The rising cost of living has come for all our throats—furniture and manchester store Adairs (ASX: ADH) is no exception. The Company, like many others, has felt the pinch as higher interest rates and increased living expenses contributed to a notable decrease in foot traffic. To combat that, the Company’s mission has been to ensure that sales make up for lost traffic.
In the first 21 weeks of FY24, Adairs saw traffic decline by 10% compared to the same period last year. The sales slump extended across each of Adairs’s businesses: Adairs (9.9%), Focus on Furniture (8.7%) and Mocka (2.4%).
Adairs Chair, Brett Chenoweth, commented, “In response to the higher cost base and softer trading environment, the Group has implemented a cost-out initiative that will offset all inflationary increases in rent and wages and deliver further savings of more than $5m over the year.”
A bright spot in Adairs’s recent performance was the November Linen Lover Sales event, which marked the fifth-highest sales week on record. This success underscores the value of its loyalty program.
Plus, Adairs reported progress in the National Distribution Centre transition, with improvements in customer service and anticipated cost savings on track. The decision to bring the distribution centre operations in-house came as the Company was dissatisfied with the operational outcomes of its 2021 commissioning. By taking control, the Company will be able to cut costs associated with the NDC.
In FY23, Adairs’s wholly-owned subsidiary Mocka—a pureplay online designer and retailer of home goods—saw its sales decline by 24.1% on FY22. Since then, it appears to be improving, with Adairs saying it’s on the path to profitability.
The Company was also impacted by currency fluctuations, being exposed to the weaker Australian Dollar. Thankfully, this blow was cushioned by its 84% of US dollar commitments hedged at an average rate of US$0.70.
On leadership changes, Brett said, “Board renewal will occur over time in line with good governance principles, which include reviewing the needs of the group and a desire to bring new ideas, perspectives and capabilities to the board as required.”
Adairs has a few new strategies in place: new stores, a foray into children’s products, and optimising its new website, which launched in November 2022, featuring click-and-collect functionality.
Still, Ronan is not throwing caution to the wind and putting an optimistic front for Adairs.
He shared, “While it feels like the interest rate rises are at, or near, their end, we do not expect any significant change in the short term, and so we expect the balance of FY24 to remain challenging.”
Ronan hopes to maximise sales during the upcoming Black Friday weekend and Christmas trading periods.
“Inventory levels have been well managed across the group with a clear focus on optimising inventory, particularly when operating in a softer trading environment. Group inventory levels finished FY23 approximately 11% lower than they started, and we will continue to manage inventory tightly until trading conditions show a sustained improvement,” Brett noted.
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