The Adairs Ltd (ASX: ADH) share price has soared more than 11% after reporting a promising FY24 first-half result.
This business operates three brands – Adairs, Mocka and Focus on Furniture.
FY24 first half result
Here are some of the highlights from the first six months of FY24:
- Total sales dropped 6.7% to $302.4 million
- Gross profit down 2.7% to $142.6 million
- Cost of doing business (CODB) improved by 0.6% to $107.4 million
- EBIT (EBIT explained) fell by 13% to $30.9 million
- Statutory earnings per share down 19.7% to $0.102
- Interim dividend per share down 37.5% to $0.05
Adairs said it was successful with a number of its key objectives.
It grew its gross profit margin for all three brands, reduced the CODB in the Adairs business and took operational control of the Adairs national distribution centre with no business disruption whilst improving service levels at a lower cost.
Despite the difficult trading environment, Mocka’s EBIT managed to improve by $3.2 million to $3.5 million.
Balance sheet and dividend
Adairs improved its group net debt by $15.4 million over the six months to $58.6 million. It’s good to see that the business is improving its balance sheet.
The company decided to declare an interim dividend of $0.05 per share, fully franked.
Outlook for the Adairs share price
Adairs reported it’s still seeing customer traffic “significantly lower” than the same period last year.
Sales in the first eight weeks of the second half of FY24 “remain challenging”, with consumers remaining “value orientated”. Due to the decline in sales that happened in May 2023, the company is expecting that the comparative sales performance “will improve” in the second half of FY24.
Adairs’ focus remains on managing the gross profit margin, maximising customer sales conversion and managing the CODB.
By the end of FY25, Adairs is expecting to open three new Focus on Furniture stores. With Adairs stores, it’s opening larger stores and “actively managing” smaller stores with several re-locations, up-sizes, consolidations and closures, to maintain a “highly profitable portfolio”.
I think Adairs has a promising next 12 months if it’s able to start demonstrating sales growth, year on year. It’s not the strongest retailer around, but I still think it’s somewhat undervalued on a long-term basis if earnings can rebound once household spending recovers.
It also offers the potential of a good dividend yield in the years ahead, the dividend payments resumed.
