Why is the Adairs share price sinking 10% on Friday?

What has spooked investors today? Let's find out.

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The Adairs Ltd (ASX: ADH) share price is having a tough finish to the week.

In early trade, the homewares retailer's shares are down 10% to $1.32.

Why is the Adairs share price falling?

Investors have been heading to the exits today after the company released a trading update ahead of its annual general meeting.

As you might have guessed from the share price reaction, Adairs has been facing tough trading conditions in FY 2024.

According to the release, for the first 21 weeks of the financial year, group sales are down 9% over the prior corresponding period.

Management revealed that the impact of higher interest rates and cost of living pressures has seen a significant ~10% decline in traffic across each of its businesses compared to the same period last year. But thanks to its focus on customer experience and conversion, it means its overall sales decline is less than this traffic decline.

How are its brands performing?

The eponymous Adairs brand was the worst performer during the period, reporting a 9.9% decline in sales. That's despite the November Linen Lover Sales event producing the fifth-highest sales week on record.

Management believes the success of its sales event demonstrates the value of its loyalty program and its customers' willingness to continue to engage with the brand.

It also advised that Adairs' National Distribution Centre transition is progressing well. It is seeing significant improvements in customer service and remains on track to deliver the anticipated cost savings.

Focus on Furniture sales were down 8.7% over the prior corresponding period. However, this is ahead of plan and the business is prioritising margin over sales volume. This has allowed the business to carefully maintain its margin and costs of doing business.

Finally, the online Mocka brand reported a 2.4% sales decline. Management advised that it continues to improve its profitability, with the anticipated margin improvements being realised in the year to date on lower stock levels and with costs continuing to be carefully managed.

No earnings or group margin commentary was provided.

The Adairs share price is down approximately 40% over the last 12 months.

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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