Investment Case Summary
- Adairs and Mocka grew underlying EBIT 14.6% and 28.1%, proving the core recovery thesis is intact.
- A $68m non-cash impairment wipes out Focus on Furniture goodwill and drives a $43m statutory loss.
- Net debt fell to $49m and the FY26 dividend remains on the table.
Two brands are firing, but the 2021 furniture acquisition keeps eroding the recovery story
Adairs Limited (ASX:ADH) has handed the market a split-screen FY26 trading update, and the two halves tell very different stories. The Adairs brand and Mocka are working. Focus on Furniture, the 2021 acquisition that was supposed to broaden the group into big-ticket furniture, is not.
The headline number is a non-cash impairment of $62m to $68m against Focus goodwill and brand intangibles, wiping out all $40.9m of goodwill and a large chunk of brand value. That flips the group into a statutory net loss of around $43m for FY26.
Strip the accounting noise out and the underlying picture is more nuanced. Group sales are guided to $640m to $641.5m, up 3.7% on FY25, and underlying EBIT of $53.5m to $55.5m sits just 1.3% below last year. The Adairs brand grew underlying EBIT 14.6%, Mocka grew it 28.1%, and Focus collapsed by 68.3%.
For a stock that has spent three years clawing back from the 2022 to 2023 drawdown, this update lands as a genuine test of the recovery thesis.
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The two brands doing the heavy lifting
Adairs itself is quietly having its best year in some time. Like-for-like sales grew 3.8%, gross margin improved in the second half and is expected to hold into FY27, and the new Bondi Junction store concept is now being rolled into a broader refurbishment program across the network.
Mocka is the more exciting number. Australian sales grew roughly 40% and the brand is opening its first three physical stores, starting in Maroochydore in mid-June. That is a meaningful pivot for what has always been a digital-first business, and it signals management believes the brand can support a proper omni-channel format.
The New Zealand exit for the Adairs brand also cleans up a small loss-making region, which should mechanically lift group EBIT margin into FY27. These are the ingredients of a recovery story that is actually working.
Focus on Furniture is the problem the market now has to price
Focus sales fell 5.7% and underlying EBIT dropped from $11.8m to somewhere between $3.5m and $4.0m. Management points to aggressive competitor promotional activity, conversion pressure, product underperformance and execution issues, and has installed a new management team through the year.
The skeptical read is that Focus was acquired in 2021 near the top of the pandemic furniture boom for a business that has now needed a management overhaul, a re-platforming and a $68m writedown five years later. That is a lot of remediation for one business unit inside a group with a market cap in the low hundreds of millions.
The impairment does not touch cash or covenants, which matters. But the aggregate residual carrying value of Focus is now only $25m to $31m, which tells you how the Board is thinking about its future contribution.
The balance sheet gives management room, but not forever
Net debt has fallen from $67.6m to around $49m, sitting comfortably within a $135m facility. The Board has explicitly flagged that the franking account is untouched and the FY26 final dividend is still on the table. That is a deliberate signal to income holders that this loss is an accounting event, not an operating collapse.
The bigger drag is the $18m to $19m of SaaS project costs sitting outside underlying earnings. Investors have every right to ask whether ERP implementation costs of that magnitude will genuinely be one-off, or whether they quietly reappear in a different line item next year.
The Investors Takeaway for Adairs
The bull case for ADH from here rests on two of three brands doing exactly what the recovery thesis needed them to do. Adairs is compounding margin, Mocka is compounding both revenue and EBIT, and the New Zealand exit removes a small headwind from FY27. If Focus can stabilise even at current subdued levels, group underlying EBIT should re-rate from here.
The bear case is that Focus keeps bleeding, that the remediation stretches beyond FY27, and that the market chooses to look through the underlying numbers to the statutory loss. We think the 24 August full-year result and any commentary on Focus’s early FY27 trading will be the moment this thesis is settled either way. Investors can read our previous coverage of ADH’s turnaround at stocksdownunder.
