The Adairs Ltd (ASX: ADH) share price rose 8% to $1.46 after the company released its annual results to the market this morning. Here's what you need to know:
- Sales grew 7% to $265 million due to new store openings
- Net profit fell 20% to $21 million
- Earnings of 13 cents per share, down from 16 cents previously
- Dividends of 8 cents per share
- Net debt of $28 million
- Outlook positive with continued like for like (LFL) sales growth expected in 2018
- 4-6 new stores plus 6 store upsizing's in Australia, and 2 new stores in NZ
So what?
Adairs has experienced a real swing in market sentiment recently, with shares up almost 100% since their nadir two months ago. Management's turnaround strategy has been working and, despite reporting a decline in LFL sales last year, LFL sales were up 13% in the two months subsequent to June 30. There is a somewhat informative interview with the CEO in the 'market briefing' announcement which shareholders may find useful, not least because of the guidance table provided:
The profit margins here are pretty consistent with recent years, with the main takeaway being that earnings before interest and tax (EBIT) is forecast to be between ~10% and ~20% higher in 2018.
Now what?
With the forecasts for further growth, Adairs could be somewhat under-priced at its current price to earnings (P/E) ratio of around 13x. However, the company no longer looks like a screaming bargain either, and it is a long way shy of returning to previous highs reached in 2015-2016. I would recommend prospective investors research the company's competitive position before considering a purchase – speaking for myself, there are a number of other attractive companies I'd buy before Adairs today.
