JB Hi-Fi’s Re-Rating Triggers Valuation Dilemma

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Another earnings result 'beat' by JB Hi-Fi was not enough to prevent the shares from selling-off on the day. Over-reaction? The debate is alive.

-JB Hi-Fi result yet again slightly beat expectations
-Outlook includes multiple tailwinds
-Post re-rating, the debate centres around valuation
-Bell Potter labels JB Hi-Fi one of the most productive retailers globally

By Greg Peel

For years electronics retailer JB Hi-Fi ((JBH)) has beaten earnings result expectations, often against prevailing retail winds, to the anguish of those who for a long time shorted the supposedly overpriced stock. That strategy is now long abandoned.

The local ‘tradition’ has now created a new problem: if JB Hi-Fi is expected by all and sundry to continuously surprise to the upside with its result, is that then still a surprise?

On Monday, the retailer released an FY25 result which yet again beat consensus on underlying profit, but only by 1%. What’s more, the highly respected CEO –-25 years in the business-– announced his pending retirement some six to twelve months ahead of expectation.

What does he know? Has JB Hi-Fi reached peak success? Time to leave on a high?

Traders responded to the FY25 update by selling down the stock -8.4%.

The Result

JB Hi-Fi’s 1% consensus ‘beat’ was a result of 8.5% year on year profit growth, 10.0% sales growth and 9.4% earnings growth.

Sales growth was a strong outcome in the context of a tough consumer environment, Morgans suggests. Like-for-like sales were particularly strong in the fourth quarter compared to the third, despite the comparables getting tougher (from -0.3% to 2.5%). This was nevertheless driven by the successful launch of the Nintendo Switch 2 gaming console, which management called out as the reason behind the uplift.

JB Hi-Fi New Zealand also finished the period strongly and continues to build scale and take market share off a low base, Morgans notes. Whitegoods subsidiary The Good Guys reported solid growth, although slowed in the second half compared to the first (4.2% to 8.8%). Recently acquired kitchen & bathroom business, e&s, reported sales growth in line with expectations, up 5.2%.

Sales in July have slowed from the fourth quarter for JB Australia (5.1%) and The Good Guys (3.8%) but remain solid. JB New Zealand’s like-for-like sales accelerated in July (24%), but e&s has turned negative (-2.7%).

The Good Guys’ gross margins were the standout, brokers agree, up 28bps to 23.5%, with the second half up 90bps to 23.9% (close to highs of covid). Management flagged those second half margins were unlikely to be sustained and is targeting 23.5%, in line with the full year. JB Australia margins were down -20bps to 22%, in line with pre-covid levels.

JB New Zealand continues to scale up off a low base. Cost of doing business was well managed, in Morgans’ view, up 24bps to 13.3% of sales, benefitting from some operating leverage in JB Australia offset by incremental staffing costs in The Good Guys to support sales.

As expected, JB Hi-Fi announced a special dividend, but at 100cps, ahead of forecasts of 80cps. This points to ongoing strength in cash generation and balance sheet positioning, Macquarie suggests.

Moving forward, the company will pay out 70-80% of profit (65% previously), which results in more consistent cashflow returns to shareholders, Macquarie points out, while still permitting balance sheet flexibility for strategic investment.

All else equal, JB Hi-Fi will remain in a circa $60m net cash position following payment of the final and special dividends.

Sell the Fact?

Was an otherwise solid result and slight beat simply not enough for salivating investors? Some analysts are unsurprised by the sell-off on the day, others saw an overreaction.

JB Hi-Fi’s share price rose 27% in 2025 to August 8, compared to the ASX200’s gain of 8%. Arguably, a more stellar beat may yet have resulted in profit-taking.

The greater-then-expected special dividend of 100cps follows an 80cps special dividend in FY24. This equates to a total dividend payout ratio of 85% in FY24 and 86.1% in FY25, Morgans notes.

Given the strong franking credit balance and strong cashflows of the business, JB Hi-Fi has increased its payout ratio from 65% to 70-80% from FY26, but flagged on the conference call it is unlikely to pay further special dividends. In other words, a payout lift but an effectively lower payout than FY24-25.

As for the CEO’s earlier-than-expected retirement, analysts are not the least bit concerned. The incoming CEO has been in the business for 16 years, including ten as CFO, and more recently COO. Bell Potter anticipates a smooth leadership transition with the extensive cross-over period.

Citi does not see the announced CEO transition as a sign that JB Hi-Fi has topped out. The company has historically managed CEO transitions very well, notes Citi, with continuity of strategy and execution. UBS agrees the transition is a little earlier than anticipated, but remains confident strong execution continues.

But what of excessive valuation?

