about? The way we see you trading in the market, it looks like you're being more aggressive, and the feedback we get from the industry is you've been more aggressive to chase promotions harder, such as when Harvey Norman went AUD 250, 25% off, 10% off if you spend more than AUD 250 at Boxing Day, you guys matched at AUD 300. I'm just curious around your intensity around promotions and how aggressive you're looking to be to moderate the slowdown in sales that is likely. Please.
Yeah, I mean, good question. In that respect, I think we are doing what we would normally do. Every day, every week, every year, you know, we will be, you know, when it's a little bit tougher, if we're looking forward at sales, we will look at the individual categories and then devise promotional activity. No doubt, we have seen promotional activity intensify, and that is as much around the fact that there is good stock availability as much as it is that it's, you know, it might be tighter in the market or et cetera. You know, we'll continue to push hard. We'll continue to drive categories. We've got, you know, we did suffer some challenge with phones in December.
They're all coming back into stock, so you see us continue to push hard into phone and TV. They are some categories we stay very focused on, and suppliers are willing to support all of that at this point as well. You know, as stock is returning to normal, and it may feel like it's getting a bit tougher in that one-year stack when you look at compared to one year, suppliers themselves are really looking to push stock out and to drive their market share. We're seeing a lot of activity coming from suppliers, in other words, supplier-funded promotions coming.
Okay. Secondly, just regarding New Zealand, it's a group focus area. How are you thinking about the pipeline and timing of new stores? You did six relays in the first half. Specifically, what will be the, I guess, the cost impact on this? Will you revert back to EBIT losses in the second half? Will your CapEx, which has generally been around $57 million on a full year basis for the last two years, will that have to step up some? I'm just curious around how you're going to look at that, driving that New Zealand growth, please.
Yeah. We are trying to access new sites. It is actually a bit harder than we had hoped in the short term. In the second half, Shaun, we'll relocate two stores in the second half, so that CapEx will come through in the second half. We won't have any new stores in the second half. That'll be more an FY 2024 piece. In terms of CapEx, yes, we will. You know, we haven't spent a lot of money in New Zealand for a number of years. I think we've been spending roughly $1 million a year in New Zealand. You will see that elevate, you know. As we get access to new sites, you know, we ordinarily spend about $1.5 million in CapEx on a new location.
You know, assuming we'd like to see four or five new stores a year, you're gonna see an upward in CapEx on New Zealand.
EBIT losses in the second half, Nick, is that right?
Yeah, we will lose money in the second half. Yeah. Yeah. Yeah. There's no change. Like with historically, New Zealand for us has been a profit-making business in the first half and more challenging in the second half. We expect that to continue this year. Obviously, we have plans in place that in the future, we wouldn't expect that to occur.
Great. Fantastic. Thanks, Nick. Thanks, team.
Your next question comes from Ben Gilbert with Jarden.
Good morning, guys. Just wondering if you could talk about the Perks program and where you're expecting some investment, and I suppose just trying to drive some returns out of that because it seems to be a key opportunity for you guys' loyalty? We're getting a better feel and view for the customer.
The Perks Program there, the Perks Program is designed as part of moving from what we say multi-channel, we wanna be omni-channel, it's about really understanding the customer and joining the dots between the customer that's purchasing online and the customer that's purchasing in store. The Perks Program is a way that will encourage you to identify yourself in store so that we can understand those transactions and connect them with any of your online purchases. It also enables us then to be a lot more tailored with the sales process in store because we will then be able to understand that you may be an Apple users versus an Android user, for example. We may know that you bought, you know, a lot of Samsung product versus buying Sony product.
It helps us to be a little bit more, little bit more tailored in that sales process. That's the outcome of it. You know, that's what we're gathering that information at the moment. Today, you join, you will get over and above rewards and offers as a Perks member being sent to you. You know, it's not necessarily that we're investing any great deal more money into that program. We do email our database regularly. These will just be over and above programs. What's really important with this program is you really get interest from suppliers, and suppliers are really keen to fund promotions because you can be so much more laser-like in what you're offering.
You know, we will find that suppliers will really step up to support this program as it continues to roll out and continues to grow in numbers.
Do you think you need to put a lot of money into it, Terry? Just in terms of understanding your capabilities, if you wanted to look to go to a sort of media, et cetera, that Best Buy is doing, is it a project you need to see sort of AUD 5 million-AUD 10 million of OpEx over the next few years? Or is it just gonna be sort of steady and sort of incremental investments here and there?
Yeah. Look, it's steady and incremental. You know, we don't anticipate that we need to invest really heavily over and above what we're currently doing. Where the cost will come is when we just wanna understand the customer detail a little bit more, but we're not talking investing AUD 10 million into doing that.
