Shares of JB Hi-Fi Ltd [ASX:JBH] fell 1.5% Tuesday, after poor consumer confidence figures, and the company began buying back its stock as part of the company’s previously announced buyback program.
According to the ANZ-Roy Morgan weekly consumer confidence survey, consumer confidence has dropped to the lowest level since 2009. The commentary suggests that this is a knock-on effect from the recent Federal Budget.
Any negativity from consumers could have a direct impact on sales at discretionary retailers such as JB Hi-Fi. If consumers slow or stop spending on music or video it could result in a sales and profit slowdown for the company. And that could be bad news for the share price.
Even the recently announced $27 million share buyback program may not be enough to bolster the company’s share price.
On the first day of buying back stock the company bought back 40,000 shares. Under the terms of the buyback the company will cancel those shares. However, the shares had rallied in the days following the announcement, and are now settling back to the price level from before the announcement.
Free Reports:
A share buyback is just one of the ways that a company can return value back to shareholders. By buying back stock and cancelling the shares it reduces the number of shares on issue. The consequence of this is that the remaining shares and shareholders now ‘receive’ a greater share of the company’s profits.
This should result in an improvement in the company’s earnings per share (EPS), and should also result in an increase in dividends paid per share (DPS) as there are now fewer shares on issue for the company to divide the total dividends.
However, if consumers aren’t spending enough at JB Hi-Fi stores even a multi-million dollar buyback may not prevent the shares from going lower.
Cheers,
Kris+