Adairs share price drops 4% despite record full-year sales

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The Adair Ltd (ASX:ADH) The stock price drops after the home goods retailer reported its results for fiscal 2022.

The stock continued to dive after opening down 2.35% at $2.49. Adairs stock price is currently trading at $2.44, marking a decline of 4.31%.

Adairs share price plummets despite 13% increase in sales

Here are the key takeaways from the retailer’s annual earnings:

  • Revenue increased 12.9% over the prior comparable period (pcp) to a record $564.5 million
  • Net income after tax (NPAT) fell 29.6% to $44.9 million
  • Underlying earnings before interest and taxes (EBIT) fell 30% to $76.4 million
  • Online sales accounted for about 35% of sales, or $195.4 million, or 4.5% more than in pcp
  • Ended the period with net debt of $93.2 million
  • Issued a final dividend of 10 cents per share, bringing its payout for the full year to 18 cents

Adairs battled COVID-19-induced store closures in FY22, losing about 16% of trading days in the first half. However, the new acquisition of Focus on Furniture and its Moka brand bolstered the company’s results.

Adairs’ core retail business saw sales fall 4.8% to $418.7 million in the 12 months to June 26, while Moka’s rose 6.5% to $64.1 million despite a disappointing second half. Focus on Furniture grossed $81.7 million in the seven months that Adairs owned the brand.

The company’s gross margin also fell to 63.2% due to higher supply chain costs and greater promotional activity, born of a more competitive market.

Adairs had one million paying Linen Lover members, which accounted for 80% of sales, at the end of the fiscal year.

What else happened in FY22?

Of course, the great novelty of the brand for the 2022 financial year was its acquisition of Focus on Furniture.

The acquisition valued the bulky furniture business at $80 million. Adairs stock price rose 4% on its announcement.

The company also finalized its earn-out agreement with the founders of Mocka during the period.

What did management say?

Adairs Managing Director and CEO Mark Ronan commented on the company’s earnings saying:

Fiscal 2022 produced a new record level of sales following the acquisition of Focus. This comes despite widespread store closures due to COVID and reflects the strength of our omnichannel model.

Significant operational disruptions related to COVID-19… impacted the group’s cost base and meant that this growth did not translate into increased profits.

The majority of these costs are not expected to carry over to future years and although a number of macroeconomic headwinds have emerged in recent months, we believe this more challenging environment will favor companies such as Adairs, Mocka and Focus, all of which offer a strong value proposition to the large, growing mid-market consumer.

And after?

Excitingly, Adairs expects sales growth to continue in fiscal 2023.

The company expects to post between $625 million and $665 million in revenue this fiscal year. This represents a potential increase of 17.8% year over year. It also expects $75-85 million in EBIT and $12-15 million in capital investment.

The company also provided a business update for the first seven weeks of FY23.

Its unaudited sales increased 44.8% over the period compared to pcp. If we exclude the sales of Focus on Furniture, it shows an increase of 3.9%.

Adairs Share Price Overview

Adairs stock price has been in a rough trot lately.

It has fallen almost 39% since the start of 2022 and is currently 33% lower than this time last year.

For comparison, the Index of all ordinaries (ASX:XAO) has slipped 8% year-to-date and 6% over the past 12 months.

Sallie R. Loera