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Key points
- Adairs had a tough first half due to COVID-19 impacts
- While its sales were largely flat, its earnings almost halved
- Gross margin impacts from supply chain cost increases also weighed on Adairs' performance
In morning trade, the Adairs Ltd (ASX: ADH) share price has crashed lower following the release of a first half trading update.
At the time of writing, the furniture and homewares retailer's shares are down 17% to a 52-week low of $3.15.
Adairs share price crashes amid near halving of first half profit
- Group sales broadly flat at $242 million including $12.5 million contribution from Focus on Furniture acquisition.
- Like for like sales growth of 2.7% adjusted for closures
- Online sales growth of 8.2% to $97.6 million
- Underlying earnings before interest and tax (EBIT) down between 45% and 47% to $32 million to $33 million
What happened during the first half?
Adairs had a mixed first half to FY 2022. Although its sales were largely in line with the prior corresponding period, a collapse in its margins saw its earnings almost halve.
Management notes that government mandated store closures reduced the overall number of store trading days by ~31%. This is estimated to have reduced Adairs' sales by $30 million to $36 million and EBIT by ~$14 million to $18 million during the half.
Also weighing on Adairs' earnings were gross margin pressures. The company revealed that it has been impacted by global supply chain cost increases, higher delivery costs to online customers, and additional promotional activity. One positive, though, is that its gross margin remains well ahead of the first half of FY 2020, which was prior to the pandemic.
Management commentary
Adairs' CEO and Managing Director, Mark Ronan, appeared somewhat pleased with the company's performance given the significant disruptions it was facing.
He said: "During the half, despite significant operational disruptions, we have made strides in progressing our strategic priorities by commissioning our new National Distribution Centre, upsizing selected stores, continuing to expand our range and adding to our omni channel capabilities. We also built our portfolio of vertical omni-channel retail brands by bringing forward the finalisation of the Mocka acquisition, and completing the acquisition of Focus on Furniture. The progress we've made against these priorities gives us confidence in the growth prospects of the Group."
Adairs will release its half year results on 21 February.
