Sales at JD Group's technology outlets held up better than those at its traditional furniture outlets in the first half of the year, but margins have come under pressure as the company cuts prices.
JD Group, which is home to Incredible Connection, Hi-Fi Corporation and several furniture outlets, yesterday reported its interim results for the six months to February. Revenue grew 1%, to R6.9 billion, and the company reversed its previous loss of R21 million to a make an overall profit of R232 million.
JD Group said the operating environment remained tough, with consumers at record levels of indebtedness. Total festive season sales were down 8%, although overall sales have picked up 6% since Christmas.
However, its cash division, in which it houses Incredible Connection and Hi-Fi Corporation, reported revenue up 7.5%, to R2.3 billion.
“This division reported reasonable results, particularly at Incredible Connection, with an improvement in its operating profit,” the company says. Despite the growth in sales, operating profit fell from R125 million to R78 million, and the operating margin declined to 3.4%, from 5.9%.
Paying off
The company has also seen signs of a continued recovery at Hi-Fi Corporation, which has been repositioned. JD Group says operating income for the unit moved into “positive territory”.
During the all-important festive season - when retailers make several months' worth of normal sales - the chain saw sales up 4.2% year-on-year. Since then, sales have moved up 12% year-on-year.
However, price cuts have affected margins at the unit, which is now a focus area for JD Group. “To attract more customers into Hi-Fi Corporation stores, we continued with a very aggressive pricing strategy, which has had a negative knock-on effect on margin,” the company says.
In its presentation to analysts and investors yesterday, it said Hi-Fi Corporation had been repositioned with a new management team and a new look-and-feel throughout the chain.
The repositioning of the group is starting to pay off. “The chain has seen a marked increase in top line sales. Costs have been well contained and product margin is now moving in the right direction,” JD Group says.
Incredible Connection “continued to trade well under the prevailing conditions”. Sales at the chain were up 18% during December.
Warwick Lucas, an analyst with Imara SP Reid, says JD Group has long been “hated by the market”. This was because of a weak empowerment profile, poor selling practices that saw it come under fire by the credit regulator, and a series of punch-ups with the taxman over disputes about what amount was owed.
“These will now start becoming a memory, and new CEO Grattan Kirk has now had a chance to bed in,” says Lucas.
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