Adairs cuts full-year earnings guidance as supply chain costs remain elevated

The home furnishings' retailer warns its annual earnings will be pushed lower than previously guided due to elevated supply chain costs.

Adairs has warned its full-year earnings will be lower than previously guided due to elevated supply chain costs. Picture: Richard Walker

Home furnishings retailer Adairs has lowered its earnings guidance for 2023 as elevated supply chain costs continue to press down on its margins, with the retailer also deciding due to the current economic climate to keep its interim dividend flat and instead reduce debt.

Its flagship Adairs retail brand witnessed a 23 per cent slide in its underlying earnings, while its online furniture brand Mocka was barely profitable with first-half underlying earnings of just $300,000.

Adairs on Monday warned that although it had witnessed record Boxing Day sales into January and trading conditions had not shown signs of deterioration, the high cost of doing business led by supply chain volatility and elevated prices for shipping and freight would cause its earnings to be likely weaker for the full year.

Adairs said it had maintained its full-year guidance for sales of $625m to $665m, but it had lowered its earnings guidance for fiscal 2023 to $70m to $80m, down from previous guidance of $75m to $85m.

It comes as Adairs on Monday posted record sales of $324.2m for the December half, up 34 per cent, as net profit jumped 24 per cent to $21.8m.

The interim dividend was kept flat at 8c per share, payable on April 6, with the company deciding it was more prudent in the current trading environment to focus on debt reduction. The retailer ended the first half with group net debt of $81m, $12.2m lower than as at June 2022.

It said its flagship Adairs retail brand delivered a record sales result in the first half, up 13.1 per cent to $220.4m. Adairs store sales were up 23 per cent with no Covid-19-related closures, while online sales were down 7.4 per cent to $58.5m as customers returned to stores.

As anticipated, gross profit margin softened in the first half, down 330 basis points, due to higher inbound container rates and industry-wide increases in delivery charges by local carriers. Adairs underlying earnings fell 23.4 per cent to $18.7m.

The company said gross margin will benefit going forward from significantly lower inbound freight costs and minimal exposure to the US dollar in the second half.

Mocka sales dropped 27 per cent to $25.1m as the brand resolved operational issues and cleared excess inventory. Gross profit was impacted by extensive clearance activities of discontinued ranges in the first quarter, higher delivery costs following a change of the Australian domestic delivery partner and higher inbound shipping costs.

At its Focus on Furniture, retail brand sales rose 20 per cent to $78.6m and earnings lifted 27.2 per cent to $16.6m.

Adairs has initiated cost-cutting measures to improve earnings.

For the first seven weeks of the second half, Adairs sales were up 3.1 per cent, its Focus on Furniture brand up 14.4 per cent, but sales at Mocka were down 31.7 per cent.