Accent Group Limited (AX1) Earnings Call Transcript & Summary

Good morning and welcome to the Accent Group FY '20 Results Conference Call. I will now hand you over to your host today, Daniel Agostinelli, Chief Executive Officer; and Matthew Durbin, Chief Financial Officer. Please go ahead.

Good morning, everyone, and thank you for your time to attend the call today. I'm joined on the call today by Group CFO, Matthew Durbin. We will now take you through the results for the year ended 28th of June 2020, an update on our growth plan and a trading update for the first 8 weeks of this year. There will be an opportunity to ask questions at the end. If I can now refer you to Page 4 of your investor presentation, which was released on the ASX yesterday evening. Accent Group has delivered another strong year of profit with comparable EBITDA, up 11.8% to $121.7 million and comparable net profit after tax up 7.5% to $58 million. Pleasingly, our inventory levels were in line with prior year and net debt levels showed a significant improvement on last year. First and foremost, I would like to acknowledge the performance and contribution of the entire Accent team through what was a very challenging first half. We closed all of our stores, all of our company stores in Australia and New Zealand at the end of March for the then unknown period of time. This decision was taken in order to safeguard our team and customers and resulted in our stores being closed to customers for more than 5 weeks. Sales across March and April were down $55.7 million or 58% to the prior year with associated impacts to profitability and cash flow. With all stores closed, our team shifted their focus to driving digital sales and implemented a raft of other initiatives relating to costs, inventory and liquidity to ensure Accent was well positioned for the prolonged period of disruption. The focus on digital resulted in significant shift in digital sales, which grew by $40 million or 142% in the fourth quarter and represented 35% of total sales. Our stores began to reopen in early May and June, albeit in many cases, customer traffic levels remain significantly down. This focus on growing digital sales supported by our store teams in the fulfillment of click-and-dispatch orders, from what we named dark stores, and the availability of wage subsidies was instrumental in getting all permanent team members back to work and on full pay from the beginning of June. Sales rebounded in May and June driven by digital and associated profit contributed strongly to the overall result. I'm extremely proud and grateful to the whole team for their dedication and ability to accept, adapt and then accelerate the business in this last quarter of the year. The results achieved are a direct outcome of their efforts. Turning to Page 5. These are some of the key operating highlights of the year, which include opening 57 new stores, including new store formats. Digital sales growth, up 69%, up 142% in Q4. 68 of the Athlete's Foot corporate stores are now owned and growing strongly, with the consumer shift to active performance and lifestyle products. Continued growth in Skechers brand globally and Australia, we continue to see growth here. The acquisition of Stylerunner, which has performed ahead of our expectations in both sales and margin over the past 6 months. The growth of our Vertical products, including 3 new owned brands, Alpha, Shubar and Stylerunner. And the opening of our first PIVOT store in Shellharbour, which has performed ahead of expectations. I will now hand you over to Matthew Durbin to talk about the details of the results. Thanks, Matt.

