Adairs share price sinks 4% despite record full-year sales

The retailer's share price is slipping on the release of its financial year 2022 earnings.

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Key points

  • The Adairs share price is sliding 4% on Monday to currently trade at $2.44
  • The slump comes after the company detailed a record $564.5 million of sales revenue for financial year 2022
  • However, its profit fell 29% year-on-year while its earnings before interest and tax tumbled 30%

The Adairs Ltd (ASX: ADH) share price is slipping after the homewares retailer released its earnings for financial year 2022.

The stock has continued to dive after opening 2.35% lower at $2.49. The Adairs share price is currently trading at $2.44, marking a 4.31% fall.

Adairs share price slumps despite 13% lift in sales

Here are the key takeaways from the retailer's full-year earnings:

  • Sales revenue lifted 12.9% on that of the prior comparable period (pcp) to a record $564.5 million
  • Net profit after tax (NPAT) fell 29.6% to $44.9 million
  • Underlying earnings before interest and tax (EBIT) tumbled 30% to $76.4 million
  • Online sales made up around 35% of sales, or $195.4 million worth – 4.5% more than in the pcp
  • Ended the period with a net debt position of $93.2 million
  • Posted a 10 cent per share final dividend, bringing its full-year payout to 18 cents

Adairs battled COVID-19-induced store closures over FY22, losing around 16% of trading days in the first half. However, the newly acquired Focus on Furniture and its Mocha brand bolstered the company's bottom line.

Adairs' core retail business saw sales fall 4.8% to $418.7 million over the 12 months ended 26 June, while those of Mocha lifted 6.5% to $64.1 million despite a disappointing second half. Focus on Furniture brought in $81.7 million over the seven months in which Adairs owned the brand.

The company's gross margin also slipped to 63.2% due to higher supply chain costs and greater promotional activity, born from a more competitive market.

Adairs boasted one million paying Linen Lover loyalty members, who accounted for 80% of sales, at the end of the fiscal year.

What else happened in FY22?

Of course, the major news from the retailer over the financial year 2022 was its acquisition of Focus on Furniture.

The acquisition valued the bulky furniture business at $80 million. The Adairs share price lifted 4% on its announcement.

The company also finalised its earn-out agreement with the founders of Mocka in the period.

What did management say?

Adairs managing director and CEO Mark Ronan commented on the company's earnings, saying:

Financial year 2022 produced another record level of sales following the acquisition of Focus. This comes despite widespread store closures due to COVID and reflects the strength of our omni-channel model.

Significant operational disruptions related to COVID-19 … impacted the group's cost base and meant that this growth did not translate into an increase in profits.

The majority of these costs are not expected to carry into future years and while a number of macroeconomic headwinds have emerged in recent months, we are confident that this tougher environment will favour companies such as Adairs, Mocka, and Focus all of whom provide a strong value proposition to the large and growing middle-market consumer.

What's next?

Excitingly, Adairs believes its sales growth will continue in financial year 2023.

The company expects to post between $625 million and $665 million of sales revenue this fiscal year. That represents a potential 17.8% year-on-year increase. It also expects $75 million to $85 million of EBIT and $12 million to $15 million of capital investment.

The company also provided a trading update for the first seven weeks of FY23.

Its unaudited sales lifted 44.8% over the period compared to the pcp. When excluding sales from Focus on Furniture, it boasted a 3.9% increase.

Adairs share price snapshot

The Adairs share price has had a rough trot as of late.

It's fallen nearly 39% since the start of 2022 and is currently 33% lower than it was this time last year.

For comparison, the All Ordinaries Index (ASX: XAO) has slipped 8% year to date and 6% over the last 12 months.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended ADAIRS FPO. The Motley Fool Australia has positions in and has recommended ADAIRS FPO. 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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