Adairs (ASX:ADH) walloped

As I write this Adairs is trading down 19% on the day at $3.08 after it released what was an apparently surprising earnings update for the first half of FY22. I'm not sure how we could have seen the substantial fall in earnings coming given the lockdowns and supply issues endured during the period which were obvious at the time.

In my own forecast for H1 22 I had penned in revenue of $263 million and EBIT of $44 million assuming no lockdowns and excluding any contribution from the recently acquired Focus on Furniture. This is remarkably similar to the company's figures when adding back their estimates of lockdown impacts to revenue and profit (midpoints of $33 million and $16 million respectively). Therefore, today's update was inline (actually slightly better than) my personal expectations.

Looking to the second half of the year I reckon the group ex Focus is on for $48 million EBIT or an annualised run rate of about $100 million assuming longterm organic growth trends. Add management figures for sustainable EBIT contribution from Focus of $13 million and we get $113 million for the group.

Net debt is $91 million and the enterprise value of the stock following today's fall is about $620 million. That's an EV/EBIT multiple of about 5.6, remarkably cheap if the lost lockdown trading figures provided by management prove to be accurate.