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JB Hi-Fi has ridden this year's tax cuts to buck the 'retail recession' — but shoppers still need to spend more as conditions worsen

Jack Derwin
  • Electronics retailer JB Hi-Fi has managed to avoid the so-called retail recession that is plaguing businesses across Australia, posting impressive full-year growth.
  • A pick up in sales across the retail sector recorded in the last month indicate the positive impact of the government's tax cuts.
  • However, as conditions continue to deterioate across the sector, NAB chief economist Alan Oster says more stimulus will be needed from both the RBA and the government to support spending and keep retailers afloat.

JB Hi-Fi has always stood out for its blinding bright yellow colouring. On Monday however, it was its full-year results that separated the electronics retailer from the rest of the pack.

The entire sector is currently doing it tough amid reduced customer spending.

But despite that, JB Hi-Fi beat market expectations, generating $7.1 billion in revenue (up 3.5%) over the last 12 months. It also managed to increase profits after tax by an impressive 7.1%, to just shy of $250 million.

That was all driven by sales growth where it counts for the retailer -- with hardware and service sales up 5.45%. That growth may have been driven by income tax cuts that saw Australians flush with a one-off cash payment.

"It was a solid result for JB Hi-Fi Australia and a particularly pleasing finish to FY19 with strong sales in the key tax time promotional period," CEO Richard Murray said in a note accompanying the results.

The result saw the JB's stock price surge more than 7% to just under $31 dollars a share.

Other Australia retailers would be envious of that result, at the same time that the NAB's business confidence survey shows that businesses continue to struggle.

"This is concerning because while conditions remain positive, it points to a significant loss in momentum in the business sector," NAB chief economist Alan Oster noted in the survey.

Within that, retailers are perhaps battling the hardest.

The first chart indicates that despite a modest uptick of retail confidence in 2019, key indicators across the sector are deteriorating.

“Business confidence in the retail sector saw a reasonable lift, likely related to the government’s tax cuts, but quite worryingly there appears to have been little boost to activity in the sector with conditions weakening further – the sector is currently facing recessionary levels of activity according to our measure,” Oster said.

With the extra cash from income tax cuts likely to have largely now been spent, there's also little indication of things improving.

"With a significant loss of momentum in activity, and inflation indicators remaining weak, the survey points to the need to the need for further stimulus in the economy. Indeed, we expect a further easing in interest rates from the RBA and think that some greater fiscal support will be needed from the government to kickstart growth," Oster said.

As the government remains reluctant to blow its budget surplus, it looks like the hopes of retailers remain firmly pinned to the RBA.