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JB Hi-Fi in Strife With the ASX Over Earnings Downgrade

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By Published On: May 7, 20180 Comments

JB Hi-Fi is in hot water with the ASX, after it allegedly ‘covered up’ its earnings downgrade in a Macquarie presentation last week. The ASX claims the company was in breach of regulations for sneakily trying to protect its share prices.

Last week, as part of its quarterly results presentation at an investment conference, JB Hi-Fi’s Chief Executive, Richard Murray downgraded the company’s projected results by three percent. After the announcement, share prices dropped by 9.8 percent to $23.06.

Murray claimed that warmer than usual autumn weather had an impact on The Good Guys’ sales, as shoppers weren’t spending as much on heaters. As such, the retail group’s sales guidance was changed to reflect these poor sales results. JB Hi-Fi is now predicting a guidance of $6.85 billion, $4.75 billion of which will come from JB Hi-Fi and $2.1 billion from The Good Guys.

The company’s overall net profit for the 12-months ending in June is now estimated to be $230 million, rather than the earlier projection of $235 to $240 million.

JB Hi-Fi’s decision to include the earnings downgrade as part of an overall presentation that was titled around quarterly earnings has since been questioned by the ASX. As such, questions were asked surrounding the company’s intentions, as the ASX reportedly asked why it wasn’t in a separate ‘market sensitive’ announcement, and if it was intentionally done because of the impact the statement could have on share prices.

The ASX has been taking steps to crack-down on businesses that announce earnings downgrades or market-sensitive information in reports that are focusing on other general releases, in an attempt to cover-up or downplay the significance of announcements that could have an impact on share prices.

In a letter responding to questions raised by the ASX, the electronics retailer said: “JB Hi-Fi did not consider the information contained in the FY18 Outlook Slide would have a material effect on the price or value of the entity’s securities.”

The company also reiterated that the downgraded earnings projection will most likely only impact short-term sales.

“JB Hi-Fi also notes that in the FY2018 Outlook Slide, the company explained that the revision to earnings guidance was driven by short-term unfavourable weather conditions and heightened price competition. The company confirmed that this is not expected to impact medium or long-term performance.”

In its defence, the retailer referenced ASX guidance note Listing Rule 3.1, which details that any variations in earnings equal to or less than five percent are not material.

The company also claims that it wasn’t aware of the impact The Good Guys’ quarterly sales results had on its gross margin until the day before the presentation, and it was a last minute inclusion.

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