Why the Adairs (ASX:ADH) share price tumbled 10% today

Despite no price-sensitive announcement, the homewares retailer was out of style today.

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Things got ugly for the Adairs Ltd (ASX: ADH) share price today.

The homewares retailer's shares dived 10.97% to close the day at $4.06.

Why did the Adairs share price fall?

Yesterday, Adairs announced that it was going to bring forward the settlement of its Mocka acquisition.

In the initial purchase agreement, the company split its deferred 35% interest in Mocka into two tranches. The first tranche payable by 30 September 2021 (15%) and the second by September 2022 (20%).

According to yesterday's announcement, the company will pay NZ$48 million (~A$45 million) in September to acquire the entire 35% stake.

Today's sharp decline could be driven by a broker downgrade, covered by my colleague, James Mickleboro. One of the reasons given for the downgrade was the broker's belief that the Mocka business could be underperforming against expectations.

Lockdowns in Australia resulting from the COVID-19 pandemic have helped drive Adairs sales. The company's FY20 results highlighted a 12.9% increase in group sales to $388.9 million. The FY20 results also saw a 19% increase in statutory net profit after tax of $35.3 million.

Adairs' solid growth trajectory has continued into FY21. The retailer's half-year results revealed a 34.8% increase in group sales to $243 million and a 233.4% surge in statutory net profit after tax to $43.9 million.

At the time of writing, the Adairs share price is $4.06, putting its year-to-date returns at around 23%.

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Kogan.com ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended ADAIRS FPO. The Motley Fool Australia owns shares of and has recommended ADAIRS FPO and Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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