Adairs Limited (ADH) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Adairs Limited FY '25 Results Call. [Operator Instructions] I would now like to hand the conference over to Ms. Elle Roseby, Managing Director and Group Chief Executive Officer. Please go ahead.

Well, good morning, and welcome to the Adairs Group FY '25 Financial Results. I'm Elle Roseby, Group CEO and Managing Director of Adairs; and joining me this morning is Ash Gardner, Group CFO; and Jamie Adamson, Head of Investor Relations. Over the past 7 months, it's been an absolute privilege to connect with our customers, suppliers and teams to deepen my understanding of how the group operates and where the opportunities lie. Long-term planning is vital to the Adairs Group, and our Vision 2030 strategy will provide a clear blueprint for sustainable growth over the next 5 years. The groundwork has already begun for FY '26 in Adairs, and we will be rolling out this planning framework for Mocka and Focus in due course. The framework covers brand, operations, technology and customer experience. But now on to Adairs Group FY '25 performance. I'm pleased to announce the Adairs Group delivered a 6.5% increase, a record for Adairs of 9.5% up and Mocka up 14% in sales, its strongest performance since COVID peak. Focus on Furniture performance was down 6.5% in sales. Group underlying EBIT was $55.2 million, slightly up on last year, supported by continued earnings growth in Mocka and Adairs, with both delivering up 21% in underlying EBIT. However, this was mostly offset by Focus on Furniture back 36%. It was a record performance for Adairs to $442 million. Stores and Online delivered great results, reflecting a commitment of our store teams and improved performance in SEM, SEO and Click & Collect, which is now greater than 10% of online sales. Our customers responded well to all categories, but there is a real emphasis on our famous 4 categories, which drove double-digit increases. However, gross margins were negatively impacted in Q4 with increased promotions and clearance activity on a few inventory-heavy departments. Our cost of doing business remains a priority, and we saw a further reduction of 130 basis points on the year. We saw significant efficiencies continuing to be driven by the warehouse savings $3 million. And importantly, though, the DC service is now seen as a real enabler for Adairs, supporting our growth and efficiencies. Also material cost savings across the brand for underlying EBIT increased 21.2% for the year at $35.8 billion at 8.1% versus 7.7% last year. The heart of Adairs is our Linen Lovers program saw new memberships up 5% year-on-year and renewals increased by 10% year-on-year, positively impacting ATV. And this is the key acquisition and retention strategy going into FY '26 with a partnership launch of Qantas Frequent Flyer. As per the store network strategy, we opened 4 new stores, expanded 5 and closed 7 small stores. While store numbers reduced from 171 to 168, GLA grew by 2.7%, and this really supports our strategy to transition to larger format stores that really showcase the range that we know that our customers respond to and love. FY '25 was a year of leadership renewal. We now have a stable, well-aligned executive team capable of delivery on the Adairs strategic priorities for FY '26. It was a very challenging year for Focus on Furniture with sales declining by 6.5% with total sales of $117.9 million. We did see pockets of tough product performance and initiated increased promotional activity to drive those sales. However, gross margins were impacted by 240 basis points at 15.8%. However, despite the tough performance, inventory has been very well managed. Unfortunately, tight cost management wasn't enough to offset the decline in profit, which fell to $11.8 million, down 36%. In these tough times, it is important for us to reflect and to gain valuable customer and noncustomer insight to which we have completed a strategic impact review. And this has really provided management valuable insights, which are driving the initiative for FY '26. These insights will have also enabled me to really understand the leadership skill and experience required to fill our growth ambitions. And from this review, we are now in market for the recruitment of a GM of Retail Operations and a GM of Marketing Digital. Positively, our new and refurbished stores continue to outperform the broader fleet with pleasing results in South Australia, giving us confidence in our network strategy. Mocka delivered a strong performance with Australian sales up 31% on the year with increasing brand awareness. New Zealand has been a challenging environment, but it's been pleasing to see a returning to growth in Q4. Impressively, Mocka's total sales were up 14.7% year-on-year, and this growth was driven by our team delivering on customer insights, a targeted marketing strategy, new product categories, which resonates strongly with core customers. Gross margin improved by 100 basis points to 59.4%, helped by a greater uptake of new products and a deliberate reduction in promotional activity. The cost of doing business slightly increased due to providing additional funds to targeted marketing initiatives. EBIT finished up 21% to $7.6 million, representing 13.1% of sales versus 12.6% last year. I'll now hand over to Ash for more details on the numbers.

