JB Hi-Fi is looking at buying The Good Guys

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Electronics retailer JB Hi-Fi is negotiating to buy home appliances chain store The Good Guys.

JB Hi-Fi, which has been steadily expanding into home appliances, says the discussions are preliminary and exploratory.

“JB Hi-Fi has made no decision and nor has it entered into any agreement with respect to the acquisition of The Good Guys,” the company says in a statement to the ASX.

A short time ago, JB Hi-Fi shares were up 4% to $23.76.

With sales of about $2 billion, the Good Guys would be valued under $1 billion.

JB Hi-Fi expects sales, when it announces its 2016 full year results, to hit $3.9 billion with a net profit of between $143 million and $147 million.

The Good Guys is understood to be looking at a range of options including an IPO on the ASX, according to today’s statement by JB Hi-Fi.

The business is owned by the Muir family from Victoria. It was branded The Good Guys in 1992, using a now familiar loud television campaign, “Pay Less, Pay Cash”. The group only recently stopped giving discounts for paying cash.

The Australian Financial Review earlier reported JB Hi-Fi had made an indicative offer for the 100 stores in The Good Guys chain.

The AFR said JB Hi-Fi appears to be ahead of Steinhoff International, owner of Freedom Furniture stores, as a buyer of The Good Guys.

“JB Hi-Fi evaluates all possible opportunities against a range of factors and would only pursue an acquisition if it made compelling financial sense for our shareholders,” the company said today.

Source: JB Hi-Fi at the Macquarie Bank investor conference

Although there are some synergies between the two companies, their business models, branding and experience are quite different, according to John Winning, CEO of the Winning Group and founder of Appliances Online.

“The Good Guys are strong within major domestic appliances whereas JB Hi-Fi is a leading player in AV (audio visual) and consumer electronics,” he says.

“The acquisition would compliment JB Hi-Fi’s current offering and help it achieve its projected HOME store growth.

“However, I’m not sure how I would feel having more than 300 stores during a time where most retailers want to consolidate their physical footprint as the world adopts online as an alternative channel.”

JB Hi-Fi has been adding small appliances and opening more HOME stores. The company expects to have 58 HOME stores at the end of this financial year and around 75 in 2017.

The company is known for keeping its overheads low and competing on price.

“We have the lowest cost of doing business of the major listed retailers in Australia, driven by high sales per square metre and an obsession with not letting waste and inefficiency creep into our cost structure,” JB Hi-Fi told the Macquarie Bank investor conference earlier this month.

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