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Adairs (ASX:ADH) share price sinks on weak FY23 update

The Adairs Ltd (ASX: ADH) share price has sunk 20% after giving an update showing weakening retail conditions.

Adairs has three retail businesses – Adairs, Focus on Furniture and Mocka.

Weakening trading

The ASX retail share has given an update for the 48 weeks to 28 May 2023, and updated guidance for the year to 25 June 2023 (being FY23).

Adairs said that after a “solid” sales performance in the FY23 first half, the impact of higher interest rates and higher cost of living has created a “more subdued” trading environment since April, with lower traffic in both store and online.

However, the gross profit margin for the second half of FY23 “remains in line with plan” and expected to be ahead of the FY22 second half. The group inventory has been “well managed” and finish below where it was in December 2022.

In the second half, Adairs has seen group sales fall 7%, with Mocka seeing a 23.8% sales decline, Focus on Furniture sales being down 10.9% and Adairs-division sales falling 3.4%. That’s not good news for the Adairs share price.

Looking at the FY23 financial year-to-date numbers, total sales were up 1.9%, Mocka sales were down 25.5%, Focus on Furniture sales were up 5.4% and Adairs-division sales were up 5.2%.

FY23 guidance

The company has lowered its guidance for sales and profitability in the 2023 financial year.

Group sales are now expected to be between $616 million and $622 million, down from the previous guidance of $625 million to $665 million.

Total EBIT (EBIT explained) is now projected to be between $62 million and $65 million. That represents a reduction from the EBIT guidance of $70 million to $80 million.

Capital expenditure is guided to be between $12 million to $13 million, down from $12 million to $15 million.

Final thoughts on the Adairs share price

The company is suffering from a significant increase in investor pessimism. It’s now trading below the lows seen during 2022.

While there could be pain in the short term, I think this share price will end up being an attractive price in the long-term. I’d be happy to buy a parcel of shares today, but the 12 months may show a sizeable reduction of profit.

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