Thanks, Elle, and good morning, everyone. And just before I start, just a reminder that the FY '25 year was a 52-week year, and all the comparisons in the various reports we produced to FY '24, which was a 53-week year. All those comparisons have been made to the same corresponding 52 weeks in FY '24. So as Elle touched on, FY '25 delivered mixed results across the group. Total sales of $618 million was 6.5% up on last year with strong sales growth from Adairs and Mocka, offset by sales decline at Focus on Furniture. Underlying EBIT for the year of $55.2 million was in line with the guidance that we provided back in June and slightly ahead of last year. Similar to sales, we saw strong profit growth from Adairs and Mocka, offset by a decline in profitability from Focus on Furniture. If I turn to each brand now starting with Adairs. Total sales of Adairs grew by 9.5%, with like-for-like sales up 7.8%. Pleasingly, we saw very strong growth from both channels with stores up 10%, supported by improved stock availability in store and online, up 8.3%. Margin, however, did step back on last year and was below our expectations. Gross margin was of 61% was 170 basis points down on last year. Our strike rate on furniture, bedlinen and furniture was not good enough. And combined with higher average purchases, this did lead to higher stock levels and higher clearance markdowns, especially in Q4, which impacted negatively on margin. This issue has been a focus area and has been addressed through the final stage of clearance activity in June and into July. It was pleasing to see further progress in the warehouse with costs declining by another 8.5%, bringing the total cost savings since we took control of the site to more than $6 million or 20%. And that is despite the significant increase in volume that has gone through that facility throughout this period. The implementation of the new warehouse management system at the beginning of this financial year provided the tools for the team to deliver progressive improvements throughout the year, which we expect to continue into FY '26. The underlying EBITDA at Adairs, as Elle mentioned, of $35.8 million was up 21% and with EBIT margin increasing to 8.1% from 7.7% last year. Now Focus on Furniture, as we said, we saw a disappointing result in FY '25, sales down 6.5% and margin also down. Traffic throughout the year was mixed. However, conversion, which is within our control, was below last year despite the increased level of commercial activity. Cost were managed, but this wasn't enough to offset the impact of the lower sales and margin with EBIT coming in at $11.8 million for the year, down 36.6% and the EBIT margin stepping back to 10%. Mocka, however, achieved another strong result with the benefits of the work done in FY '24 continuing into FY '25. Total sales were up 14.7% with Australia up 31% and New Zealand down 3%. The results in Australia were driven by targeted investment in brand awareness, which has delivered a significant increase in traffic. Gross margins of 59.4% were up 100 basis points from last year, driven by new product ranges, higher average selling prices and less promotional activity that have enabled this margin improvement despite the weaker currency. And EBIT for the year of $7.6 million was 21% up on last year, with margin -- EBIT margin increasing to 13.1%. Before I turn to the balance sheet, I'd just like to briefly talk to the significant items that we've excluded from underlying earnings in the investor presentation and that are detailed in Appendix 1. In addition to the normal AASB 16 lease adjustments, we had some additional nonrecurring items in FY '25. We incurred $800,000 in the first half, completing the warehouse management system transition. We also relocated the Adairs customer support office and the Focus on Furniture customer support office and warehouse. Costs associated with these relocations were $2.1 million and included the physical relocation of stock furniture and other equipment make good facility and some noncash asset write-offs related to the old offices and DCs. Adairs implemented a new cloud-based marketing platform during the year and also commenced its business-wide technology and data upgrades with project costs on these 2 projects of $4.4 million expense in the half. In the past, we would have treated these types of software development projects as capital expenditure. But under the new cloud computing accounting guidelines, we are required to expense these costs as incurred. And finally, $1.6 million of costs associated with the leadership transition were incurred. These include the duplicate CEO costs as well as other changes to the senior leadership and executive team at Adairs throughout the year. I'll now turn to the balance sheet. Group inventory closed at $96 million, up 14.7% on last year. Within this closing stock balance, we have some pockets of stock, mostly Adairs that have required further markdowns to clear in Q1 of this new financial year. This combined additional promotional activity in Q1 was necessary to bring stock levels back in line and set the business up for the important second quarter with Christmas and the peak summer trading period. There are no significant stock issues in Mocka or Focus. Across the group, capital expenditure was $13.5 million, with, as mentioned earlier, a further $4.4 million spend on cloud computing software projects that was expensed. Cash conversion was impacted by the higher stock levels, investment in CapEx and the cloud computing projects along with the other one-off costs during the year, which did mean that net debt growth a little higher than last year, up $3.4 million to $67.6 million. However, leverage remains at approximately 1x EBITDA, and we have plenty of covenant headroom, and we also completed the refinancing the group's debt facilities during the year. The Board declared a final fully franked dividend of $0.04 per share, bringing the total dividends for FY '25 to $0.105 per share, representing a 72% payout, and we've maintained the dividend reinvestment plan as active. I'll now hand back to you, Elle.

