JB Hi-Fi Limited (ASX: JBH) is Australia's sixth largest retailer, having expanded to 177 stores by mid-2013 on its way to a target of 214 stores within the next two to three years.
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.
Sales up
Just this week JB Hi-Fi released pre-audited earnings for the six months to 31 December, 2013. Compared to the corresponding period in 2012, sales are up 6.8%, net profit after tax grew by 10% and like-for-like sales improved by 2.8%. The company has maintained guidance of an increase in sales between 6% and 8% for the financial year ending 30 June, 2014.
If the company is able to achieve that it will represent the tenth consecutive year of sales growth, from $452 million in 2004 to an expected $3.5 billion in 2014. The only downside that could be taken from the announcement was that sales growth was down from 8.1% in the first quarter of the financial year, and 10.3% in the first-half of 2013.
Growth opportunities everywhere
Some commentators have expressed concern over the ability of JB Hi-Fi to continue growing sales and earnings once new store rollouts slow or cease. I'm not overly concerned however, as anyone that heads through a JB Hi-Fi store on a regular basis will realise how impressively quick footed the company is for such a large chain.
In recent years JB Hi-Fi has quickly expanded into almost every conceivable technology field, including cloud storage, eBooks and music streaming. It was also one of the first, if not the first, major Australian retailer to develop a significant online presence. Interestingly, online sales currently account for only 2% of sales but are growing by 30% annually. My guess is that shipping costs aren't popular among JB's discount-focused customers.
In coming years, earnings and sale growth should come from the rollout of new HOME concept stores and the start of JB Hi-Fi's Commercial business that plans to provide products and services to Enterprise and Education clients.
Foolish takeaway
JB Hi-Fi was a great investment in 2013, rising nearly 110% from $9.74 in January to a peak of nearly $23 in November. It's unlikely that the company will deliver a similar return in 2013, but it could easily beat the index if it can deliver the sales and profit growth forecast. Investors are searching for companies that can deliver above-average sales growth and will reward quality companies that can perform well over the long run. JB Hi-Fi is one such company, and although growth may be more restrained in coming years it remains one of the best options in the sector.