Great. Just follow on from me, and I've asked this a few times before, but just in terms of your back end, in terms of your supply chain, because it still feels that there's a relatively high level of sort of separation or independence between JB's and The Good Guys. Do you think there's an opportunity, given the scale that you guys have built, to start consolidating that drive to improve terms in aggregate across both, just suppose minimize some of any sort of margin normalization we might see over the next couple of years?
Look, it's definitely on the radar. It's definitely something that we wanna continue to pursue. I mean, we leverage it now, so I shouldn't say that we don't. We do leverage it now. We have identified that there is some further opportunities for real productivity of stock if we can work a little bit closer, you know, between the two brands.
All right. Thank you.
Your next question comes from Bryan Raymond with JP Morgan.
Thank you. Look, just sorry to come back to this trading update again. I realize it's only one month. Just trying to understand a few more of the drivers, if we can. Obviously the big event during January was the back to school in the tech category. Just wanna understand if there's any sort of overarching themes that you've seen come through in that event or others, whether it be premiumization or traffic or trading up, trading down, et cetera. Just trying to unpick what might be driving a, you know, a slowdown at this early stage. Thanks.
Well, again, I think that the slowdown is, you know, when compared to last year, of course. As we know, that's still highly elevated over pre-COVID, COVID times. You know, what we're just trying to acknowledge and, you know, be upfront about is, you know, that growth that we have been seeing in the first half is gonna be harder to get in the second half, just simply because we are just cycling such a significant second half from last year. There's no real themes. You know, The Good Guys continue to see solid HA results coming out of the business. You know, JB, again, as you would anticipate, that tech category has just continued to perform, continued to be strong.
There's no real themes coming out of it, at this point other than just cycling some, you know, just some significant numbers from last year.
Okay. That's great. Thank you. Just my second question is on the balance sheet. You've obviously got a very strong net cash position at the moment, almost AUD 400 million. The Good Guys is pretty much bedded down. There's no big sources of step up in CapEx. This time last year, you did a share buyback. Understand why you might be a bit more cautious. The board might be a bit more cautious given the outlook now, probably a bit more uncertain. Just thinking about the long term here, like, does JB Hi-Fi expect to have a healthy net cash balance long term? Or is this something that could be recycled into either organic or inorganic opportunities, or would capital management be the obvious outcome? Thanks.
Yeah, I think obviously the cash position we reported December is at now and is historically a high point, so it's a seasonally high point. We would expect that to moderate into the second half, but we would still expect to be net cash at 30 June. To your point around short term, I suppose, is easier for me to answer. Longer term is a bit more crystal ball. Short term, I'd say is a, you know, as we enter an uncertain environment, I'm really happy to have a strong balance sheet and to have that strength of the balance sheet behind us is a really good thing. Short term, comfortable to maintain a pretty conservative balance sheet. Longer term, I think, you know, we have demonstrated that we'll take a pretty proactive approach to managing it.
Yes, we'll look at all opportunities. If there's inorganic opportunities that present, you know, if it gets harder over the next few years and that presents some opportunities, we'll look at it. If we don't have a use for that capital, then we will look to how we return it to shareholders in the most appropriate way. It's a bit hard to predict out at the moment. In the short term, we're happy just to maintain the strength of that balance sheet.
Makes sense. Thanks, guys.
Your next question comes from Ross Curran with Macquarie.
Hi, team. Congratulations on great results. Just a quick one around New Zealand again. Obviously, I know it's a small part of the business, but we saw some pretty chunky wage increases out of Woolworths just into year-end, which will play through over the next two years. How are you guys thinking about wages in NZ? Are you seeing that level of pressure coming through?
Yes. The short answer, there is a significant increase. The new government, new leader, I should say, has put through. Yes, we will see that's seven point something.
To the middle? Yeah.
Yeah. Yeah. Yeah. It's you know, it's significant.
Great. Thanks. I'll leave it there.
Our next question comes from Craig Woolford with MST Marquee.
Hi, Terry and Nick. Just the first one around the, I guess, the attribution of sales, something I've asked in the past. You commented, I think it was you, Nick, that sales are up 25% in the JB Hi-Fi brand versus pre-COVID. Is it still roughly half price and half transaction or average transaction value and half transaction numbers? The reason for that question is you'd mentioned there mightn't be any price inflation from suppliers, but what about the opposite? Isn't there a chance we see some deflation coming back through a number of the categories?
Yeah, look, it is still...
