Release Date: February 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Group EBITDA finished at $10.6 million, showing resilience in a challenging economic environment.
- Significant improvement in first half cash conversion, with free cash flow of $7.4 million and net debt reduced by $14 million.
- Private label and exclusive products made up 46.2% of sales, driven by an increase in private label sales.
- New customer acquisition trend turned positive over the last 3 months, indicating effective marketing strategies.
- Net Promoter Score increased by 2 points, reflecting strong customer satisfaction.
Negative Points
- Total sales were down 2.5%, indicating a decline in overall revenue.
- Gross profit margin remained flat at 37.2%, showing no improvement despite efforts.
- Cost of doing business increased to 32.9% of sales, leading to some deleveraging.
- New Zealand operations reported a loss of $1.4 million, including $300,000 in new store establishment costs.
- No full-year guidance provided due to ongoing economic uncertainties, reflecting cautious outlook.
Q & A Highlights
Q: Could I just please ask a question on the gross margins? It looks like private label now heading in the right direction at just under 10% of sales. Does that imply in a normalized environment, like gross margins in the business are materially higher? And can you help us with the quantification of the impact of competition in the period on those hard goods?
A: Tom, it's Darin. The private label contribution, the margin presented is a good reflection of where things are at the moment in terms of our overall margin performance. The traction in the price deflation on those key categories defrayed the benefits from lower sea freight year-on-year. The contraction flowed straight down to the bottom line, but it has had an impact.
Q: Do you have more to go by the way of cost out and optimization in the strategy that you flagged? Or do you see the main cost out opportunity now predominantly in the admin cost lines of our overhead?
A: Our stores are pretty much running at an optimized level right now. In terms of our store support center, the changes made there are by and large all being executed. What the future looks like for us now is really around managing our cost growth relative to our sales profile, and we need to get back on a positive trend with regards to sales growth.
Q: Could you maybe just talk a little bit more about competition in regards to where you're seeing this come from? Is this largely online, in-store, and what categories this is impacting the most?
A: We've seen competition intensify in key areas of nursery essentials, particularly around car seats, prams, and furniture. Post-November and leading into Christmas, there was an intensification of price competition in these categories, and that's continued early into the new year.
Q: Could you maybe just talk to how you're seeing the performance in New Zealand, particularly in terms of brand recognition, competition, and any commentary around profitability in this market?
A: I'm very pleased with our New Zealand performance to date. We've had a very strong opening and initial results. The brand is well known from its Australian origins, and our large format stores have enabled us to showcase a broad range for the New Zealand customer that they have never seen before all under one roof.
Q: How much do you think is left to go in terms of inventory improvement, and how do you see the timing of that?
A: There's not a significant impact on margin expected at this stage. We went pretty hard on some items through the first half. This will continue to evolve and will be guided by how we think about the in-store brand experience and bringing categories to life.
Q: What are you trying to achieve with the changes to the loyalty program? Is it about like-for-like sales, simplicity of pricing, and what should we expect the loyalty program to look like and the outcomes to be once you're through the process?
A: We have a complex price architecture, and the loyalty program creates the most friction with customers. We are looking to simplify our overall price architecture to enhance and increase the way we demonstrate value to customers. We believe loyalty is fundamental to the business's ongoing success and our ability to grow lifetime value.
Q: How easy do you think it's going to be to evolve the promotional calendar, particularly if your competition remains very committed and invested in Black Friday and Boxing Day?
A: It's certainly one of the things we're focusing on. As conditions hopefully improve, we expect to see customers return to a more normalized trading pattern. We are driving more newness into our business to attract customers outside of key promotional events.
Q: What do you feel is the key thing that stores are lacking right now, and how much would you be budgeting for a refurb?
A: We are early in this process, but we need to engage better with customers and bring the category story to life in a more meaningful way. Our stores are very functional and rational. We need to guide consumers through their early journey and take out the stress and anxiety of entering the category for the first time.
Q: Can you talk to us about the dynamics of the store rollout? Is it just based on site availability, or are you rethinking the strategy or where you go to market physically?
A: Store rollout is based on site availability and ensuring the economics are attractive. We know where we want to be, and it's about being patient for the right opportunities.
Q: Do you have a target level of inventory as a percentage of sales or inventory days?
A: Historically, our outside turns range between 3.5% to 4% per annum. Our inventory profile has increased due to CPI and store rollout. We are only marginally above 50% of the way through our store rollout, and we carry additional safety stock to support new stores.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
