Adairs Limited (ADH) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Adairs Limited First Half FY '25 Results Announcement. [Operator instructions] I would now like to hand the conference over to Elle Roseby, Group CEO and Managing Director. Please go ahead.

Thank you. Well, good morning, everyone, and thank you for joining us as we present our half 1 results for the 2025 financial year. Joining me today is Ash Gardner, our Group CFO; and Jamie Adamson, our Head of Investor Relations. Well, it's a privilege to be here as Group CEO, having stepped into the role just 5 weeks ago. While I may be new to this position, I've spent the last 4 decades in the retail industry. In my short time here, I have immersed myself in the Adairs business and began my engagement with the Mocka and Focus leadership teams. I've had 3 primary objectives in this short period. Firstly, understanding our customers and hearing directly from as many of them as possible. I've spent significant time working in store, engaging directly with our customers and our teams. This deeper understanding of our strengths and pain points I've attained through this exercise has been invaluable to me. Secondly, understanding our operations. The time I've spent in our stores around the country in our customer service office and at our distribution center has shed light on the culture, our processes and mechanics of our business. I've been fortunate that my start has also coincided with our annual national roadshow of upcoming ranges to our retail leaders. It has given me a great opportunity to engage and learn across 2 most important areas of our operations, product and retail. And I've got 2 main takeaways from this time. I've been inspired by our retail team, their knowledge and passion for our beautiful quality products. It's always apparent as is their desire to help our customers create spaces they love. And I can clearly see the material progress we've made since stepping in as operator of our National Distribution Center. I can also see the size and importance of continuing to improve the performance of the NDC and our supply chain generally. And thirdly, getting to know our leaders and understanding our individual and collective skills and how we work together. This includes leaders of the Mocka and Focus businesses. We've got some outstanding leaders and our collective will to improve and be truly customer-led is a huge asset of the group. I've been in deep learning and listening mode in this period, and I am pleased with what I have found. The foundations of our business are sound. The positioning of our brands is distinct and the focus on customers is fundamentally strong. This provides our leaders the opportunity to take our businesses from good to great, and good to great is a reoccurring theme you're going to hear from me borrowed by Jim Collins, and our teams are getting used to using this emphasis. Now moving to Page 2 of the presentation. I will now provide an update on the recent operational highlights for each of our businesses. Starting with Adairs. We have seen significant executive leadership team renewal over the last 9 months. In addition to my own appointment, we have a new Head of Retail Operations, Kate Ryan, who started in January 2025; and a new Head of Product, Charlotte Forster, who has been a key member of the product team for the last 10 years, and was promoted in June 2024. Key to Adairs record sales half was a great customer response to our ranges in our key categories such as bed linen and the investment we made in inventory to ensure availability, particularly in store. Pleasingly, this sales momentum has carried into the early stages of the second half of FY '25. We also continue to see improvements in costs and operations at the NDC and successfully implemented a new warehouse management system in July. Since we took over as operator, costs have been reduced. Online customer service levels have improved and our in-store product availability has been enhanced by a 20% increase in items delivered to stores. We have not finished and expect further service and cost efficiency improvements over the next couple of years. Turning to focus on furniture, which is facing a more challenging trading period. Good progress has been made in several key areas. We've had 2 new stores opened in the last 18 months, Helensvale, Queensland and Prospect in New South Wales, and both are positively contributing to EBIT, and a third Queensland store opened this month in Robina. The pipeline for new stores is building with more locations set to open in New South Wales later this year and in Western Australia in 2026. And most of you know, we have a refresh program being implemented across our existing store network. Refresh stores provide an enhanced customer experience and boost profitability compared to other stores, and we expect another 3 to 5 stores to be refurbished over the next 12 months. The performance of new and refurbished stores reaffirms our confidence in the national rollout strategy we have underway. And finally, to Mocka. Over the last 12 months, we've seen new leadership and skills added to the management team and their collective experience, confidence and capabilities are growing quickly. We re-platformed the Australia and New Zealand website throughout 2024, providing a better customer experience and improved conversion. And importantly, it also sets the business up for its own omnichannel strategy. Mocka's strong results in the half benefited by new product ranges, and this remains a key focus for the team to support further sales growth. Finally, work to raise brand awareness, particularly in Australia and expand availability of Mocka products progressed in the half. We trialed wholesaling of Mocka product to a national retailer in Australia and New Zealand. We also launched a selection of Mocka product at an Adairs store in New Zealand. These trials provided valuable operational and customer insights as Mocka moves towards opening its first stand-alone store in FY '26. I will now hand over to our CFO, Ash Gardner, as he takes you through the half 1 results.

