JB Hi-Fi Limited (ASX: JBH) has put investors through a rollercoaster ride since listing on the ASX in late 2003. The company's share price hit nearly $17 at the peak of the pre-GFC boom in 2007, before plunging to around $8.50 in 2008 and then strongly recovering in 2009 to hit its all-time high of just over $23 towards the end of that year. Between 2009 and mid-2012 the share price drifted down to $8.20 before having yet another incredible year in 2013, returning over 130% to finish the year at around $21.
Financial history
Since 2004, the company has been able to grow earnings per share every year with the exception of 2012, and has been able to deliver a return on equity of over 40% for the past five years, an exceptional effort.
Debt levels have fluctuated wildly over time, as investment in stores and new sales initiatives changed from year to year, but with more difficult trading conditions in recent years, JB Hi-Fi has taken the prudent approach to pay down debt from a peak of $232 million in 2011 to $120 million in June 2013.
The company has also shown the ability to consistently and sustainably grow revenues through new store rollouts and an expanded service offering. Revenue has grown every year since 2004, when it was $452 million, to over $3.3 billion in 2013.
2014 outlook
JB Hi-Fi has positive momentum going into 2014. The company delivered sales growth of 10.3%, like-for-like sales growth of 3.2%, and margin growth of 0.2% to 5.4% in the first half of 2013, and by all reports the second half of 2013 delivered similar results. For the third quarter of the 2013 calendar year (first quarter of the 2014 financial year) sales increased 8.1% and like-for-like sales (which exclude new stores) increased by 2.9%.
In the 2014 financial year, JB Hi-Fi expects sales to improve by between 6% and 8% as 12 new stores will open to take the total to 189 stores.
On consensus 2014 earnings, JB Hi-Fi's price-to-earnings ratio is a tad over 16 which is a little above the current market and sector, and the company's long-term average.
Growth ambitions
Some commentators have questioned the group's ability to grow sales organically once the store number reaches the target of 214, in around three years' time.
Aside from expanding into almost all conceivable technology fields, including cloud storage, eBooks and music streaming, the company is starting to roll out it's HOME concept stores and attempting to build a JB Hi-Fi commercial brand which will deliver products and services to Enterprise and Education clients. These initiatives, if executed well, will allow sales and earnings to grow for the foreseeable future.
Foolish takeaway
This Foolish investor had his doubts about JB Hi-Fi as recently as six months ago, but the company's management team has continued to deliver impressive results despite the threat from online and overseas rivals. The lower Australian dollar should be mildly supportive, as although overseas rivals become more expensive to consumers, buying stock also becomes more expensive for JB Hi-Fi. In the medium term I expect store rollouts to continue adding to earnings and sales, while the successful or otherwise delivery of organic growth opportunities will impact like-for-like sales growth. Margins should also benefit from an increase in online sales, which currently account for only 2% of sales but are currently growing at 30% a year. The dividend yield of 3.7% is a nice little bonus too.
