The JB Hi-Fi Limited (ASX: JBH) share price has lifted 3% to $25.14 in morning trade after the group reported that the JB Hi Fi group's (excluding the Good Guys) comparable sales for the quarter ending March 31 2017 were up 8.2% over the prior quarter.
Its recently acquired Good Guys electronic goods business also posted positive same-store sales growth for the quarter with its total sales growth up 2.6%.
The group continues to enjoy a dominant market position within the electronic goods sector in Australia thanks to the lack of physical storefront competition in part due to the recent failure of Dick Smith.
As a result JB Hi-Fi today reconfirmed that it expects to post an underlying profit between $200 million to $206 million on revenues around $5.58 billion for the full year ending June 30 2017.
If achieved this would represent a giant 31.4% to 35.4% uplift in underlying profit over the prior year with the group's shares changing hands for 16x last year's total of $1.54 in earnings per share. This looks cheap on a price-to-earnings-growth ratio of around 0.5 with a 3.9% trailing dividend yield alongside the tax effective benefits of fully franked dividends.
So should you buy?
JB-Hi Fi appears to be a well run company on an attractive valuation, although investors are forward-looking and the market is nothing-but-neurotic over the imminent arrival of giant U.S. electronic goods retailer Amazon Inc. in Australia.
Amazon is reported to be now planning its move into Australia, but is not expected to be fully operational until the end of 2018. Its business-model generally involves undercutting competition on price and this means JB Hi-Fi's margins and market share are likely to come under pressure over the long term. However, JB Hi-Fi has plenty of time to work out how best to deal with this looming competitive threat and for now is still posting impressively strong same-store sales growth.
Of course nobody knows exactly Amazon's intentions Down Under or how successful it will be in winning business, but if it's track record in the U.S. and overseas elsewhere is anything to go by it's likely to be a serious threat to JB Hi-Fi's profit growth potential.
Still I think JB Hi Fi's current valuation look reasonable given its market position, although it's possible the shares will continue to come under selling pressure as Amazon's arrival and the associated hype grows closer and larger.
Other retailers likely to be in the firing line via increased competition in the consumer goods space include Myer Holdings Ltd (ASX: MYR), Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW).
As it is continuing to post big same-store sales growth I would prefer JB Hi Fi as the best investment option out of all these retailers, although you might be best off avoiding the retail sector for now to focus on other opportunities….
