Adairs shares battered as retailer reveals cost of store closures, Covid disruption

More than $175m has been wiped from the market value of Adairs after the retailer warned higher wage, warehousing and rent costs would hit margins.

Adairs said higher wage costs, warehousing, rent costs and promotional activity would hit margins.

More than $175m has been wiped from the market value of Adairs after the retailer warned store closures and other pandemic problems had cut sales by between $30m and $36m in the first six months of the financial year.

The company said the single most significant factor in the drop in sales and earnings – which will be between $14m and $18m lower than expected – were shutdowns in NSW and Victoria. It warned business costs would also be higher, with rising wage, warehousing and rent costs hitting margins.

Adair shares fell 82c, or 21.5 per cent, on Monday to close at $2.99.

Adair’s poor first-half results came as Dusk, a home fragrance retailer, said sales for the six months to the end of 2021 were down 12 per cent compared to the same period in the previous financial year at $80m.

It had also been impacted by pandemic-related store closures, with the number of trading days down 24 per cent.

“In addition, when stores were open, foot traffic in centres was significantly lower as many shoppers appear to have exercised caution as the potential risk of infection of the Omicron variant … escalated through December,” the company told investors.

Dusk shares fell 4.3 per cent on Monday to close at $2.70.

Wesfarmers last week warned that store closures and rising Covid-19 infections were harming sales at Kmart and Target.

Adairs said the lockdowns and other restrictions had reduced the number of store trading days by 31 per cent across its network. The worst affected states were NSW, where trading days were halved, and Victoria, down 48 per cent.

The retailer expects sales to edge down to $242m for the 26 weeks to December 26 from $243m in the prior year, but above the $180.3m booked for the same period in the 2020 financial year.

The total includes a $12.5m contribution from Focus on Furniture during Adairs’ 26 days of ownership.

Meanwhile, underlying earnings are expected to be between $32m and $33m, including a $2.8m contribution from Focus, which compares to $60.2m in the first half of the previous financial year and $22.6m in the 2020 financial year. Adairs told investors it was still negotiating rental rebates for store closure periods, but highlighted rising store occupancy costs as rebates fall from levels seen in late 2020.

Meanwhile, the retailer spent more on salary and wage costs while stores were closed, in the absence of JobKeeper.

Adairs also spent more on warehouse costs, following the decision to retain one of the Adairs distribution centres and slow its transition to a single, national distribution centre in light of Covid-related logistics disruptions across the country.

“Stock flow into Australia and New Zealand … remains inconsistent due to factory and shipping capacity disruptions across the region,” Adairs said. “Inventory was well managed in anticipation of these challenges, however there were significant disruptions to our domestic supply chain.

“While delivery capacity remains constrained, this continues to improve and there is high availability of product in our distribution centres and stores across all brands going into the second half of the 2022 financial year.”