Lending Association

Adairs cuts interim dividend amid sales slump

Sydney-based soft goods retailer, Adairs (ASX:ADH), has reduced its interim dividend as sales fell by 10%, and earnings dropped by 19% in what directors described as a “challenging macro-environment.”

The interim dividend was slashed to 5 cents a share from 8 cents a year ago, with the DRP still in operation to encourage shareholders to opt for shares instead of cash.

Group sales plummeted by 10.1% to $291.4 million over 26 weeks (although the actual half was 27 weeks, the company has adjusted the figures for comparison with the same period in 2022).

Net EBIT decreased to $28.6 million, as did the net after-tax profit, which amounted to $17.8 million.

Directors, however, mentioned that cost-cutting measures and other strategies helped counteract market pressures, which were “compounded by isolated availability and range issues within the Adairs business.”

In simpler terms, there were enough ‘out of stock’ situations to impact popular ranges (a significant issue in retailing).

This seems to be related to the troubled new distribution center, which is now firmly under Adairs’ control.

Despite significant inflationary pressures, Adairs managed to reduce its cost of doing business through a comprehensive cost-out program. The company reported an improved gross margin by 220 points, which helped mitigate the fall in gross earnings to just 6.8%, as the cost of doing business decreased by 3.9%.

By assuming control of the distribution center without any business disruption, Adairs reported improved service levels at a lower cost.

The troubled Mocka furniture business saw a turnaround, with an EBIT of $3.5 million (previously $300,000) due to the opening of two new stores.

Furthermore, the company reduced its debt and resumed paying dividends (no final dividend was paid for 2022-23). Debt was reduced by over $15 million to $58.6 million at the end of the half.

Despite a slow start to the half-year with sales in the first seven weeks down 9.6% across the group (but up 4% at Mocka), Adairs’ directors foresee the potential for improvement towards May and June.

“The Group continues to observe significantly lower customer traffic than the same period last year, and sales for the first eight weeks of 2H FY24 remain challenging.

“Consumers remain value-oriented, with conversion declining notably when offers are reduced.

“Given the substantial decline in sales that occurred in May 2023, management expects that the Group’s comparative sales performance will improve across the second half of FY24,” they stated on Monday.