Stocks In Focus: JB HiFi, November 5 2025

0:10G'day fools and welcome to Motley Fool Stocks in Focus, the series that I hope you're used to by now, I hope you're listening to it on the Motley Fool Money podcast feed. I hope you're also watching it on YouTube because hey, if once is good, twice is better, right? Wherever you are consuming this particular piece of content, thank you for tuning in. Motley Fool Stocks in Focus is our opportunity to go behind the curtain, to really kind of give you a sense of the way we think about some of the companies on the ASX. Now, generally speaking in this feature, we try and pick big companies, businesses that are owned by a lot of people, maybe they're in the news, maybe both, businesses that we think are interesting, just that kind of, you know, an opportunity for us to share with you our thoughts, but also to get a sense of our investment approach and the way we think about stocks and think about investing.

0:53So that's what Stocks in Focus is. It is on both those platforms, as I say, and it is, of course, only general advice. That's different from personal advice. Personal advice is I say, you should do this based on what I know about you. We don't do that. We do general advice. We say, here's what we think about this thing. You have to decide whether and to what degree it's right for you. So please keep that in mind. Also, as always, this is being recorded at the beginning of November 2025. Date stamped, by the way, because it's the beginning of November. Also, because you might have heard the dog beside me bark.

1:22I'm an eight-week-old puppy. So, there you go. This is Diesel's first multimedia appearance. If it gets too bad, we'll start again. If not, we'll keep going. How's that for recording live? I say we, of course, I am joined by Darius Sagami. Darius, g'day. G'day, Scott. How are you going? Good. Did you hear the dog in the background? I can hear it ever so slightly, but it's very cute. He's an eight-week-old German Shepherd puppy called Diesel. Check out my socials. Not for my socials. If you want to see what he looks like, he's pretty cute. All right. Let's try and push through, mate. As I said, just finishing off that last thought, we're recording this in early November 2025.

1:53Things change, right? So this is our view at this point in time. Things change because circumstances change, prices change. All sorts of good things happen. Okay. Let's get on with it, mate. Let's talk about a company that everybody has. I reckon everyone knows. I reckon almost everybody listening to this or watching this has bought something from JB Hi-Fi at one point or at least knows someone who has. It is one of the biggest retailers in the country. I won't do much more description. I'll throw over to you. Tell us the story of JB Hi-Fi, please. Yeah, it definitely hardly needs an introduction, really.

2:23And you mentioned everyone's bought something from JB Hi-Fi. I just bought my brand new phone from JB Hi-Fi, which is really why I wanted to talk about the company. I was really pleased with my shopping experience and it got me thinking about the company. and I said, that's the company I'll talk about for Stocks in Focus. But just because I liked my shopping experience doesn't mean that I necessarily like it as an investment. You'll have to watch to the end to find that out. Nice taste. Well done. Yeah. But on to the company, though. It operates three core brands. JB Hi-Fi is obviously the biggest good guys.

2:58And it's got this more recent acquisition ENS. But basically, these stores, everyone knows it. They sell an expensive range of products. You've got consumer electronics, white goods. In the case of ENS, they've got appliances, home entertainment systems, that sort of vibe. They've got about 340 stores in total across Australia and New Zealand. They've got a website for each of their brands. And I guess, like I said, it doesn't need any introduction, but in case you haven't seen one of their big yellow stores or in case you haven't heard the phrase, come in and see the good, good, good guys. I guess I'll go through each brand.

3:42JB Hi-Fi sells consumer electronics, sells TVs, laptops, phones, like I just bought, Fitbits, microwaves, all that sort of stuff. There's about 220 stores here. So it's the biggest segment for the company. There's a website. There's a commercial segment that sort of sells to SMEs and to schools as well for the laptop rollout that we've got going on in Australia. Then there's the good guys. They've got about 100 stores. There's some crossover here with JB Hi-Fi. So they've got TVs and bigger home appliances like washing machines, fridges, dishwashers, fans, aircon units, that sort of thing. They also offer a website, of course, as well.

4:24And then the last segment, the smallest segment, that recent acquisition that I mentioned, They acquired about 75 % of ENS in 2024, so just towards late 2024. And basically what ENS is, it's more of a commercial operation. It does sell to consumers, but it's offering, I guess, fridges as well. There's some crossover there with good guys in that it offers fridges, washing machines and such. but it's mainly focused on home renovation, builders, architects are more its sort of speed. And there's only about 10 stores given it is that new operation for the company. But that's really the JB Hi-Fi business as a whole in a nutshell.

