It has been a very disappointing day of trade for the Adairs Ltd (ASX: ADH) share price.
In afternoon trade the homewares retailer's shares are down a sizeable 7.5% to $1.89 following the release of its half year results.
What happened in the first half?
Despite its exposure to a weakening housing market, Adairs delivered an impressive half year result this morning.
For the six months ended December 31, Adairs posted a 10.6% increase in sales to $164.4 million.
This was driven by a 7.3% increase in like-for-like sales and the addition of four new stores to its network, bringing the total to 166 stores.
Its like-for-likes sales growth was especially pleasing given that it was cycling like-for-like sales growth of 14.8% in the prior corresponding period.
Another driver of its top line growth was its online business. Online sales continued to grow strongly, rising 42% to $24.3 million in the first half. This means they now account for 15% of total sales.
On the bottom line Adairs posted a 9.1% lift in net profit after tax to $14.9 million or a 8.7% increase to 9 cents per share.
And following the decision of the board to amend the company's dividend policy and increase its payout ratio to between 60% and 85% of net profit after tax, it declared an interim dividend of 6.5 cents per share fully franked. This is an increase of 18% on last year's interim dividend.
Pleasingly, the company has had a positive start to the second half and reported like-for-like sales growth of 7.1% for the first seven weeks.
So why have its shares sunk lower today?
Given its strong performance in the first half, increased dividend, and positive start to the second half, investors will no doubt be surprised to see its shares sink lower today.
The reason for the decline appears to have been a downgrade to its full year guidance. For the full year, management expects sales between $340 million and $355 million, a gross margin between 59% and 61%, and EBIT between $46 million and $50 million.
Whereas the last guidance it gave in late November was for sales between $345 million and $360 million, a gross margin between 59% and 61%, and EBIT between $47.5 million and $51.5 million.
Management explained that: "The moderation of our EBIT guidance range relates primarily to the expected impact of the depreciating AUD and a potentially more challenging consumer environment."
Should you invest?
Although the downgrade to its guidance was disappointing, I think the selling of its shares has been severely overdone.
If they were trading on sky high multiples I could understand, but at present you can pick up Adairs' shares for just 10x trailing earnings. Furthermore, they currently offer a trailing 7.7% fully franked dividend.
I think this makes them great value and well worth considering along with fellow retailers Accent Group Ltd (ASX: AX1) and Super Retail Group Ltd (ASX: SUL).
