Adairs’ homeware product sales to benefit from lower interest rates in 2025.

About Adairs Limitedl

Adairs Limited (Adairs, the Group, ASX:ADH) is Australia’s s largest omnichannel specialty retailer of home furnishings and home decoration products. The Group operates an omnichannel retailing strategy that seamlessly combines in-store shopping with the convenience of on-line marketing and ordering to deliver a superior customer experience.

Listed on the ASX since June 2015, Adairs commenced business in the early 1900s on Chapel Street, Prahan in Victoria before establishing itself as a small format department store in Camberwell, retailing manchester, curtains and haberdashery. In 1981 the first modern Adairs boutique was opened in Doncaster Shoppingtown, and today it operates in Australia and New Zealand through a network of 170 stores.

Lower interest rates support demand for homeware products

The Reserve Bank’s Statement on Monetary Policy – February 2024 released today assumes that the current cash rate of 4.35 percent will remain until the middle of 2024, before declining to around 3.2 percent by the middle of 2026. However, the RBA did also say that a further increase in interest rates cannot be ruled out because the direction of interest rates is dependent on economic data. This proviso appears to be a case of the newly appointed RBA Governor exercising caution following her predecessor’s forecast in 2021 that interest rates would remain low until ‘at least 2024’.

Moderating interest rate levels should see a rebound in demand for homeware products beginning in the second half of 2024. Adairs are likely to be a beneficiary of any increase in demand for home furnishings and home decoration products given the retailer’s specialty focus on these market segments.

In other positive news for homewares retailers like Adairs, the RBA’s assumptions relied on in determining its latest inflation forecasts include a stronger Australian economy that does not go into recession. The RBA expects economic growth to strengthen from December 2024 and throughout 2025 and 2026 and be 2.4 percent per annum in the six months to June 2026.

The interest rate forecasts by the RBA are less aggressive than the Commonwealth Bank forecasts released last week that anticipate a fall in the cash rate of three quarters of a percent in the second half of calendar year 2024 as inflation comes back into the RBA’s 2-3 percent target range. Today the RBA stated that it doesn’t see inflation falling below 3 percent before the December 2025 half-year.

The other factor driving demand for household goods is Australia’s population growth.

A 518,000 net gain in overseas migration and a natural increase of 106,100 people in 2022 – 23 boosted Australia’s population by 2.4 percent to 26,638,544 people at 30 June 2023. Population growth incrementally adds to housing-related product demand and the wealth-effect associated with rising property prices encourages household consumption activity, including demand for home furnishings.

December half-year results likely to fore-tell stronger earnings ahead

Adairs have previously declined to issue earnings guidance for the December 2023 half-year. However, share prices reflect less of the state of the business currently and more about how well positioned it is for the future. The combination of consistent population growth and lower interest rates underpin future demand for housing in Australia which in turn has a knock-on effect for home furnishings and home decoration demand. This implies that the results for the 27 weeks to 31 December 2023 to be released on Monday 26 February 2024 should be positive for shareholders prepared to take a medium-term view of Adairs’ earnings prospects.