Adairs shares leap as investors shrug off weak outlook and focus on strong sales, increased payout

Adairs shares have jumped as investors shrugged off a weak outlook to focus on strong sales and a higher payout.

Adairs declared a final dividend of 8 cents per share fully franked, with total dividends for 2019 up 7.4 per cent to 14.5 cents per share fully franked.

Shares in Adairs jumped almost 12 per cent despite the bedding and homewares company warning that continued economic headwinds would impact earnings in the year ahead.

The retailer forecast flat to little growth in pre-tax earnings for fiscal 2020, noting the lower Australian dollar and volatile trading conditions could drag on its books.

However, the retailer (ADH) has posted above market growth in sales performance in 2019 and is investing in its supply chain and logistics capabilities which should help reduce costs, pave the way for further growth and improve efficiency from 2022.

Shareholders were also rewarded with a higher dividend which is up 7.4 per cent for the year.

Shares in Adairs jumped 18.5 cents, or 11.78 per cent, to $1.755 apiece.

Adairs this morning posted a 1.3 per cent fall in net profit to $29.6 million as sales rose 9.7 per cent to $344.4m.

The company said like-for-like sales growth was 7.2 per cent while online sales rose 41.7 per cent. Online now contributes 17 per cent of total sales.

The same store sales growth was within guidance of 7 to 8 per cent increase provided in a trading update in June.

Adairs recorded EBIT of $43.4m, down 2.4 per cent, which was at the top end of the June update and guidance. Full-year guidance for 2020 was provided this morning to be $43m to $46m, reflecting little earnings growth this year on 2019.

Total stores were at 165 at the end of fiscal 2019 with 5 new stores, 5 upsized, 6 refurbished, and 7 closed.

Adairs declared a final dividend of 8 cents per share fully franked, to be paid on September 25 with total dividends for 2019 up 7.4 per cent to 14.5 cents per share fully franked.

Chief executive Mark Ronan said the latest results show that the company continues to deliver above market sales growth thanks to its focus on delivering excellence in retail execution and understanding of what customers want both instore and online.

“Like-for-like sales growth of 1.5 per cent across our store network is a solid result in what has been a challenging macro and competitive environment.

“Our New Zealand business also performed well, delivering strong growth and materially improving profitability.”

But the growth did come with some “growing pains” and the retailer is investing heavily in its supply chain.

“Our success however brought with it some growing pains within our distribution network that materially increased our operating costs and this, coupled with the weaker Australian dollar, offset the benefits of our sales growth,” he said.

“The restructure of our supply chain is underway and a new facility is expected to be operational by fiscal 2022.

“The new facility will provide us with the platform to support our continued growth both in stores and online and will improve operating speed, accuracy and cost control. In the meantime we have identified short and medium term initiatives which will improve our capabilities and productivity within the existing facilities to both lower our cost to serve and improve our customer experience.”

Turning to outlook, Mr Ronan said over the first seven weeks of 2020, Adairs generated like-for-like sales growth of 4.8 per cent across its business with online continuing to grow strongly with sales up 26.9 per cent on the same period last year.

Top line revenue growth is expected to remain strong with like for like growth to be underpinned by continued growth in both stores and online, the company said.

Adairs is forecasting 2020 sales to be between $360m and $375m and EBIT to be between $43m and $46m.