Thanks, Elle, and good morning, everyone. The first half of FY '25 has seen a strong result delivered by the group. Adairs and Mocka Australia performed very well, whilst Focus on Furniture and Mocka New Zealand had a more challenging half. Before I get into the numbers, please note that as last year was a 27-week half, the adjusted growth rates included in the investor presentation compare this half to the same 26 weeks last year, which is weeks 2 to 27 last year. Total sales for the group of $310 million was 6.6% up on the same 26 weeks last year. Gross profit improved by 20 basis points, whilst costs were well controlled, resulting in underlying EBIT of $33 million, up 10% on the prior year. Reported net profit after tax was $19.4 million, up 9.7% with earnings per share of $0.111. I'll turn to the brands now, starting with Adairs. Sales for the first half of $220.5 million were 9.3% up on the prior year, with both stores and online performing well to deliver this record first half sales result. This strong sales growth was achieved through improved ranges and high levels of stock availability in stores, especially across core lines in bed linen. The continued improvement to the national distribution center enabled more than 1 million additional units to be delivered to stores in the half, which was done at a lower overall cost. Whilst there still remains a lot of opportunity to continue to improve efficiency and service of the national distribution center, progress to date has been pleasing. Gross profit margins at Adairs improved in the half, up 80 basis points and the flow-on benefits of the cost-out program last year with a continuing focus on cost control saw cost of doing business decreased by 100 basis points as a percentage of sales. Adairs reported an underlying EBIT of $20.6 million for the half, up 32.5% on last year, with EBIT margin increasing by 160 basis points to 9.4% of sales. Focus on Furniture experienced a challenging half with sales down 4.1% on the prior year and gross profit margins also stepping back 250 basis points as a result of the weaker Australian dollar, higher shipping costs and additional promotional activity to drive sales conversion in stores. Costs were however, well managed to offset some of the impact of the sales decline, but EBIT for the half of $8.5 million was 22.5% lower than the prior year. As Al mentioned, the performance of the new stores, including Robina that opened just 2 weeks ago, continues to be pleasing and provides us with confidence in our strategy to create a national furniture chain that appeals to customers all around Australia. It's also been pleasing to see the improved performance of stores after they have been refurbished to the new store format with improved sales and profitability. As Elle mentioned, we'll be looking to refurbish a further 3 to 5 stores over the next 12 months to provide more customers with the new improved store experience. Mocka reported another strong half with sales up 12.4%, margins improving again and EBIT up 12.3% to $3.8 million. However, this result is very much a tale of 2 countries with Australian sales up 27.5%, whilst New Zealand sales were down 3.5% in a far more challenging market. Both markets have, however, seen strong sales performances from new ranges with the team doing a great job bringing on-trend ranges to customers at great prices. I turn to the balance sheet now. Inventory has increased by $13.9 million with almost all of this increase related to the Adairs business with the additional investment in core stock, providing improved stock availability with minimal fashion risk. This increased investment in inventory will continue to provide better stock availability to support sales into the second half. Capital expenditure in the first half of $8.2 million was directed to store refurbishments and expansions, ongoing improvements to the online customer experience across all 3 brands and the completion of the national distribution center warehouse management system project. Capital expenditure for FY '25 is now expected to be in the range of $16 million to $18 million, a slight increase on the earlier guidance with the addition of more focused store refurbishments in the second half. Net debt closed at $57.8 million, down $6.3 million on June, and the Group has hedged approximately 95% of its expected U.S. dollar commitments in the second half at an average rate of $0.67. The Board declared an interim dividend of $0.065 per share, which will be paid on the 3rd of April, and the dividend reinvestment plan will remain active. And now I hand back to you.

