JB Hi-Fi Limited (ASX: JBH) is Australia's leading specialty retailer of electronics and branded home entertainment products. Not only is it my favourite store to shop at, it's also one of my preferred retailers that are listed on the local share market.
Here are five reasons to like JB Hi-Fi Limited, and why it could be worthy of closer inspection for long-term investors:
1. Adaptability
At its recent annual general meeting, JB Hi-FI's chairman, Greg Richards, said, "JB Hi-Fi is constantly innovating to ensure that it remains current and relevant to its customers and has a culture of embracing change."
This is not only important but vital in an industry constantly facing change (for example, the rapid rise of internet retailing and changing consumer trends). JB Hi-Fi has consistently done just that, moving from hi-fis to car stereos to music CDs and movie DVDs. It's also embraced 'smart' technology and gaming consoles while it has most recently pushed into the white goods segment through its HOME format stores.
2. White goods
Speaking of its new HOME stores, this has helped the company to enjoy the housing boom, together with fellow retailers such as Nick Scali Limited (ASX: NCK) and Harvey Norman Holdings Limited (ASX: HVN).
Better yet, it also provides a new avenue of growth for the company as a whole. It had 43 HOME stores between Australia and New Zealand as at 30 June 2015 and is aiming for a total of 75 in the coming years. Between 13 and 16 existing traditional stores will be converted to HOME format in the 2016 financial year (FY16).
3. Small Appliances
The company will also begin introducing smaller appliances to some of its traditionally formatted stores, including 22 stores during the first-half of FY16. The group's CEO, Richard Murray, said:
"The home appliances market in Australia is circa $4.6 billion, larger than many of the other categories JB HI-FI operates in. By leveraging our strong heritage in innovation and technology, we see our continued expansion into home appliances and ultimately the connected home as a significant opportunity for JB HI-FI in the future."
4. Low Costs
Compared to a number of its rivals, JB Hi-Fi also enjoys lower cost operations thanks to its heavy focus on productivity and minimising indirect expenditure. That is one of the reasons why the company has managed to maintain strong earnings growth over the last few years while sales have also strengthened. The company also said that store wages remained well controlled during the latest financial year while it maintained a strong balance sheet with interest cover of 33.9 times.
5. Dividend
Like many other retailers, JB Hi-Fi also offers a compelling, fully franked dividend yield. It grew its dividend by a little over 7% during FY16, distributing 90 cents per share, which equates to a yield of 5.2%, or 7.3% when grossed up for franking credits. With interest rates tipped to fall in the near future (possible as soon as tomorrow), that kind of yield looks especially tantalising.
Should you buy?
Australia's retail segment is facing strong headwinds, so an investment in the sector is not without its risks. In saying that, however, JB Hi-Fi's ability to remain relevant, together with its strong balance sheet, do make it somewhat appealing.
At its current price of $17.59, JB Hi-Fi is certainly a company worthy of closer inspection.
