Why Is G8 Education Slashing Earnings Forecast Amid Occupancy Woes?

Occupancy Challenges Persist

G8 Education Limited (ASX, GEM), one of Australia's largest early childhood education providers, has issued a trading update for fiscal year 2025 that underscores the ongoing difficulties facing the sector. Despite hopes for a seasonal rebound in occupancy during the second half of the year, the company reports that occupancy rates remain well below those of the prior comparable period. As of early November, spot occupancy stood at 68.3%, down 6.6 percentage points from last year, while year-to-date occupancy was 65.7%, 4.5 points lower than the prior year.

Macroeconomic Pressures and Sector-Wide Headwinds

The company attributes the subdued occupancy levels primarily to ongoing macroeconomic pressures, including cost of living challenges that continue to impact families’ ability to afford childcare. Lower enquiry levels and broader sector-wide challenges have compounded these issues, preventing the usual seasonal uplift in enrolments that typically occurs in October.

Revised Earnings Outlook and Cost Management

In light of these occupancy trends and the need to invest in regulatory compliance and operational improvements, G8 Education has revised its full-year earnings before interest and tax (EBIT) forecast downward to a range of $91 million to $98 million. This is a notable adjustment from previous guidance that anticipated earnings similar to calendar year 2024. The company emphasizes its continued focus on diligent cost management and procurement initiatives to mitigate the impact of lower revenues.

Regulatory Compliance and Quality Initiatives

G8 Education is actively engaging with federal and state governments and regulators to navigate ongoing policy changes aimed at improving outcomes for children and staff. The company supports harmonisation of early childhood education and care (ECEC) regulations across Australia and remains committed to implementing all regulatory changes effectively. Notably, G8 Education plans to roll out CCTV systems across its network starting in 2026, reflecting a broader commitment to safety, quality, and transparency.

Looking Ahead to 2026

Despite the current challenges, G8 Education is optimistic about the future. The company is focused on optimising enrolments during the current transition period and anticipates that the abolition of the activity test for three days of care in 2026 will stimulate demand across the sector. However, the near-term outlook remains cautious as the company balances subdued occupancy with necessary investments and ongoing government inquiries.