Adairs Ltd (ASX: ADH) has announced impressive growth in its FY20 result today despite the COVID-19 store closures.
Adairs is a home furnishings retailer across Australia and New Zealand with a national footprint of stores as well as an online store.
Adairs FY20 result
Adairs revealed that its group sales were up 12.9% to $388.9 million. This was achieved despite nationwide store closures in April and May 2020 and the closure of the New Zealand online business across March and April 2020.
Adairs sales increased by 4.5% with online growth of 61.4%. However, total store sales dropped 7.3% due to the closures. When only counting when stores were open, like for like sales were up 3.9%. Mocka sales grew by 50.2%.
Group online sales amounted to $124.2 million, accounting for 31.9% of total sales.
Adairs said its underlying gross margin improved by 226 basis points (2.26%) to 61.4%. Management said that Mocka’s performance – which it acquired in December 2019 – is well ahead of expectations with sales and EBIT (click here to learn what EBIT means).
The business’ overall underlying EBIT rose by 39.7% to $60.7 million. Statutory net profit increased by 19% to $35.3 million and profit/earnings per share (EPS) rose by 17.3% to 21 cents.
Adairs said that its inventory was down 18%. It said the inventory is clean and the stock turns have improved.
Adairs balance sheet and dividend
Adairs announced a final dividend of 11 cents per share, which represents 72% of the underlying net profit of the second half. This is after the decision to cancel the dividend of the FY20 first half.
Adair’s net debt improved by $7.2 million to $1 million at the end of FY20, which includes $48 million of debt to buy Mocka.
Outlook
Whilst its stores are closed in Melbourne, it’s expecting a significant increase in online sales there. There have been 43 stores that have been forced to close.
For the first five weeks of FY21, sales have been ahead of FY20. Adairs online sales were up 103.2%, Mocka sales were up 46.8% and like for like store sales were up 15.8%.
Construction on its national distribution centre is underway with annual savings of $3.5 million per year expected from FY22. This building is expected to support growth for the next 10 years.
This was clearly a strong result from Adairs. It will be interesting to see if the strong growth continues for the rest of FY21, or whether it was just government stimulus that supported the business. It’s a quality retailer, but I’m not sure it’s a buy today considering the uncertainty. There are other ASX growth shares and ASX dividend shares I’d think about first.
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