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Adairs (ASX:ADH) share price drops despite huge growth

The Adairs Ltd (ASX: ADH) share price is down despite the homewares and furnishings business reporting record profit.

Here’s what Adairs reported in HY21

Adairs group sales went up 34.8% to $243 million. This growth was made up of different elements – overall store sales growth was 4.6%, or 14.4% during periods that stores were open. Online Adairs sales growth was 95.2%. Mocka sales were up 44.4% to $28 million.

Online sales continue to represent a larger proportion of total sales. Group online sales of $90.2 million represented 37.1% of total group sales.

The company’s gross profit margin increased by 500 basis points (5%). The underlying Adairs gross profit margin increased by 690 basis points (6.90%) to 67.8% and the Mocka underlying gross profit margin increased by 230 basis points (2.30%) to 53.4%.

The revenue growth and stronger margins saw underlying group EBIT (EBIT explained) rise by 166% to $60.2 million. This EBIT was equal to the entire EBIT for FY20.

The bottom line statutory net profit surged 233.4% higher to $43.9 million, whilst profit / earnings per share (EPS) went up to 25.9 cents. Operating cashflow went up 91% to $46.5 million.

Adairs was also happy that its ‘Linen Lover’ membership now exceeds 900,000 customers. These members account for 75% of all sales.

It also announced that it will repay the jobkeeper wage subsidy benefit of $6.1 million back to the government.

Adairs dividend and balance sheet

Adairs’ board decided to declare an interim dividend of 13 cents per share. It finished with net cash of $22.1 million, compared to net debt of $1 million at 30 June 2020.

Trading update

For the first seven weeks of FY21, Adairs has seen online sales growth of 65.9%, with Mocka sales growth of 48.6% and like for like sales growth of 12.4%. Total group sales were up 25%.

Stock flow from China and South East Asia remains inconsistent due to international shipping disruptions.

Summary thoughts

Adairs now offers a fully franked dividend yield of 5.7%, which is a big yield if you’re just focused on income.

Can the growth continue over the rest of FY21? The company is now facing strong comparable sales months in 2020. I think Adairs could still be one to watch if its online sales keep rising and it can add more stores to its network over time.

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