Rising Costs and Debt Cloud Adairs’ FY25 Earnings Despite Sales Gains

Steady Sales Growth Despite Segment Headwinds

Adairs Limited (ASX – ADH), a leading omni-channel retailer in home furnishings across Australia and New Zealand, has reported its FY25 financial results, revealing a 6.5% increase in group total sales to $618.1 million. This growth was driven primarily by the core Adairs brand and the online-focused Mocka segment, which both posted solid sales gains. However, the Focus on Furniture division experienced a notable sales decline of 6.5%, reflecting ongoing challenges in that segment.

Underlying earnings before interest and tax (EBIT) edged up slightly by 1.4% to $55.2 million, indicating that while top-line growth was positive, margin pressures and transition costs weighed on profitability. The group’s underlying EBIT margin contracted by 50 basis points to 8.9%, highlighting some cost headwinds.

Omni-Channel Strength and Online Expansion

Adairs continues to leverage its omni-channel model, operating 168 stores nationally alongside a growing online presence that now accounts for over $180 million in annual sales. The company’s vertical integration and exclusive product designs underpin its competitive positioning, offering customers a blend of on-trend, quality home textiles and furniture with strong value propositions.

Mocka, the pure-play online retailer within the group, delivered a 14.7% sales increase, benefiting from its design-led, exclusive product range and expanding customer base in both Australia and New Zealand. Meanwhile, Adairs’ own stores and online channels combined for a 9.5% sales uplift, underscoring the effectiveness of its multi-channel strategy.

Rising Costs and Transition Investments

The company’s financials reflect significant investments in technology and infrastructure, including costs related to the implementation of a new warehouse management system (WMS), SaaS cloud computing projects, leadership transitions, and the National Distribution Centre (NDC) step-in. These transition costs have contributed to increased net debt, which rose to $67.6 million from $64.1 million the prior year.

Gross margins remained relatively stable at around 61%, though Focus on Furniture saw margin compression. The cost of doing business (CODB) increased moderately, reflecting higher warehouse and delivery expenses. Despite these pressures, Adairs maintained positive underlying EBITDA growth of 3.5% and underlying EBIT growth of 1.4%, signaling operational resilience.

Earnings and Shareholder Returns

Statutory earnings per share (EPS) declined by 18.5% to 14.6 cents, impacted by the non-recurring transition costs and a shorter comparative period last year. Dividends per share were reduced by 12.5% to 10.5 cents, reflecting a cautious approach to capital management amid ongoing investments and market uncertainties.

Looking ahead, Adairs’ focus remains on driving efficiencies, enhancing customer experience, and expanding its exclusive product offerings to sustain growth momentum. The company’s omni-channel footprint and strong online capabilities position it well to navigate evolving consumer preferences in the home furnishings sector.