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Wow.
It's not every day that a category-killing retailer that's been at the top of its game for more than a decade grows half-yearly profits by 80%!
Then again, 2020 wasn't exactly an ordinary year.
And the profit growth for June–December was actually 86.2% if you don't mind, off the back of a 23.7% increase in sales.
Online sales grew a phenomenal 162%.
And the share price?
At the time of writing, it was up 0.22%.
No, not 22%
Not 2.2%
Zero. Point. Two. Two. Per Cent.
The reason? Well, JB Hi-Fi Limited (ASX: JBH) had released its sales numbers in mid-January.
And, short of an unexpected splurge in expenses, the market was right to extrapolate that strong sales growth into an even stronger jump in profits.
Still, I was a little surprised JB Hi-Fi shares didn't move higher, given the company boosted its dividend by 81%.
To be fair, valuations are tough to calculate right now.
Companies are (thankfully) not giving guidance, because of the COVID uncertainty.
They'll soon start to cycle on the beginnings of the COVID crisis, as we begin to compare February 2021 to February 2020, then March, April and so on.
Who knows what further lockdowns we might face?
How quickly we're vaccinated, what variants we might face, and how long it takes until the country is effectively fully immunised?
How our consumer behaviours will – and won't – change?
Moreover, for those retailers selling non-consumable products, how many more televisions, fridges, freezers and sofas can we actually buy?
Which is not to say I've turned bearish on those retailers' businesses.
Yes, many of us will go back to the stores in larger numbers in 2021 than we did in 2020.
But many of us will continue to buy online, impressed with the ease, speed and convenience (and often cheaper prices).
That very uncertainty means there are a wide range of business outcomes for JB Hi-Fi and its ilk over the next 12–18 months.
And with it will likely come meaningful share price volatility as investors try to work out how much to pay for them.
The good news is that they don't seem to be getting too carried away, today.
But what happens if (when?) these big retailers turn in slow growth or even sales declines in May, June or July?
It's far from impossible; if your sales grew 20, 50 or 100% (as they did for some online retailers) last year, even if growth was flat this year, that'd be a helluva two-year jump.
And, as I wrote above, if you got your fill of new computers, desks and work-from-home supplies last year, you're probably not going to be replacing it all in 2021.
Meaning that sales declines are in some cases, likely, and in almost all cases, possible.
Which, of course, the market should expect, and so it should take any such news in its stride.
Right?
Well, as I said, it should.
That doesn't mean it will.
The problem is that, right now, we don't know.
I own shares in some retail companies. I'm not selling any, and don't have plans to (though, as ever, I reserve the right to, if circumstances change, and only in accordance with our staff trading policy if I do!).
I might even buy more shares in retail if the opportunity arises.
So this isn't a warning or a suggestion to sell.
But it is a warning that I would be gobsmacked if share prices of COVID-beneficiaries aren't more volatile than usual in 2021.
Volatility is, as I always like to say, the 'ticket to the dance'.
It is to be endured because it can't be avoided, but history suggests it's worth putting up with for the returns that might just be on offer for share market investors.
As ever, knowing what you own, and why you own it, will stand you in good stead.
As will knowing that volatility will strike, often when you least expect it, and having a plan for how you'll deal with it.
My tip: get used to the idea now so that, when it comes, you can shrug, curse it, but avoid doing anything silly.
Remember, investing should be long-term in nature. Think not about May, or even 2021.
Think about how your companies will be performing in 2024, 2026 and beyond…
Fool on!