Thanks, Daniel. I'll turn everyone to the operating review, digital on Slide 7. One of the major highlights of the year was the continued growth in digital, with sales up nearly 17% for the year. This strong digital result represents the culmination of 4 years of significant investment focus on becoming a best-in-class, fully integrated digital retailer. The company hit a number of new records in quarter 4, including our first $2 million day on digital and our record month in May of $29 million of digital sales. The chart on Page 8 illustrates the seismic shift that occurred in digital sales in both dollars and as a percentage of retail sales. There are some key call-outs here in respect of the capability that enabled this ramp-up while maintaining on-site customer experience and delivery standards to customers. First and foremost is our customer reach. Across our brands, Accent has a contactable customer base approaching 7 million customers. This has grown by 2 million customers in the last 12 months. In November last year, we increased our number of concurrent users on our sites to 10,000 customers per site at any one time. In the May tech, late including the $2 million days, the current user demand peaked at 7,000 for our largest site, indicating significant further upward sales capacity within our existing infrastructure. Our capacity is to look at it both from the central warehouse and 500-plus store locations enable fastest batch to customers, avoiding capacity issues inherent in a single point distribution model. A further advantage here is our ability to channel orders to the store geographically located closest to the customer, avoiding the delays experienced by many due to reduced national interstate freight capacity. On to Slide 9. All key digital metrics and KPIs showed improvement over the FY '20 year, with the biggest increase arising from visitor numbers to our sites. Around half of the customers who shop with us online through this period had not shopped with us before in either digital or in stores. Finally, on digital, the company continues to innovate and find growth and efficiency in a range of areas, including returns on paid marketing, sessions from organic channels, customer loyalty and external referral partnerships. On this slide, we also give you a sneak peek of our virtual sales initiative, which is well underway, more on this at our AGM. Coming on to Slide 10. Owned retail sales were up 6.5% to $698.6 million, with strong growth from digital and new stores inclusive of the TAF franchise stores, the group now operates 524 stores. In the retail banners, Platypus, Skechers, Vans and Dr. Martens continue to be standout performers all delivering strong growth. The other brands traded broadly in line with plan. Hype showed significant improvement in Q4 and has launched strongly into the new year. In the Athlete's Foot, sales were ahead of last year on a total and like-for-like store basis. Through quarter 4, the tough corporate stores, including our TAF New Zealand business were standout performers. During the year, we opened 57 new stores across all formats and closed 12 stores where sustainable renewal terms could not be agreed. The chart on the left of the slide demonstrates continued growth in our store network with the breakdown provided on Slide 20. On the wholesale and brand performance on Page 12. A number of significant license agreements were renewed during the year for 3- and 4-year terms, including Vans, Dr. Martens and Merrell, with Sperry extended by 12 months. Wholesale sales in the first half grew by 6.7% to $62.2 million with strong performance in Skechers, Van, Dr. Martens and Merrell. For the full year, sales though declined by 6.7% to $108 million, impacted by low demand in April and May. Sales returned to normal levels in June, and the forward pipeline of orders remained strong, with some record sales in some brands in H2 FY '21. We're also very pleased with the sales from our new Vertical products and owned brands, which delivered $13 million in sales in FY '20. This program has played a key role in the continuing growth of our underlying gross margin improvement. During the year, we acquired and launched 3 owned brands, Shubar, Alpha and Stylerunner, a fourth brand, ITNO will launch in Platypus in early FY 2021. Coming on to Page 13 and some remarks on COVID. Daniel outlined the sales and operational impact of COVID in his opening remarks, to add to these. With all stores closed in April, the management team implemented a program of hard cost out measures across a range of expenses, including travel, entertainment, consulting and marketing. Conversely, additional costs were occurred in team and customer safety through investment in store signage and personal protective equipment, including masks, gloves and sanitizers, along with team training on new COVID-set operating protocols. A significant program of engagement with our brand partners and key merchandise suppliers allowed us to cancel and rephase inventory without damaging any supplier relationships. Our inventory position at year-end was in line