5:08All right. I'm actually going to bring my dog up because if you want, there you go, this is an excuse to watch on YouTube. This is the first time he's been in my office and while we're recording, he's just chewed most of the cables that are hanging down. So he's now going to sit and spend the rest of the thing on my lap. So there you go. You're welcome if you're watching this on YouTube. I will try and remain entirely professional rather than starting this recording again. We'll keep going and we'll see how we go. So don't get distracted by the dog. Watch Darius instead, but the dog is here. Mate, let's go to the business itself.

5:36You've done a great job of summarizing it, but a business, as you rightly pointed out, is not the same as a good investment. So let's go through the pros and the cons. Let's talk about why our viewers and listeners might consider buying shares in JB Hi-Fi. Yep, I'm glad you asked for the pros. this is the bit where i get to talk about my new phone purchase a little bit more nice um but really in all seriousness it was i found a really good bit of scuttlebutt for me um scuttlebutts where you sort of go and do on the ground research you you look at a company services you talk to people in the store not customers generally but you talk to you know the the people working there the suppliers that sort of thing um and i like to do this when i visit a company whether it's listed or not but especially if i know it's listed um if i go to one of super retail group stores generally i tell them i'm a shareholder and i'm interested in you know finding more about the company and we have a good chat um i'm not a shareholder of jb hi-fi uh so i don't usually do that um but still i like talking to them um back onto my new phone though i i went to the store, was greeted immediately.

6:42That was a tick from me. I was asked what I was looking for, introduced to a really knowledgeable and helpful staff member. And they walked me through all the different phone options. But that's something that I really like about JB Hi-Fi. I think that's something that everyone who shops there likes about it. It's people who don't just talk the talk. It's people who understand and use the products themselves. It made my decision making a lot easier and i think that's that's something that jb hi-fi has really worked hard it's a it's a it's a um what's i'm trying to think of the word here but it's something that they've really worked hard to cultivate it's something they've worked hard to cultivate really um in their brand um but further to that i checked online for for prices of the phone and jb hi-fi was the cheapest option it was the cheapest in-store option uh but something else jb hi-fi prides itself on is being the cheapest and I asked for a discount, I got a discount.

7:40And that's something that, again, people who shop at JB Hi-Fi really, really know about. And it's just a really good thing that they offer. It's one of their competitive advantages, I think. And that's really just because of their scale and because of their, I guess, differentiation that they are able to negotiate cheaper prices with their suppliers, which then also means that they're able to offer discounts to their customers as well without necessarily sacrificing on margins and things that other businesses might need to do. But that is a good segue into the company's financials. The company is performing quite well.

8:19Sales in FY25 rose 10 % to$10.6 billion. Underlying net profit after tax and EPS, earnings per share, sorry, were up 8.5%. And for what's a relatively mature business, a relatively mature retailer, those are some really decent numbers. But really, with only 340 stores, and that's across JB Hi-Fi, The Good Guys, and DNS, I think there's plenty of room for more growth geographically, which should allow them to continue growing at this rate for quite some time. But across the group, they're expecting about nine new stores to be opened in FY26 and one to close. And I think that can continue for some time.

9:03Lastly, though, I just want to quickly touch on that acquisition they made last year of E &S. I see plenty of opportunity for growth here. It's by far the company's smallest segment. Sales for the last, they acquired it in September 2024. So sales is only for the, I guess, the nine months of FY25. But it came in at about$225 million. We don't have comparatives, but I think that's a really good run rate for a business that it sort of shows that it's a very established business if it can produce that kind of sales. But something that did stick out to me from ENS was its earnings for interest and tax margin, which came in at about 1.85%.

9:45This is well below JP Hi-Fi and the good guys. Those came in at 7.5 % or roughly 7.5 % and roughly 6 % respectively. So there's still a really long way to go of margin expansion from ENS to get it to the position that good guys and JB Hi-Fi are in. And I think if JB Hi-Fi or if management, I guess, is able to position ENS in the way that it has JB Hi-Fi and the good guys, that's really very well possible. And that could mean some really solid, good top line, sorry, bottom line growth from the company. But that's what I really like about the business and also my experience buying a new phone. Well, it's a good combination, right?

10:29I mean, at the end of the day, they make money by doing things that people like. And we're not always the target customer or even the average customer of a business, but sometimes when you are literally that person, you can see what's going on and you can kind of sense check the reality. You mentioned it's a big business still growing really strongly, which is nice. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

10:55As always, there are negatives. We don't try and be balanced for its own sake at the Multifill, particularly our recommendations. I should say, we're not representing or presenting JB Hi-Fi as a formal recommendation today, but we do do the pros and the cons. We say, well, look, here's what we like and here's some things to be mindful of, or at least consider things that might go wrong. Let's try and do that for JB Hi-Fi. What are some of the cons? What are some of the potential risks? Why are the reasons that people might consider not investing in JB Hi-Fi today? Yeah, I think the biggest risk to JB Hi-Fi is competition.