Thanks, Ash. So FY '26 marks a foundational year, a springboard for future acceleration guided with -- by clear investment priorities. This blueprint, otherwise known as Vision 2030, is a customer-anchored strategy designed to deliver sustainable profitable growth. The vision sets on 5 pillars: Deepening customer engagement, which is really we want a greater level of insight into our customers' behaviors, the way they shop with us, why they shop with us, how we can be more relevant to them. The second is shaping brand distinctiveness. So from our packaging, our store design, our tone of voice, our unique assortment. It's about how we become more consistent and more memorable to our customers. Driving operational excellence is really about understanding our insights, knowing where we need to win and executing with excellence throughout our value chain. And leveraging data and technology. We've already started embedding AI to help improve efficiencies, and we will target our investment in technology that unlocks our future growth initiatives. And building operational foundation for long-term success is, as we grow, we want to really ensure that we grow efficiently and productively, ensuring that our processes and our structures really set ourselves up for success. Transformational work is already underway for Adairs in FY '26, and we'll roll out Vision 2030 for Mocka and for Focus in due course. For Adairs, I am really agile by the opportunities ahead. Over the past few months, the leadership team and I have aligned on the strategy and KPI metrics that will carry us through to Vision 2030. With real clarity on the foundational priorities for FY '26, and the first being rebuilding value. We can't keep relying on a very deep discount, weekly discount, week after week. Instead, we need to show up differently, telling our unique quality product stories in a more richer, more meaningful way. We are deliberately reducing the depth of discounting as part of the broader strategy to protect gross margins, strengthen brand equity and ensure promotions drive genuine sales with improved margins rather than erode profitability. And this strategy also aligns better with our inventory management goals of reducing excess stock. But importantly, this is not about pulling back on customer value. It's about shifting from really heavy deep discount-driven offers week after week to respecting the beautiful, unique well-designed, quality-led products that our customers love with a revitalized promotional offer. As an example, our test and learn programs in FY '25 has shown us what works. Whilst the evolution requires us to reeducate our customers, and we are still in the early stages of this strategy, what we have learned by creating bundle offers on key categories for offers of buy 2 and save 20% have seen a 5% to 10% increase in sales in these categories and GM dollar improvement and improvement in GM percentage with lower units sold. The offer not only lifted ATV and items per sale, but strengthened performance in category mix towards higher margin lines. Our stock investment decisions are critical to maximizing returns. And following a detailed review of our SKU base, in FY '26, we will reduce overall SKU count by 10% with targeted reductions in selected categories to improve productivity and margin. For Q2, we've also assessed unified and reducing in key categories to reduce stock overhang. Our test-and-learn approach had a big moment during Mother's Day and Easter delivered strong results with Easter products achieving a fourfold uplift. This proves our ability to leverage event-driven foot traffic to drive top line growth. And through working with the team, these valuable insights have provided us great confidence with how we need to show up with our execution throughout our Christmas selling period. And throughout the FY '26 calendar, we're extending this big moment approach where we will invest in categories of high demand while reducing exposure to slow-moving lines and categories, which will also improve our stock efficiency. Through our test-and-learn approach focused on elevating key digital merchandising areas, the results has been encouraging with customer satisfaction increasing by 4 to 6 points. This new VM approach underpins the go-to-market calendar, allowing us to communicate our unique products, our quality, our value and our experience in a more compelling way. In Q2, we are investing in fixtures to support major big moments and category expansion. So our customers and our shareholders will be able to come into our store and certainly see the difference from October onwards. We are also driving productivity improvements across the NDC and our stores. By investing in automation and voice picking at the NDC, we'll make routine high-volume tasks easier for our team and boost big rates per hour. In our stores, we're streamlining operations by reducing non-selling activities, enabling our team to spend less time on admin and more time delivering what we're known for: Exceptional customer service. Vision 2030 also enables Adairs to have a really clear guide path to growth across the next 5 years. And to unlock part of that growth, we must move off aged legacy systems that slows execution and require manual time-consuming work around. Our direction is having a modern platform that enables us to deliver with speed, scale and utility, ensuring we can execute our growth strategy more efficiently and capture growth opportunities faster. For example, ship from store, flexible delivery for our customers, mobile pods and even unlock our ability for flexible pricing and promotions. We will also continue to invest in AI-enabled technologies that produce faster, deeper customer and product insights and allow faster decision making, like the new marketing platform which has enabled us to communicate to customers through intelligent timing with more personalized communication and even A/B testing subject lines for open rates. Our suppliers are absolutely critical to the success of our business. And we know it is imperative that we are aligned with our suppliers to maximize our margin benefits as we grow. On our recent trip to China, we achieved an average 5% cost reduction across key programs, and we will continue to enhance our strategic partnerships with key suppliers to mark further efficiencies and ensure they are aligned with our long-term growth ambitions. One of our strategic pillars is strengthening brand loyalty. And on the 30th of July, we launched an exciting partnership between Adairs Linen Lovers and Qantas Frequent Flyer. Linen Lovers can now own 1.5 points for every dollar spent in store or online. With Qantas Frequent Flyer being one of the