Shares in Adairs Ltd (ASX: ADH) are being tossed into the discount bin today following the company's FY24 full-year results. Investors are putting pressure on the ASX retail share as earnings tumble 18%.
At the time of writing, the Adairs share price is down 12.2% to $1.80. It's a drastically poorer performance than the S&P/ASX 200 Index (ASX: XJO) today, which has fallen by 0.57%.
What did the ASX retail share report?
FY24 turned into a challenging financial year for Adairs. Faced with crimped consumer spending, the company focused on minimising costs as sales fell.
The key figures below show how the retailer performed throughout the difficult operating environment:
- Total sales down 4.3% from FY23 to $594.4 million
- Cost of doing business up 0.2% to $213.4 million
- Statutory net profit after tax (NPAT) down 17.8% to $31.1 million
- Dividends per share up 50% to 12 cents per share
- Net debt down from $74.1 million to $64.1 million
Reduced customer traffic impacted total sales, with store sales falling 6%. However, online sales held steady at $175 million. The online channel accounted for 27.7% of Adairs' total sales in FY24.
What else happened in FY24?
Adairs operates across three brands: Adairs, Focus on Furniture, and Mocka.
In FY24, the namesake brand suffered the largest revenue reduction in dollar terms. Falling 4.1% to $413.4 million, the Adairs segment felt the pain of fewer shoppers willing to part ways with their cash. However, the company recovered some of the shortfall, cutting warehouse costs by 15.9%.
The cost savings achieved through warehousing reflect Adairs' managing its national distribution centre in-house, which resulted in $4 million of savings in FY24. Furthermore, the company switched to a new warehouse management system in July, which management believes will lead to more improvements in FY25 and beyond.
Elsewhere, Focus on Furniture performed the worst in relative terms, with sales falling 8.7%. The company noted that 'inbound stock delays impacted customer deliveries in the final months of the year'.
Lastly, Mocka — an online furniture outlet acquired by Adairs in 2019 — was the only brand to report increased sales. For the 12 months ended 30 June 2024, Mocka raked in $51.4 million worth of sales, rising 5.7% from FY23.
While Adairs' full-year result may look underwhelming, the company's share price is one of the strongest performers among ASX retail shares in the past year. As the chart above shows, Adairs' returns have surpassed similar-sized companies such as Beacon Lighting Group Ltd (ASX: BLX), KMD Brands Ltd (ASX: KMD), and Baby Bunting Group Ltd (ASX: BBN).
What did management say?
Adairs managing director and CEO Mark Ronan expressed content with the result in light of tough conditions, stating:
As we prepared for FY24, we anticipated a more challenging year due to the macroeconomic environment and the impact it was having, and continues to have, on many households. We focused most on the matters we could control, and have worked hard on cost control, managing gross margin and controlling inventory investment across each of our businesses.
What's ahead for this ASX retail share?
Today's announcement also gives investors a peek into how Adairs is faring in the new financial year. For the first eight weeks, the group recorded a 0.4% decline in sales compared to the prior corresponding period.
Unlike FY24, Mocka is the laggard of the brands in FY25, with sales dropping 5.2%. However, the segment is seeing a significant divergence across its two countries of operations: Australia and New Zealand. Down under sales are up 4.6%, whereas sales are 15.7% lower across the ditch.
Adair plans to open six new stores under the same name and three Focus on Furniture outlets in FY25.
The ASX retail share now trades on a price-to-earnings (P/E) ratio of 10 times FY24 earnings.