Thanks so much, Ash. Now turning now to our trading update for the first 7 weeks of the second half. Group sales are up 9.2% over the prior corresponding period. The macroeconomic conditions are materially unchanged from those we experienced in the first half of FY '25 and the second half of FY '24, with the sales improvement being primarily driven by those factors we can control. At Adairs, sales are considerably higher than in the same period in second half FY '24 with higher inventory availability and improvements in range appeals driving sales growth. Gross margin trends are consistent with the first half of FY '25. At Focus on Furniture, written sales improved compared to the first half of FY '25. However, sales conversion continues to be a challenge. The performance of newly opened and refreshed stores is pleasing. However, the opening order book for the second half of FY '25 is approximately $5 million lower than at the same time last year. At Mocka, we continue to see significant differences between Australia, where sales are up 14.3% and New Zealand where sales are down 10.2% on the same period last year. As we think about the outlook for the balance of FY '25, it remains a case of focusing on execution. We expect Adairs sales to continue to maintain positive momentum, supported by improved inventory availability and attractive differentiated product ranges. Further improvements in warehousing efficiency and service will also support sales and profitability. We expect focus on furniture trading to remain challenging in the second half given its Victorian store portfolio bias and lower opening order book. Up to 3 stores will be temporarily closed in the second half of FY '25 for refurbishment, with each closing for 6 to 8 weeks while this occurs. We expect Mocka Australia to maintain momentum, benefiting from an improved customer experience and new product successes, while Mocka New Zealand is expected to remain challenged. Turning to Page 10 and our business priorities for the second half and beyond. At Adairs, it's about profitable store growth, focused on developing bigger stores that are better able to showcase our product, and this will come from adding new stores, upsizing existing stores and consolidating smaller stores. Adairs will continue to expand its categories, particularly across fashion bed linen, kids and gifting. We will also evolve our Linen Lovers program to further enhance customer value. As I mentioned earlier, we will continue to improve cost and service outcomes at our national distribution center and increase in-store stock levels to improve range availability for customers. Focus on Furniture is building its pipeline of store openings with 3 to 5 new stores expected to open over the next 2 years, including entry to Western Australia and the existing store refresh program will continue with 3 to 5 refurbishments over the next 12 months. The product range will be expanded in areas such as outdoor furniture. Mocka will continue to build out its categories and remain innovative in its product offering. We expect margins to be maintained while conversion and ATV should improve, supported by optimizing the new website and supporting systems. As discussed, Mocka will continue to explore new opportunities to grow its physical presence as it works towards the opening of its first stand-alone store in FY '26. Looking ahead, I'm optimistic about our future. We are making investments in our technology stack, our processes and our digital capabilities to enhance our efficiency and support long-term scalable growth. These improvements will help serve our customers better, empower our teams and unlock greater value for our shareholders. Whilst my time in this role has been brief, I am fully committed to leading this business forward with focus, a listening culture, ambition, and a strong sense of purpose and innovation. Finally, I would like to acknowledge the leadership of Mark Ronan, who has successfully led the Adairs Group for the past 8 years. Thank you for passing the baton, Mark. I'm sure you're proud of what's been achieved, and I know you'll always be cheering from the sidelines, and we wish you all the very best in your next journey. I would also like to acknowledge all of the teams throughout the group who make these results possible. I would now like to open the call to questions.

[Operator Instructions] Your first question comes from Apoorv Sehgal from UBS.

First question for me, a very strong trading update for the Adairs brand, up 15%. I guess assuming no changes in kind of trading environment, are there any reasons to expect that to slow down? I mean, I suppose if I just crude to look at the comps, trading update at this time last year was down 9%. You ended up down 3% for the entire second half '24. So, I guess on paper comps get harder. We have also just got a rate cut though. So just curious in your thoughts for the remainder of the second half for the brand Adairs, please?

I think I wouldn't plan on holding 15%. I think your observation around comps get harder as we move into Q4 is the right one. But I think the things that we've done in H1, particularly around just the mechanical piece of having more stock in stores is definitely helping support sales in those core areas. And Elle, you've probably got some views around product for the next season or what you're saying?

