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Here’s why you should pick up JB Hi-Fi Limited shares now

Earlier, I wrote about JB Hi-Fi Limited (ASX: JBH) being close to a market bottom as its JB Hi-Fi HOME format stores and new Apple products could give the retailer a sales boost. At the company’s AGM this week, CEO Richard Murray spoke in more detail about how the new HOME stores are driving sales and the growth potential home appliance retailing has for the company.

Here are several things investors should know going into Christmas and why JB Hi-Fi could surprise the market to the upside.

HOME format stores driving sales

He said there should be about 75 HOME stores by FY 2016, up from 22 currently. These stores have seen better same store sales than its regular stores. To drive savings even more, he said the company is developing a new fit-for-purpose supply-chain logistics strategy for the HOME stores. This will also improve its commercial sales segment, which has seen promising growth recently.

Cost cutting and new products ahead of Christmas

Changes like these may not sound sexy or exciting, but they save money and improve the flow of business and goods. One dollar of savings is one more dollar of profit, so it all adds up. Investors should stay informed about developments like these because they can give you a “heads up” on potential earnings increases in the near future.

For new products, sales are already showing a bump up heading into the Christmas shopping season. In addition to new Apple iPhones and iPads on the market, the release of the new Microsoft Surface tablet and having more stock in X-box One and PS4 game consoles will raise potential sales in the busiest retail period of the whole year.

Market headwinds

The company still has some headwinds. Retail trade remains soft. The rise in the housing market has kept home appliances stable, but TV sales may not be as strong as last year, when analog TV broadcasts stopped and people had to switch over to digital TVs.

Competition will remain strong from Harvey Norman Holdings Limited (ASX: HVN) and a re-listed and reinvigorated Dick Smith Holdings Ltd (ASX: DSH). Cost cutting in the face of pricing pressure will be key.

Company outlook spooks short sellers

Mr. Murray reaffirmed in his speech FY 2015 guidance for around $3.6 billion in sales. That would be a 3.4% gain on FY 2014. In that year, net profit was up a surprising 10.3% when investors were sceptical about earnings growth. Could lightning similarly strike twice this year too?

The share price recently sagged under $15, down from $20 in August. With the sales outlook appearing better, suddenly the stock jumped 9% to $16.10 this week. It is a heavily shorted stock, so this big jump may partly be short covering.

The stock pays a 5.3% yield fully franked, so I think it may be an opportune time to pick up this high-yielding stock at the bottom of market negativity.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.