How Will Adairs Balance Growth and Margin Pressures in FY25?
Adairs Limited projects modest overall growth for FY25, buoyed by strong performances from Adairs and Mocka brands, while Focus on Furniture struggles with declining sales and earnings.
- Group sales forecasted to rise 6.1% to $614-618 million
- Underlying EBIT expected to increase slightly by 1.2% to $53.5-57 million
- Adairs and Mocka brands driving sales and earnings growth
- Focus on Furniture faces significant sales and EBIT declines
- Elevated promotions and weaker AUD impacting gross margins
Strong Sales Momentum Despite Margin Pressures
Adairs Limited has released its trading update and guidance for the fiscal year ending June 29, 2025, projecting group sales growth of approximately 6.1% to between $614 million and $618 million. This marks a continuation of the company’s positive sales trajectory, largely driven by the Adairs and Mocka brands. However, the encouraging topline figures come with a caveat – elevated promotional activity and a weaker Australian dollar have put pressure on gross margins, tempering profitability gains.
Divergent Brand Performances
The Adairs brand is on track to deliver a record sales year with around 9% growth over FY24, supported by strong demand and ongoing improvements in service and cost metrics at its national distribution centre. Meanwhile, Mocka continues its impressive run with double-digit sales growth expected for FY25, including a notable 25% increase in Australia. The brand’s strategic initiatives, such as website re-platforming in New Zealand and physical retail trials including a new shop-in-shop concept in Christchurch, are bearing fruit.
In contrast, Focus on Furniture is facing a challenging environment. Sales are forecasted to decline by 7% for the full year, with underlying earnings before interest and tax (EBIT) expected to fall sharply by nearly 36%. The business has relied heavily on promotional activity to stimulate demand, which has adversely affected margins. Management is actively evolving the brand’s positioning and execution capabilities, with a national store rollout planned to accelerate in FY26, signaling a strategic reset.
Profitability Outlook and Strategic Reset
Overall, the group’s underlying EBIT is expected to grow modestly by about 1.2% to a range of $53.5 million to $57 million. This reflects strong earnings growth from Adairs and Mocka offset by the significant EBIT decline at Focus on Furniture. The company’s guidance excludes certain non-recurring costs related to leadership transitions, warehouse relocations, and system upgrades, indicating a focus on underlying operational performance.
Under new leadership, Adairs is implementing significant changes aimed at resetting the business foundations to support sustainable long-term growth. These initiatives come at a critical juncture as the company balances growth ambitions with margin pressures and brand-specific challenges.
Looking Ahead
Adairs Limited is scheduled to release its full year results on August 27, 2025. Investors will be keen to see how the company navigates the margin headwinds and whether the strategic initiatives at Focus on Furniture can reverse its recent downturn. The evolving retail landscape and currency fluctuations will also remain key factors influencing performance.
Bottom Line?
Adairs’ FY25 guidance highlights growth tempered by margin pressures and a pivotal reset for Focus on Furniture.
Questions in the middle?
- Can Focus on Furniture’s strategic changes reverse its earnings decline in FY26?
- How sustainable are the elevated promotional activities without further margin erosion?
- What impact will currency fluctuations have on the group’s profitability going forward?
