Adairs issues profit warning after consumers pull back spending amid interest rates hikes, inflation

The furniture retailer has plunged to a three-year low as it becomes the latest retailer to admit to a collapse in sales as economic headwinds force consumers to pull back on spending.

Adairs is the latest retailer to confess to a sales and profit slump. – Picture: Richard Walker

Shares in home furnishings chain Adairs have plunged as it becomes the latest retailer to confess to a collapse in sales growth since the start of the year as economic headwinds force consumers to pull back on spending.

The downgraded sales outlook was also matched with a sharp profit warning with its profit forecast stripped back by as much as 22 per cent.

Sales for Adairs have severely worsened since February, completely reversing, as it seems that mounting interest rates, higher rents and the rising cost of living finally saw shoppers keep their hands in their pockets.

This forced Adairs to also issue a sales and profit warning for the full year and rein in its previous forecasts.

The company now expects sales for fiscal 2023 to be $616m to $622m, down from a previous range of $625m to $665m. Profits would suffer, and it is now aiming for earnings of $62m to $65m, down from a range of $70m to $80m.

Shares in the retailer fell 20 per cent to a three-year low before closing down 28c, or 14.85 per cent, at $1.605.

On Friday Adairs, which also owns homewares and furnishings chains Focus on Furniture and Mocka, said in a statement to the ASX that its flagship Adairs stores had suffered a 3.4 per cent decline in sales for the second half.

This was against sales growth of 5.2 per cent for the financial year to date.

The sales performance of Adairs looks to have quickly deteriorated since February. At its interim results announced earlier this year the retailer said that sales for Adairs was up 3.1 per cent for the first seven weeks of the second half.

It is the latest in a growing list of retailers to reveal that sales growth had vanished since the start of the year, and for some gone into reverse as consumers pulled in their discretionary spending to preserve household budgets that are under growing pressure. Recently consumer-focused companies such as Treasury Wine Estates, Michael Hill International, Maggie Beer food business, fashion chain Universal Store and candle seller dusk have issued profit or sales warnings – all pointing to the weakness of the consumer and economic challenges for the dent to their earnings trajectory.

Adairs said on Friday that after a solid sales performance in the first half, the impact of rising interest rates and higher cost of living had created a more subdued trading environment since April with lower traffic observed both in stores and online.

It said that group gross margin for the second half remained in line with plan and was expected to be ahead of the second half. Group inventory has been well managed and will finish below December 2022 levels, it said.

At its Focus on Furniture business sales for the second half to date were down 10.9 per cent, against growth of 14.4 per cent for the first seven weeks of the half. At Mocka sales were down 23.8 per cent, against sales down 31.7 per cent for the first seven weeks of the second half.