JB Hi-Fi reported FY22 EBIT growth of 7%, with 2H22 EBIT rising 33%. Sales momentum has strengthened slightly in July 2022 and the first-half of FY23e should see good earnings growth. Based on our analysis, it is calendar 2023 where sales could fall and profit margins decline. We are increasingly cautious on the stock given sales trends are likely to turn negative in calendar 2023.

Link to report

Super Retail Group’s trading update shows largely consistent sales trends over the past 10 weeks, with LFL sales up 3.4%. Supercheap Auto remains the standout segment. Gross margins are steady and the company is more optimistic about store openings. Super Retail’s PE ratio has derated on concerns about its inventory position. We think those concerns are misplaced given the challenges in securing inventory that will continue throughout 2022.

JB Hi-Fi provided a January 2022 trading update with improving sales trends in 2Q22. NPAT of $288 million was down 9% on 1H21, but up 69% on 1H20. While many are wary an anticipated mean reversion in sales and earnings, it may be gradual. While volumes will mean revert, price inflation is likely to accelerate, gross margins are likely to be higher in The Good Guys and there will be operating leverage.

We expect Super Retail Group will have a good Christmas trading period and gross margins hold up relative to strong levels from 2020. However, the company does face rising import costs and higher operating cost growth that is likely to lower EBIT margins in calendar 2022.