JB Hi-Fi’s share price indicates the market has firm expectations that good earnings growth will continue. We explore some of the arguments trying to justify the lofty valuation. Electronics categories are not defensive. Price deflation is common and replacement cycles vary. Just under half JB Hi-Fi’s outsized earnings growth over the past five years is a function of market share gains that will be harder to sustain.

JB Hi-Fi reported FY24 EBIT down 16%. Sales momentum and margins were encouraging in the second-half and the company has consistently gained market share over the past five years. We expect another year of softening margins, albeit overall EPS should be up slightly in FY25e. While JB Hi-Fi is clearly a well-run business, we expect future earnings growth is likely to be low single-digit at best.

Harvey Norman’s 19% fall in 1H24 EBITDA is likely a trough in earnings. As sales stabilise, we forecast EBITDA to increase 4% in 2H24e. While sales should stabilise, we expect very modest growth in its two largest markets – Australia and NZ. Profit margins should improve, albeit margins are on track to be above pre COVID-19 levels by June 2024 limiting the pace of earnings growth over the next two years. One encouraging sign is reduced inventory in its franchising business. Inventory is back to pre COVID-19 levels.

Metcash reported FY22 sales of $17.4 billion and EBIT of $472 million. Adjusting for the 53-week in FY22, sales rose 4% and EBIT rose 16%. The results reflects higher price inflation across all divisions and a mix-shift towards the Hardware division, which has higher margins. Metcash has been able to hold onto much of its customer gains made during COVID-19. While we expect a lack of EPS growth over the next two years, the company’s competitive position has improved in each division.