It has been a tough period for owners of Adore Beauty Group Ltd (ASX: ABY) shares.
Over the past six months, the small-cap ASX share has lost over 70% of its value.
Is there a rebound coming? Let's see what Bell Potter is saying about the beaten down beauty retailer.
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What is the broker saying?
Bell Potter notes that the small-cap ASX share has released a trading update which has fallen short of expectations. It said:
Adore Beauty released a trading update for the first 47 weeks of FY26, with sales growth of $193.4m +7.4% YoY (vs. BPe $203.9m on a 47-week run-rate basis). For 2HFY26 the company expects the gross margin to be resilient and land at 34.5% (vs. BPe 34.7%), as they chose to reduce promotional intensity as part of their previously outlined strategy.
The low light was that EBITDA is expected to land at ~$4.0m for FY26 (vs. BPe $7.2m), representing a ~2.0% margin (versus previous guidance of b/w 3-4% for FY26e), driven primarily by a sales slowdown paired with an increased fixed cost base from their aggressive store rollout (from 0-20 stores in ~24 months).
Looking ahead, the broker believes the company can deliver on its FY 2027 guidance. This is due to cost savings from its new distribution centre. It said:
The company also provided FY27 guidance, expected revenue growth of at least 10% and underlying EBITDA of b/w $9-13m. We are confident the company lands within the lower end of the guidance, namely due to cost savings of 1) $2.0m from the new NDC efficiencies (from 1Q27), and 2) $2.5m in savings from a head office restructure.
Should you buy the dip?
Unfortunately, Bell Potter believes the Adore Beauty share price weakness isn't a buying opportunity just yet.
In response to its trading update, the broker has downgraded the small-cap ASX share to a hold rating (from buy) and slashed its price target to 39 cents (from $1.00). This compares to its last close price of 34 cents.
Commenting on the downgrade and valuation crunch, the broker said:
We have adjusted the key assumption we use in our relative valuation, lowering our FY27 EBIT multiple from 12.5x to 10.0x, off the back of a reduction in the median peer group multiple. We move our valuation weighting to 70% relative and 30% DCF, reflecting comparable retail businesses in a more challenging consumer environment, and to reflect current market sentiment on the sector.
We view the DCF as contingent on a macro recovery and execution of an as-yet unproven growth strategy. As a result, we lower our target price by ~60% to $0.39. Given this implies less than 15% upside to the current share price, we downgrade our recommendation to HOLD.
