Shares in homewares retailer Adairs Ltd (ASX: ADH) are still worth a look at current levels, the team at Jarden says, despite a trading update this week which said sales had "moderated" in the first half.
Adairs released an update this week ahead of its annual general meeting, which said that the company's sales growth had slowed as it pulled back on promotional activity in its Adairs branded division.
The company downgraded its first-half guidance from projected revenue of $324.5 to $336.5 million to $319.5 to $331.5 million as a result.
The Adairs business comprises three retail brands: Adairs, Focus on Furniture, and Mocka.
Sales slowing
The company told the market that:
After am encouraging start, sales at Focus Furniture have slowed despite ongoing promotional activity leading to lower than planned gross profit margin. Mocka's strong sales momentum has been maintained with customers continuing to respond well to new product.
Jarden, in a research note sent to clients, said the update "implies the test is still to come''.
This was because about 55% of sales came towards the end of the first half of the financial year, as Black Friday sales and Christmas skewed the results.
The Jarden analysts added:
Focus sales downgrades are consistent with industry feedback on weaker sector furniture sales in August and September.
The Jarden team said, despite the soft update, they remained comfortable with their buy rating on the stock and had a price target of $2.68 on Adairs shares, albeit reduced from their previous target of $2.96.
Including 3.4% of returns from dividends, the Jarden analysts are expecting a total shareholder return over 12 months of 17%.
Key risks to the company going forward included the macroeconomic environment, promotions, costs, the company's execution on its national distribution centre, and competition, the Jarden team said.
Adairs said in its update this week that the company remained "cautiously optimistic" about the outlook for the rest of the half.
All three businesses are well-stocked, and our term are well-prepared for the peak trading period ahead.
Protest votes
The company received a strong protest vote against its remuneration report this week, with 20.4% of shares voted going against its adoption.
This fell short of the 25% of no votes needed to constitute a strike under Australian corporate law.
There was also a significant vote of 13.4% against the re-election of Trent Peterson as a director of the company.