JB Hi-Fi has enjoyed a significant PE multiple re-rating, UBS notes, beyond traditional peers Harvey Norman ((HVN)) and Super Retail ((SUL)).

Yet applying a new framework for high multiple retailers (rising total addressable market, market share gains, robust cost management and prudent capital management), JB Hi-Fi scores well, UBS suggests, and should increasingly be compared to Wesfarmers’ ((WES)) retail divisions Bunnings and Kmart.

Wesfarmers’ forecast FY26 PE of 34.9x remains above JB Hi-Fi’s 23.3x, albeit this premium is likely to be retained, in UBS’ view, as Wesfarmers’ retail divisions operate in more fragmented markets so share gains are more likely.

Given more comparability with Wesfarmers, this broker argues JB Hi-Fi’s PE multiple looks increasingly justified, and following the share price decline, the risk reward proposition looks more balanced.

Yet, on the other hand, while viewing JB Hi-Fi as a strong omni-channel retailer, trading at a circa 23.2x FY26 forecast PE, Morgans sees the stock as fully valued for a business offering mid-single digit compound annual earnings per share growth over the next few years.

Looking Ahead

JB Australia sales grew by 9% in the fourth quarter, consistent with 2-4% outperformance in recent quarters. While the quarter was undoubtedly boosted by the release of the Nintendo Switch 2 in June, Citi also believes it reflects customers increasingly shifting purchases to the big promotional sale periods.

Citi expects another very strong Black Friday given JB Hi-Fi’s inventory is up some 13% year on year, Windows 10 support expires in October and Nintendo Switch 2 will be in demand at Christmas (as was the case in the second quarter of FY18, when sales growth reached 9.7%).

Gaming consoles aside, Jarden believes JB Hi-Fi is beginning to see a multitude of tailwinds.

First is an expected replacement cycle post the covid sales boom. Five years is a long time when it comes to technological advancement, and the obvious new step-change is AI capability.

Next is an anticipated RBA easing cycle, driving greater consumer demand. Past easing cycles have added to JB Hi-Fi sales growth.

Then there’s the current new housing drive. With signs of activity lifting towards the end of fourth quarter for new homes, this should see a benefit to JB Hi-Fi about nine months later via commercial and e&s sales, which presently remain soft.

Macquarie points to solid growth maintained through July at 5.1%, providing comfort in the quality and growth characteristics of the retailer. Although the group will see a diminishing benefit from Switch 2, Macquarie continues to see growth over the medium term driven by next-generation laptop sales and the covid replacement cycle, both of which were called out at the 2025 Macquarie Conference.

Bell Potter retains its view of JB Hi-Fi as one of the most productive retailers globally with leading unit economics, while also well placed to benefit from the replacement and upgrade cycle of computing and telco devices driven by AI capability and end of useful life.

Upgrade Cycle

Post the FY25 result, three of the seven brokers monitored daily by FNArena covering JB Hi-Fi have upgraded their ratings.

The -8.4% sell-off in response to the result was an overreaction, in Macquarie’s view. JB Hi-Fi remains well-placed in a sector seeing structural tailwinds. Macquarie upgrades to Outperform from Neutral.

UBS draws upon its PE comparison with Wesfarmers, Making JB Hi-Fi’s valuation more justifiable, and a greater balance of risk/reward following the sell-off, in upgrading to Neutral from Sell.

Given Morgans still sees the stock as overvalued, its upgrade to (a newly established ranking of) Trim from Sell is less inspiring, but an upgrade from less negative nonetheless.

As the day’s share price correction saw the stock trading at around a 24x FY26 PE, Bell Potter sees valuation support, considering the catalysts of operating leverage in the key parts of the business from FY26 onwards. Bell Potter retains Buy.

Thereafter, valuation simply gets in the way, cited by both Morgan Stanley (Underweight) and Ord Minnett (Sell).

That leaves two Buy or equivalent ratings, one Hold and three Sells (“Trim” is considered a Sell on a three-tier system). The consensus target among the seven brokers has increased to $104.94 from $99.37.

Jarden is positive on the Australian consumer and sees JB Hi-Fi as well placed to benefit, a function of the replacement cycle, innovation and market share gains. Looking forward, Jarden believes the company’s growth is looking as de-risked as it has been in many years, owing to cyclical and secular tailwinds combined with scale benefits, that have seen major retailers (Amazon, Officeworks and Bunnings) struggle to penetrate its market.

Coupled with consumer confidence around three-year highs, rates easing and major replacement events ahead of us, Jarden is positive on the sector broadly. The broker does, however, retain a Neutral stance on JB Hi-Fi on valuation grounds with Harvey Norman and Temple & Webster ((TPW)) preferred in discretionary retail.

Jarden’s target rises to $95.70 from $95.50.

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