The Adairs Ltd (ASX: ADH) share price is down around 5% after the homewares retailer announced its FY22 result and gave FY23 guidance.
Adairs FY22 result
Here are some of the highlights from the result:
- Total sales rose 12.9% to $564.5 million, which included $81.7 million of Focus on Furniture sales over seven months after the acquisition
- Like for like sales were down 2% after cycling record FY21 sales (FY21 LFL sales grew 16.5%)
- Adairs online sales were down 1.5% (FY21 Adairs online sales were up 33.2%) and store sales were down 6.1% year on year
- Mocka sales increased 6.5%
- Total underlying EBIT (EBIT explained) fell 30% to $76.4 million
- Net profit after tax fell 31.5% to $51.6 million
Adairs said that its cost of operations increased 8.3% due to one-off COVID-related warehouse inefficiencies, lower COVID rent rebates, higher salary and wage costs to support employees during store closures and continued investments in its team, marketing and digital initiatives.
Management said a number of these costs were COVID-related and shouldn’t be repeated in the medium-term.
During the year, Adairs opened four new stores and upsized eleven stores, resulting in a 7% increase in store floor space as measured by gross lettable area (GLA).
Mocka had a “disappointing” year, with second half sales down compared to the plan, as a result of “supply chain interruptions” and “isolated product issues” which led to “adverse customer feedback and returns.” Both issues have now been addressed, with recent trading and customer feedback confirming increasing customer confidence. Management think the opportunity for Mocka in Australia is substantial.
Focus on Furniture
During the year, Adairs bought Focus on Furniture for a debt-free value of $80 million. It’s expected to add at least 10% to earnings per share (EPS) in FY23.
Management plan to grow the business in a number of different ways including opening at least 30 new stores, growing online sales, product category and range expansion and a store refresh program.
Dividend
Adairs’ board declared a final dividend of 10 cents per share, taking the total dividend payout to 18 cents per share, being 68.6% of FY22 net profit.
Guidance and trading update
Adairs said that it’s well placed to get through the current economic conditions. It pointed out that customers want well-positioned middle market brands with strong value propositions. The retailer said it has low average selling prices across its brands and a large total addressable market.
Its vertical integration provides direct control over supply and pricing, delivering higher initial margins.
With a full year contribution from Focus ongoing improvements at Mocka and Adairs continuing to “execute”, the company expects to grow both sales and EBIT.
FY23 sales are expected to be between $625 million to $665 million, while group EBIT is expected to grow to between $75 million to $85 million. It expects to open between four to six new Adairs stores and two or three new Focus stores in FY23.
In the first seven weeks of FY23, Adairs said that things are going to plan at its stores, while Focus stores are “ahead of plan”. Online sales are lower, but that’s because all stores are open. Group sales were up 44.8% compare to FY22 including Focus, and up 3.9% excluding Focus.
My thoughts on the Adairs share price
Considering the economic difficulties and falling share prices, it’s probably not surprising that Adairs has fallen 40%.
I think it looks like an attractive long-term option, particularly with its large dividend yield. The FY22 dividend yield is 10.9% including franking credits. It’s not the greatest quality business out there, but I think the low price is low enough to deliver good returns over the next few years.
