The Adairs Ltd (ASX: ADH) share price is deep in the red on Monday afternoon. This comes after the company released its first-half results for the 2022 financial year before market open.
At the time of writing, the homewares and furniture retailer's shares are swapping hands for $2.95, down 5.14%.
Adairs delivers disappointing result for H1 FY22
The Adairs share price is heading south following the company's performance for the 26 weeks ending 26 December 2021. Here are some of the key highlights:
- Total sales fell to $229.3 million, down 5.7% on the prior corresponding period (H1 FY20 $243 million)
- Earnings Before Interest and Tax (EBIT) dropped to $32.9 million, down 45.3% (H1 FY21 $60.2 million)
- Net profit after tax (NPAT) declined to $23.1 million, down 44.9% (H1 FY21 $41.9 million)
- Earnings Per Share (EPS) shed to 10.4 cents, down 59.8% (H1 FY21 25.9 cents per share)
- Fully-franked Interim dividend of 8 cents per share, down 27.3% (H1 FY21 11 cents per share).
What happened in H1 FY22 for Adairs?
The Adairs result was significantly impacted by government-mandated store closures, with store sales down 13.8% to $131.7 million.
Gross margin fell 380 basis points against the prior comparable period. This was due to global supply chain cost increases, higher delivery costs, and an increase in promotional activity.
In the Mocka business, sales jumped 22.8% to $34.3 million, attributed to strong growth in website traffic and search activity.
However, operations in Australia in the second quarter were significantly impacted by COVID-19-related customer delivery challenges. Although the company said this issue has now been resolved with a new delivery partner onboard.
Higher import freight costs, courier delays, and promotional activity resulted in a decline in delivered gross profit margin to 38.3%.
What did management say?
Adairs managing director and CEO Mark Ronan commented:
The first half of FY22 brought significant one-off operational disruptions related to COVID-19 which impacted our portfolio of brands and our overall financial results. Despite this we continued to progress our strategic priorities with Adairs' National Distribution Centre commencing operations, two new stores opened, four stores upsized, continuing range expansion with pleasing results and continued investment in digital capabilities.
The finalisation of the Mocka earn-out allowed us to build out our team to support our growth strategies and we added to our portfolio of vertical omni-channel retail brands by acquiring Focus on Furniture. With all brands having strong opportunities for growth, and all benefiting from good in-country inventory levels, we are confident about the prospects for the Group in 2H FY22 and beyond.
What's next for Adairs?
Looking ahead, Adairs noted forecasted 'clear opportunities for growth through 2H FY22'. This is based on the macro-economic environment which is supportive of strong employment and higher wages growth.
Whilst the COVID-19 operating environment can be unpredictable, the company refrained from providing guidance for the FY22 full year.