Yes. I've certainly had an opportunity to view the product and in particular, departments as well, too, where we're seeing that sales growth, and we're feeling very confident with the numbers that we've put down.

I wouldn't plan 15%.

No.

Yes. Fair enough. And maybe on the Adairs product gross margin, that 62.4%. I guess that initial expansion you saw fell away over the course of the half. Obviously, you did flag in advance that those initial gains wouldn't quite hold. But was perhaps Black Friday, Boxing Day period maybe a bit more elevated on the discounting side than usual? And is that 62.4% more or less where you'd expect to finish up for the second half?

So, Boxing Day and Black Friday, that whole period was sort of in line with our plans. I think the reality of the margin uplift that we talked about in August last year when we released results was because that was at a time we turned marketing off because we're transitioning to warehouse. So those numbers were always super inflated. So, margins pretty much come in line with where we expected for the Adairs brand. We didn't go harder on promotional activity. I think one of the things that has been a feature of the last period has been our clearance markdowns haven't really been an issue. And I think as we look forward, that creates an opportunity for us to get a bit more into fashion and use some of that -- some of the great product and everything that Elle and the team are putting together to try and drive a bit more of that cream on top. But margin, I think in H2 will be similar to H2 last year, the pattern. There's nothing that sort of would suggest the pattern would change in any material way.

That's interesting. And then just on Adairs brand cost of business, first half came in a bit higher than PCP. For the full year, are you still expecting a flat outcome, which is what you indicated before? Or I guess, might there be a bit of growth now just given what we've seen in the first half?

Yes, there will be a little bit of growth, which is predominantly volume related. So, as we mentioned, that extra 1 million units of product that's moved through the DCs, we've done that at a lower cost. But if we hadn't moved that cost would be lower again. So -- and there are some variable costs rolling through given the results, just a little a little bit things like incentives and other things are they're baked into these numbers at the moment. And hopefully, that will continue moving forward, which is pretty significantly higher than last year.

I guess then just maybe just finally, taking into account all those comments on kind of sales, gross margins, cost of business. I mean, in the past, Adairs has kind of talked about 10% EBIT margins for Brand Adairs as being kind of a normal year target. Is that sort of outcome realistic for FY '25? Or maybe -- I mean, given you've come in the 9s for the first half, is it more like somewhere in the 9s for the second half as well?

Yes. I think it's still a little bit out of reach for this half. We need to see another strong half and another strong year of good solid comp growth, well above cost growth before we sort of get back to that 10%, but that's our target. And we remain focused on that.

Absolutely.

Your next question comes from Taylor Guyot from Barrenjoey.

Just for the group, the first half '25 gross margin was 59.9%. How do we think about that going into second half '25 and FY '26 in the context of FX headwinds? Would a flat gross margin be a reasonable outcome?

I think as we get into FY '26, holding gross margins is our objective. We've definitely got the currency headwinds. We have to see what the other inputs look like, but we're already making plans to address the currency headwinds. I think H2, there's not a lot of currency risk. We've hedged pretty much all of it at 67%, as you can see in the deck. So, it's more about as we -- how do we plan now for what we need to do into FY '26.

Yes, I'd conclude there with Ash. It certainly is a focus of ours going into FY '26, particularly that headwind, and we're working with our teams already on that.

And then looking into second half '25 and FY '26, is there any more cost out or NDC efficiencies left to annualize?

To annualize, yes. So Q1 of next financial year will still be an opportunity because that was the quarter that we were implementing the new warehouse management system, but the material gains are behind us. Now it's about sort of incremental day-to-day, week-to-week improvements in productivity. There's a bunch of things we're continuing to do, but the big step down is largely done. I think our costs are down $5 million, $6 million on where they were before we stepped in.

And then last question for me. Just on the trading update, just at a group level, that was up 9% year-on-year. And like for the remainder of the half, we're cycling down 10% last year, and it will get much harder for the remainder. But on a 2-year stack, it gets easier. So, would you just be able to give us some color for the group, like do the comps get tougher or easier for the rest of second half '25 on an underlying basis, please?

