Comments on: JB Hi-Fi When 29% Growth Isn’t Enough

By: Peter

Peter — Mon, 08 Feb 2010 23:00:04 +0000

My reaction to JB without Richard will be the same as FLT without Skroo.

I used to live in Melb, the birthplace of JB. Back nearly 17 years ago, JB was already legendary. Why cant other retailers emulate it? Well, same things as why FLT model cannot be emulated. JB wins on a combination of selection, prices and staff knowledge/culture (the staff knows and loves their stuff. You can launch into geek talk anytime). The culture comes from top down. I am not quite sure whether the model can be replicated overseas. If I am convinced it can be replicated overseas ala FLT, then JB is priced attractively.

The advantage of JB is now even stronger because the poor and skinned uni student who grew up with it is now a high income earning professional yearning for entertainment, gadgets and toys.

Bandwidth/internet is a challenge, but consumer trends dont change overnight. Plenty of time for JB to adapt. Witness the iPhone/itunes trend, and how JB uses it to its advantage. The next adaptation is console games. The gaming and entertainment industry is massive.

By: Dean Morel

Dean Morel — Mon, 08 Feb 2010 20:48:49 +0000

I think Montgomery may subscribe to the Lynch philosophy of growth, i.e. it is better to pay considerably more for a company with good growth. Due to compounding that is a great strategy. There is no doubt that JB Hi-Fi has an excellent model. What I find hard to understand is why other retailers can’t emulate it. I’d certainly be very interested at $18, but right now it’s not cheap enough for me to swing at. The best I can say about JB, is it looks cheap in comparison to the market.

By: Sean

Sean — Mon, 08 Feb 2010 18:50:20 +0000

Richard Uechtritz said they have another 5 years of growth and that the current 122 stores could potentially expand to 250. He was the CEO for the last 10 years so I think him resigning is a material risk.

As you say, their peak growth is probably behind them. The PE, now at 20 is not that expensive for a growth stock. Retail is a tough area, although their model is a good one. I popped into a JBH store for the first time around Christmas last year and was impressed by their range, volume and staff.

I’m not sure if I agree with Richard Montgomery’s valuation on it. I thought about getting it with a tight stop when the uptrend was still in place but decided against it. I think WOW is better value currently at a market PE. Even WOW has lost some direction with their store strategy in the last 2 years however.

JBH might be worth buying into the current correction as a swing trade, however as the bottom of the correction is hard for me to identify, I would tend to stand aside and see where it settles (my best guess 18-19). I actually don’t have that much confidence in the underlying business model so will probably avoid. I feel the major long term problem is it is so shopping mall based for volume traffic and this is not where the future of retail is. I reckon the DVD sales will decline with internet bandwidth and they don’t have the floorspace to expand into hardware to compensate.

If Officeworks used a JBH approach, that would be a category killer.