Shares in Adairs Ltd (ASX: ADH) are trading higher after the company reported higher first-half revenue but lower profits, in a period management characterised as a “resetting” phase for the business.
In a statement to the ASX on Monday, Adairs said revenue was up 5.9% to $329 million for the first half, while gross margin fell 120 basis points to 57.7% and net profit was 33.8% lower at $12.8 million.
The company added:
Adairs sales and margin gained momentum through Q2 after a challenging Q1 where heavy clearance activity was undertaken. Mocka achieved another outstanding result and is poised to accelerate further with the opening of retail stores. The management changes at Focus on Furniture provides the opportunity to reset operations and strategy to unlock the potential of this business.
Breaking down the results
The Adairs division delivered first-half sales of $229.4 million, up 4%, supported, the company said, by strong execution through sales events including Black Friday, Christmas, and Boxing Day.
Underlying earnings of $18.6 million were down 10%, primarily attributable to Q1 clearance sales, the company said.
During the half, two new stores were opened, two were upsized and refurbished, and one closed.
In the Focus on Furniture division, sales were up 1% to $63.1 million while like for like sales declined 3.3%.
In the Mocka division, sales hit a record $36.5 million, up 29.8%, “driven by product innovation and effective customer acquisition strategies, particularly in Australia”, Adairs said.
Adairs added:
Australian sales increased +44.5%, with customers responding to on-trend, great-value new ranges. New Zealand returned to growth, with sales up +8.2%, supported by new product and continued positive results from the shop-in-shop trial, which contributed $1.2 million in sales.
Mocka will open its first standalone retail store in May this year, the company said.
Managing director Elle Roseby said regarding the results that they were heading in the right direction.
Whilst the results across the brands were mixed, I’m pleased with the material progress we have made and the significant decisions we have actioned to reposition and reset our businesses. This work positions us well for sales growth, margin expansion and earnings improvement into 2H. Specifically, I’m pleased with the extent to which we were able to clear excess inventory in Q1 at Adairs, leading to improved performance in Q2. At Focus on Furniture we have made the important changes to the leadership team which allows us to reset our operational approach and strategy. Finally, I’m delighted with the continued growth at Mocka and the opportunity that gives us to open our first standalone retail store for Mocka in 2H
Adairs shares were trading 4.1% higher at $1.898 on Monday morning. The company was valued at $320.9 million at the close of trade on Friday.
The post This retailer’s shares are up despite mixed results, as the business goes through a reset period appeared first on The Motley Fool Australia.
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Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Adairs. The Motley Fool Australia has positions in and has recommended Adairs. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.