If you have been listening to some analysts, Australian specialty retail is dead in the water; Customers are apparently all shopping online with large overseas mega-retailers. However, some specialty retailers are apparently bucking the supposed trend. Enter Adairs (ASX: ADH), who with yesterday’s earnings report, reminded Australian investors that there are still gems to be found in Australian retailing.
In their FY20 earnings release yesterday Adairs announced a 19 percent jump in profits to $35.3 million, with a 40 percent jump in EBIT. This was on the back of a 12.9 percent increase in sales, driven in large part due to a 110.5 percent increase in online sales. They also lifted the dividend to 11 cents per share, a 37.5 percent increase in the final dividend of FY19, although no interim dividend was paid this year to preserve capital.
These results come despite Adairs closing stores during the initial wave of COVID-19 between March and May; Stores had all reopened by the 1st of June.
A key point to note is the 110.5 percent jump in group online sales, which included a 61.4% jump in the online sales of the core Adairs business. During the period the physical stores were shut, online sales more than tripled, with Adairs online sales up 228% in April. To me this illustrates that Australians (and New Zealanders) still maintain some allegiance towards domestic brands even when the bricks and mortar stores aren’t there. This has big implications for Australian retailers facing ever-stiffer competition from global behemoths.
According to Managing Director and CEO, Mark Ronan, “We have seen strong trading since re-opening our stores and websites throughout May, which has continued up to today. 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.”
The strong results led to a massive 11 percent share price rally yesterday, but the result wasn’t too unexpected according to Emerald Equities’ quantitative models, which have given the stock an average total score of more than 84/100 since the start of the year.
There will be plenty more companies generating both positive and negative surprises this reporting season, and Emerald Equities provides rankings, and information on all of them, plus stock recommendations, research, charting and much more. Check out our equity research platform Emerald Equities Research.
Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
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