Down 16% in June: What put the JB Hi-Fi share price on sale?

Investors knocked almost a fifth off the price of this ASX retail share.

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Key points

  • Investors turned negative on JB Hi-Fi shares in June
  • Experts are now worried that the worsening economic conditions will hurt sales and demand
  • However, the latest update showed ongoing sales growth by the retailer

The JB Hi-Fi Limited (ASX: JBH) share price was not spared during the sell-off in June. It fell over 16%, while the S&P/ASX 200 Index (ASX: XJO) dropped about 9%.

It was a big fall for the ASX 200 in one month, but it was an even bigger drop for the ASX retail share.

Despite the decline of more than 25% since the end of April 2022, JB Hi-Fi shares have only just gone lower than where they were before the COVID-19 crash in 2020.

The operator of The Good Guys stores, as well as JB Hi-Fi stores in Australia and New Zealand, has seen a lot of sales through its doors (and online) over the past two years. However, investor sentiment has turned against the business in the backdrop of high inflation and rising interest rates.

What happened in June?

The retailer didn’t release any market-sensitive news to investors during June. The last operational update came in May, which I will recap in a moment.

However, one of the main things that did happen in June was that the Reserve Bank of Australia (RBA) decided to increase the interest rate by 50 basis points, or 0.5%. That’s a large increase in one month, though the RBA did it again yesterday.

As a retail business, some investors may be thinking that there could be less demand for products sold by JB Hi-Fi.

For example, Macquarie is feeling pessimistic about the outlook for the retail sector, though acknowledges that JB Hi-Fi is high quality in the industry. It pointed out that households have already bought a lot of household products during COVID, so demand here could reduce.

The broker UBS has similar thoughts, noting the increasing costs in numerous areas that households are now facing, which will make it a tougher environment for the ASX retail share.

The UBS price target is now $38 on the JB Hi-Fi share price, while the Macquarie price target for the ASX retail share is $40.90.

Latest sales update

While the following figures are essentially old news considering the inflationary environment, it’s worthwhile pointing out that JB Hi-Fi was still achieving growth.

The ASX retail share said that in the third quarter of FY22, JB Hi-Fi Australia sales were up 11.9% year on year, JB Hi-Fi New Zealand sales were up 4.8% and The Good Guys sales went up 5.5%.

It also said that the aforementioned sales momentum had continued into the fourth quarter in April. However, the company warned that it was still seeing disruption to stock availability and operations because of COVID-19 and other local and global uncertainties.

The company points to four competitive advantages that it has – scale, a low-cost operating model, multichannel capability and its people and culture.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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