It varies by brand. I think Adairs still has opportunity to deliver solid growth in H2. But as we said before, we're not going to -- well, we'd love to deliver 15% for the balance of the half, but I think that's probably a little bit optimistic. Focus -- on a written order basis, that will continue to probably track in line with where the first 7 weeks are at. And then when we sort of report, we've got a much smaller order book for Focus coming into this half. So that obviously has an impact on the half results. And Mocka, Australia is continuing to trade well, and we remain confident there. New Zealand is very choppy. And you can see the New Zealand numbers for the first 7 weeks are pretty tough. So that's where our risk sits. We still think from a Mocka perspective, we'll deliver growth across the 2 markets, but New Zealand is definitely a drag.

Your next question comes from Ed Woodgate from Jarden.

Just asking on behalf of Ed. Firstly, just on focus sales. Are you able to sort of disaggregate the sales growth by Victoria and the broader book ex-Victoria?

No, but it would be fair to say that most of that result is because of Victoria. I think when we look at our performance, we've got 14 or 15 of our stores in Victoria. So, it's well over half of the network. Victoria is tougher. Based on the data that we see. We don't feel we're losing share in Victoria and the overall result is a function of just being overexposed to Victoria. We're seeing good numbers, reasonable numbers out of Queensland and South Australia has been okay. But is definitely a drag. And what you see from ABS and so on, that provides a bit of a picture as to how Victoria is going. And we're sort of riding that wave.

And just if you could sort of talk to plans around marketing and promotion through the second half, particularly just with the federal election potentially increasing the cost of advertising. How are you feeling on promotions in the second half?

Well, so far, we've got our marketing plan in place for all brands. We're really confident with those plans. There's no reason for us to deviate from those plans. The product looks really good. We are very clear on the execution. So yes, we're confident with what we've put down in place.

I think the other one, we've got a big direct channel. So, we've got 1 million little lovers. We've got well over 1 million e-mail subscribers in Adairs. We've got 0.5 million in Focus and we've got 500,000, 600,000 in locker. So, we've got a lot of ways to communicate with customers directly to avoid those cost escalations that you might be hearing about elsewhere. So that plus obviously having a large physical store network with customers out in the malls all the time is another great way to communicate with customers to pay over just to talk to them on just an online business.

Your next question comes from Chami Ratnapala from Bell Potter.

I think firstly, apologies jumping after a few other calls if this question was repeated. But I think back in late October or early November, the good trading update was sort of one of the key drivers was called the product back then, I mean, product-driven improvement. Anything that you can talk to on December and then especially for the Adairs brand, which is a star at the moment into January. How has that tracked and what gives you confidence on some of these wins to be maintained in the second half?

I think there's 2 things. I'll talk to the mechanical one, which is just having more stock in stores and having that focus on stock availability in the Adairs business. So, when a customer comes in, the chances of missing the sale due to a stock out has reduced significantly. There's no doubt that has supported the performance and the results, which the NDC benefits are rolling through. And then obviously, product is critical.

Yes. And with the product, we're really focused on some key bed linen, and you'll see that's where we've certainly seen growth, and particularly out of core programs. So, there are programs that Adairs are famous for. We've really put money behind that, put options behind it, and we're certainly seeing the increases coming out from those programs.

And that will continue at the stock levels at the end of the half. Most of that increase relates to Adairs, and that's to support the programs that I was talking about.

And then maybe Adairs new stores, I didn't see too much commentary on any sort of expectations. Have you all been communicating anything to the market today? Or what's the thinking for the pipeline, Adairs brand-wise?

We'll just continue to do what we've been doing, which is to upsize stores as well as open where we need to. Our goal is to sort of open 3% to 5% of space. We opened circa 2.5% in H1, and we'll continue to open space in H2, probably circa 1.5% to 2% of additional space growth in H2.

And we're seeing customers resonate with that strategy.

And then going to focus on furniture. Three to 5 stores over the medium-term, I suppose, and then new markets or more penetration into New South Wales and a new market as well. But how does this track versus previous guidance? And have conditions got any better or perhaps a bit more detail here?

