Why the Adairs share price rocketed 10% higher today

The Adairs Ltd (ASX:ADH) share price has surged higher on Monday following the release of its full year results…

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The Adairs Ltd (ASX: ADH) share price has avoided the market selloff on Monday and surged higher.

In morning trade the homewares retailer's shares are up a sizeable 10% to $1.74.

Why is the Adairs share price on fire today?

This morning Adairs released its full year results and revealed a 9.7% increase in sales to $344.4 million thanks to a combination of new store openings, strong online sales, and positive like for like store sales growth. 

Online sales rose 41.7% on the prior corresponding period and now account for 17% of the company's total sales.

Unfortunately, the strong top line form did not make its way down to the bottom line. Adairs posted a 2.4% decline in EBIT to $43.4 million and a 1.3% drop in NPAT to $29.6 million. Judging by the share price gain, I suspect some investors had been expecting even worse following its recent trading update and have been pleasantly surprised today.

Management blamed the soft profit result on higher operating costs within its distribution network, a weaker Australian dollar, and a softer trading environment late in June. The company's costs of doing business increased by 11% due largely to costs associated with the interim secondary distribution centres to support its growing online and store volumes.

Despite this, the Adairs board declared a final fully franked dividend of 8 cents per share, which lifted its full year dividend by 7.4% to 14.5 cents per share. This equates to a massive 8.3% dividend yield even after today's strong gain.

Outlook.

In FY 2020 the company intends to increase in store network by net 4-6 new stores. It expects this to result in full year sales in the region of $360 million to $375 million, with EBIT of $43 million to $46 million.

For sales, this represents a 4.5% to 8.9% increase year on year. And for EBIT, it will be a decline of ~1% to an increase of 6%.

Adairs' Managing Director & CEO Mark Ronan said: "While the macro environment is challenging, our strategies of product differentiation, range expansion, more inspiring and larger store formats, and an unwavering focus on customer service will all play a key role in growing both like for like and total sales in FY20."

"We are in a strong position to deliver a great retail experience for our customers and continued growth for our shareholders," he concluded.

Also rising on Monday are the shares of National Veterinary Care Ltd (ASX: NVL) and Regis Resources Limited (ASX: RRL) with gains of 3% and 12%, respectively. National Veterinary Care's shares have charged higher following the release of its full year results and Regis Resources' has surged higher in response to a rise in the gold price and acquisition news.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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