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This ASX retailer just announced store reopenings as online sales surge 221%

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The Adairs Limited (ASX: ADH) share price is on watch today after plunging 5.2% lower in morning trade. This comes after the homewares retailer announced a surge in online sales and store reopenings. With stores closed since 27 March, online sales have jumped 221%, but total sales have fallen. 

In mid-March Adairs withdrew its FY20 earnings guidance and cancelled its 1HFY20 interim dividend. The retailer announced the closure of Australian stores on 27 March in response to the coronavirus pandemic. All operations were closed in New Zealand. 

Online operations exceed expectations

In Australia, both Adairs and Mocka’s online operations have continued to trade throughout the store closure period. Action has been taken to manage working capital and reduce costs across the business as Adairs focused on maximizing sales through digital channels. 

During the store closure period Adairs online sales have exceeded expectations, up 221% for the period. Mocka Australia sales were up 151% on the previous year. But total Australian sales, including store sales, fell 37% for this period versus the prior year. 

Online sales for the 9 months to March represent approximately 20% of total sales for the Adairs business. The growth in online sales has ameliorated some of the impacts of store closures. Pleasingly, some 30% of this online growth has come from customers who were not members of Adairs Linen Lovers club or had not previously shopped online with Adairs. 

Store reopenings 

Adairs intends to progressively reopen its Australian stores from 7 May. Stores are expected to open throughout May and June, with the initial focus on reopening larger format stores. Mocka New Zealand recommenced operations on 28 April with strong sales observed. Sales for the period 28 April to 3 May for Mocka New Zealand were up 216% on the same period last year. 

Business update

In closing stores, Adairs stood down the entirety of the store team and employees not required for the continuing operation of the online business. Adairs has registered for the JobKeeper program in Australia and expects to qualify. In New Zealand Adairs received the Wage Subsidy Scheme for Adairs and Mocka team members. 

Discussions with landlords are ongoing. The talks are focused on agreeing on an outcome that sees the impact of COVID-19 shared through both store closure and recovery phases. The supply chain is intact and is being managed to ensure the company is well placed for trading through an expected softer retail environment in the recovery phase. The value of inventory held by the business is approximately 5% lower than the same time last year. 

Balance sheet and liquidity

At 4 May Adairs had cash on hand of $41 million, net debt of $43 million and undrawn debt facilities of $12.5 million. Significant headroom remained within banking covenants, although April rent for the period stores were closed has not been paid to date.

Adairs says it does not currently see a need for additional capital given its liquidity, sales levels, ability to manage costs and government assistance programs. Nonetheless Adairs has acknowledged that considerable uncertainty remains and the operating environment may change rapidly. 

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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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