We've been pretty consistent over the last 12, 18 months that it's hard to get space, and we're not going to just go and open in any location. We need to make sure we get the right location. So, I don't -- it hasn't really changed in terms of the access to space. So, where we are opening, it's typically related to deals that we facilitate and work with other retailers on. So, for example, in Robina, where we just opened -- we dealt with the good guys directly on that. They were relocating up the road and our property director was able to secure that space directly through them. And in other locations, it's been tied to center developments or new centers. And that continues to be the pattern. We are on the road and hunting for space in existing locations, but it's pretty -- still remains pretty hard to get and pretty tightly held. So, the stores will open. We've got WA lined up for next year. So, there's a few stores that will get going there. There's another one confirmed for this year. And whilst we're sort of working on that pipeline, we're also using the opportunity to refurbish stores because that better customer experience is definitely resonating and is the customer experience we want moving forward.

And lastly, I think Focus on Furniture. In terms of the performance, do you feel like it's lost share to competition? I know that earlier we said it is more a reflection of that exposure to Victoria. But maybe just the online, offline channel-wise as well?

Well, I think we're a physical traditional retail format in focus. So, we obviously lost share to Temple & Webster as is everyone else, but we don't really think of them as a direct competitor because our primary focus is on the in-store experience for customers and giving customers an opportunity to sit on the product, enjoy the product and imagine it in their homes by looking at it. So, I think our biggest challenge in focus is its overexposure to Victoria as well as the aging store estate. So, refreshing the stores is critical at this time and then also continue to put good product, new ranges out there will help. And as Victoria turns, we'll go with it. And hopefully, along the way, we can gain a bit of share with great experience for customers and great products.

Yes. And the team are also looking at expanding their product offering as well, too, to capitalize on those opportunities.

Your next question is a follow-up question from Apoorv Sehgal from UBS.

First one is just a follow-up to an earlier question. I think, Ash, you made a comment, if I heard correctly, that you're expecting Mocka sales growth in the second half across both geographies. Is that right? Like even in New Zealand, you're expecting sales growth from that? Or did I just mishear that?

Total sales growth we're expecting, but Australia will be up, New Zealand will probably down, but we still think the total will be positive.

Just maybe just on Mocka New Zealand then. So, I mean, the trading update says your sales there are down 10%. I guess post the website re-platform, has that not provided the tailwind you may be expected, just given like in Australia, we've seen a massive step-up in growth post the website changes? Or are you just kind of putting that down to the New Zealand consumer just being exceptionally weak and so there's not much you can sort of do about that?

The main problem we have in New Zealand is traffic and audience. So, what -- where we've had a lot of success in Australia is expanding our reach and then using the website and the online experience to maximize conversion. So that sort of combination of holding conversion at sometimes improving it slightly, but talking to a larger audience has really helped in Australia, whereas in New Zealand, the audience is obviously inherently smaller because it's a much smaller country, but we're just not seeing the same level of increased sessions and so on in New Zealand. So, whilst conversion is holding, we're not -- just the traffic is not there, the traffic is declining. So, we're playing around with a bunch of things. We're trying the things that we've used in Australia over there and having limited success. I think the other reality, which we're working through and we're doing a bunch of customer research at the moment to better understand it is that Mocka is a well-known brand over there. So, it's sort of natural opportunity to grow its share of audience is lower because it's already so well established in a small market, whereas in Australia, I think the team is doing a great job in expanding their reach and reaching a bunch of new customers and starting to push the audience levels to a more reasonable level in Australia, and there's so much more potential in Australia.

And maybe just one final one follow-up for me. Just on EBIT margins for both Mocka and Focus going into the second half? I guess if we look at the first half outcome, they're both around the 14% EBIT margin mark. Should we expect more or less kind of similar margins in the second half for both those brands as well? And I guess also as a bit of an extension to that question, is 14% or that mid-teens level basically the sweet spot from like a medium-term basis, like that mid-teens feels like the kind of numbers you've talked about in the past. So, we had a natural sort of margin for both those brands now?

