I would now like to hand the conference over to Ms. Elle Roseby, Managing Director and Group Chief Executive Officer. Please go ahead, ma'am.
Well, good morning, and thank you for joining us for Adairs Limited's FY 2026 Full Year Results. I am Elle Roseby, Group CEO and Managing Director of Adairs, joined by Matt Edmonds, our Group Chief Financial Officer. This morning, we lodged our FY 2026 results with the ASX. We will speak for around 20 minutes, and then we will take your questions. The running order, I will cover the group overview. Matt will take you through the group and brand financials, and then I will come back for the brand highlights, the Vision 2030 strategy update, and current trading and outlook.
So slides 3 to 4, the group overview and FY 2026 group performance. I am pleased with the FY 2026 results across Adairs and Mocka, with both businesses delivering strong sales and EBIT performance. This performance reflects sharper and more relevant ranges, improved margins, stronger customer engagement, and greater operating discipline and a more deliberate approach to capital allocation.
Focus on Furniture had a particularly challenging year, most notably in Q4, and I will take you through that in more detail later in the presentation because I think it is really important to understand the context around that performance and the actions we are taking in response.
Group sales grew 3.8% to AUD 641.7 million. Underlying EBITDA was AUD 68.7 million, up 1%. Underlying EBIT of AUD 55 million was broadly flat, and underlying net profit after tax rose 1.7% to AUD 34.6 million. Net debt reduced by AUD 20 million, and dividends grew 9.5% on FY 2025. The statutory result is a loss of AUD 39.4 million, driven by significant items that are predominantly non-cash, the largest being the impairment of Focus on Furniture goodwill and brand intangibles. Matt will take you through the bridge later.
These results are consistent with the trading update we released on the 8th of July and finish at the top end of it. Group sales of AUD 641.7 million were marginally above the top of the AUD 640 million-AUD 641.5 million guidance range, with Adairs and Mocka both above the top of their sales ranges and Focus within its range. Group underlying EBIT of AUD 55 million was in the upper half of the range.
Net debt of AUD 47.6 million came better than the approximate AUD 49 million indicated. The impairment, the other significant items, and statutory loss all landed within the ranges stated in July. Overall, our group results are in line with the July update and slightly ahead on sales, net debt, and statutory outcomes.
Slide 5, group overview and performance. Slide 5 shows the three brands, and each are at different stages. Adairs, our largest brand, delivered record sales of AUD 459.2 million, up 3.9%, and pleasingly, through improved cost efficiencies and margin growth, underlying EBIT was up 14.9% to AUD 41.1 million.
Mocka, continuing its growth trajectory, saw sales of AUD 71.2 million, up 22.9%, with EBIT up 32.1% to AUD 10.1 million. Focus on Furniture, the business is in turnaround. Sales of AUD 111.3 million, down 5.6%, and EBIT of AUD 3.8 million. Adairs and Mocka together now generate over 90% of group earnings and both grew earnings at expanding margins. The turnaround task sits at Focus, and I will cover the plan in the brand section.
On slide 6, Focus on Furniture. What happened in half two and specifically Q4? Let me address Focus [inaudible]. A year ago, we said we expected improved outcomes at Focus in FY 2026, and we did not deliver them. The year had two distinct phases.
Through the first three quarters, delivered sales were broadly flat, up 0.2%, and in the fourth quarter, sales fell 25.5%. There were two issues that drove that decline. The first was a difficult leadership transition. For the incoming management team, the handover, was limited. With reduced visibility of inventory planning, operating processes, and management information. This lack of data had a material impact on decision-making and interrupted inventory ordering, coupled with over-tightened store discounting discretion. This disrupted trade through peak fourth quarter trading.
The second issue predates the transition. Stale range and underinvestment in store presentation behind a multiyear pattern of gradual share loss. The strengths Focus is known for, of value and quality, had been impacted. The range has fallen behind on the core offer, fashionability, and variety, and price renewal and availability is a primary lever in the turnaround.
On the response, a sustainable management structure is in place with group executive oversight and a strengthened business unit advisory committee, including non-executive director participation. Ordering cadence was rebuilt through April and May, and inbound stock is restoring availability and lead times through Q2 FY 2027. Discounting discretion has been returned to store teams under clear governance. The first exclusive design-led collections land in stores from October with regular monthly injections throughout 2027.
A VM store presentation reset will be completed throughout Q2 across the network, and we have overlaid an additional light refurbishment to the Frankston store, which has outperformed the network, and these findings will evolve the store design experience going forward. The market for larger ticket furniture was softer during the year. However, we attribute the shortfall primarily to factors within our control. I will now hand over to Matt to take you through the financials.