with prior year with a clean age profile. The company qualified for wage subsidy programs in Australia and New Zealand, which we use to retain our team that were passed through to team members who were not working and the casuals who did not work enough hours to be otherwise paid more than the subsidies, and most importantly, to stand up to fully implement the full pay through May and June, to all our permanent team members. Standing up the full team in June required significant investment in salaries above the subsidy payments. The company also reached agreement with the large majority of our landlords on rent abatements, offsetting the ongoing impact of significantly reduced traffic levels in stores. These negotiations are conducted in the spirit of partnership and relationships with our landlords have never been stronger. Turning now to our growth update on Pages 15 to 19. Our growth plan is well on track, digital continues to grow strongly with ongoing investment in our integrated omnichannel capability and customer engagement initiatives. Given the recent acceleration in digital sales, we are now targeting 30% of sales from digital over the coming years. Almost 75% of digital orders are now being fulfilled from stores through click-and-collect and click-and-dispatch, driving customers to stores and improving operational efficiency. In the coming 12 months, we will launch new websites, loyalty programs and grow our virtual sales capability. The PIVOT operating model is now proven with our successful first store at Shellharbour. We have a further 5 stores in the pipeline and expect to have up to 12 stores operating, including digital by the end of the financial year. The company sees an opportunity for up to 100 PIVOT stores over time. Stylerunner. The Stylerunner business has grown strongly over the last 6 months in both sales and margin with significant further growth opportunity over the next 12 months and beyond. Consistent with our broader view on the power of integrated omnichannel retail, we will open our first Stylerunner store in Armadale, Victoria prior to Christmas this year, with further stores to roll out over the year. The Stylerunner business gives access to a new customer segment. The business has a strong and active following of active affluent women, including more than 600,000 Instagram followers and a significant loyalty database. This group is a key growth demographic for activewear performance and lifestyle footwear along with health and well-being. The Athlete's Foot corporate store program is on track with 68 corporate stores owned at the end of the year. The store gross margins of the corporate stores continue to grow as we introduced our Vertical brands, product and own brands. Sales in the Athlete's Foot grew strongly through quarter 4, driven by increased consumer demand for performance and active outdoor footwear. This growth continues into FY '21. We plan to continue to acquire franchise stores over time. Turning to new stores. As previously stated, Accent Group will continue to open stores and renew leases where EBIT and return on investment meet the required benchmarks. In FY '21, we plan to open 30 to 50 new stores and continue to see the potential for a further 30 to 40 stores in all banners over the next 2 to 3 years across Australia and New Zealand. Performance of the new stores opening continues to be strong as to the quality of the rent deals that are available to access from our landlords. We continue to drive growth in Vertical products and owned brands, including further development of owned brands, Shubar and Alpha, which launched in FY '20 and are both performing well. FY '21 will see the launch of a new owned brand, ITNA in Platypus, and the relaunch of Stylerunner active apparel in Stylerunner. Our accessories, socks and shoe care programs across all banners continue to evolve and strengthen. Finally, turning to Page 23, dividend and trading update. The Board have recommended a final dividend of $0.04 per share fully franked, a small increase on the $0.0375 per share final dividend in FY '19. Inclusive of the first half dividend of $0.0525 per share, total dividends for the year are $0.0925 per share, up 12.1% in the prior year. In recommending the final dividend, careful consideration was given to the contribution of wage subsidies, and the wage subsidy funding was not required or used in payment of the final dividend. Regarding trade, we are pleased with early trade in the second half, notwithstanding the ongoing lockdown in Melbourne and the 2-week shutdown at Auckland. LFL sales for the entire store network were up 1.3% for the first 8 weeks. LFL sales for the balance of the network, excluding Victorian stores at Auckland for the period of closure up 16.6%, reflecting the underlying strength in consumer demand and our capacity to drive sales for digital channels with 20% of our store network currently closed to customers. Due to the continuation of COVID-19 and the inherent uncertain environment, the company has determined not to provide guidance at this time. I'll hand back to Daniel to wrap up.

