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This was published 5 years ago

Adairs profit hit by weak dollar and retail slump

By Dominic Powell

Furniture and homewares retailer Adairs has been hit by a weak Australian dollar and a "flat" trading environment, posting a 1.3 per cent drop in net profit after tax to $29.6 million despite growth in online sales.

The company, backed by retail veteran Brett Blundy, revealed like-for-like sales were up 7.2 per cent for the past financial year, and overall revenue increased 9.7 per cent to $344.4 million.

Adairs CEO Mark Ronan.

Adairs CEO Mark Ronan.

Earnings before interest and taxation (EBIT) fell 2.4 per cent to $43.4 million and gross margins dropped 110 basis points to 59.2 per cent, partly due to a weaker Australian dollar.

Adairs chief executive Mark Ronan said the result was solid despite a "flat spot" towards the end of June where sales suffered due to fewer consumers coming through the door.

"We were trading particularly well but saw it disappear quite quickly over a short period of time. It seemed to be a flat spot in the market over the back end of the year, which made it a little more challenging to hit the numbers we thought we could," he said.

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He attributed the drop to "sales fatigue", which coupled with "growing pains" in the company's distribution network and a flat Australian dollar meant Adairs' sales growth failed to flow through to its bottom line.

The numbers were within new guidance from the company in late June, and as a result, shares closed at $1.75, up 11.5 per cent.

Investors were also buoyed by Adairs' strong online offering, which grew 41.7 per cent on a like-for-like basis and contributed to 5.7 per cent of the company's overall like-for-like sales growth.

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Mr Ronan said Adairs was performing better online than other Australian retailers, pointing to the 17 per cent contribution to total sales from its online offering as a sign it was moving faster than other players.

"We are winning a greater proportion of customers who once upon a time shopped in-store and are now moving to online," he said.

Loyalty program drives revenue majority

About 75 per cent of Adairs' revenue is driven by its 'Linen Lovers' loyalty program, which offers discounts, exclusive events and free online shipping.

This helped the company drive its growth online, with Adairs predicting online will contribute $100 million in sales over the medium term.

Adairs' growth in 2020 would continue to be muted, Mr Ronan warned, providing guidance of 4.5 per cent to 8.8 per cent sales growth, and an EBIT range of a 0.9 per cent fall to a 6 per cent increase.

But the 4.8 per cent like-for-like sales growth over the first seven weeks of 2020 has "every chance" of continuing, with Mr Ronan saying consumers were more "robust" in the new financial year.

"Subject to there not being a significant shock to the market, I don't see anything in the short term that should deter customers," he said.

Adairs will pay a final dividend of 8 cents on September 25, marking a total 2019 dividend of 14.5 cents.

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Original URL: https://www.watoday.com.au/business/companies/adairs-profit-hit-by-weak-dollar-and-retail-slump-20190826-p52kro.html