Why Adairs (ASX:ADH) stock price drops 17% today

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Key points

  • Adairs had a difficult first half due to the impacts of COVID-19
  • While its sales were largely flat, its profits nearly halved
  • Gross margin impacts from supply chain cost increases also weighed on Adairs’ performance

In the morning discussions, the Adair Ltd (ASX:ADH) The stock price tumbled after a first-half trading update was released.

At the time of writing, shares of the furniture and home goods retailer are down 17% to a 52-week low of $3.15.

Adairs share price slumps amid near-halving first-half profit

  • Group sales were broadly stable at $242 million, including a contribution of $12.5 million from the acquisition of Focus on Furniture.
  • Like-for-like revenue growth of 2.7% adjusted for closures
  • Online sales growth of 8.2% to $97.6 million
  • Underlying earnings before interest and taxes (EBIT) down between 45% and 47% to $32 million at $33 million

What happened during the first half?

Adairs had a mixed first half through fiscal 2022. Although its sales were broadly in line with the previous corresponding period, a slump in its margins saw its profits nearly halve.

Management notes that government-mandated store closures have reduced the total number of in-store selling days by approximately 31%. This is estimated to have reduced Adairs’ sales by $30 million to $36 million and EBIT by approximately $14 million to $18 million during the six-month period.

Gross margin pressures also weighed on Adairs’ earnings. The company revealed that it had been affected by increases in global supply chain costs, higher delivery costs for online customers and additional promotional activity. One bright spot, however, is that its gross margin remains well ahead of the first half of fiscal 2020, which predated the pandemic.

Management commentary

Adairs CEO and Managing Director Mark Ronan seemed somewhat pleased with the company’s performance given the significant disruption it was facing.

He said: “During the six months, despite significant operational disruptions, we made progress in advancing our strategic priorities by commissioning our new national distribution center, expanding select stores, continuing to expand our range and strengthening our omnichannel capabilities. We also built our portfolio of vertical omnichannel brands by bringing forward the finalization of the acquisition of Mocka and by finalizing the acquisition of Focus on Furniture. The progress we have made against these priorities gives us confidence in the Group’s growth prospects.

Adairs will publish its half-year results on February 21.

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