Thanks, Elle, and good morning, everyone. I will start with the divisional results on slide 8 with group underlying EBIT at AUD 55 million. Broadly flat on last year, down 0.4%. Within that, Adairs and Mocka together added AUD 7.7 million of earnings, whilst Focus declined AUD 8 million versus the prior year. In Adairs, sales of AUD 459.2 million was up 3.9%, 4% in the first half and 3.6% in the second. With like-for-like store sales up 1.4% and online up around 9% to AUD 132.3 million, driven by strong click and collect growth, which now accounts for 4% of total sales.
Gross margin was 60.9%, down 10 basis points on the full year. Within that, margin did decline 300 basis points in the first quarter on deliberate clearance activity to reset the inventory, and then pleasingly recovered each quarter thereafter, with second half gross margin up 150 basis points on the prior year.
This reflected elevated ranges, pricing discipline, and reduced promotional depth. Total Cost of Doing Business was also a highlight, reducing by 100 basis points, reflecting continued efficiency in the supply chain, with total cost per unit down by 11% and improved store productivity, which was up 5.2%.
Underlying EBITDA rose 12.8% and underlying EBIT of AUD 41.1 million was up 14.9% at a 9% margin up 90 basis points. Importantly, second half EBIT at Adairs grew 48.9% on the prior year, driven by strong margin expansion and disciplined strong cost management. Inventory closed at AUD 66.4 million, broadly flat against 3.9% sales growth.
Turning to Mocka, they recorded sales of AUD 71.2 million, up 22.9%, 29.8% in the first half and 16.4% in the second, led by continued strength in Australia at +38% and New Zealand flat at +0.4% as the offer there is reset.
Growth came with margin expansion, with gross margin of 60.2%, up 80 basis points, on product innovation at higher initial margins and increased share of full price sales. CODB was flat with warehouse and freight efficiencies funding continued customer acquisition marketing investments.
Underlying EBIT rose 32.1% to AUD 10.1 million at a 14.1% margin, up 100 basis points, with inventory closing 14.7% lower. In Focus, sales were AUD 111.3 million, down 5.6%, with the order book closing the year at AUD 11.2 million. Gross margin was 50.4%, down 40 basis points on the prior year. The sales decline in the fourth quarter came through traffic and conversion, which is why product renewal and availability is the primary lever identified in our turnaround. Cost of Doing Business rose 590 basis points, reflecting deleverage on soft like-for-like sales, plus the annualized cost of the new Victorian distribution center and customer support office.
Underlying EBIT ended at AUD 3.8 million, down 67.6% at 3.4% margin. Importantly, on a half-year basis, that comprises a first half profit of AUD 5.8 million and a second half loss of around AUD 2 million. That second half performance is reflected in the impairment assessment, which I will cover on slide 11.
Turning to slide 9, group level sales were AUD 641.7 million, up 3.8%, with the store network reducing by a net 6 stores from 194 down to 188, reflecting the disciplined portfolio management, including the Adairs New Zealand exit. Underlying EBITDA was AUD 68.7 million, up 1%. Depreciation rose 7% on distribution and store investments, taking underlying EBIT to the AUD 55 million already quoted. Net interest fell 14.7% on lower average debt with underlying NPAT at AUD 34.6 million, up 1.7%, and underlying EPS at AUD 0.195. Moving to slide 10, the balance sheet strengthened during the year.
Net debt was AUD 47.6 million, down AUD 20 million versus the prior year, now at 0.7 times underlying EBITDA, the lowest level in over four years. Inventory closed at AUD 91.2 million, down 5%, and by brand, Adairs and Mocka positions are clean and current following the first quarter clearance reset.
At Focus, the aged stock clearance is nearing completion. Ordering has been reestablished, and stock is rebuilding with availability recovering into Q2. Underlying operating cash flow was AUD 65 million against AUD 30.4 million last year, and a cash realization ratio of approximately 119%. Working capital released AUD 14 million, led by the inventory reduction and payables timing. That funded AUD 17 million of debt repayment and AUD 13.4 million of dividends. At the full year, dividends announced at AUD 0.115, fully franked, up 9.5% on FY 2025, representing 59% of underlying NPAT, and the DRP remains available.
