The Adairs Ltd (ASX: ADH) share price is on watch. The homewares business has revealed huge profit growth in FY21, though FY22 is less certain.
Adairs FY21 result
Adairs told investors that it delivered group sales growth of 28.5% to $500 million. Within that, Adairs sales grew 22%, with online growth of 33.2%. Mocka sales rose 30.9%. Group online sales were $187 million, representing 37.4% of total sales. The HY21 result was particularly strong.
The underlying Adairs gross profit margin increased by 520 basis points to 66.7%.
Underlying group EBIT (EBIT explained) jumped 97.3% to $109.1 million. Group statutory net profit soared 80.7% to $63.7 million. The earnings per share (EPS) increased 79% to 37.7 cents.
Adairs dividend
The retailer decided to declare a final dividend of 10 cents per share, taking the annual FY21 dividend to 23 cents per share.
National distribution centre
Adairs said that the new DHL-operated national distribution centre will be fully operational by the end of September 2021. This is three months later than originally planned, but COVID saw delays in getting building materials and restrictions on the building timeline.
This new asset is a key component of its combined retail and online strategy to enable customers to shop how they want to. This will consolidate multiple distribution operations into a single facility, which will improve stock flow and online fulfilment, increase stock availability and improve service levels for both customers and stores during peak trading periods.
It will support business growth for the next decade. Once transitioned, annual savings are expected to be approximately $3.5 million per year.
Trading update
In the first seven weeks of FY22, group sales were down 11.7%. That breaks down to Adairs store sales down 27% and Adairs online sales up 12.9%. Mocka sales were up 16.1%.
Outlook for Adairs and the share price
Adairs pointed out that the home category represents a large addressable market and the company has the ability to sell to all customers.
The company said that store closures are having an impact on FY22, but the performance online and in regions that have not been significantly impacted gives management confidence.
It’s expecting to again see a strong recovery after stores open.
The gross profit margin is expected to “moderate” in FY22 after record highs in FY21, but remain higher than FY20. The impact of issues like supplier cost increases, increased sea freight costs and a stronger Australian dollar will also have an impact on profit.
The supply chain remains challenging with production capacity and shipping availability both resulting in longer lead teams. Adairs is going to build inventory to better manage its in-stock position.
I think Adairs is a quality ASX share that can pull multiple growth levers to increase profit further, though the short term will be dictated by the lockdowns. It’s one of the retailers I’d want to own for the long-term, particularly if dividends are pretty important to the decision.
