Retail shares are underperforming with the JB Hi-Fi Limited (ASX: JBH) share price proving to be a big drag on the sector this morning despite some positive news.
The JBH share price tanked 3% to $24.23 in morning trade – making it the fifth worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index after the Smartgroup Corporation Ltd (ASX: SIQ) share price, Eclipx Group Ltd (ASX: ECX) share price, Sigma Healthcare Ltd (ASX: SIG) share price and Spark New Zealand Ltd (ASX: SPK) share price.
In contrast, the ASX 200 index is rallying 0.5% as sentiment was bolstered by the last night's federal budget, which is considered stimulatory for the Australian economy.
Game-on for JB Hi-Fi
But the good cheer isn't spreading to JB Hi-Fi or its peers. The circa $1,000 to $2,000 tax cut that low to middle income households will receive is unlikely to spur anyone to rush out to buy a new large screen television or other higher ticket discretionary items.
This could be also why the Harvey Norman Holdings Limited (ASX: HVN) share price has slumped 2.1% to $4.06 at the time of writing.
But coming back to JB Hi-Fi, a read-through from the results of US peer Best Buy Co Inc should give shareholders reason to smile, according to Macquarie Group Ltd (ASX: MQG).
"Best Buy (BBY) shares rose +17% following Q4 results above consensus, driven by the surge in popularity of live-streaming games. At JBH's 1H19 result, Gaming Hardware was called out as a significant contributor to growth," said the broker.
"We expect headsets, 4K monitors, consoles and gaming PCs/laptops to continue to drive sales growth for JBH. Console sales growth slowing post-Nintendo Switch hype should be supported by the PS5 release in FY20."
Macquarie estimates that Gaming Hardware and Software (including Gaming) makes up 8% and 7% of sales, respectively, and a 10% lift in this category would be ~1.5% upside at the sales line, with margin likely to benefit further.
Amazon no big threat
Those worried about Amazon Australian beating JB Hi-Fi in this category will be relieved to hear that Macquarie thinks the Aussie retailer can compete effectively against the on-line shopping titan.
"We have compared pricing on a range of products and found that AMZN is cheaper across all key game products than JBH in Australia," said Macquarie.
"However, we believe JBH's strategy of interactive in-store Gaming formats and price-matching will allow them to compete effectively with AMZN. There has been little evidence to date ofAMZN taking significant share in these categories but it remains a risk."
Macquarie had an "outperform" recommendation on JB Hi-Fi with a 12-month price target of $28.80 a share.
