Why shares of JB Hi-Fi Limited are skyrocketing today

Credit: Peter Heath

JB Hi-Fi Limited (ASX: JBH) has delivered an impressive full-year earnings report today, boosting its share price by a whopping 7.5%. Shares hit a fresh all-time high of $29.43 this morning.

The retail giant, which sells products such as televisions, CDs and Blu-ray discs as well as white goods through its ‘Home’ format stores, reported an 8.3% lift in sales to $3.95 billion.

While that includes the impact of the new stores that were opened during the period (it opened nine and closed two), comparable sales (which mitigates that effect) lifted 5.4%. That implies a strong second half of the year, considering the group’s comparable sales rose ‘just’ 5.2% during the first half of the year. What’s more, it also compares to the more muted 2.9% comparable sales growth recorded in the 2015 financial year, which will no doubt impress investors.

Net profit (NPAT) growth was also stronger in the second half. NPAT and earnings per share (EPS) both grew 11.5% to $152.2 million and 153.8 cents per share, respectively, for the year, with the group also increasing its total dividend by 10 cents to $1.00 per share, fully franked. At today’s share price, that represents a yield of 3.4%, or 4.9% grossed up.

Commenting on the performance, JB Hi-Fi’s CEO, Richard Murray, said: “We had a great finish to the financial year… Particularly pleasing was how we cycled a strong June in the prior year, with good sales driven by tax time buying.”

Here are some other things you need to know from today’s report:

  • JB Hi-Fi had 194 stores in Australia and New Zealand as at 30 June 2016. 59 of these stores were JB Hi-Fi Home stores
  • It expects to open a total of seven stores in FY17
  • In addition to its Home stores, JB Hi-Fi continues to introduce home appliances to its traditional stores
  • Online sales grew 35.8% and represented 3% of total sales – up from 2.4% in FY15
  • Final dividend of 37 cents per share, taking total for FY16 to 100 cents (fully franked)

What’s more, the company also declared it will continue with its on-market share-buyback program in FY17 after purchasing 0.7 million ordinary shares on-market during FY16 (for a total cost of $13.2 million). It said it will repurchase a maximum of 0.4 million shares in FY17, dependent on the price at which the shares trade for during the year.

In regards to its potential acquisition of rival The Good Guys, JB Hi-Fi insisted it is yet to make a decision, nor has it entered into any formal agreement with The Good Guys’ management team.

Should you buy?

JB Hi-Fi appears to have continued its impressive performance at the start of FY17, reporting that comparable sales growth for July was 9.5% with total sales growth up 13.4%. This may have been bolstered by the recent closure of Dick Smith, which bodes well for the sales growth of Harvey Norman Holdings Limited (ASX: HVN) as well.

Given that JB Hi-Fi achieved EPS of nearly $1.54, its shares are now trading on a multiple of 18.8x, with further growth seeming likely over the next 12 months. That doesn’t seem like an overly demanding price to pay, although it isn’t necessarily cheap, either.

Like most other retailers, JB Hi-Fi is susceptible to a pullback in demand if the economy was to take a turn for the worse. I’m not insinuating that will happen, but it is certainly something investors need to bear in mind before buying shares of JB Hi-Fi.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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