Adairs posts 3.7% sales growth in FY26 but underlying EBIT dips 1.3%, weighed down by Focus on Furniture's ongoing struggles and a substantial non-cash impairment.
- Group sales rise 3.7% to ~$640m
- Underlying EBIT down 1.3% to $53.5m-$55.5m
- Focus on Furniture impairment of $62m-$68m planned
- Mocka and Adairs brands show strong growth
- Statutory net loss expected around $43m
Focus on Furniture Impairment Highlights Segment Woes
Adairs Limited (ASX:ADH) is bracing investors for a hefty non-cash impairment charge on its Focus on Furniture division, estimated between $62 million and $68 million. This write-down, covering all goodwill and a significant portion of the brand intangible, underscores the persistent challenges the unit has faced amid intensifying competitor promotions and operational execution issues. The impairment will be excluded from underlying earnings but will weigh heavily on statutory results, contributing to an anticipated net loss after tax of approximately $43 million for FY26.
Sales Growth Masks Profit Pressure
Despite a 3.7% increase in group sales to roughly $640 million, underlying EBIT is forecast to decline marginally by 1.3% to a range of $53.5 million to $55.5 million. This dip is largely driven by Focus on Furniture, where underlying EBIT is expected to plummet 68.3% to between $3.5 million and $4.0 million. In contrast, the Adairs and Mocka brands delivered robust performances, with underlying EBIT growth of 14.6% and 28.1% respectively, supported by positive like-for-like sales, product enhancements, and expanding retail footprints.
Adairs and Mocka Build Momentum Amid Strategic Moves
Adairs has advanced its strategy with a 3.7% sales lift to around $458.5 million, buoyed by improved in-store experiences and online channel growth. The rollout of a new store concept at Bondi Junction has yielded encouraging results, prompting a broader refurbishment program across various store formats. Meanwhile, Mocka continues to accelerate, posting a 22.1% sales increase to about $70.5 million, driven by strong Australian growth and a distinct product strategy in New Zealand. The brand has ventured into physical retail with three trial stores planned, including openings in Maroochydore, Christchurch, and Mornington.
Operational Costs and Market Exits Add to Headwinds
Adairs is also absorbing other significant costs that will be excluded from underlying earnings, including $3.5 million to $4.0 million related to its exit from the New Zealand market; a small, loss-making region for the Adairs brand. Additionally, the company is investing heavily in technology upgrades, with SaaS project costs, including a new ERP system, expected to hit $18 million to $19 million in FY26. The ERP go-live is slated for late Q1 FY27, aiming to underpin future operational efficiencies.
Balance Sheet and Dividend Capacity Remain Stable
Net debt has improved to approximately $49 million at June 2026, down from $67.6 million the previous year, and remains well within the $135 million facility limit. The impairment charge is non-cash and does not affect covenant compliance or the company’s franking account, leaving dividend capacity intact. The Board will determine any final dividend alongside the full FY26 results due on 24 August 2026.
Bottom Line?
Adairs faces a pivotal FY27 as it seeks to revive Focus on Furniture while managing substantial one-off costs and technology investments.
Questions in the middle?
- How quickly can Focus on Furniture’s new management translate operational changes into earnings recovery?
- Will the ERP system rollout deliver the anticipated efficiency gains without further cost overruns?
- How will Mocka’s physical retail trials impact its growth trajectory in both Australia and New Zealand?