Yes, I think so. I think Mocka will move a bit as we put down stores. So that will -- obviously, our expectation is that it will be very -- it will be margin-accretive, but it will probably be a little bit of pressure in the short term. Focus is inherently highly leveraged just because it has low fixed costs, low overheads. And if we can get those top-line sales moving, then it really will translate into the bottom pretty well. So, we'd like to think that 13%, 14% for Focus is the floor. But we need to make sure we see sales growth but the least equivalent to cost growth, particularly on rents and wages to maintain that. I think we're reasonably confident that we've got plans to see sales growth return to Focus in the near term. But that's what we need to hold on to those margins, obviously, because of the leverage.

Yes. And sorry, just to quickly check, the focus softness you have been seeing, you're kind of putting it down to Victoria, to that Victorian bias just being soft from a macro perspective. Is that right?

That's the macro effect, yes. There are always lots of things we can do inside the stores. They're doing all sorts of things with the team and product. But it's not helpful that we are overweight in Victoria, but still a big market, and we're still got to work hard to try and get our share.

Your next question comes from Allan Franklin from Canaccord Genuity.

A fair bit of this has already been discussed in relative depth. But just wanted to sort of perhaps starting on the Adairs side, just flesh out. Elle, how you sort of read your initial sort of view on the brand health. I appreciate we have sort of talked a better product ranging and execution. But to what extent have easier wins been taken? And when we're contemplating things like gifting and 1 or 2 new sort of categories or going deeper into those, how should we think about timing?

Yes, sure. First of all, what's great about the Adairs brand is that Linen Lovers program. So, there are a lot of linen lovers that love Adairs. So, we do have that direct channel. So that's a real strength of the brand. I think also in my time, I've really got to understand the store team, and I've also just watched them in action. So, I've actually been working in stores. And so, you really see that sales service side of our business, which is really strong, and there's a great culture in our store network. And then I have a look at the product range and particularly, I've been across half 2. And I've got to say once again that there's new innovation coming through. Charlotte, having worked in our business for 10 years, really understands the Adairs brand and the Adairs handwriting. So, I'm going to say we're in a really good position to move forward. And absolutely, there are -- I'm going to call it, new opportunities, innovations, and there are things that we will explore in time to come as I get to know and understand the brand more, but there are definitely new categories, range expansions, which is why that store network and the expansion of the store network is also very important for the Adairs brand. So, I look forward to watching us innovate, to growing categories, and to delivering to customers a new way for Adairs as well.

Maybe just on Focus, I appreciate there's a difference between written orders and total sales with the decline in written orders being higher negative than total sales. Just to what extent is written orders the right number to be contemplating right now? To what extent could the consumer obviously turn in coming weeks and then the potential pickup of trade and Focus Tech a surprise as the period goes on? Or do we think that as the period rolls on with a couple of stores closed, that sort of isn't much room to be excited for Focus at least in the immediate term?

I think we've all got our own assumptions as to how the consumer might change over the next sort of while with interest rates and elections and that sort of stuff. So, I think real-time sales or written sales is the best barometer of what's going on because that's clearly a leading indicator to delivered sales. We don't see and haven't seen any real changes in that pattern in terms of increased cancellations or things like that for written orders to sort of make it not a reliable metric. I think it really just comes down to your own view as to how you think the consumer is going to act over the next little while. We'll refresh the stores, so that will be disruptive to total sales, but we know it's good on the other side of those refurbishments. And we're working very hard on in-store experience and conversion because there are things that we can control once the customers are there. The team has got great products, great value, and this needs to translate that into great experience for the customers will shop. So that's what the guys will focus on.

And just a last quick one, just on the FX side. I appreciate you've locked away the second half. I think you typically work with sort of 9-ish months forward. So just to what extent you are trying to cover for FY '26? Or how we should sort of think about the headwind into that period?

Yes. I mean we're looking to cover, but the reality is it's going to be a 64, 65 type book, and hopefully not too much lower than that. But we've just got to try and put plans in place to deal with it through the whole supply chain as well as through how we go about promotions because markdowns and promo offers are still our biggest cost, biggest margin opportunity. So, it will be a headwind. It's just a question of how much and what we deal with which we're working on.

