Who doesn’t love a discount? The amount of nods to this question has increased over the past year thanks to rising prices and inflation. It’s no wonder then that luxury retailers like Adairs are not gaining consumers’ favour.
In the first half of FY24, household retailer Adairs (ASX: ADH), like many others, dealt with reduced customer traffic. The atmosphere of challenging sales bled into the initial eight weeks of H2 FY24. Consumers have become increasingly value-focused, resulting in declining conversion rates when there are fewer offers and discounts.
Group inventories decreased by 21% YoY, exacerbated by port issues impacting Q2 sales. Even so, management remains optimistic about the future.
Managing Director and CEO, Mark Ronan, said, “The first half of FY24 has been challenging given customers continue to manage their household budgets carefully, leading to lower customer traffic. It is pleasing that we have been able to deliver on our primary objectives whilst focusing on those factors within our control – making sure we continue to offer great product at an attractive price with an outstanding customer experience across all of our businesses. Each business has key priorities that will over time deliver growth in sales while ensuring our cost base is managed appropriately for the prevailing and anticipated trading environment.”
Sales for the Adairs brand in the first half of FY24 recorded a 9.3% reduction to $199.9 million compared to the previous year. Factors contributing to this decline include lower customer footfall, erratic stock availability, and lacklustre performance in the fashion bed linen segment. Nonetheless, there are glimmers of hope with strong showings in the kids and furniture departments, hinting at potential growth avenues for the company.
Online sales remained stable at 26% of total sales, consistent with 1H FY23. The introduction of ‘Click and Collect’ in Australia and enhanced service levels from the National Distribution Centre (NDC) contributed to an uptick in conversion rates in-store and online. Adairs assumed operational control at its NDC, yielding positive results, with significant improvements in customer service levels compared to the same period in FY23. Targeted cost savings at the NDC are on track.
Adairs’ gross profit margin increased by 70bps due to retail price adjustments and lower import costs, while its cost of doing business declined by 5.3% despite rising expenses, driven by cost-saving initiatives and reduced sales volumes.
Savings of approximately $3.5 million are anticipated for FY24 compared to FY23, with a target of at least $4 million in 2024. Two new stores opened, three expanded, and three smaller stores closed, resulting in a 2% increase in gross lettable area (GLA).
Adairs’ underlying EBIT declined to $13.5 million in 26 weeks from $18.7 million in H1 FY23, with reported EBIT at $16.3 million for 27 weeks. Despite market challenges, new store openings remain a priority, with one each in Helensvale, Queensland, and Prospect, NSW, during 1H FY24. Springvale store was refurbished, and Essendon will wrap up in H2 CY24.
Looking ahead, the Company has big plans for its subsidiaries. Its main business Adairs will focus on opening bigger stores and managing smaller ones better to keep a profitable portfolio. Its furniture arm Focus on Furniture plans to open three new stores and refurbish three existing ones by the end of FY25. Meanwhile, the online furniture retailer Mocka will upgrade its website to Shopify Plus in 2H FY24 to make shopping easier and boost sales.
Alinda is a Business Reporter for The Sentiment
Latest posts by Alinda Gupta (see all)
- Ovanti’s iSentric signs contracts worth $14.4m with Malaysian commercial bank - June 27, 2024
- Baby Bunting fights back from retail downturn with 5-year strategy, includes Gen-Z focus and self-funded growth - June 27, 2024
- CLEO meets with US FDA to develop strategy for ovarian cancer test launch - June 26, 2024
Leave a Comment
You must be logged in to post a comment.