Adairs profit slips, despite growing sales

Source: Adairs Instagram.

Homewares retailer Adairs saw net profit slip despite sales and gross profit improving as a result of a weaker Australian dollar and the costs of a growing distribution network, over the year to 30 June, 2019. 

Total sales increased 9.7 per cent to $344.4 million, with Adairs’ online channel growing 41.7 per cent during the year – now contributing 17 per cent of overall sales.

Adairs chief executive and managing director Mark Ronan said the results were attributed to an unrelenting focus on delivering excellent retail execution, and an understanding of what the business’ customers want both online and offline. 

Part of this understanding comes from the business’ loyalty offering, Linen Lovers, which grew 17 per cent over the year. Linen Lovers members contributed 75 per cent of all sales.

According to Ronan, Adairs is not quite operating at best-practice in its omnichannel operations, which gives the business a lot of room for growth in the online space.

Despite relatively strong sales numbers, Adairs net profit fell 1.3 per cent to $29.6 million.

Cost of doing business grew by $15.2 million, or 11 per cent, due to efforts to restructure the business’ supply chain network in order to provide agile, best-in-class capability to accommodate future demand. 

“We are addressing our short-term supply chain issues and have a clear process to finalise the long term solution,” Ronan said. 

“We see this as an opportunity to contribute to building and sustaining our competitive advantage. In the last 12 months we have made strategic hires in key areas of our business, [and] we are in a strong position to deliver a great retail experience.”

However, Ronan acknowledges that the current retail climate brings its own set of challenges. 

“While the macro environment is challenging, our strategies of product differentiation, range expansion, more inspiring and larger store formats, and an unwavering focus on customer service will all play a key role in growing both like-for-like and total sales in FY20,” Ronan said. 

The business also delivered its first profitable year in New Zealand, with work done on the local supply chain significantly assisting sales, along with improving brand awareness.

New Zealand saw sales growth of over 25 per cent during FY20.

According to Ronan, the lessons learned in New Zealand will assist the business as it looks to expand into further markets – when the right opportunity arises.

During FY20, Adairs expects to open between four to six new stores across Australia and New Zealand, and forecasts total sales of between $360 million and $375 million to deliver an EBIT of between $43 million and $46 million.

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