Online profits push Adairs shares to new record highs

Shareholders in bedding and interiors retailer Adairs (ASX: ADH) have seen their portfolios decorated with some brighter numbers today, after the company reported a 19 per cent lift in profit driven by a surge in online activity.

Since the beginning of the pandemic Australians and New Zealanders have been embellishing their homes where they are now forced to spend a lot more time, and Adairs has taken full advantage with a net profit after tax (NPAT) of $35.3 million for FY20.

The acquisition online home and living products seller Mocka in December also could not have come at a better time for the Melbourne-based company, and a results of the newly incorporated business have exceeded expectations with 50.2 per cent sales growth.

Unaudited results released today show group sales rose 12.9 per cent to $388.9 million in FY20, despite nationwide store closures in Australia in April/May and online business closures in New Zealand in March/April.

Despite a 7.3 per cent decline for Adairs-branded physical stores, the Adairs division itself recorded a 4.5 per cent increase in sales as like-for-like store revenue was up and online sales rose by a whopping 61.4 per cent.

At the time of writing ADH shares were up 15.69 per cent at $3.17 and had reached $3.24 earlier today. Both these price levels are by far the highest they've ever been since the company was listed on the ASX in June 2015.

"We have seen strong trading since re-opening our stores and websites throughout May, which has continued up to today," says Adairs CEO and managing director Mark Ronan.

"Our results confirm the strength of our brands and the competitive advantage our omni-channel model provides in these volatile times.

"The acceleration in online penetration and growth rate brought about by COVID-19 restrictions has long term benefits for us as more of our customers shop across our brands."

An omni-channel approach that has lifted online to close to a third of Adairs' business, combined with various upsizings, closures and fresh openings, has contributed to the strong result.

An improved gross margin rate has also been achieved courtesy of a coordinated program of sourcing and retail pricing initiatives, combined with a focus on reduced depth and length of promotional activity, which the group claims have collectively more than offset the impact of a weaker Australian dollar.

The gross margin rate is expected to remain a focus throughout FY21.

The company's cost of doing business (CODB) benefited from the receipt of JobKeeper subsidies, which have contributed materially to maintaining the employment of many of its team members.

Of the $11.3 million in wage subsidies received during Q4, more than half was passed through to team members who had been stood down or whose hours were less than the value of the subsidies. 

The company's CODB was reduced by $5.3 million as a result of wage subsidies received for team that continued to work.

As part of the plan to boost Adairs' online capabilities, earlier this year Adairs appointed DHL as its partner to operate a new purpose-built National Distribution Centre (NDC) based in Melbourne, where construction is now underway.

The Adairs board expects the NDC to generate annual savings of $3.5 million from FY2022.

Business News Australia