Adairs share price rockets 12% as dividend payments resume

Investors are sending the Adairs share price sharply higher today following the company's earnings results.

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The Adairs Ltd (ASX: ADH) share price is setting the bar high today.

Shares in the All Ordinaries Index (ASX: XAO) retail stock closed Friday trading for $1.84. During the Monday lunch hour, shares are swapping hands for $2.06 apiece, up 12.2%.

For some context, the All Ords is flat at this same time.

The company, whose store brands incorporate Adairs, Focus on Furniture, and online shop Mocka, reported on its half-year results this morning for the 27 weeks to 31 December (1H FY2024).

Read on for the highlights.

Adairs share price leaps amid increasing margins

  • Total sales of $291.4 million, down 10.1% year on year
  • Statutory net profit after tax (NPAT) of $17.7 million, down 18.9% from 1H FY 2023
  • Gross margin rate improved by 2.20% year on year
  • Operating cash flow of $37.9 million, up 10.5% from 1H FY 2023,
  • Net debt of declined by $15.4 million since June to $58.6 million
  • Fully franked interim dividend of 5 cents per share, down from the prior interim dividend of 8 cents per share

What else happened with Adairs during the half?

Management noted that sales over the six months were hit by a challenging macro-environment alongside issues with stock availability.

However, investors look to be bidding up the Adairs share price today, with the company having successfully grown its gross margins across all three of its store brands.

Despite ongoing inflationary pressure, costs at its Adairs business came down over the half year via the company's comprehensive cost-out program.

The six-month period saw Adairs open two new Focus on Furniture stores along with taking operational control of Adairs NDC.

The company also managed to achieve earnings before interest and tax (EBIT) of $3.5 million from the struggling online Mocka business, compared to a $300,000 loss in the prior corresponding period.

And passive income investors will certainly be pleased to see Adairs resume its dividend payments. The company opted not to pay a final dividend for FY 2023.

What did management say?

Commenting on the results sending the Adairs share price sharply higher today, CEO Mark Ronan said:

The first half of FY 2024 has been challenging given customers continue to manage their household budgets carefully, leading to lower customer traffic.

It is pleasing that we have been able to deliver on our primary objectives whilst focusing on those factors within our control – making sure we continue to offer great product at an attractive price with an outstanding customer experience across all of our businesses.

Each business has key priorities that will over time deliver growth in sales while ensuring our cost base is managed appropriately for the prevailing and anticipated trading environment.

What's next?

Looking to what might impact the Adairs share price in the months ahead, the company cautioned that customer traffic over the first eight weeks of the current half had been "significantly lower than the same period last year". Sales, therefore, "remain challenging".

However, noting the big drop in sales in May 2023, management expects comparative sales will improve across the second half of FY 2024.

The company has hedged all of its FY 2024 US dollar purchases at AU$0.69.

Adairs share price snapshot

Despite today's big boost, shares in the All Ords retailer remain down 8% over 12 months.

The Adairs share price has leapt 71% since the recent 27 October lows.

Motley Fool contributor Bernd Struben 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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