The Adairs Ltd (ASX: ADH) share price fell 31.3% in response to a disappointing trading update.
Adairs is a home furnishings retailer that opened its first store in Victoria in 1981. Around 90% of Adairs’ range that is sold is private brand. Adairs has over 160 stores in Australia in five formats: Adairs, Adairs Homemaker, Adairs Kids, UHR and Adairs Outlets.
Adairs’ Trading Update
The company said that like for like sales since the 27th May 2019 has been flat at around 0%. This has been a significant deterioration, where in the second half of FY19 like for like sales growth was 9% up to 27 May 2019.
Adairs said that the change in the sales performance in an important trading period, as well as the gross margin pressure, has led to revised guidance.
The new guidance is as follows: the store network at the year end will be 165 stores, not between 167 to 170. Like for like sales (including online) growth will be 7% to 8%. Total sales will be $340 million to $345 million, instead of the prior higher guidance of $340 million to $355 million. The gross profit margin will be 59% to 60% rather than 59% to 61%.
All of this is going to lead the company’s FY19 EBIT (click here to learn what EBIT means) to be between $42.5 million to $44 million rather than $46 million to $50 million.
Adairs CEO Mark Ronan said: “While the need to revise our guidance is disappointing a review of our FY19 performance shows that we have a healthy and growing business. However, we have specific issues to address to improve our supply chain capacity, productivity and efficiency.
“Pleasingly our key strategies continue to drive above market sales growth. Online has delivered approximately 40% growth in the second half to date and will represent 17% of our total sales for FY19. Further our New Zealand business also continues to build momentum and improve performance.”
What Does This Mean?
It’s interesting that Adairs is essentially saying that since the election people have not been spending money, unlike all of the hype that we were reading in the media. Perhaps it’s too early to draw conclusions about what this means for Adairs medium-term future or the wider retail sector, but it’s certainly interesting.
Retail is a tough space, so I wouldn’t want to invest in Adairs, even with it being a lot cheaper. I would much rather invest in the reliable and proven ASX shares in the free report below.
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