Harvey Norman (ASX: HVN) said at its AGM that sales momentum is holding up. Harvey Norman’s and JB Hi-Fi’s (ASX: JBH) core Australian businesses are enjoying solid demand for consumer electronics and home appliances. Sales are increasing by midsingle digits at Harvey Norman and JB Hi-Fi in fiscal 2026 year-to-date.

Why it matters: We expect cyclically stronger consumer demand for technology and lifestyle goods like laptops and furniture in fiscal 2026. For the first time in years, more consumers are optimistic than not. This sentiment is buoyed by rising real incomes and recent interest rate cuts.

  • For Harvey Norman, we estimate Australian franchise sales to increase by 8%, then ease toward durable sales growth of 3% per year by fiscal 2028. We forecast long-term sales growth to be underpinned by population growth and lower-than-average inflation, typical for consumer electronics.
  • For JB Hi-Fi, we forecast group sales growth of 5% in fiscal 2026. Solid sales at JB Hi-Fi are dragged down by relatively weaker growth at the smaller chain, The Good Guys. Long term, we estimate group sales to increase by 3% per year.

The bottom line: We materially increase our fair value estimates for no-moat JB Hi-Fi and Harvey Norman by 25% to $57.00 and 12% to $5.50, respectively. Our earnings forecasts are unchanged, but we lower the our cost of equity as strong balance sheets dampen some inherent cyclicality.

  • JB Hi-Fi was in a net cash position as of June 2025, reducing its cost of equity compared to more risky, financially geared retailers. While Harvey had AUD 0.6 billion in net debt, we now ascribe it to its AUD 4.5 billion in property assets, leaving its retailing operations implicitly ungeared.
  • Shares in both JB Hi-Fi and Harvey Norman are expensive, despite lowering their respective weighted cost of capital to 9.0% from 11.0% and to 8.5% from 9.0%. We believe the market expects significant margin expansion at both retailers, while we expect competition to constrain margins.

Harvey Norman’s strong balance sheet commands a lower cost of equity

Harvey Norman predominantly sells commoditized branded electronics, such as televisions and computers, home appliances, and furniture. We expect the growth of the Australian consumer electronics market to lag overall consumer spending because of constant deflation driven by intense competition. Headwinds continue to mount as internet research and price comparisons threaten Harvey Norman’s brick-and-mortar peers. In the core Australian market, Harvey Norman must compete on price with online offers, despite offering its customers in-store service and advice.

Behavioral changes following the pandemic have driven even more consumers to the online channel, in which Harvey Norman has a relatively weak platform in Australia after years of neglect. However, Harvey Norman has recognized the importance of e-commerce in meeting customer expectations, and is assisting its Australian franchisees in implementing their online-to-offline, or O2O, strategy.

Retail property ownership has been a preference for Harvey Norman and its property portfolio is valued at around $5 billion. The company continues to view ownership as providing income security. We take a different view, and would prefer this capital to be reinvested in growth opportunities or returns to capital shareholders.

We expect the benefits from owning retailing property are eroding. Strong Australian e-commerce sales growth from an already meaningful base—over 15% of all retailing is transacted online—is likely to drive declining brick-and-mortar sales industrywide. Even if Harvey Norman’s brick-and-mortar channel posts real sales growth, soft sales at physical stores overall, are likely to weigh on demand for floor space, and weakening property valuations over time. We expect the rising interest-rate environment to put downward pressure on the book value of Harvey Norman’s property portfolio as capitalization rates gradually adjust.

JB Hi-Fi’s strong balance sheet commands a lower cost of equity

JB Hi-Fi is one of Australia’s largest retailers, having built a strong brand and market leadership in the consumer electronics industry after the demise of smaller players and, more recently, major competitor Dick Smith Electronics. Australians have been quick to adopt the latest technology during the past decade, thanks largely to high employment and low interest rates.

Competitive advantage comes from JB Hi-Fi’s low-cost business model, similar to listed US peer Best Buy. Price deflation and intense competition are longer-term risks. Stores typically break even in just less than a year, with mature stores on average contributing over $20 million in sales. The business doesn’t run warehouses and holds all stock at the store level, minimizing storage and transport costs; The Good Guys’ big and bulky goods distribution centers are transitioned into group home delivery centers. The business model requires high turnover and foot traffic to compensate for low operating margins on consumer electronics, home appliances, and software. Despite this, we still don’t think the business carries an economic moat.

Consumer electronics are commoditized products, and technology keeps converging. JB Hi-Fi needs to offer appealing incentives to attract mobile phone customers, given the highly fragmented market. Consumer electronics margins will also be affected by price deflation resulting from intense competition. Management openly advertises that its employees are incentivized and can often sell at cost to close a deal, sacrificing gross margin.

Get Morningstar insights in your inbox

Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.