2015 has been a great year so far if you own shares in JB Hi-Fi Limited (ASX: JBH). The chart below shows just how much the retailer has outperformed the S&P/ASX 200 (ASX:XJO) (Index:^AXJO) since the start of 2015 and that doesn't even include dividends.
Source : Google Finance
The share price of JB Hi-Fi received an additional boost following the handing down of the Federal budget in May but has since come back to pre-budget levels. Considering the company has confirmed it is still on track to meet its FY15 guidance, is now a buying opportunity?
Background
JB Hi-Fi is a discount retailer that is rapidly growing via an aggressive store roll-out program. With over 185 stores across Australia and New Zealand, it is one of the leading electrical and home appliance retailers in the country.
Financial Outlook
The company is expecting FY15 total sales to be around $3.6 billion with a net profit after tax (NPAT) of between $127-$131 million. Although sales will be higher than FY14, NPAT could be potentially lower as a result of lower margins. Investors should also be aware that the cost of doing business (CODB) has been increasing steadily over the past five years and although it is still the lowest of all its listed competitors, this will also impact profits.
Sales
JB Hi-Fi's third quarter sales update showed strong sales momentum has continued since Christmas. Comparable sales increased by 6.6% and total sales increased by 8.7%. Although comparable sales in New Zealand declined by 1.1%, the trend is improving and management is expecting better results once the HOME format is rolled out in that market. Pleasingly for management, there was significant growth in the HOME format in Australia, with comparable sales growth of 11.8%.
Store Rollout
JB Hi-Fi has been growing its HOME stores aggressively over the past three years as it looks to grow its share of the home appliances market. The group is targeting 75 HOME stores by the end of FY16 from a base of just eight in FY13. This will help JB Hi-Fi to meet its target of 214 stores across the group in Australia and New Zealand.
Out of Store
JB Hi-Fi has been investing heavily in operations outside of bricks and mortar. The company has seen strong growth in its commercial business and remains on track to meet its long-term sales target of $500 million per year. JB Hi-Fi has also improved its online offering resulting in double-digit sales growth over the past year. Although online sales only make up 2.5% of total sales, the company is confident this will become an important driver of future growth.
Valuation
At the current share price of $19.50, JB Hi-Fi is trading at around 15x FY15's estimated earnings with a fully franked dividend yield of around 4.5%.
So is now a good buying opportunity?
I think JB Hi-Fi shares are still over-valued at the current price. Earnings are expected to be flat in FY15 and it seems the market is already pricing in increased earnings for FY16. I would prefer to keep it on my watchlist until there is evidence that increased sales will lead to increased earnings.
