Adairs Limited (ASX: $ADH) 1H FY24 Key Highlights

Adairs Limited (ASX: $ADH) reported a decline in sales in the first half of FY24, with a focus on prioritising gross margin improvement, cost management, and cash flow from operations. The sales were down, particularly in-store sales, while online sales also experienced a decrease. The company's gross margin percentage improved for all brands, attributed to factors such as reduced clearance inventory, disciplined pricing and promotions, and easing container rates. Despite significant inflationary pressures from higher wage rates, rents, and utilities, the company's strong cost management fully offset these pressures. The Group's EBIT decreased due to lower sales, with Mocka delivering a strong performance. Additionally, the Group witnessed a reduction in net debt and declared an interim dividend of 5.0 cents per share fully franked, with the dividend reinvestment plan (DRP) remaining active at a 1.5% discount.

Executive Commentary on 1H FY24 Performance

The management's focus on near-term actionable priorities in the current macro environment has been evident in the results for the first half of FY24. The company has been actively addressing challenges such as inventory availability and ranging issues, NDC transition, CODB management, range enhancement, Linen Lovers program, store growth, and supply chain improvements. The NDC transition for Adairs is on track, with plans to implement a new warehouse management system in mid CY24 to further improve service and cost. Focus on Furniture also demonstrated resilience in a challenging trading environment, with a disciplined pricing strategy contributing to strong gross margin gains. Mocka's improved gross margin and disciplined cost management led to a solid recovery in EBIT despite minimal growth in traffic and sales. The company's focus on managing GM%, maximizing customer sales conversion, and managing CODB is expected to support profitable growth in the near term, despite the subdued trading environment.

Summary of 1H FY24 Results and Outlook

In the first half of FY24, Adairs (ASX: $ADH) faced a more challenging trading environment, resulting in a decline in sales, particularly in-store sales, while online sales also experienced a decrease. However, the company's focus on prioritising gross margin improvement and cost management proved effective, leading to an improvement in gross margin percentage for all brands and fully offsetting significant inflationary pressures. The Group's EBIT decreased due to lower sales, but Mocka delivered a strong performance. The reduction in net debt and the declaration of an interim dividend of 5.0 cents per share fully franked reflect the company's commitment to maintaining financial stability and rewarding shareholders. Looking ahead, the company expects the trading environment to remain subdued but remains confident in the key near-term initiatives across the Group, particularly in the areas of product ranging, supply chain improvements, NDC transition, CODB management, and store rollout, which are anticipated to provide levers for profitable growth.