Moving on to slide 11, which bridges the underlying results to statutory loss. Underlying NPAT was AUD 34.6 million. The Focus on Furniture impairment deducted AUD 56.7 million after tax. Technology upgrade costs, which were expensed as incurred consistent with prior periods, and for AUD 2.8 million of legacy store software write-offs deduct AUD 13 million. AASB 16 lease accounting deducts AUD 2.4 million, and the Adairs New Zealand exit costs deducting a further AUD 1.8 million. That reconciles to the statutory loss of AUD 39.4 million or AUD 0.222 per share.
On the impairment, following the fourth quarter deterioration, we tested the Focus cash generating unit at the end of the year on a value in use basis. The charge is AUD 63.5 million pre-tax, which comprises of goodwill of AUD 41 million written down to nil and AUD 22.5 million against the brand intangible.
The impairment is non-cash and has no effect on the group's banking covenants or capacity to pay dividends. In FY 2026, Adairs New Zealand contributed AUD 12.8 million of revenue and an underlying EBIT loss of AUD 0.8 million, which we recognized additional exit costs of AUD 2.5 million. The exit is expected to be EBIT accretive from FY 2027 with no material cost tail. Approximately 3% of sales will leave the Adairs base, so reported growth in FY 2027 will optically soften. In the pack, Appendix 4 sets out the continuing basis comparatives. On that point, I will hand back to Elle for the strategy update and the outlook.
Thanks, Matt. I turn to the brands and starting with Adairs. For FY 2026, the product transformation was concentrated in categories Adairs is best known for. Our soft furnishing category. Soft furnishings delivered 4.6% sales growth for the full year, with gross margin dollars improving by 6%, with an improvement of 100 basis points.
For soft furnishings in the first half, sales increased 3.5%, whilst gross margin dollars got 3.4%, down 10 basis points, primarily reflecting the increased clearance activity to discontinue inventory. The second half is where we really began to see the impact of the product transformation and the new strategy executed. Sales growth accelerated to 5.6% increase, whilst gross margin dollars increased 8.5%, representing 190 basis points improvement. Importantly, this demonstrates the quality of sales performance as we move through to the transformation, with growth being delivered alongside meaningful margin expansion.
These categories underpin the second half growth margin recovery Matt discussed. Two other points, the Linen Lovers held at around 1 million paying members, contributing more than 80% of Adairs sales, with the Qantas Frequent Flyer partnership now a meaningful driver of new member acquisition. The Store of the Future format pilot at the Bondi Junction delivered customer conversion approximately 400 basis points above comparison stores, and it is earmarked for rollout from FY 2027 into the Homemaker and large format network.
Slide 15, Mocka. Turning to Mocka, the four categories launched during the year of outdoor, youth, lighting and sofas delivered about AUD 3.2 million of sales, broadening Mocka from a nursery and kids specialist toward a whole of home offer. Impressively, the Australian website was up 26% and transactions up 18% on last year.
Pleasingly, Mocka opened its first physical stores, Maroochydore in Queensland in June and Tower Junction in Christchurch in July. This is a deliberate test and learn. Further stores are contingent on the performance of these sites with early positive signs.
Slide 17, Focus on Furniture, the two-year turnaround. Focus on Furniture turnaround sequenced across FY 2027 and FY 2028 applies the same framework approach as Adairs and Mocka. There are three strategic pillars that we are driving. Product and range renewal, which is about exclusive design-led collections with regular units, a clear category pricing architecture in place of ad hoc discounting, and a broader supply base. The brand and customer are prioritizing stock availability and a clear value with a refreshed brand platform, disciplined trading calendar and a rebuilt website and an upgraded CRM. Retail execution.
That is structured selling skills, a new in-store incentive scheme, rosters matched to demand, a progressive refurbishment to the Frankston format, which outperformed the network as this is the refurbishment template going forward. On timing, the first half of FY 2027 will be difficult, as the weaker fourth quarter order book carries into the new financial year as stock recovers. Benefits are expected to emerge from the later part of FY 2027 and build into FY 2028, with EBIT recovery over the medium term. The store reset is funded with limited capital expenditure, and we remain committed to a national network of 40 to 50 stores over approximately five years from 27 stores that we have today. Sequenced behind the price reset.
Slide 21 to 22 is Vision 2030. Turning to strategy. Vision 2030, it gives us a longer-term framework for growth, from where we invest, to how we allocate capital, and how we create value over time. Retail will always demand short-term discipline of the trading result, planning promotional cycles, disciplined inventory management, and delivering seasonal performance.
