JB Hi-Fi Limited (ASX: JBH) has had a fantastic 2019. Shares in the retailer of household electrical appliances have soared more than 50% higher, year-to-date, to $33.92 at the time of writing, and even briefly touched on a new all-time high of $34.80 yesterday.
This year has been kind to many traditional retail stocks, with Myer Holdings Limited (ASX: MYR) and Super Retail Group Limited (ASX: SUL) also posting high double-digit gains. But JB Hi-Fi has outperformed the two of them, leaving Kogan.com Ltd (ASX: KGN) as the only real competitor to have delivered better shareholder returns so far in 2019.
What's the driver for the JB Hi-Fi share price surge?
JB has had a banner year, delivering record sales and earnings. Total sales jumped 3.5% to $7.1 billion, while net profit after tax (NPAT) rose 7.1% to $249.8 million. The fact that bottom-line growth outstripped growth in top-line revenues shows that the company is benefitting from improved margins, particularly in its whitegoods business The Good Guys, which JB acquired in 2016.
Sales through online channels soared in FY19. JB's Australian segment saw online sales grow by 23% to $258 million, while in New Zealand online sales rose by 38.3% to NZ$13.3 million, and for The Good Guys online sales were up 3.7% to $130.9 million.
And although sales generated via the internet now make up a sizeable chunk of JB's total revenues, the company is in no hurry to decrease its traditional bricks-and-mortar presence. It closed one store in New Zealand during FY19, decreasing its footprint there to 14 stores, but opened up 3 new stores in Australia and added another Good Guys store.
In JB's FY19 results announcement, Group CEO Richard Murray made it a point to thank the more than 12,500 team members currently working for JB, describing them as the company's "number one asset and our most important competitive advantage." This goes to show that from the top down, JB is continuing to embrace a strategy of quality customer service and traditional shopfronts – even in an age where old school retailing is being increasingly replaced by ecommerce in the form of Amazon and Kogan.
This hybrid of a strong online presence coupled with traditional brick-and-mortar is obviously delivering rewards for JB. And it's easy to theorise why. For high-end household electrical appliances (like TVs, home speakers, and whitegoods) many customers may prefer the personalised advice provided by a real person in a physical store. Consulting with knowledgeable staff replaces the time and effort involved in doing your own research prior to buying a product. And if you're going to fork out $3000 on a new flat screen, you're probably going to want to see it in person first.
JB's FY20 outlook is for continued top-line growth. The company anticipates total group sales to be circa $7.25 billion, an uplift of a little over 2% on FY19.
Should you invest?
Retail can be a fickle industry. Consumer confidence, macroeconomic forces and increased competition can all act to put downward pressure on revenues, particularly when it comes to higher-end electronics and home appliances.
However, JB has been able to consistently post high profits and deliver strong returns to its shareholders. And the company seems to have adopted a winning growth strategy with the right mix of online and traditional retailing. If you are looking for some retail exposure for your portfolio, it would be pretty hard to find a better or more dependable company than JB.