largest loyalty programs in Australia and over 17 million members, this partnership represents significant value for our 1 million paid members. The objectives are clear: Drive higher average transactional value; attract new members; retain existing members; and increase frequency of visitation. We've already seen 20% of our new members tag their Qantas Frequent Flyer number in their first transaction since launch. Early performance is encouraging with ATV for Qantas-linked Linen Lovers running higher than the regular Linen Lovers. It is still early days, and we'll continue to assess incremental behavior over time. Focus has come through a tough period, but as always, these cycles are valuable learning moments. And what's encouraging is that our refurbished stores, especially in South Australia, are outperforming up to 20% and on track for a payback in less than 2 years. This is a clear signal of the benefit from our investment. We're harnessing recent customer research to create a better experience online and in-store with sharper visual merchandising offering flexible payment options and select product customization are all helping us respond directly to what customers want. Maintaining our in-stock model remains absolutely important by giving customers the choice on fabrics as another layer of value and new opportunities to customize their purchase, giving them a reason to shop with us. Expanding our footprint to 55 stores nationwide remains a priority. As we pursue new sites, we're also ramping up refurbishments, learning from our successes. We know there's much to do, and improving the customer experience is top priority. Investing in leadership remains central too with a key recruitment underway of a GM of Retail Operations and a GM of Marketing Digital to strengthen our existing team and drive our business forward. Mocka is building real momentum into FY '26 with targeted branded investment continuing across digital, marketing, campaign, PR and other channels to lift awareness and drive engagement. The team are focused on growth in key categories like use, lighting, outdoors and focus, which is supporting higher full price sales and strengthening margins. The product strategy remains tightly aligned with important life stages of nursery, kids, the first big bed, youth and first home, ensuring Mocka's ranges resonate and add value for our customers. We've always had the ambition for Mocka to be an omnichannel retailer and to open a retail store. And throughout FY '25, we initiated an opportunity in Tower Junction in New Zealand with a store-in-store concept to gain an understanding of customer response in the Adairs Tower Junction store. This approach to the test and learn has given us the confidence and really importantly, the learnings to open our first standalone Mocka store this year. This proof of concept provides confidence of annual sales of $2 million per store turnover. Expansion in New Zealand is a priority. Store-in-store trials in Adairs stores will be expanded in New Zealand alongside continued innovation in products. It's an exciting business, and we believe we are well positioned to take it forward with momentum. As a trading update, I'm pleased to report that the first week -- first 8 weeks of FY '26 have delivered an impressive top line growth right across the group with sales up 22.6% in real time, driven by targeted promotions and a positive response from customers. So let's take a look at each brand. Adairs has achieved an elevated sales of up 26.6% that was supported by promotion and clearance activity. There was an additional Linen Lovers event in August, which has performed exceptionally well. And so whilst these efforts have resulted in strong sales and it has reduced our excess inventory of reduced stock, they've also impacted margins early in the year. Gross margin for Q1 will be about 300 basis points below last year, but we expect steady improvement in Q2 as promotional activity normalizes and inventory clears. Looking ahead, sales growth in half 1 should be up 4% to 7% compared to last year, with margins recovering to the 50 to 150 basis points down to half 1 overall. Focus on Furniture has started FY '26 with encouraging sales up 6.7% as our team executed customer-informed initiatives Gains in supply costs and smarter retail pricing are helping to maintain gross margins even in the face of a weaker Australian dollar and the need for continued promotional activity to drive conversion. We expect sales performance to remain steady for half 1 growth of 3% to 6%. Mocka continues to build momentum, especially in Australia where sales were up 52% and in New Zealand, sales were up 22%. We expect Mocka sales growth to be moderate over the rest of the half, but still running well ahead at 20% to 30% up on last year. Across Mocka, gross margin is forecasted to be 50 to 150 basis points lower than half 1 in FY '25, reflecting currency pressures and increased promotional activity in New Zealand. Our margin has been lower from a group perspective in the early weeks. We're confident it will improve over the course of the year as our strategies take hold. Overall, these results signal strong engagement and continued growth potential across all of our brands, anchored by targeted actions and disciplined execution. As an outlook, I look ahead across the group, our management focus is firmly on delivering our FY '26 initiatives with strong execution. On the property front, Adairs is targeting the opening of 3 to 5 stores alongside 3 to 4 store upsizes to drive a 3% to 5% increase in our overall gross lettable area. For Focus on Furniture, we're planning to add 3 to 5 stores in the next 18 months with a strategic focus on New South Wales, Queensland and expanding in WA. At the same time, 3 to 5 existing stores will be refurbished to showcase our latest format, strengthening our customer experience and network optimization. And it's an exciting year ahead for Mocka set to launch its very first standalone retail store throughout the year, a significant step in our omnichannel journey. I just want to finish with a reminder that these results are a direct reflection of the incredible commitment and collaboration shown every day by our teams across Australia and New Zealand as well as the unwavering support from our loyal customers. There's genuine excitement about what's ahead, and I want to extend a heartfelt thank you to everyone for your dedication, achievements and continued focus on the opportunities in front of us. I'd like to thank the Board for their ongoing support and guidance. And together, we're building a business with great momentum and purpose. Thank you for listening, and I'll now hand over to questions.

