JB Hi-Fi is up almost 10% today – has the worst finally passed?

JB Hi-Fi is up almost 10% today – has the worst finally passed?

It’s been a rough year for JB Hi-Fi (ASX: JBH) shareholders after seeing the stock trade above $22.00 in January, only to drop to below $15.00 in recent weeks.

This has come despite a sustained low interest rate environment and clear leadership in its market segment. Despite those industry dynamics, JBH (and much of the retail sector) just hasn’t been able to escape the malaise of low consumer discretionary spend, while battling new competition: the internet.

We have long said that outside of Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) we have considered JBH the best retail business in Australia. Run by a very capable management team, JBH has continually battled a tough environment with profitable store rollouts and a store format which keeps the company’s group cost of doing business the lowest in the sector.

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But as same store sales growth has softened over the past year, the company’s future profitability has been questioned, and JBH has been a target for short sellers.

At today’s annual general meeting, JBH confirmed that same store sales growth in the first half was 2.1% down on the previous corresponding period. However, that trend looks to be turning finally as it also reported that both September and October had returned to positive comparable sales growth. Considering the continued store rollout which includes its JB Hi-Fi Home stores, if this continues the company could finally see its earnings growth restored especially if its margins are maintained.

JBH stated that full year sales guidance would remain as is – which is a plus, as the market was expecting a downgrade soon enough, and our view is that if this momentum is maintained there could be much brighter days ahead.

What do you think, do you believe that JBH has brighter days ahead? Let us know what you think in the comments below.

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