The Adairs Ltd (ASX: ADH) share price is rising after providing a solid trading update for FY22.
Adairs FY22 trading update
The company said that there has been long and widespread mandated store closures in New South Wales, Victoria, the ACT and Auckland which reduced store trading days across its network by around 47%. But those store closures are now coming to an end.
For the first 16 weeks of FY22, total group sales were down 8.5% compared to FY21. However, on a like for like basis, which excludes stores when they were closed, total group sales were up 8.2%.
Compared to the first 16 weeks of FY20, total group sales were up 14.6%.
The company then broke down the performance into individual segments. Adairs store sales were down 27.3%, though on a like for like basis sales were only down 3.8%. However, Adairs online sales were up 15%. That meant that total Adairs sales were up 13.7% and Total Adairs like for like sales were up 4.5%.
But then there’s also Mocka, its online-only furniture business. This segment saw 25.8% growth compared to the first 16 weeks of FY21 and 87.6% compared to the first 16 weeks of FY20.
The amount of profit lost during this lockdown period may be impacting the Adairs share price.
Adairs said that the EBIT (EBIT explained) impact of stores being closed is between $12 million to $15 million. The majority of NSW stores re-opened on 11 October 2021. Management said in the first week of those NSW stores being open, they delivered strong like for like sales growth.
Management believes this bodes well for the Victorian metro stores opening in early November, which is an important trading period leading up to Christmas, which includes the November Linen Lover (its membership program) and Black Friday sales events.
Profit margins
Adairs said that the gross margin has moderated from the record achieved in FY21, but is expected to remain above FY20. Global supply chain conditions have led to higher freight costs and other sourcing costs, which are putting extra downward pressure on gross margins.
Summary thoughts on Adairs and the share price
I thought this update was very promising from Adairs. The continuing double digit growth of Adairs online sales and Mocka stands the business for market share gains.
The plan to grow its floor sales area (with more stores and bigger stores) seems like a good plan. It may have lost a lot of store sales, but the signs are encouraging for when all stores are open again.
I think the Adairs share price looks very good value, CommSec numbers suggest it’s valued at just 11 times the estimated earnings for the 2023 financial year.