Your next question comes from Ed Woodgate from Jarden.

Just quickly, I guess, given Elle started, I appreciate that you talked to focusing on better ranging and execution in the medium-term or short-term. Are there any -- do you have any plans to do a big strategic review? Are there any sort of larger strategic questions that you have in the back of your mind that you're thinking about considering or potential changes that you might approach?

Well, first of all, we will be sitting down and going through a strategic review, and we're going to be spending some time as an executive leadership team on that. I do believe that when you think about the strategies that are in place for the business today, they are the foundation for going forward. I think it will just be how that evolves and what it looks like, and also acknowledging that we also own stores today. So, whilst we expand stores and look to grow stores, we also have a fantastic store network and making sure that we're maximizing that store network, and very importantly, making sure that we are very customer-centric in those locations. So that's probably one of the key focuses that we'll be working through.

And then just not sure if the question has been asked, but just on -- with the federal election coming up, marketing is going to be a bit higher. Is that going to impact your marketing plan at all for the second half?

So, we've got -- we always said when someone raised that earlier, we've got over 2 million direct-to-customer ways of communicating with our databases across the 3 businesses. There's 1 million -- well over 1 million e-mail subscribers in Adairs that we can talk to directly along with all of our social subscribers. We've got 0.5 million or thereabouts in Mocka and Focus. So, we'll -- and we already use those channels very actively, and we'll continue to do that as well as we've got our stores and lots of stores in great locations with lots of customers walking past and driving past them every day, which is also an asset marketing and that sort of stuff does become expensive.

[Operator Instructions] Your next question comes from [ Zaresh Sangwan ] a private investor.

I'm new to Adairs' business. So, I just -- I have questions on the furniture side of it. Question one is on the difference between Mocka and Focus. Like Mocka until now, I understood like it's just an online player. But now we are moving to offline as well. It will be taking some physical space. So, what would be the differentiating factor between these 2? And second question is on Focus on itself. So, it has been in business before Adairs acquired it. So what differences are we bringing to it? Are we moving towards some premiumization from value or -- and since Adairs is a well-known brand, are we planning to add Adairs to the name of it or some -- to just get some traction? So yes, that's these 2 questions.

So, I guess the key difference between Focus on Furniture and Mocka is that Mocka is, as you noted, an online business. It predominantly ranges flat pack furniture, but its value proposition is very much positioned towards young families. So, if you think of families in their first home, whether that's a couple moving out for the first time. A student moving out into their apartment, or a young family starting with Mocka but a very significant nursery and kids business. So, it very much skews towards young and value. It sits between Kmart and Adairs from a pricing perspective, and is very competitive from a pricing and range perspective against the likes of IKEA, which is obviously the #1 flat pack business. Mocka's product is a bit more on-trend than IKEA and also a far more heeded selection. Focus on Furniture is a traditional furniture business and its target audience and target customers is very much Middle Australia and homes. So, they play well in those parts of Melbourne and Sydney, where there is a lot of home construction and larger homes and larger families. Their primary competitor would be Harvey Norman or Amart. And from a value perspective, Focus also stacks up very well in terms of price points on very similar product to -- it's substantially cheaper than Harvey Norman and stacks up very well against the likes of Nick Scali, who's probably the leading premium furniture business in this market. Focus is cheaper, but still has significant or very good quality style design, make, but at a lower price than Scali. So, they each have their role. There's no -- we run all 3 businesses independently of each other. So, the only crossover in those 3 businesses is pretty much myself and Elle who sit on those management boards. Each of the management teams is motivated to grow their business and drive customer outcomes that are right for their customers. And if that has them competing against any of the other brands in the group, then we don't have a massive problem with that.

There are no further questions at this time. I'll now hand the conference back to Elle Roseby for closing remarks.

Thank you. Well, thank you all very much for joining our call this morning. I look forward to meeting and engaging with the investors on this journey of continued success. Thank you again.

That does conclude our conference for today. Thank you for participating. You may now disconnect.