Adairs shares crash 20% as cost of living carves away at forecast sales

It has not been a good day for shareholders of this retailer.

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Adairs Ltd (ASX: ADH) shares are taking a real beating on Friday.

In morning trade, the homewares retailer's shares are down 20% to a 52-week low of $1.51.

Why are Adairs share being hammered?

Investors have been selling off Adairs shares today following the release of a disappointing trading update.

According to the release, trading conditions have deteriorated markedly since the end of the first half.

So much so, after delivering group sales growth of 34.1% during the first half, its group sales growth financial year to date is now just 1.9%.

This reflects second-half sales declines (over the prior corresponding period) of 3.4% for the Adairs business, 10.9% for Focus on Furniture, and 23.8% for the troubled Mocka online business.

Management blamed this on the cost of living crisis being caused by rising interest rates. It said:

After a solid sales performance in 1H FY23, the impact of rising interest rates and higher cost of living has created a more subdued trading environment since April with lower traffic observed both in stores and online. Group gross margin for 2H FY23 remains in line with plan and is expected to be ahead of 2H FY22. Group inventory has been well managed and will finish below December 2022 levels.

In light of the above, the company has been forced to downgrade its guidance for FY 2023. It now expects:

  • Group Sales of $616 million to $622 million (from $625 million to $665 million)
  • Group EBIT of $62 million to $65 million (from $70 million to $80 million)
  • Capital expenditure of $12 million to $13 million (from $12 million to $15 million)

Following this decline, Adairs shares are now down by one-third since the start of the year.

Motley Fool contributor James Mickleboro 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. The Motley Fool Australia has positions in and has recommended Adairs. 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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