Adairs Limited (Adairs, the Group, ASX:ADH) is Australia’s s largest omnichannel specialty retailer of home furnishings and home decoration products. The Group operates an omnichannel retailing strategy that seamlessly combines in-store shopping with the convenience of on-line marketing and ordering to deliver a superior customer experience.
Listed on the ASX since June 2015, Adairs commenced business in the early 1900s on Chapel Street, Prahan in Victoria before establishing itself as a small format department store in Camberwell, retailing manchester, curtains and haberdashery. In 1981 the first modern Adairs boutique was opened in Doncaster Shoppingtown, and today it operates in Australia and New Zealand through a network of 170 stores.
The Australian Bureau of Statistics (ABS) has reported that seasonally adjusted retail trade turnover in November 2023 at $36.5 billion, was the highest monthly sales number in Australia’s retail trading history. Given the pre-Christmas buying rush and the Black Friday Cyber Monday buying frenzy, November is seasonally the largest sales month of the year for Australian retailers.
The latest ABS statistics show that retail trade in Australia on a month-on-month basis is up 2 percent in November compared to October 2023 and up 2.2 percent compared to November 2022.
On a month-on-month basis, the largest increases in turnover were Household Goods Retailing (up 7.5 percent) and Department Stores trading (up 4.2 percent). Adairs has a strong and growing presence in these two market segments. Household goods retailing includes furniture, floor coverings, houseware, and textile goods. Furniture sales were up 9.7 percent, implying strong November sales results for furniture retailers like Nick Scali (ASX: ‘NCK’), Temple & Webster (ASX: TPW) as well as Adairs. Furniture accounts for approximately 25 percent of Adairs’ sales revenue.
The exceptions to the strong sales turnover numbers were Hardware (down 0.9 percent), Takeaway Food (down 0.2 percent), Newspapers and Books (down 0.2 percent) and Footwear (down 0.1 percent), compared to the previous month of October 2023.
The ABS compiles its published statistics based on monthly data collected from 500 ’large’ businesses and about 2700 ‘smaller’ businesses which predominantly sell to households. The ‘large’ business contribution accounts for 69 percent of the total estimate and ensures a highly reliable Australian total retail turnover estimate. The estimates include in-store and on-line sales numbers and are seasonally adjusted. This adjustment removes systematic calendar related effects like increased spending at Christmas, Black Friday Cyber Monday, the Easter proximity, and the Father’s Day effect.
While the surge in retail trade expenditure by Australian householders is welcome news, the retail environment remains a difficult one while consumers continue to contend with the high cost of living and the elevated level of interest rates.
The deliberate management focus on the National Distribution Centre which has endured poor operational functionality since commissioning in September 2021, has affected customer experiences and resulted in higher operating costs well above expectations. Since stepping in from early September 2023 and removing DHL, the external contractor, Adairs have reverted to a self-operated model, which has improved the customer experience and reduced product distribution costs. The transition back to the self-operated model will require an outlay of $18 million upfront capital expenditure from cash reserves and existing finance facilities. This unplanned cash outlay was the reason why the board decided not to pay a final FY2023 dividend and maintain a strong balance sheet.
The AGM management commentary referred to a successful ’Linen Lover’ sales promotion in November that produced the fifth largest sales week on record. Reference was also made to management’s focus on furniture that as at 24 November was ahead of the FY24 Plan, although down on the same 21 weeks of the previous year. With the Australian dollar trending slightly higher over the past four months since October 2023 from around 64 cents to 67 cents today, sales margins in the period ahead may show signs of improving.
The likelihood of dividends being restored within the foreseeable future and the roll out of new stores in Queensland and NSW as the primary strategy to drive sales growth, Adairs shareholders can anticipate a positive medium-term earnings outlook at the next trading update to be released on Monday 26 February 2024.
Michael Kodari is a globally recognised investor, philanthropist, and leading financial markets expert, renowned for his exceptional performance. With a strong foundation in financial markets, Michael has advised leading financial institutions and governments.
Chifley Tower, 2 Chifley Square,
Sydney NSW 2000
1300 854 151
© 2023 KOSEC | Kodari Securities Pty Ltd | ABN 90 147 963 755 | FSG | Terms & Conditions | Disclaimer & Legal
© 2023 KOSEC | Kodari Securities Pty Ltd
ABN 90 147 963 755
KOSEC - Kodari Securities does not provide any investment advice, nor is anything mentioned an offer to sell, or a solicitation of an offer to buy any security or other instrument. Anything discussed is for informational purposes only and does not address the circumstances or needs of any particular individual or entity. Investing in the stock market is high risk. Under no circumstances should investments be based solely on the information provided. We do not guarantee the security or completeness of information on this website and are not held liable. Kodari Securities PTY Ltd trading as KOSEC is a corporate authorized representative (AFSL no.246638) which is regulated by the Australian securities and investment commission (ASIC).