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Online beauty retailer Adore Beauty Group (ASX: ABY) has revealed that heightened promotional activity across the beauty market through April and May has tempered its second-half trading momentum, with year-to-date revenue up 7.4 per cent to $193.4 million for the first 47 weeks of FY26.
Today's trading update marks a deceleration from the 8.7 per cent revenue growth the company reported at its half-year result in February, with CEO Sacha Laing pointing to more pronounced cost-of-living pressures driving the uptick in discounting across the sector.
Despite the softer finish to FY26, Adore Beauty has issued FY27 targets of at least 10 per cent revenue growth and underlying EBITDA of $9 million to $13 million, underpinned by infrastructure efficiencies and continued physical store expansion.
The company now expects H2 FY26 gross margin of about 34.5 per cent, in line with the prior corresponding period, and full-year underlying EBITDA of about $4 million, representing a margin of around 2 per cent.
The positive outlook led to investors buying up shares in Adore Beauty today, driving them 12 per cent higher to 36c by 1.30pm (AEST).
“More pronounced cost-of-living pressures have seen an increase in promotional activity in the market through April and May resulting in a tempered slowdown in trading in Q4," says Adore Beauty CEO Sacha Laing.
"Pleasingly the group is expecting to achieve gross margins for H2 in line with the prior year, achieved through our higher margin own brands and store network.
"While we are benefiting from new growth levers, including our loyalty program, higher-margin retail network and iKOU brand, we will not see the full benefit of these initiatives until next financial year."
Laing says store performance is in line with expectations with the group's retail network "continuing to cost-effectively introduce new customers to the Adore Beauty brand".
"New customer acquisition is almost 14 per cent higher than in the same period last year, noting that we are cycling a return to growth in H2,” he says.
Despite the more challenging trading conditions the group says it has executed the most capital-intensive investment cycle in its 26-year history.
"This investment in omni-channel capability, including 14 Adore Beauty and three iKOU stores, the acquisition and integration of the iKOU business, the replacement of its core ERP platform and investment in AI capability all provide a strong platform for meaningful profit growth," says the company.
Adore Beauty acquired Blue Mountains-based organic beauty and wellness brand iKOU for $25 million in 2024, helping the online group expand its bricks-and-mortar store presence.
Laing says the increase in promotional intensity reflected broader market dynamics rather than company-specific issues, noting uncertainty in external market conditions have weighed on consumer behaviour in the final quarter.
"While the macro environment remains challenging and the ongoing impact to trading conditions is somewhat uncertain, the group is well-positioned to benefit from a number of growth and efficiency initiatives, including the recent deployment of market leading AI capability," he says.
"We believe, whilst there is uncertainty in external market conditions, our FY27 targets appropriately consider the external economic conditions at this time.”
The FY27 targets lean heavily on cost efficiencies now locked in.
Adore Beauty expects about $2 million in annualised labour savings from its new National Distribution Centre, which became fully operational during FY26, along with more than $2.5 million in head office cost reductions.
On the store front, the company plans to open four additional Adore Beauty stores and one iKOU store in the first half of FY27, bringing the total network to 25 locations.
The physical rollout has been a central pillar of the group's strategy since it began opening bricks-and-mortar sites, complementing its legacy online platform.
The broader retail environment provides mixed signals with Australian Bureau of Statistics data showing total household spending rose 6.3 per cent through the year to March 2026, with discretionary spending up 5.3 per cent over the same period.
Clothing, footwear and personal accessories retail turnover, the ABS category closest to beauty, lifted 1.5 per cent month-on-month in the most recent data.
The company's FY27 EBITDA target range of $9 million to $13 million would, at the midpoint, represent a return to margins broadly in line with FY25's record result, implying management expects the promotional headwinds to ease and the cost savings to more than offset any lingering consumer caution.
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