Adairs (ASX:ADH) share price surges 9% on record FY21 result

The Adairs share price is on the move following a record FY21 performance.

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The Adairs Ltd (ASX: ADH) share price surged 9% in early trade this morning following the release of the company’s FY21 results.

At the time of writing, Adairs shares are trading 7.3% higher at $3.96.

Adairs share price lifts on record financial performance

The Adairs share price is off to a good start on Friday after revealing another record performance in FY21. Some key highlights from the company’s FY21 performance include:

  • Group sales rose 28.5% against the prior corresponding period (pcp) to $499.8 million
  • Group online sales increased 33.2% to $187 million, representing 37.4% of total sales
  • Group underlying earnings before interest and tax (EBIT) surging 97.3% to $109.1 million
  • Statutory net profit after tax (NPAT) lifting 80.7% to $63.7 million
  • Fully franked final dividend of 10 cents per share, lifting FY21 total dividends to 23 cents per share.

What happened to Adairs in FY21?

Investors are sending the Adairs share price higher this morning following yet another record financial performance.

The company was able to surpass elevated FY20 figures, despite flagging that “a third of all trading days in the year being impacted in some way by COVID-19 related store closures in various parts of the country”.

Adairs (excluding Mocka) delivered a 22.1% increase in sales and up 14.5% on a like-for-like basis. The company cited three core drivers of Adairs sales growth including store floor space growth, Linen Lover membership growth and omni-sales conversion.

Gross margins have been a key focus for the Adairs business, with a pleasing 520 basis points increase to 66.7%. The company said that in the FY21 retail environment, the industry generally saw lower levels of stock, lower promotional activity and strong customer demand, which contributed to higher margins.

Adairs acquired online furniture and home products retailer Mocka in December 2019. The company was pleased to advise that Mocka achieved sales of $60.2 million, up 30.9% on pcp.

In addition, Adairs advised that its now DHL-operated national distribution centre (NDC) will be fully operational by the end of September 2021. The company highlighted the NDC as a key component of its integrated omni-channel strategy to improve stock-flow and online fulfilment, stock availability and service levels.

Once transitioned, the company expects annual savings of $3.5 million per annum.

The strong financial performance will also see the Adairs share price pay a final fully franked dividend of 10 cents per share.

Management commentary

Adairs managing director and CEO Mark Ronan commented on the record result saying:

Our FY21 results confirm the strength of our brands and the competitive advantage our omni-channel model provides in this ever-changing environment. The continued growth in our online channel, has long term benefits for us as more of our customers shop across both channels.

I am particularly proud of how our team has responded to the challenges caused by the pandemic which continues to have a significant impact on our business. They continue to successfully adapt to enable us to capitalise on the current retail trading environment.

What’s next for Adairs?

Its been a volatile year for the Adairs share price, up 19% year-to-date.

Looking ahead, the company advised that group like-for-like sales for the first 7 weeks of FY22 are up 5.2% on the prior corresponding period and up 50.5% on FY20.

However, total group sales for the first 7 weeks are 11.7% lower than FY21, driven by COVID-19 related store closures across Australia. While in dollar terms, after 7 weeks, total group sales are lagging approximately $7 million against prior-year figures.

The company flagged that gross margins were expected to moderate in FY22 from the record levels achieved in FY21.

Despite a weaker performance so far in FY22, the company said it remained confident in sales performance for when Victorian metro and NSW stores reopened.

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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. has recommended ADAIRS FPO. The Motley Fool Australia owns shares of and has recommended ADAIRS FPO. 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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