11:21so when i looked for the new phone i i like jb hi-fi i know i can go in there and get a good good offer but there's so many other places that i can also go to um to to get that there's there's no barriers to entry in retail really um especially when anyone can start up a website now and sell these things if they really want to there's amazon there's all these there's kogan there's harvey norman there's apple there's dell there's samsa you just you name it there's there's just so many different competitors out there listed unlisted juggernauts you know it's it's a really competitive space i think jb hi-fi does with those competitive advantages i mentioned earlier the the people and culture offering that they have the the lower prices they do a really good job of differentiating themselves from Amazon and Del and Harvey Norman and Kogan.

12:22Something else that jumped out at me about my purchase of a new phone and every other time I've gone to JB Hi-Fi is they have this product called Extra Care, which is, or Extended Care, I can't remember the name of it exactly, but it's basically an extended warranty that isn't through the manufacturer it's only through jb hi-fi and it increases your warranty to sometimes up to five years for manufacturing faults my old phone lasted about four years i wish i had that extra care product and i do have it on my new phone so i'm gonna be really happy when my phone uh if it if it if it breaks i get a new one totally fine uh but that's something that really only i think jb hi-fi or another larger retailer but as far as i can see only jb hi-fi is really offering you won't get that sort of service on amazon you won't get it if you go to a distributor or a really small operator who just can't offer that sort of insurance service really um the next thing i mentioned previously people know when they're going to jb hi-fi they're going to get the service they're going to get the product range uh knowledgeable and helpful staff cheaper products that's a reputation they've built but that's also a reputation that i think can be really meaningfully damaged whether it's by competitors uh operational issues things like that um jb hi-fi also really needs to navigate the ongoing evolution of these products they need to make sure they're positioning the products they've got the best products uh they're able to maximize sales per square meter things like that something that jumped out at me i bought my phone at jb hi-fi I wanted a screen protector for it.

14:05I wanted a genuine brand screen protector. So Samsung, I bought a Samsung phone. I couldn't find the screen protector, the genuine one at JB Hi-Fi. For that, I had to go somewhere else. So that is a potential risk if they're not able to get the best products, the best brands. If something like that was to go wrong, could see people go to a competitor instead, like Officeworks, for example, which also offers phones and things like that. The last risk I do want to touch on, largely outside of JB Hi-Fi's control, is an economic downturn. So things like interest rates, cost of living, low consumer confidence, inflation, all these things, they're all out of JB Hi-Fi's control, but they may eventually hurt the business.

14:55Fortunately, though, JB Hi-Fi is in a really strong position. It's got a strong brand that I think should endure, but it's nevertheless something that we really need to be mindful of, I think, if we're investing in JB Hi5. Yeah, nice summary. Thank you, mate. Diesel's not happy about the bad things as well. You foreshadowed beautifully at the very beginning. You're going to give us a thought at the end. And as I always do, as I said, these aren't formal recommendations, but I do always ask the Motley Fool analysts like Darius whether they think the business is likely to be a market beater over the next five or so years.

15:24We're long-term investors at the Motley Fool, so five years is the period we care about. But tell us, Matt, over the next five years, do you reckon JB Hi5 beats the market or lags the ASX? This was a really tough one. Looking at it, I thought in the near term, I don't think it will beat the market necessarily. The long term was a bit harder. I think it's just trading really expensively at the moment. I had a look at its peers. I had a look at it. JB Hi5 is trading at about 24 times earnings, which is on the expensive side in my view. And I think retail in general at the moment is looking a little bit expensive.

15:58By comparison, Harvey Norman, which is a direct competitor of all three of JB HiFi's core brands, is trading at about 17.5 times earnings. Super Retail Group, which doesn't really compete, but it's also a really strong retailer. So it's got that brand. It's got that ability to endure. Even that is only trading at about 16 times earnings. So I think with that lofty valuation of 24 times earnings, I think it's a little bit of a cause to concern, and I think that may see the company underperform the market in the long term. There you go. An underperformed expectation from Darius. Fools, thanks for watching.

16:37Thanks for being part of Motley Fool Stocks in Focus. Thanks for bearing with these, or if you're watching on YouTube, hopefully you're enjoying it. Darius, you've done a spectacular job despite his moving around and winding and carrying on. We will have more of these. Make sure you do subscribe to the Motley Fool Money podcast feed and the Motley Fool YouTube channel. If you are listening on the podcast right now, it's youtube.com forward slash foolau. If you're on YouTube, just search Motley Fool Money on the podcast feed. Look for the Motley Fool Australia one. There is a Motley Fool Money US.

17:02So make sure you're getting the right one. If there's a dog on there, you'll know it's us. Thank you for watching. Thank you for being part of the Motley Fool community. Until next time, Fool on. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.