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Are JB Hi-Fi (ASX:JBH) shares a buy following the retailer’s FY20 results?

The JB Hi-Fi Limited (ASX: JBH) share price is pushing all-time highs following the release of the retailer’s highly-anticipated FY20 results.

What did JB Hi-Fi report?

The rally was the result of an 11.6% increase in sales to $7.9 billion, up from $7.09 billion in FY19. EBIT was up 30.5% to $486.5 million, increasing the retailer’s margin to 7.2%.

This disparity between sales and EBIT growth is the result of smart cost controls by management during the lockdown period in Australia and New Zealand. Commercial landlords have offered large discounts on leases for certain stores.

With wages expenses also being saved on stores that were forced to be closed, the online sales growth of 143.3% in Q4 more than offset the decrease in physical sales, with JB Hi-Fi’s strong operating leverage allowing it to increase its bottom line significantly.

Looking beyond the numbers

I believe that the success of JB Hi-Fi recently can be attributed to some smart decisions made by management, but also the generous amount of Government stimulus from both JobSeeker and JobKeeper.

Both of these payments will start to decrease in September, so the important question is if the group can sustain these figures and continue growing despite a somewhat grim outlook for Australian consumer discretionary spending.

Buy, hold or sell?

If I were holding JB Hi-Fi shares, I wouldn’t sell out any time soon. However, I probably wouldn’t be a buyer either at today’s price.

I think that people often forget what the outlook was for consumer discretionary prior to the COVID-19 pandemic. I personally think JB shares were slightly overvalued prior to COVID, and if the future cash flows remain the same, it doesn’t change the fundamental value of the share price.

In saying this, JB Hi-Fi has continued to show strength despite strong competition from Ltd (ASX: KGN), the launch of Inc (NASDAQ: AMZN) in Australia, and now a global pandemic.

I have good faith in the management team, but I personally find it hard to buy something at a record high given the uncertain outlook of the industry it operates within.

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Disclosure: At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.
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