Adairs Limited (ASX: ADH): The Home Retail Stock to Watch in a Rate Cut Rally
When interest rates fall, home-focused discretionary spending often sees a surge and Adairs Limited is strategically positioned to benefit.
As Australia’s largest omni-channel specialty retailer of home furnishings, Adairs operates three distinct brands - Adairs, Mocka, and Focus on Furniture. Each brand offers in-house-designed, customer-centric products sold through tightly controlled channels across Australia and New Zealand.
Despite inflationary pressures and mixed consumer sentiment, Adairs recorded impressive results in 1H FY25. The group reported sales of $310.5 million, up 6.6%, with EBIT rising 10% to $33.0 million. Notably, online sales now contribute nearly 30% to group revenue, led by strong digital growth from both Adairs and Mocka.
Why a Rate Cut Could Accelerate Adairs' Growth
Falling rates typically ease mortgage and financing burdens, allowing consumers to redirect more spending toward home upgrades and lifestyle. Adairs is in a strong position to capture that trend, thanks to:
- Loyalty strength: Over 1 million paying Linen Lovers members, who contribute 85% of Adairs brand sales.
- Omni-channel advantage: Online sales up 12.8% for Adairs; Mocka is 100% e-commerce.
- Operational discipline: Warehousing costs cut by $5 million since FY23.
- Margin expansion: Smart inventory planning, measured promotional activity, and better sourcing.
- Shareholder returns: Fully franked interim dividend up 30% to 6.5 cents per share.
Resetting the Platform for Scalable Growth
Under new Group CEO Elle Roseby, Adairs is executing a bold, efficiency-driven transformation. The company is expanding store formats, investing in digital infrastructure, and refining product offerings to match evolving consumer tastes. In 1H FY25 alone, it opened three new stores, refurbished another three, and shut down smaller, underperforming ones growing total floor space by 2.5%.
Mocka, its online-first home and kids furniture brand, posted a 12.4% sales lift and will open its first physical store in FY26. Meanwhile, Focus on Furniture is navigating a tough environment but remains focused on store upgrades and national expansion.
The Numbers Tell a Stronger Story
Adairs brand revenue hit $220.5 million, up 9.3%, with EBIT jumping 32.5% on the back of margin gains and operating leverage. Gross profit margin improved by 80 basis points to 51.1%, while costs of doing business as a percentage of sales dropped by 100 bps, demonstrating tight cost control even amid rising rents and wages.
At the group level, net debt stands at a conservative $57.8 million, down from the prior half and now only 0.8x trailing EBITDA. The business is also running a Dividend Reinvestment Plan (DRP) at a 1.5% discount, offering long-term holders additional value.
Final Word
Adairs is more than a retailer it’s a vertically integrated platform with pricing power, customer loyalty, and a scalable cost base. If interest rates ease, few consumers discretionary stocks are as well positioned to benefit from renewed home spending.
For investors looking ahead to the next market shift, Adairs deserves a close look.
Baby Bunting Group Limited – (ASX: BBN)
This Specialty Retailer Could Be the Quiet Winner of a Rate Cut
When interest rates fall, consumer confidence tends to rise, and that usually spells good news for retailers. But in a crowded sector, not all companies are built to win. Baby Bunting Group Limited, Australia’s largest specialty baby goods retailer, operates 75 stores across Australia and New Zealand, serving parents with products from prams to furniture to formula. It’s quietly positioning itself as a prime beneficiary if the RBA cuts rates.
Why Baby Bunting Is Ready for a Comeback
BBN’s turnaround is already underway. As of April 27, 2025, comparable store sales were up 2.9 percent for the year, while gross margins hit 40 percent, a solid jump from 36.8 percent in FY24. That improvement reflects smarter pricing, tighter supplier terms, and an evolving customer experience centered on its “Store of the Future” model.
These new-format stores, beginning with Maribyrnong, are outperforming expectations. More than just a facelift, they combine immersive shopping, curated layouts, and retail media zones designed to lift both sales and margin. Capital expenditure of $11 to $12 million is fully funded from operating cash flow, keeping net debt modest at $9.1 million as of December 2024.
This kind of operational discipline sets BBN apart in a sector where many retailers are still struggling with inventory bloat and promotional fatigue.
What Investors Should Watch For
If the RBA cuts rates, Baby Bunting could benefit on multiple levels:
- More discretionary income means young families may spend more on essentials and upgrades.
- Big-ticket categories like car seats and cots become more affordable to finance.
- Lower capital costs support the rollout of up to 80 new stores across ANZ.
- Margin expansion accelerates as operating leverage improves, and scale efficiencies kick in.
The Turnaround Has Already Started
BBN isn’t waiting on a macro boost. Net profit after tax rose 36.8 percent in 1H FY25 to $4.8 million. The company is executing on a clear strategy to restore EBITDA margins to 10 percent by focusing on exclusive brands, inventory discipline, and new revenue streams.
Already, 46 percent of revenue comes from private label or exclusive products. Online sales now represent over 22 percent of total revenue, powered by click and collect, same-day delivery, and a growing third-party marketplace. The launch of its retail media business also opens a high-margin channel built on loyalty and foot traffic.
Conclusion:
In a falling interest rate environment, Baby Bunting has the right levers in place. The brand is trusted, the turnaround is real, and the growth plan is funded. For investors looking to front-run a consumer discretionary recovery, BBN offers a disciplined, high-upside story that could quietly outperform in 2025.
(Source: Company Announcements)
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