Adairs (ASX:ADH) reported record first-half FY26 group sales of AUD 329 million, up 5.9%, but said the revenue growth did not translate into higher first-half profit due largely to aggressive clearance activity in the Adairs brand during the first quarter.
Managing Director and Group CEO Elle Roseby told investors the group made “significant decisions” to reposition and reset parts of the business, which she said should support sales growth, margin expansion and earnings improvement into the second half. The company also highlighted executive changes, including the appointment of Matt Edmonds as Group CFO (commencing February 9) and Candice Deale as CEO of Focus on Furniture.
Group performance: record sales, lower first-half EBIT
Gardner also said total inventory was 4.4% lower than the same time last year and stock turnover improved. Underlying operating cash flow increased more than 30% to AUD 32.6 million, driven mainly by improved stock turns. The group used cash flow to fund capital and project expenditure, including AUD 6.4 million of capital expenditure for new stores, store refurbishments and digital initiatives, plus AUD 6.6 million invested in the Adairs technology upgrade. Net debt fell 20% to AUD 53.6 million.
The board declared an interim dividend of AUD 0.055 per share, fully franked, and said the dividend reinvestment plan remains active.
Adairs: “tale of two quarters” after inventory clearance
Management described Adairs’ first half as split between a clearance-driven first quarter and a stronger second quarter supported by major trading events. Roseby said Black Friday, Christmas and Boxing Day were standout periods across all three brands, and the Adairs business benefited from new seasonal ranges and in-store investments to support execution.
Adairs sales increased 4% for the half, with like-for-like sales up 4.2%. Gardner said gross margin declined 170 basis points to 60.7%, reflecting a roughly 300-basis-point margin hit in the first quarter from clearance activity, followed by consistent improvement through the second quarter. Underlying EBIT for Adairs was AUD 18.6 million, down 10% year-over-year, with management emphasizing the entire decline occurred in Q1 and that Q2 profits were higher than the prior year.
On costs, Gardner said total cost of doing business improved by 50 basis points. National Distribution Centre costs were 12% lower in absolute terms despite higher volumes, and service levels improved, with more than 98% of online orders dispatched within two days. He also cited store efficiency gains, including higher sales per hour, helping offset rent and wage increases.
The company continued its Adairs technology upgrade, with project expenditure of AUD 6.6 million incurred and excluded from underlying earnings. Gardner said the project remained on track for go-live in the first half of FY27, with planned spend in line with guidance provided in August.
Brand initiatives: loyalty, store portfolio actions, and concept format
Roseby said Adairs is focusing on “big moments” as a key driver of engagement and incremental sales, and that over November and December the company’s investment in Christmas and seasonal categories, combined with new store fixtures, delivered “material sales and margin improvement.” She said it also contributed to market share growth in December, a month in which Adairs has historically lost share to competitors.
Roseby provided several operational updates for Adairs, including loyalty and store strategy:
- Linen Lovers: more than 1 million unique paid members, contributing more than 80% of sales.
- Qantas Frequent Flyer partnership: described as early but showing positive indicators, including customer acquisition and higher spend among members who tag their Qantas Frequent Flyer number.
- Store portfolio review: seven smaller, less profitable Adairs stores are expected to close in the next six months, with a plan to transfer some sales to other stores and online via the Linen Lovers program.
- Concept store: the first new concept store is planned to open at Bondi Junction in May, intended to showcase a modernized Adairs experience with immersive storytelling and curated spaces.
In the Q&A, Roseby and Gardner said Adairs’ first-half gross margin came in below prior guidance due to stronger-than-expected performance in major promotional events, which carry higher promotional intensity. Roseby added the business learned it “didn’t need to be as aggressive” in discounting in some cases, citing strong product performance and quick sell-through in certain categories. Management also said it was seeing strength in bed linen and toweling, with the “textile side” of the business performing well.
Gardner said the company expects Adairs gross margin to recover to “62 plus” in the second half, reflecting improved buying and product quality after working through excess inventory. He also discussed hedging, stating the company’s policy is designed to create certainty and that it would “continue to average up” FX coverage for FY27, noting it was around 40% covered at the time of the call.
Mocka surges; Focus on Furniture remains challenged
Mocka was the standout performer, with sales up 29.8% to AUD 36.5 million. Gardner said Australia sales rose 44.5% on top of 27.5% growth in the prior year’s first half, while New Zealand grew 8.2% in what he called a difficult market. Gross margin increased to 60.1% as new products and reduced promotional depth supported profitability. Underlying EBIT rose 45.5% to AUD 5.6 million, with an EBIT margin of 15.3%.
Roseby said the group is preparing to open Mocka’s first standalone retail store in Queensland in May, with a second store planned for Victoria later in the year. She also noted Mocka’s brand awareness in its target demographic increased by more than 60%, and cited operational metrics including faster dispatch times and more than 100,000 reviews averaging 4.5 stars.
Focus on Furniture posted sales of AUD 63.1 million, up 1.9%, while like-for-like sales fell 3.3%. Underlying EBIT declined 31.7% to AUD 5.8 million. Gardner said the business traded well during Black Friday and Boxing Day but was softer at other times. Margin was “only slightly down,” helped by supplier cost reductions negotiated early in the half, which offset increased promotional activity and the weaker Australian dollar. Costs increased due to non-like-for-like store costs and higher rent for a new Victorian warehouse and customer support center.
Roseby said leadership changes were made to reset Focus on Furniture, including Deale’s appointment and new executives across retail, product, digital and marketing. She said extended finance options and made-to-order offerings grew their share of sales in Q2. The company plans to refresh three to five Focus on Furniture stores over the next 12 months and cited a more than 20% sales uplift at the recently refurbished Frankston store. It also noted a new store in Tuggerah is expected to open next month, and that management is reviewing a potential market entry into Western Australia while prioritizing expansion in Queensland and New South Wales.
Second-half update: sales up 6.4% in first seven weeks
For the first seven weeks of the second half, Roseby said group sales were up 6.4%. Adairs sales rose 4.8% against a strong comparable period (up 15.2% last year). Focus on Furniture sales were up 0.8%, with an order book of AUD 9.5 million, 6% below the same time last year, though management said margin improved year-over-year. Mocka sales were up 31.3%, including 47.1% growth in Australia and 10.9% growth in New Zealand.
Looking ahead, management said the group expects sales, margin and underlying EBIT growth in the second half of FY26 compared to the prior year period, supported by momentum from Q2. The company expects to open three to five new Adairs stores, one new Focus on Furniture store, and the first Mocka standalone store in the second half, while closing six to seven Adairs stores as part of its portfolio review. The Adairs technology upgrade remains on track for a first-half FY27 go-live, according to management.
About Adairs (ASX:ADH)
Adairs Limited operates as a specialty retailer of home furnishings, furniture, and decoration products in Australia and New Zealand. It operates through three segments: Adairs, Mocka and Focus. The company offers bedroom products, such as bedlinen, bedding, and bedroom furniture and accessories; bathroom and laundry products, consisting of towels, bath mats and runners, bathrobes and slippers, bathroom accessories, and laundry and home care products, as well as beach and kids beach towels; furniture products, such as bedroom, office, living room, outdoor, and kids furniture; home and outdoor comprising home styling, home care and gifting, pets, outdoor, storage, and kitchen products; kid's products, including kids bedlinen, bedding, décor, bathroom, furniture, christmas, and nursery; as well as gifting products and kid collection.