That sales growth is still driven by units and price. It's, you know, in JB, it's not necessarily price rises that's driving the price increase as much as, you know, we're actively trying to sell up and increase ASP. That is a, you know, a strategic goal for us. Yeah, it is still unit and price. Yes, you're right. There is absolutely a risk that we start to see some deflation. You know, we can already see it in a category like television. We see a category like that where there is some pressure coming on price points already. It is something we are actively managing and actively looking out for.
Do you think that, let's call it premiumization, where you've been able to sell up, is that something that's gonna be cyclical, or is there a structural change in how you've incentivized your staff and, you know, the range architecture you have in store?
Yeah, I think it's that range architecture that is, you know, that's structural, that's very different in the store. You know, we've been doing it for, you know, for many years now, so it is, it is part of the business and how we continue to operate. You know, we'll continue to stay focused on that. I say that, but you know, you will still see just great value advertised every day. It's all about the in-store and online where we look to sell the, you know, sell the benefits of stepping up the model.
Yeah. Just a quick one on small format. You've got four new stores open, and you have the Parkmore and Gold Coast International Airport. It feels like you're still in trial phase of what the small format store could be. Is there any progress on accelerating a rollout of small format?
The Parkmore store is probably the first of the, what we would deem the store we need to continue to watch and model. It's a smaller neighborhood center. You know, it's anchored by, you know, two shop, two supermarkets. Look, it's performing well. This is the one I feel we're really starting to get our mind around the success of the small format. To date, it's performing well. We're pleased to date with how it's going.
Roughly what size is that one, Terry?
550 square meters.
Yeah, including that house.
Yeah, including that house.
Yeah.
Okay. All right, thanks. Thanks, Terry. Thanks, Nick.
Your next question comes from Mark Wade with CLSA.
Okay, Nick, Terry, congratulations on the result. I thought it was really impressive. You know, your market share's up. You've made more profit in six months than what you did in a whole year not long ago, so well done. Just looking ahead, is there any aspect of the customer experience you really wish to improve the most to stay relevant and differentiate the brand, I guess, in the mind of an ever-increasing value-conscious consumer?
Look, I think it's a really good question. Where we, yes, we're always trying to improve that in-store experience. Actually, we're really focused with the team on challenging around that. What we have deliberately been doing, and I take The Good Guys, for example, is really proving that value even during those, you know, times of COVID when you didn't have to do anything, and you could write a sale, and we're performing well. We continue to always drive value, and we call it internally proving value. Both JB and The Good Guys continue to do that. I, I think while that in-store, yeah, we're always challenging ourselves on how that could improve.
I think we've done a good job of staying top of mind in the consumer, with the consumer, I should say, that if you want value, our two brands are where you're gonna go to get it.
Mm-hmm. Good one. Lastly, just on the JB Hi-Fi Solutions business and the thoughts there on the size of that opportunity and how to make the most of it?
Yeah. Look, you know, we feel there's plenty of scope in that to continue to grow. You know, we think there's a lot of scope. Do remember many, many years ago, Richard Murray putting a figure out there when I was last with him out and about. We finally reached that figure. It'll be loath to put a figure out there. We there is plenty of scope for growth in that business. You know, it's now more around how we execute to get it.
Okay. All the best, and keep it up.
Your next question comes from Phil Kimber with E&P Capital.
My question, just take it off speaker, sorry. My question was just around the recent trading and ASPs in both divisions, higher this year than last year. I guess I'm just trying to understand if there's actual volume growth going on at the moment or whether volumes are going backwards, but it's price that's sort of holding sales growth up.
Are you sorry, referring to the January result?
Yeah. Yes, even though, you know, maybe the second quarter a bit as well.
Yeah. Second quarter, Nick mentioned before, second quarter, we did see transaction growth continue in both businesses. The challenge we've got, it's right, it's in the detail. For example, we have seen ASP or average, the average basket in The Good Guys grow as well, but that's because it's moved, it's mixed into more HA products. Not necessarily each HA product is growing, but just the customer mix has moved into the HA where consumers just have that enormous trust of The Good Guys for the HA products. For JB, again, it hasn't seen as high a transaction or average sell growth rate again, because of the mix of products that's going on.
You know, this time last year, we were unable to sell a lot of accessories. We're unable to sell a lot of the smaller type items, where this year we can. We're still seeing, you know, good transaction growth, not quite as strong on the average basket size, but that's due to mix, and that's really playing out in both businesses. You know, as we start to cycle just complete normal trading over the next few months, we'll really get a good understanding of it. Volume is still up in JB in January.
Cool. Thanks. Thanks, Darren.
We have no further questions.
Thank you. Thanks everyone for your time today. Really appreciate it. Look forward to seeing you out on the road the next few days. Thank you.