Yesterday, Adairs Ltd (ASX: ADH) shares fell 1.3% following a trading update.
The homewares and home furnishings retailer has now seen its share price fall by 18% for the year to date.
This has reflected broader sector wide headwinds for consumer discretionary shares. The sector has been hit hard by high interest rates and inflation.
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What did the company announce?
As my colleague Aaron Teboneras reported yesterday, Adairs announced it expects FY26 group sales to land between $640 million and $641.5 million.
At the midpoint, this represents an increase of 3.7% on FY25.
However, group underlying EBIT is expected to come in between $53.5 million and $55.5 million. This would be down 1.3% on FY25.
This put a halt to the positive momentum it had felt over the past month. Subsequently, the team at Bell Potter has provided updated guidance on Adairs shares for the next 12 months.
Here is the broker's updated view.
Slightly below expectations
Bell Potter said Adairs' FY26 trading update was slightly below market expectations on revenue (around 1%).
The core Adairs brand was the standout performer. It delivered 3% sales growth from late February to June and stronger margins following product range improvements under the new management. This helped offset weaker performance at Focus on Furniture.
Mocka (an online furniture and homewares retailer owned by Adairs) performed largely as expected. Meanwhile, Focus on Furniture continued to face pressure from increased competition and its ongoing turnaround under new leadership.
Following the update, Bell Potter has lifted its assumptions for the core Adairs business but now expects Focus on Furniture to remain loss-making in the second half of FY26 and continue to weigh on earnings in coming years.
The broker forecasts modest group growth of 2.6% in revenue and 1.8% in EBIT, supported by foreign exchange benefits in FY27 and healthy inventory levels.
As a result, Bell Potter increased its FY26 NPAT forecast by 16%, while reducing FY27 and FY28 forecasts by 5% and 8%, respectively.
Minimal upside
Based on this guidance, Bell Potter slightly increased its target price on Adairs shares to $1.45 (previously $1.40).
It retained its hold recommendation.
Despite raising its target, it appears Adairs shares are trading close to fair value, after closing yesterday just above Bell Potter's target price.
With the positive customer response to the range curation efforts at Adairs continuing to play out from the CY25 peak to the 4Q26 seasonal period and appears to be maintained into FY27, we attribute successful management strategy.
However, our views on the recovery timeline at FoF in a highly competitive near-term value furniture market sees us remaining cautious over the next 12 months considering the current transition phase at ADH.
