There have been a few broker targets north of $2 (GS- $2.40 and UBS I believe $2.14)
Vicinity's writedown confirms that rental reductions are definitely happening.
More importantly.
1. Adairs generally has a slightly stronger H2 than H1
2. For the first 11 weeks of H2, store sales were up about 1% and online was growing at 30%pa (before Covid). Mocka was growing at 18%pa.
3. During Covid, Adairs was down 37%, Mocka was up about 150% and in the short time Mocka NZ opened up- up 216%.
This gives about:
~30m Adairs sales/month based on H1 sales
~ 3m Mocka sales/month- with roughly 50% ANZ/NZ split
Using crude methodology you get approx 85m sales for Adairs in first 11 weeks, 24m for Covid -> 109m in sales so far with 10 weeks remaining
For Mocka you get about 10m sales for first 11 weeks, 2m sales from Au Covid and 1.2m sales from NZ for Covid period --> 13.2m in sales
Even assuming a 20% reduction for the last 10 weeks compared to FY19 (which IMO is extremely unlikely based on other trackable data) gives 66m in sales for a total of at least 370m in sales for the year. This compares very favourably with GS FY20 estimates of only 347m in total sales.
4. Now with margins- we know that net cash position was up 5m since March (having run down a bit of inventory), without rent or jobkeeper. Rental payments are about 2.5m/month whereas the wage expense is about 7.5m/month. As long as more than a third of the age bill is covered by Jobkeeper (IMO again quite likely). It appears that rental reductions have been agreed upon across the board (based on stores opening combined with previous management comments, with some certainty regarding the next 6 month period). Overall it looks like this is going to be cost neutral at worst, and possibly favourable compared to the previous year.
5. Assuming margins can otherwise be maintained- this gives an EBIT in the vicinity of 48m, again far above analyst price targets.
Uncaptured upside is that they seem to be knocking it out of the park with their current range online at least.
Putting things a different way- the online business alone is doing about 120m in revenue and growing at about 25-30%pa (without the Covid accelerant), and should have blended EBIT margins of around 15% (to improve with the new DC). Ignoring the stronger physical retail business entirely, the current EBIT runrate of the online business backsolves to an enterprise multiple of 22 or PE multiple of 30 (which is actually cheapish in this market)...for 1/3 of the business.
Considering the demonstrated resilience through a testing tiime, I hope that longer term PE rerating occurs to more accurately reflect the quality and resilience of the business. There aren't too many listed companies that I can think of that have had as many board members stump up so much hard earned for equity during the bottom as Adairs (in fact I can't think of any). If you zoom out and look at the business and what it has achieved since listing (navigating tough retail headwinds, growing online, Adairs kids, New Zealand expansion, Mocka, Homemaker strategy, DC to come), this is both quantitatively and qualitatively a substantially better business. Interest rates are also lower. The only things that have changed is Mr Market's opinion, which has gone from decidedly optimistic to pessimistic.
This market has certainly has been an interesting exercise- hard to know what it is thinking sometimes..
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