Adairs Faces Margin Squeeze Despite Sales Growth and Dividend Boost
Adairs Limited reported a solid 5.9% increase in sales for the half year ended December 2025, driven by strong brand performances, especially Mocka. However, underlying EBIT declined 9.1% due to margin pressures and rising costs, while the company declared a fully franked interim dividend.
- 5.9% sales growth to $329 million
- Underlying EBIT down 9.1% to $30 million
- Statutory net profit after tax fell 33.8% to $12.8 million
- Fully franked interim dividend of 5.5 cents per share declared
- Net debt reduced by $14 million to $53.6 million
Sales Growth Driven by Brand Momentum
Adairs Limited has reported a 5.9% increase in total sales to $329 million for the 26 weeks ended 28 December 2025, reflecting solid growth across all its brands. The standout performer was Mocka, which delivered nearly 30% sales growth, buoyed by strong demand in Australia and New Zealand and new retail initiatives including a planned standalone store opening in the second half.
The Adairs brand itself grew sales by 4%, supported by key trading moments and investments in store fixtures, while Focus on Furniture posted a more modest 1.9% increase, benefiting from refurbished stores and customer experience enhancements.
Profitability Under Pressure Despite Revenue Gains
Despite the top-line growth, underlying earnings before interest and tax (EBIT) declined 9.1% to $30 million. This was primarily due to margin compression from clearance activity in the first quarter and increased promotional efforts in a competitive market, particularly impacting the Adairs brand. Additionally, cost inflation and investments in team capability across the group weighed on profitability.
Statutory net profit after tax fell sharply by 33.8% to $12.8 million, reflecting the impact of non-recurring SaaS cloud computing project costs related to technology upgrades and the accounting effects of lease standards. Basic earnings per share dropped to 7.3 cents, down 34.5% from the prior corresponding period.
Balance Sheet and Cash Flow Highlights
Adairs reduced its net debt by $14 million to $53.6 million, supported by strong operating cash flows. The company maintains a solid liquidity position with $69 million in unused revolving loan facilities. Inventory levels remained stable, and the group continues to hedge foreign currency exposure related to US dollar inventory purchases.
Dividend and Outlook
The board declared a fully franked interim dividend of 5.5 cents per share, payable on 7 April 2026, signalling confidence in the company’s cash generation despite profit pressures. The dividend reinvestment plan remains open with a 1.5% discount to encourage shareholder participation.
Looking ahead, the company’s focus will be on managing margin pressures, completing its technology upgrades, and capitalising on Mocka’s growth trajectory. While cost inflation and competitive dynamics pose challenges, the diversified brand portfolio and omni-channel strategy provide a foundation for sustainable growth.
Bottom Line?
Adairs’ sales momentum is clear, but margin and profit headwinds will test management’s ability to deliver sustained earnings growth.
Questions in the middle?
- How will ongoing SaaS cloud computing costs impact future profitability?
- Can Mocka’s rapid growth offset margin pressures in the core Adairs brand?
- What strategies will management deploy to navigate cost inflation and competitive pricing?