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

Can you hear me okay?

Yes.

First question on Adairs product gross margin. So first half '26 indicating sort of roughly down 100 bps year-on-year. That will take it to kind of 61.4% product margin for the first half of '26. And clearly, the second quarter run rate is tracking probably a bit higher than that. I'm just wondering, looking into second half '26, how should we think about that product margin versus the first half?

I think our expectation is we've got a lot of opportunity in H2 because we're not going to be cycling all these clearance markdowns. So if you think of FY -- second half of FY '26 returning to sort of where it was in FY '24 would be a pretty good starting point. There's a little bit of weaker -- currency is a bit weaker. So it might not get all the way back to 63.1%, but it should certainly sort of get a fair way back towards that number without all these clearance activity in the second half [indiscernible].

We're also seeing the benefit that being, Ash, on the reduction of cost prices [indiscernible] year.

Yes. Then we'll get a full year benefit of that cost reduction as well, which is a big part of the currency strategy.

Okay. So the way I -- yes, second half '26 should be probably 62-point something?

Yes. I that's fair. Good point.

Okay. That's good to hear. And that clearance program of the fashion noncore type SKUs. When does that actually fully complete? Or has it fully completed yet?

Yes. By the end of Q1, we would expect to really have completed that cycle through that mid-season sales period. So by the end Q1.

