Two retail darlings (one current, one former), JB Hi-Fi and Dominos copped it on the market following yesterday’s Fair Work decision.
JB Hi-Fi closed down 4.82 per cent at $71.51, while Dominos Pizza Enterprises shed 6.54 per cent to finish at $16.43. On a day where the market was largely flat, easing what has seen the ASX200 put on over 100 points, the slide can easily be attributed to said-Fair Work Commission’s annual wage review.
The review lifted the national minimum wage and modern award rates by 4.75 per cent.
So why is a boost to the minimum wage causing these stocks to slide? It’s a case of how the numbers wash out through a business’ operating expenses.
For discretionary retail like JB Hi-Fi, you could reasonably expect staff costs to sit around 10% of sales revenue, despite running a famously lean store model. Groupwide employee costs at JBH ate up 10.4 per cent of the company’s $10.5 billion in group sales in FY25, running a whisker higher than the year before.
Dominos, meanwhile, runs a franchisor model which always looks to maximise the cost-margin of a store. The company’s annual report doesn’t give as clean a read on how wage growth affects a store-owner’s bottom line. But it does track and release store profitability as an average – which runs roughly $95,000 per store last year. It has, however, named rising minimum wages as a headwind it’s navigating.
As a result, any change in the amount these businesses have to pay their typically younger staffers on these award wages is going to show up come results-time. That’s what’s making the market nervous.
JB Hi-Fi
But it might not be all bad news.
Switzer TV guest and resident chartist Michael Gable at Fairmont Equities has been consistent on JB Hi-Fi through this cycle, framing it as a quality compounder.
Gable has argued that JB Hi-Fi’s scale buying, low-cost store model and high sales volume per square metre make it fairly resilient to bumps and shocks like a wage hike. At least compared to other discretionary retailers who don’t operate the same low-cost store model, at least.
Jun Bei Liu at TenCap has said on Switzer TV that “category-leading retailers” like JB Hi-Fi benefit when the consumer is squeezed, especially those that offer the big yellow store’s attractive product pricing.
Broker-watcher Rudi Filapek-Vandyk’s from FNArena tracks the analyst ratings religiously. His analysis for ASX: JBH clustered in the high-$90s on the bullish side, and the mid-$60s on the cautious side.
So while the market’s immediate reaction may be one of slight shock and hesitation, there might still be hope that – even in a rising rates environment where labour costs are continuing to increase – these market darlings might just scrape through.
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