Adairs Limited Reports Solid Growth In 1HFY19 Despite Weaker Housing Market

Consumer discretionary company, Adairs Limited (ASX:ADH) reported a 9.1% increase in net profit after tax to $14.9 million for the half year ended 30 December 2018. This reflects strong online sales growth of the Group which grew 42% to over $24 million, accounting for 15% of total sales.

Despite a weaker housing market, the Group managed to achieve 10.6% growth in sales to $164.4 million, demonstrating its focus on delivering a high-quality product at a decent price. Its like-for-like sale was up 7.3% with Earnings Before Interest Tax (EBIT) up 7.2% to $21.9 million in 1H FY19.Â

More interestingly, the Group has reached its major milestone of delivering a profit in New Zealand segment which it now aims to build upon in the years ahead. Adairs’ New Zealand sales were up 30% on the previous corresponding period, driven by the supply chain improvement and rework on price points.

Commenting on the HY19 results, Adairs’ Managing Director & CEO Mark Ronan said “The solid first half result follows a strong FY18 result. The Group is confident that its strategic priorities will continue to deliver profitable growth. The result highlights the potential for further growth with strong growth in both sales and profitability.”

Moreover, the Group posted a well-equipped balance sheet to support the company’s growth strategies. Its Net Debt reduced to $10 million with a gearing ratio down to 0.20x.  The operating cash flow was down 11% to $18.9 million, mainly driven by the Group’s increased investment in inventory to support sales growth.

On the back of robust balance sheet and a positive outlook for continued growth, Adairs’ Board has determined an interim dividend of 6.5 cents, fully franked, up 18% from the pcp, representing 72.4% of NPAT. The payment date has been recognized to 17 April 2019 with the record date of 3 April 2019.

Further, the Board has widened its target payout ratio to 60% ? 85% of NPAT and continues to review its capital structure. It believes that the widening of the payout ratio provides additional flexibility to balance dividends to shareholders, manage debt and capital requirements whilst considering other possible capital alternatives to support the growth of the business.

The company continues to expand its market share underpinned by the category expansion and superior omnichannel retail execution. Its total stores count stood at 166 with 4 new stores, 2 upsized, 4 refurbished, and 5 closed during the half year ended 30 December 2018. Adairs believes that its results indicate that its target audience continued to decorate and update their houses, despite the significant meltdown in the housing market.

Looking into full Fiscal Year 2019, the company expects its sales to range within $345 million and $360 million, with a Gross margin between 59% and 61%. FY19 EBIT guidance is placed to the range of $46 million and $50 million.

Commenting on the positive outlook for Adairs for FY19, Mr. Ronan said: “The Group expect to continue to generate high single digit like for like sales growth underpinned across all channels. In addition, Adairs expect to add a further 2 to 3 stores and upsize a further two stores through the second half. The moderation of its EBIT guidance range relates primarily to the expected impact of the depreciating AUD and a potentially more challenging consumer environment.”

In today’s trading session, ADH stock price plunged 7.353% to last trade at $1.890 on 25 February 2019.

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