Yes. Okay. The next topic just on Focus on Furniture. Nice to see a bit of a positive rebound in the first half '26 so far and on some stable GMs. Just talk us through what's worked incrementally in your favor in recent sort of months. But I also wanted to touch on a comment in the media release. It sort of said continued macro support. Is that just a specific reference to rate cuts sort of helping through? Are you suggesting perhaps that Victoria has turned a corner, given that's obviously pretty important to Focus?

More just the interest rate reductions are certainly helpful for Focus with the big ticket purchase. And obviously, similar to sort of housing generally, the sentiment is becoming a bit more positive there, and Focus has [indiscernible] from that. We haven't really seen any change in Victoria. Any, I guess, positive is that we're starting to buckle those numbers. So that's part of what's contributing to sort of seeing some growth now.

And I mean, if I sort of go down to the bottom line there, like Focus, I mean, in FY '24 of 15% EBIT margins, that's obviously dropped in '25 to 10% EBIT margins. If you're thinking about '26, I mean, how do you see it maybe somewhere in between those 2 numbers?

Yes. I mean our goal is to see a return to sales growth. I think the margin is going to take a bit longer to rebuild it back to where it was, but we should see margin improvement this year, and we want to see sales growth, which should see deliver us a 10-plus percent EBIT margin and then sort of get us on the track. I think longer term, we would expect to be mid-teens, but we sort of got to -- sort of get the positive momentum moving in.

Your next question comes from Chami Ratnapala from Bell Potter Securities.

Congratulations on the result. I think quite a few of my questions were answered earlier. Maybe just on sort of the conscious partnership, which looks pretty exciting. I mean, for the moment, it's on Linen Lovers. Is there any opportunity for it to be expanded to other brands? I mean not that the other brands are relevant to the same extent, but any comments there?

Yes. Thank you. At this stage, it's an exclusive Adairs partnership. So we don't see it extending at this point in time really past this financial year.

Perfect. And just with the cost base in the business. I think you did call out some efficiencies and also referring to some of the tech work that's going. I mean more thinking about a sustainable cost base or more medium to long term, I mean, where do you see the most efficiencies in the cost base once you've embedded some of those efficient processes?

I think our priority is to make sure that our costs grow slower than sales. So I think as you think about what the P&L looks like over time, we'd like to see the way that we get EBIT margin up particularly in Adairs is with that rebuild of the gross margin, which we talked about earlier, and then seeing costs grow slower than sales. I think we still got cost savings to come in the warehouse with, I guess, the continuation of the improvements we've been seeing since the warehouse management system went in this time last year. And as we introduce new technologies, which will make work processes easier and more efficient and sort of free people up and free hours up to focus on more customer-aligned things or take hours out, and that will be another way in which we can see cost reductions, which will be around the business as we sort of implement those new tech initiatives.

Perfect. And maybe on the Mocka that's announced for FY '26. Could you clarify which -- towards which part of the year that should come through?

During the year, but we're thinking it's more half 2 at this stage.

And what's -- I mean, what's the investment looking like there? And also, I mean, given the first store is sort of now more fine-tuned, how you're thinking about the store rollout? Would there be quite a big store rollout or a couple of stores for trial?

We're taking a measured approach to this. So we took the opportunity to test and learn in that [indiscernible] environment. The next phase is a stand-alone store, and we are working through the square meters that's required for that based on our Tower Junction learnings. And if that works, then we have certainly a list of opportunities, a list of sites, list of areas that we know are aligned to the Mocka customers, but we really want to get through this next transition of learning Mocka -- learning Mocka really with its stand-alone store.

Your next question comes from Max Mosaic from Barrenjoey.

Just [indiscernible] gross margin to H '25 was down 340 bps year-on-year. Could you break that down in terms of how much it was just extra discounting in Q4 versus FX and other movements?

There's a bit of FX in there, but -- so it's probably 1/4 of it's FX, and the balance is promotional clearance costs.

Your next question comes from Ed Woodgate from Jarden.

Okay. Well done on the results. Just wanted to ask about the trading update. Obviously, you've done -- it's very pleasing to see those numbers come through, but I appreciate that's being partly driven by discounting. Can you just talk about where your inventory levels are today and how much money you have to clear? I understand you're going to be finished by Q1, but just be interesting to understand like where it is now and the risk that might finish earlier or continue on through the year.