While short-term discipline helps you manage the business, it does not necessarily help you build it, and that is really what Vision 2030 is for. It is one strategic framework across three brands, recognizing that each brand serves a different customer and plays a different role in the portfolio. At its core, it is about building stronger businesses. The framework rests on three pillars. It is about product and brand, it is about being design-led, exclusive products, winning in the categories that we are famous for with pricing discipline over promotional intensity, supporting higher and more predictable margins.
It is about customer obsession, about superior in-store experience, deeper insight and personalization, and a connected omni-channel offer, supporting higher lifetime value at lower acquisition costs. Ways of doing business. It is about structural productivity, exiting what does not earn its place, and sharing group expertise. The sequence delivered at Adairs this year, range elevation, margin recovery, inventory productivity, and cost discipline is the same sequence now being applied at Focus, supported by group experience.
Slide 22 sets out the priorities by brand. For Adairs, to elevate the brand's proposition for our customer's channel of choice and simplify the ways we go about our business, continuing to reduce complexity in our operating model and finding cost efficiencies. For Mocka, continue to grow the brand awareness and customer accessibility whilst building the capability enablement for growth.
For Focus, we are resetting the brand and the operating model. We will rejuvenate our stores and our products. We are encouraged by the progress, but there is a lot more to do. Slide 24, FY 2027 trading update and outlook. In the first 8 weeks of FY 2027, group sales, excluding the exited Adairs New Zealand business, were down 4.5% on the prior year. Adairs real-time sales were steady at +0.4%.
However, there are material timing differences in the period. We are cycling heavy clearance activity in the prior year, and a Linen Lovers event was moved to de-risk the ERP implementation. Given the event timing and clearance comparison, the first 8 weeks are not representative of the full year. Our internal analysis puts underlying Australian sales growth at approximately +2% over the 8 weeks, with gross margin ahead of the prior year.
Mocka real-time sales were up 15.3%, with Australian momentum continuing and Maroochydore and Tower Junction trading in line with expectations. Focus written sales were down 27.6%. The inventory and availability issues from the fourth quarter have carried into the new year, as flagged, and are expected to recover through the second quarter. The order book was AUD 11.8 million at week 8, up AUD 0.6 million since June, but below the AUD 13.4 million at the same point last year.
On the outlook, FY 2027 is focused on earnings quality, moderate margin expansion, cost productivity, and disciplined capital allocation. The new Adairs ERP system goes live in early FY 2027 with implementation risks being actively managed. Focus expects a difficult first half with turnaround benefits emerging in the second half. On the store network, Adairs plans 7- 10 new stores, 4 - 6 upsizes or refurbishments, and 2- 5 closures.
Mocka has 2 stores trading, and in Q3 opens Mornington in Victoria with further stores contingent on the pilot. Focus has no new stores planned. There are 2 relocations and 5- 10 light refreshes, and group capital expenditure of AUD 25 million- AUD 30 million, approximately half of which is uncommitted.
On currency, around 70% of FY 2027 U.S . dollar requirements are hedged at $0.674 cents against an effective $0.664 cents in FY 2026. We are not providing FY 2027 earnings guidance. Before we take your questions, what we control is how we listen and respond to our customers and the experience we provide them. It is the quality of our ranges, the discipline of our pricing, the productivity of our stores and supply chain, and how we carefully allocate capital, and that is exactly where our priority sits heading into FY 2027.
Adairs and Mocka show this year what that discipline can produce. We are applying that same rigor to Focus on Furniture with our eyes wide open about how long that will take. I am optimistic about what this business can become and clear that it will be earned and not assumed. With that, Matt and I would welcome your questions. Operator, please open the line.
Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you are on a speakerphone, please pick up the handset to ask your question. The first question will come from Aryan Norozi with Jarden. Please go ahead.
Hi, guys. Hope you are well. First one, please. Just on the brand Adairs gross margin. So, it was just over 61% in the second half of FY 2026. Just looking back, I think you said this year, you mentioned the aspiration was to get that gross margin back to FY 2024 levels of around 63%, and that was before FX benefits. Just wanted to see what the new or revised thinking is for FY 2027 in terms of the gross margin benefits and, obviously overlaying FX on that too, please.
Hi, Ari. How are you? Good, I hope.
Good, thank you.
I think at the half we said, yes, aspirationally, we would want to get to 62%. We have quoted the FX rate, on the outlook page, so you can calculate what that would work to in basis points. That would be about 60 basis points- 80 basis points, just calculating through the FX. As Elle said, we are focused on pricing discipline and promotional depth, so that is about as far as we would sit there on a gross margin position.
Sorry, did you say the FX is a 60 basis points- 80 basis point benefit in FY 2027?
At the group, yeah. Based on that one term. Yeah.
