Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Universal Store Holdings Ltd (ASX:UNI, Financial) achieved a 9.7% sales growth to $288.5 million, with underlying EBIT up 16.6% to $47.1 million.
- The company reported a strong recovery in the second half, with like-for-like sales growth of 6.6%, a significant improvement from a negative 5.4% in the first half.
- Perfect Stranger expanded to 14 stores with full-year like-for-like sales growth of 7.3%, and second-half sales growth of 11.5%.
- The company maintained a healthy balance sheet, ending the year with a net cash position of $14.3 million, allowing for an increased dividend of $0.19 per share.
- Online sales remained robust at $40.9 million, up 10.3%, accounting for 14.2% of total sales.
Negative Points
- The first half of the year saw cautious customer spending due to rising cost of living, impacting overall sales performance.
- CTC's gross margin was adversely affected by foreign exchange movements and a shift towards lower-margin wholesale accounts.
- The cost of doing business increased due to higher employee incentives and strategic project investments, adding $4.9 million in costs from the CTC acquisition.
- Inventory levels increased to $29.9 million, driven by new stores and higher stock levels in the distribution center.
- The company faces ongoing challenges in the wholesale channel, with substantial shifts expected to continue through FY25.
Q & A Highlights
Q: Good morning, Alice, Renee, and Ethan. Just a question for me on the youth consumer. How do you think they're positioned over the next 12 months?
A: Great question. The challenges haven't gone away, but customers have right-sized their thinking on spending. Despite cost pressures, they prioritize spending on the right outfit for the right occasion, and we've been able to meet their needs effectively.
Q: Could you talk about the things that worked well in the second half from a gross margin perspective, especially with peers being aggressive on discounting?
A: We saw sequential improvement in gross margins due to a combination of factors, including a budget-conscious product offering, premium offers, and strong performance from private label brands like Neovision and Perfect Stranger. Additionally, cost control measures implemented a year ago contributed significantly.
Q: Can you provide some color on the strong trading update? Was there any benefit from issues facing competitors like Glue and General Pants?
A: We like to be near our competitors but don't see huge benefits or impacts from their openings or closings. Our focus remains on our customers and product range. Competitors' continuous discounting hasn't significantly affected us as our customers prioritize quality and trendiness over price.
Q: Should we expect another wave of savings in FY25? Can you talk us through the outlook for cost of doing business (CODB)?
A: We expect continued refinement and savings, particularly in our DC and through the Right Team, Right Time project. While there may not be a huge tranche of savings like in FY24, we anticipate scale benefits and ongoing cost management improvements.
Q: How should we think about like-for-like comps as we progress through the year?
A: We expect good momentum to continue into the first half and beyond, although the gap will narrow as we cycle stronger comps. Overall, we anticipate solid sales growth supported by new store openings and strong customer metrics.
Q: Are you able to provide an update on your view of the store economics for Perfect Stranger?
A: Perfect Stranger stores are performing well, with minimum expected sales of $1.2 million per store. The brand is profitable, and we see significant upside as we expand into new markets and refine our offerings.
Q: Given the success with the CTC acquisition, are you interested in further acquisitions?
A: We remain open to the right acquisition at the right time. If a private deal with good synergies comes along, we are well-positioned to take advantage of it due to our strong cash-generative business and balance sheet.
Q: How should we think about gross margin into FY25?
A: Starting with a 60% gross margin is a reasonable assumption. We expect to maintain strong margins with potential for growth, driven by private label expansion and new third-party brands.
Q: Can you talk us through the discussions with landlords and your confidence in securing new store sites?
A: We maintain discipline around site selection and only proceed with deals that meet our internal hurdles. We are confident in securing new sites based on ongoing negotiations and historical performance.
Q: Are you expecting benefits to gross margins from the strengthening AUD?
A: A stronger AUD is helpful, but we don't rely heavily on hedging for Universal Store. Our product teams set prices based on value, and while hedging is more significant for CTC, overall, a stronger dollar is beneficial.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
