Adairs Posts $641.7 Million Sales with 3.8% Growth and $63.5 Million Impairment

Mixed FY26 Performance Highlights Strategic Reset

Adairs Limited (ASX:ADH) reported a 3.8% increase in group sales to $641.7 million for the 52 weeks ended 28 June 2026, with strong growth at its Adairs and Mocka brands offset by a disappointing performance at Focus on Furniture. Underlying earnings before interest and tax (EBIT) held steady at $55.0 million, but the group recorded a statutory net loss after tax of $39.4 million, primarily driven by a $63.5 million non-cash impairment of goodwill and brand intangibles at Focus on Furniture.

The impairment charge, announced in July, reflects a reassessment of Focus on Furniture's earnings prospects amid a challenging retail environment and internal leadership disruptions. Despite this, the impairment does not impact the group's cash flow, financing facilities, or covenant compliance.

Adairs and Mocka Drive Growth and Margin Expansion

The Adairs brand delivered sales of $459.2 million, up 3.9%, supported by a contemporary product transformation focused on bed linen, bedding, towels, and cushions. Like-for-like store sales rose 1.4%, with online sales growing 9.4%, now representing 28.8% of Adairs’ total sales. Gross margin improved by 150 basis points in the second half, aided by pricing discipline and reduced promotional depth.

Adairs also completed a strategic exit from its loss-making New Zealand operations, closing all eight stores and ceasing online sales by June 2026. This market contributed less than 3% of Adairs’ sales and its exit is expected to be earnings accretive from FY27 onward. The group incurred $2.5 million in exit costs, excluded from underlying earnings.

Meanwhile, Mocka posted another year of robust growth, with sales up 22.9% to $71.2 million, driven by a 38.0% increase in Australian sales. Mocka expanded its product categories into outdoor, sofas, lighting, and youth, boosting gross margin by 80 basis points to 60.2%. The brand also opened its first standalone stores in Maroochydore (QLD) and Tower Junction (NZ), with a third store planned in Mornington (VIC) during FY27 as part of a measured omni-channel retail test.

Focus on Furniture Faces Execution Challenges and Turnaround

Focus on Furniture’s sales declined 5.6% to $111.3 million, with underlying EBIT plummeting 67.6% to $3.8 million. The business experienced a stable first three quarters before a sharp drop in the fourth quarter, driven by an abrupt leadership transition that left the incoming team with limited operational visibility. This led to disrupted inventory ordering, reduced product availability, longer delivery lead times, and overly restrictive discounting, severely impacting store traffic and conversion during the critical peak selling period.

The group has since restored operating disciplines, reinstated discounting discretion to store teams, and launched a product-led turnaround program focused on range renewal, brand repositioning, and retail execution improvements. Early signs of progress include strong performance at the refurbished Frankston store and growth in made-to-order sales. However, a difficult first half of FY27 is expected before benefits materialise later in the year and into FY28.

Financial Position Strengthened Amid Technology Investment

Net debt fell by $20 million to $47.6 million, representing a gearing ratio of 22% relative to underlying EBITDA. The group generated strong underlying operating cash flow of $65.0 million, achieving a cash realisation ratio of approximately 120%. Inventory levels improved, declining 5.0% year on year, reflecting healthier stock positions at Adairs and Mocka.

Capital expenditure totalled $15.6 million, primarily directed to store development and the ongoing ERP system upgrade at Adairs, which entered its cutover phase in July 2026. An additional $18.6 million of cloud-based technology project costs, including $2.8 million of legacy system write-offs, were expensed during the year and excluded from underlying EBIT. The ERP go-live is scheduled for early FY27 with risks actively managed.

Dividend Raised Despite Statutory Loss

The Board declared a final fully franked dividend of 6.0 cents per share, lifting total FY26 dividends to 11.5 cents per share, a 9.5% increase over the prior year. The dividend payout represents approximately 59% of underlying net profit after tax, with the Board considering operating cash flow, balance sheet capacity, and franking credits in its decision.

Sustainability Reporting and Governance Enhancements

FY26 marked the group’s first reporting period under the mandatory Australian Sustainability Reporting Standard AASB S2 for climate-related disclosures. The detailed sustainability report outlines governance, strategy, risk management, scenario analysis, metrics, and targets related to climate risks and opportunities. The group reported Scope 1 and 2 greenhouse gas emissions of approximately 7,586 tonnes CO₂-e, with ongoing efforts to improve supply chain traceability, ethical sourcing, and packaging sustainability.

Board renewal continued with the appointment of John Batistich in May 2026, bringing expertise in customer strategy, brand development, and digital transformation. Non-executive director involvement in business unit advisory committees has deepened oversight during critical phases of transformation.

Looking Ahead: Execution and Turnaround Focus

Adairs enters FY27 with momentum from product-led growth and margin expansion, the ERP system go-live, and a simpler operating structure following the New Zealand exit. Mocka’s physical retail pilot will provide insights for omni-channel scaling. Focus on Furniture faces a challenging first half as inventory and order book issues persist, but the turnaround program is underway with benefits expected to emerge in the second half and build into FY28.

The group is navigating a renewed inflationary environment, balancing cost pressures with pricing discipline and productivity initiatives. The Board remains confident in the Vision 2030 strategy, emphasising product elevation, customer obsession, and operational excellence as key drivers for long-term value creation.

Investors will be watching closely how Adairs manages ERP implementation risks, the pace of Focus on Furniture’s recovery, and the effectiveness of Mocka’s physical retail expansion in an evolving retail landscape.