Okay. But in terms of brand Adairs, is not it more like 150 basis point benefit to your gross margin, just given your hedge rates?
They are broadly similar across the brands, Ari.
Oh, okay. The thinking is into FY 2027, 62% is the sort of base margin you are aspiring to, and then on top of that, you have a 60 basis points-80 basis point benefit. So, sort of 63% odd is where you are looking.
I would sit there and say that is your model, not our guidance, Ari, but.
Yes.
Yeah.
Got you. Perfect. Second question, just on Focus. In the first 8 weeks, you are down 28%. Obviously, there is some sort of inventory availability issues. How do we think about the cadence of the declines into the second quarter, just given the order bank? Is the way to think about it, Q2 is going to still be down 20%+, and then from third quarter onward, you can get back into growth or stabilize the business, please?
What we've said in the pack, Aryan, is obviously Q1 broadly reflects the exit rate that we called out for Q4. Availability and newness does land at the beginning of Q2, which we would hope to see some improvement in that growth rate. Q3 would then stabilize, and then hopefully by Q4 we would be hopefully demonstrating some growth, obviously, comping the lower comps that we saw in Q4.
Right. And then just last one. Just on the cost efficiencies of, opportunity for cost efficiencies in the business in FY 2027. Can you just quantify, if you can, just any efficiency benefits that you've sort of been implementing, obviously, you've got the ERP, and sort of to what extent does that get offset by some of the more recent inflationary pressures like the fuel surcharges and. That'd be great, please.
I think what we've said through the pack and the voice over today, Aryan, is we are focused on cost and cost productivity, and we would hope to offset inflationary pressures in FY 2027. I did call out some significant improvements in supply chain. Now that will annualize in FY 2027. But we are focused on ensuring that cost is managed in a good, disciplined way.
Right. Thanks. Cheers, guys.
Again, if you have a question, please press star then one. Our next question will come from Allan Franklin with Canaccord Genuity. Please go ahead.
Morning, Elle. Morning, Matt. Thank you for your time. Just on the CapEx, just to be very clear, AUD 25 million is before the tech upgrade of five, if I'm reading that correctly. Just help us frame whether FY 2027 is a bit of a catch-up year or the extent to which you're thinking about upsizes, refurbs, light refreshes and so forth is more normal course of business moving forward.
Certainly, the AUD 5 million is excluded from that AUD 25 million, Allan, so that's a correct conclusion. We do call out that 50% of the capital is uncommitted in the sense that we haven't signed lease commitments on that yet from a new store point of view. We will take those new stores on a case-by-case basis through 2027. We did call out some light refreshments in Focus, which are very capital light. Most of that is store layout, and in-store design enhancements. We have got a good pipeline of advanced stores and certainly, looking to increase the store portfolio to offset, obviously, the New Zealand exit that we did in FY 2026.
Mm-hmm. Fine.
Really, Mocka is in a trial mode.
Yeah
Within 3 stores. Depending on the success of that going forward, we are already reviewing what that portfolio could look like.
Thank you. Maybe just layering in a query then on the ERP implementation. Appreciate some of the comments you made around being careful with the whole process. Just what are the key measurement points for you in this half that you need to step through? With the delayed Linen Lovers piece, how do we think about the framing of when you are doing your key periods for Adairs through first half, please?
I think the important bit to note, Allan, is that we did cut over our online business on the new ERP in end of June, early July. That's over 30% of the Adairs business is now on the new platform, which is a good, strong result. The main implementation, the last phase of that implementation is in Q1.
That is within the next few weeks. That is important in terms of cutting over the rest of the stores, obviously the financial systems and the stock systems. We are at that high-risk phase of the main implementation, but the team are confident.
Thank you. Maybe just one on the Mocka store, then the stores themselves. Appreciate this July opening, June openings. We have not seen CODB, and the other sort of below the line items hit. When we are modeling these out, should we think that it is a store akin to a Focus store or an Adairs store or somewhere in between? Just any sort of color you can provide on rough metrics we should be thinking about, please.
Yeah. The way we would look at it is the contribution around the same as an Adairs store.
Mm-hmm. Thank you.
As there are no further questions, I would like to turn the call back over to Ms. Roseby for any closing remarks. Please go ahead.
I'd like to thank everybody on the call today, and look forward to more calls later on today and next week. Thank you very much, everyone. I'd like to also just thank the team that make this announcement possible, and also for the board for supporting us throughout this year. Thank you.
That does conclude our conference for today. Thank you for your participation. You may now disconnect.