Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Disciplined purchasing and pricing strategies led to a 170 basis point improvement in gross margin to 60.3%.
- Cost management initiatives and cost-out programs helped offset inflationary pressures, resulting in a flat cost of doing business (CODB).
- Taking over the National Distribution Center (NDC) from DHL delivered supply chain cost savings of $4 million.
- Adairs opened seven new stores, upsized or refurbished six stores, and closed seven smaller stores, resulting in a 3.9% increase in gross lettable area.
- Mocka reported a strong result with total sales up 3.8% and a significant margin improvement of 790 basis points, leading to an EBIT of $6.5 million.
Negative Points
- Group sales were down 4.3% due to higher cost of living pressures and a decline in customer traffic.
- Underlying group EBIT was down 9.8% on the prior year, totaling $57.6 million.
- Focus on Furniture sales declined by 11.1%, reflecting a challenging market environment.
- Inflationary pressures on major cost lines ranged between 3% and 6%, impacting overall profitability.
- The decline in the Australian dollar and normalizing import costs are expected to be headwinds in FY25.
Q & A Highlights
Highlights of Adairs Ltd (ASX:ADH, Financial) FY24 Earnings Call
Q: Just on Adairs brand top line and gross margins. Am I right in saying that like-for-like sales growth is probably back to positive in August? And if so, what is the rough quantum? Also, on gross margins, has promotional activity returned to normal levels?
A: Like-for-like sales in Adairs would be up in the low single digits if we didn't have the WMS change. Gross margin would be more like 150 bps to 200 bps up as opposed to the 300 bps. These numbers are a good starting point, but future projections are not guaranteed.
Q: Any observations on freight costs at the moment, headwind or tailwind to FY25?
A: Freight costs are likely a headwind, particularly in H2. Contracts protect us to a large extent, but surcharges are coming in earlier than normal. It's not massively material but will be a slight headwind.
Q: Is the 10% EBIT margin for Adairs brand feasible for FY25, given positive like-for-like sales growth?
A: The 10% EBIT margin is definitely the target. However, achieving this in FY25 in one big leap is optimistic. We should see an improvement in the EBIT margin in the Adairs business as we roll forward into FY25.
Q: Can you clarify the comment on OpEx being flat year-on-year? Is that just for Adairs or the whole group?
A: That is just for Adairs.
Q: With the store guidance of six Adairs and three Focus, are you looking to close a certain number of Adairs stores in FY25?
A: We will probably close between five and eight stores, focusing on upsizing or closing smaller underperforming stores while building out the larger store portfolio.
Q: Are there any benefits in COGS due to excess capacity in China?
A: None that I'd call out. It depends on the supplier and product. Some excess capacity is offsetting higher input costs in areas like feather, which is getting more expensive.
Q: Can you break apart the $14 million of CapEx guidance for next year?
A: About 60-70% is for growth initiatives like store openings and digital initiatives. The balance is for maintenance and other IT and physical expenditures. The main variable is the timing of store openings.
Q: On Focus, the trading update implies a strong July but weak August. Was August a surprise or a post-sale normalization?
A: It's more of a post-sale normalization. August isn't a big month for Focus, and the decline was expected after a strong July.
Q: Can you explain the impact of bird flu on feather costs?
A: Bird flu in Asia is causing a reduction in the supply of feathers, leading to price increases. Feather and down quilts and pillows will see price increases of 10-20%.
Q: Will you look to do more above-the-line marketing in FY25?
A: We target marketing as a percentage of sales, so there won't be a significant change. We are trialing new initiatives and focusing on efficient marketing to drive sales.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
