Adairs Ltd (ASX: ADH) shares are under pressure on Wednesday.
In early trade, the ASX 300 stock is down 3% to $2.11.
Why is this ASX 300 stock falling?
Investors have been rushing to the exits this morning after the homewares retailer downgraded its guidance for the first half of FY 2026.
According to the release, year to date trading across the first half of FY 2026 has been largely in line with what was foreshadowed in management's commentary provided with its results in August.
The ASX 300 stock revealed that Adairs' sales growth has moderated as it pulled back on the frequency and intensity of its promotional activity.
For the Focus on Furniture brand, after an encouraging start, sales have slowed despite ongoing promotional activity, which has led to a lower than planned gross profit margin.
One positive is that its online business, Mocka, has continued its strong sales momentum in the first half, with customers continuing to respond well to new product.
Overall, this isn't the best way for the ASX 300 stock to be performing ahead of the most important period of the half. Commenting on the period to come, it said:
Looking ahead, the next 10 weeks is the most important trading period for the half, delivering approximately 55% of sales for the half with key events like Adairs' next Linen Lover Sale Event (which commences this evening), Black Friday, Christmas, and Boxing Day sales to come. The H1 result is heavily dependent on performance during these peak periods.
Guidance downgraded
The company has downgraded its first half sales and gross margin assumptions for the Adairs and Focus on Furniture businesses.
It now expects Adairs sales of $225 million to $232 million (down from $229 million to $236 million) with a gross margin of 61.4% to 61.9%.
The Focus on Furniture business is now expected to generate sales of $60 million to $63 million (down from $62 million to $64 million) with a gross margin of 50.2% to 50.7%.
This is ultimately expected to lead to Adairs reporting group sales of $319.5 million to $331.5 million for the half. While this is up 2.9% to 3.8% on the prior corresponding period, it is down from its previous guidance range of $324.5 million to $336.5 million. This is expected to be achieved with a gros margin of 59% to 59.5%, compared to its previous guidance of 58.8% to 59.6%.
Commenting on its outlook, the ASX 300 stock said:
We remain cautiously optimistic about the trading outlook for the rest of the half. All three businesses are well stocked, and our team are well prepared for the peak trading period ahead.
