Is JB HiFi going to do a “Steve Bradbury”?

Steve Bradbury was an Australian short track speed ice skater who won the 1000 metre event at the 2002 Winter Olympics when all of his opponents crashed at the last corner.

He only made the final after finishing third in the quarter finals, when the defending world champion was disqualified from the final. His tactic during the final was to cruise behind his opponents, and hope they crashed, as they would be taking greater risks to try to win, and he reasoned that they could crash.

It appears that JB HiFi’s competitors are also crashing, with recent news that Retravision Southern may slide into administration. Retravision Southern is the buyer and marketing company for 99 privately owned Victorian and Tasmanian Retravision stores.

Just last week Game Australia went into administration, following its UK parent. The company has 92 stores around the country.

With Woolworths (ASX: WOW) jettisoning its Dick Smith Electronics arm, Myer Holdings (ASX:MYR) reducing its electronic product lines and Harvey Norman (ASX:HVN) struggling, JB HiFi could end up being the last man standing, at least in terms of consumer electronics.

This is all good news for JB HiFi, and with the Australian dollar falling to below parity against the US dollar, that’s a bonus. All those on-line purchases just got a little bit more expensive.

While the company will struggle in the short-term due to weak consumer spending and heavy discounting of products by failing stores — with competitors falling like flies, the medium to long-term looks much better for Jb HiFi. Trading on a trailing P/E of 9.2 and paying a fully franked dividend of 8.5%, it looks attractive.

Disclosure: I own shares in JB HiFi.

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3 Responses to Is JB HiFi going to do a “Steve Bradbury”?

  1. T-rev says:

    I don’t get this bit as a huge benefit:
    “This is all good news for JB HiFi, and with the Australian dollar falling to below parity against the US dollar, that’s a bonus. All those on-line purchases just got a little bit more expensive.”

    The goods JB HiFi sell are nearly exclusively imports, most ill be denominated in USD, surely their costs of good will increase as well “making their purchases just a little more expensive” They suffer from a lack of structural reform in the retail sector to allow them to compete with their overseas rivals. They will also suffer, unless protectionism rears it’s ugly head and burdens us all.

    • surfingmike says:

      Hi T-rev,
      Most imports are from China and Asia – so will be denominated in Asian currencies not USD. You are right though in that a falling AUD will make JB’s imports slightly more expensive, but the most important point in my view, is that a falling AUD makes buying from US or UK sites more expensive for consumers, therefore they are more likely to shop locally rather than online. It’s not a huge benefit, but a bonus.

      I’m not sure what you mean by structural reform. The biggest issue faced by Australian retailers is differential pricing by overseas manufacturers. E.g. Sony may sell TVs to JB at higher prices that it will to US retailers. Levi 501’s cost US$40 in the US but A$100 in Aus, and that’s the manufacturer adding most of the margin. That’s why JB has introduced direct importing, by negotiating cheaper prices directly with the manufacturers. At the moment it’s just cameras, but I expect it to be many more products in future.

      Cheers
      mike

  2. Ken says:

    Got news for you Mike. Almost all Asian companies operate in US$. I worked as a buyer for many years and never once found a company in Asia that wanted to be paid in their own currency. Further, the falling value of the Australian dollar does have the effect of reducing our buying power, but the prices in USA in particular, are so much lower than here, it is still a bargain.

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