Has Adairs Limited delivered growth by strong execution of its digital strategy?

Team Veye | 24 Feb 2020 ASX - ADH
Has Adairs Limited delivered growth by strong execution of its digital strategy?

Adairs Limited (ASX: ADH)

Record sales and profitability accompanied by major strategic initiatives

Adairs Limited (ASX: ADH) on 21 February 2020 announced its results for the 26 weeks to 29 December 2019 (1H FY20). During this period the Company delivered record levels of sales and profitability, together with a number of key strategic initiatives including the acquisition of Mocka, a profitable pure-play online retailer in a logical adjacency, and the finalisation of our domestic supply chain strategy.


(Graphic Source – Company Reports)

1H FY20 (vs 1H FY19) snapshot

  • Sales up 8.6% to $178.9 million 


– Like for like sales growth +6.9% (online +31.6%, LFL stores +2.4%) 

– Online now contributes 18% of total sales (pre-Mocka) and is expected to rise to 29% including Mocka in FY20 

  • Total stores at 169 with 5 new stores, 1 refurbishment and 1 upsize – Group gross lettable area (GLA) increased by 5.5% in 1H FY20 
  • Gross Profit up 9.0% to $109.3 million; underlying gross margin up 20bps 
  • Underlying EBIT up 4.2% to $23.2 million 
  • NPAT up 4.2% to $15.7 million 
  • Net debt increased to $49.6m following the acquisition of Mocka – Strong free cashflow from Adairs allowed pre-Mocka debt to be reduced by $15m – Post Mocka we remain comfortably within our existing debt covenants. Our Net Bank Debt / EBITDA ratio will remain at ~1x over the next 3 years. 
  • Interim FY20 dividend of 7.0 cents per share fully franked, to be paid on 16 April 2020 (6.5 cents per share in 1H FY19)


(Chart source: TradingView)

Gross Margin improved by 20bps to 61.1%. A coordinated program of sourcing and pricing initiatives combined with a focus on reduced depth of markdowns was able to more than offset the impact of a weaker Australian dollar. Managing our Gross Margin % will continue to be a key focus in 2H FY20 and beyond. (Data Source – Company Reports)


Veye’s Take

The first half of FY20 was significant for Adairs with record levels of sales and profitability, the acquisition of Mocka and the finalisation of their domestic supply chain strategy. Adairs continued to deliver above-market sales growth with a group like for like sales up 6.9% and online sales up 31.6% (excluding Mocka). Its balance sheet remains strong with interim dividend increased to 7.0 cents per share. The chart is in the process of forming an inverse head and shoulder pattern. Sitting on the strong support of $2.52 it can have the potential of reaching $2.80. Veye had given a buy at $1.66 on11 April 2019 and again at $1.69 on 27 August 2019. It has already returned more than 53% in just 6 months on the latest buy till now. Veye gives a “Hold” recommendation on “Adairs Limited” at the current price of $2.59



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