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Adairs share price surges 12% despite closure of Australian stores

The Adairs Ltd (ASX: ADH) share price has surged 12.02% higher today despite the company becoming the latest retailer to close stores in the face of the coronavirus pandemic. This morning, Adairs announced the closure of all Australian stores from close of business on Sunday. 

Store closures 

Adairs previously closed its 6 stores in New Zealand as well as the New Zealand Mocka operations from Tuesday, 25 March in line with New Zealand Government requirements.

The closure of the Australian stores comes as a result of the escalation of the coronavirus outbreak as well as government requests for everyone to stay home, other than for essential needs. 

Adairs’ stores will be closed for an initial period of 4 to 6 weeks. Reopening will be dependent on the prevailing environment, government direction and advice, and Adairs’ own health and safety assessment.

Online channels of both Adairs and Mocka will continue to operate in Australia during this period, with Adairs saying it will continue to meet customers’ homewares needs while most are spending more time in their homes. 

Employees stood down 

While stores are closed, the majority of store team members and the customer support office team will be stood down. They will be able to access their leave entitlements during this period.

CEO and Managing Director Mark Ronan said, “these store closures are a sad and very difficult time for our store teams and those who support them in our Customer Support Office. We are committed to our team returning to Adairs as soon as we believe it is safe to reopen our stores.” 

Guidance withdrawn and dividend cancelled 

Adairs withdrew its earnings guidance and cancelled its dividend last week. At the time, the company cited uncertainty about the duration and impact of coronavirus for its decision to withdraw guidance. It said the cancellation of the 7 cent per share dividend was precautionary, reflecting a focus on maintaining strong liquidity and preserving long term shareholder value. 

Adairs was actively managing its liquidity position with management taking actions to maximise near term sales, reduce costs, manage working capital, and defer non-essential capital projects. It has also been working with its landlords to agree on sustainable occupancy arrangements throughout this period. 

Cash preservation 

Going forward, Adairs will tightly manage its cost of doing business and working capital to preserve cash. Adairs currently has cash in hand of $36 million, net debt of $48 million, and access to further undrawn debt facilities of $12 million. 

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Motley Fool contributor Kate O'Brien 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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Kate O'Brien