When it comes to retailers, most investors tend to get quite edgy, given the fact that poorer consumer confidence levels in Australia and rising competition from online retailers has battered many domestic companies.
But what's important for investors to understand is that fluctuations in economic performance are just temporary events and it will be just a matter of time before the economy gets back on its feet. Situations such as weaker consumer confidence should be seen as an opportunity for investors to pick up quality companies at a bargain price, and make some sweet returns in the future.
Specialty electronics retailer, JB Hi-Fi Limited (ASX: JBH) is a household name in the Australian retail industry and here are three reasons why I think you should still hold on to your JB Hi-Fi shares, despite recent falls in price.
1. Stronger housing market aids retail sales
While interest rates remain at historically low levels, Australia's housing market has flourished and new home sales are at record highs. This means that retailers such as JB Hi-Fi will benefit from higher sales volumes, given the fact that new home buyers will demand more household goods, particularly white goods.
2. Updated guidance for opening Home stores
What excites me the most is JB Hi-Fi's improved guidance to open more Home stores than initially forecast. Not only does it benefit from greater exposure to the home appliances and white goods market, which is high in demand, it also shows investors that it's expecting strong growth levels, despite many retailers cutting down on store openings.
Additional stores also aids bargaining power with key suppliers ultimately relieving pressure off its profit margins. These Home stores continue to provide quality growth for JB Hi-Fi and will certainly be an important growth driver for many years to come.
3. Earnings remain resilient despite a weaker retail industry
Even though many companies such as The Reject Shop Ltd (ASX:TRS) have downgraded earnings and sales guidance, JB Hi-Fi remains on track to achieving solid earnings growth. Earnings growth guidance for FY 2014 has been recently reaffirmed at 8.3%-10.8%. This reflects JB Hi-Fi's quality business model and proves to investors that it won't go down without a fight.
JB Hi-Fi seems to offer some very promising long-term tailwinds that have the potential to extend its exceptional track record. Trading on a cheap price-to-earnings ratio of 16 and offering a fully franked juicy dividend yield of 3.8%, JB Hi-Fi sits on some cheap fundamentals and I think it's a stock to hold onto forever.