Our stockpiles are well down. Elle can probably talk a bit more around sort of where we see the opportunities moving toward from what we've done.

I think we ran a Linen Lovers event. And what that's really enabled us to do is really clean up that inventory. As you know, there's a real stickiness to that Linen Lovers program. There's great engagement. So by running that event, we were able to clear through that excess inventory. And we're in a really good position now with our stock help. Mind you, we are going into mid-season clearance. So we've just got a bit of stock to clear, of course, from that July period. And I think also what that Linen Lover event has really been able to provide us an insight of is we saw some really great response, really early market response to products that we know so well at Christmastime. So in actual fact, what it's enabled us to do is chase back into Christmas with a lot more confidence on quite a few lines and stand out for that. So it really gave us, I suppose, if you like, a dual purpose of not only clearing that inventory but also getting great really important read for that Christmas period.

Yes. Okay. And then great to hear that you've negotiated some discounts in China. Can you just clarify when in the year these reductions were achieved as far as like it actually hitting your P&L?

Yes. So we -- it will hit the P&L from Q2, and we'll get a full half effect in H2. They are all negotiated in May, and sort of started flowing through in purchase orders from there as well as a bunch of retrospective sort of impacted on stock landing through June July.

Okay. Fantastic. And then the tech upgrade, I understand, that makes sense why you need to do that. It sounds like it's important for future proofing the business. Can you just talk through whether this is once off or you'd expect some of this to carry over into FY '27?

Yes. So we've talked that we'll be spending $20 million to $25 million over the next couple of years. So we've already spent a little bit of in FY '25. And then there will be another $ 13 million to $15 million in FY '26, and then another sort of $5 million to $10 million over '27, '28 as we work it through. But the big -- the heavy lifting will happen in FY '26, which is the replacement of the legacy ERP systems in Adairs with the view that, that new platform will be live in Q1 of FY '27, and that really opens up a lot of options for us around the things that we know we need to do to deliver on our Vision 2030 objectives. I'll touch on ship from store as an example. We're able to give customers more flexible delivery options. And then having a new data platform and being able to use this information more effectively for stock management, which will drive improvements in stock turns, better assortment planning, better allocations to stores, there's just a lot that we need to be able to do better, and this new moving to a modern tech stack will allow us to add the tools that are necessary to make those things happen.

Okay. Great. And then one final one for me. So pleasing to see the refurbs that they look like they're delivering good returns, but I guess it could help us have a rough idea as to what potential returns might be. You talked to CapEx of $600,000 to $700,000. What's the appetite from landlords as far as contributing to those? Is it -- are they happy to contribute more than they typically would for a standard refurb? Or how -- is there any sort of color you can provide there?

So that $600,000, $700,000 effectively will replace, rebuild an entire inside of a Focus on Furniture store that's at a standard average size. So if you're -- and that includes external signage, internal signage, flooring, lighting, fixtures and typically, which isn't included in the $600,000 to $700,000, but what we also then reopen with this new stock. Before they close the store, they clear the old stock. So that formula, which we've now rolled out a number of times is -- we're pretty clear on how we do it. There are things we're looking to do to try to create a faster, cheaper solution in -- for sort of the -- for other store types, like regional stores and so on. But the payback or the results we've seen in South Australia, sort of that 20% to 25% up, we've also done the Mocka store here. That store has been outperforming consistently. It was done probably 12 months ago. We're pretty confident that the format works. There's always learnings. I think one thing Elle's brought in her time is a different perspective on what we could also do better in store, both the refresh stores and the existing stores in focus. So those things will only overlay more opportunity and potentially faster payback.

I think that's a good point, Ash, because that's part of the work that we've been doing with the customer insights: With the stores that we already own today, how can we improve those. So that is an initiative for FY '26 with the Focus team. Whilst we refurb stores with the stores that we already have, how can we improve our customer journey and the visual presence of both stores.

Your next question comes from Akash Deep, private investor.

I just want to ask about Mocka that like we have grown very well in FY '25. And now we plan to like open a store as well. So I just want to understand like why not only online? And why we want to move via only channel scalability?