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.
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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. 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 Scott Phillips.