Thanks, Matt. In conclusion, the Accent Group has a range of exciting and valuable growth opportunities underway, and the management team remains focused on executing on these opportunities. We remain committed to supporting our team through the unknown conditions of the coming months with all the permanent team members maintained in full employment through the current round of shutdowns in Victoria and Auckland. That concludes our presentation today, and we'd be happy to take any questions. Thank you.

[Operator Instructions] We have our first question from Sam Teeger from Citibank.

How do you guys stand all of is compared to July, just cautious that the superannuation withdrawals were very high during July, now that's tapered off.

Yes. Sam, August has continued pretty much in the same vein as July. The big difference is the sort of, let's call it, worsening impact in Victorian stores with the Stage 4 lockdown and in Auckland, the rest of the country has continued broadly where it was in July.

Sam, I can also add to that, that the after pay event was very successful for us. It's becoming a stronger event for us where we really get behind it, and it was a terrific 10 days.

Fantastic. And then how should we think about the first and second half mix for the 48 net new stores you're talking about over FY '21?

Well, as Matt mentioned, we continue to negotiate favorable terms with our landlords that are -- that allow us to simply open more stores. We use a pretty tough metric to ensure that when a store is revised in terms of whether we open it or not, the metrics are being met, so we continue to open them. I can advise that we've opened a couple of stores in what we call B centers, likes of more a field and indeed, Townsville and these sorts of places and the trading is terrific.

So but just checking of the 40 you're talking about for FY '20, how many in the first half and how many in the second half should we be assuming at this point?

Look, the -- you'd probably go half-half, Sam, at this stage. It just depends on when we can get in the stores with COVID and so on, building them. And as an example, in Melbourne, you can only have 5 people on-site at any one time, so maybe half-half.

All right, cool. And then just on gross margins, can you talk a bit about, I mean, how the gross margins ended up being so strong given the clearance you did and also the sale of the hedge book. And maybe just how we should be thinking about first half and second half in FY '21 with the hedging you've got in place at the moment?

Yes, it's a good question, Sam. So the way I think about it, first and foremost is what we are continuing to do with Vertical products and owned brands. So that continue to play a key role. And we called out very specifically that those products grew to $13 million plus in our business, which is one of our key strategies to offset the impact of declining currency. You can see from our slides that the currency decline from sort of $0.75 down to $0.70. And it's fair to say that the closeout of the hedge book played a small role in that. But the main theme there was the continued evolution of Vertical product that particularly was a very strong theme in TAF, it was a very strong theme in Platypus and a very strong theme in Hype and that will continue. We feel as though we're only just getting started in that space. In terms of the discounting, it is fair to say that we were doing some level of discounting for the entirety of the fourth quarter. We were strategic about the way we did that. And we found that we were able to do that without having to really sacrifice big chunks of margin. As we move into the first half this year, we've provided a little bit of guidance on the currency in terms of our forward-hedge book. And you can see that it's there or thereabouts to last year. The theme of Vertical continues and strengthens. And I'm not going to give any outlook for what it is as you'd say that currency is probably neutral as we get into this half. The Vertical theme is probably a tailwind for us. And it just depends what happens as we get to November and December and market demand and what goes on there. But we'll make sure that we trade our business to get our share through that period, Sam.

I can add to that, that also what's helping us hold up our margins is the stellar trading coming from brands like Vans, Dr. Martens, Skechers, Caterpillar and Merrell, all are distributed brands by us. And they've been very, very solid with some fantastic releases through the last 6 months.

Our next question is from Sam Haddad from Bell Potter Securities.

And congratulations on an exceptional job and steering the business through a very challenging period.

Thank you, Sam.

Thank you, Sam.

Just in terms of inventory position and outlook as we head into peak trading period into the December quarter, what's your thinking and strategy there? Are you investing in inventory notwithstanding uncertainties surrounding COVID and potential further lockdowns?

Yes. Good question, Sam. So we're absolutely feeling reasonably positive, to be honest. One of the reasons for that is putting aside again the impacts to Victorian stores in Auckland, we reported that strong kind of comp sales results. And we anticipate that, that demand should continue. In particular, November is going to be a massive month. And part of our strategy as we get into November and December this year, is we've been opportunistically buying, let's call it, packages of stock from brands that might have overstocks globally. And we're bringing that in at full price and extended margins. And then we're using that and we're going to use that significantly in November to help maintain our margin, if that helps. But we're certainly feeling quite positive about at least the next 6 months.

And it seems, Sam, that we've brought in a heap of new product of late and the -- our customers are simply voting with their wallet. They're buying it, and there's a real want to buy more product. I'm not quite sure where they're wearing it in Melbourne, but they certainly want new product. It's just very evident.

I guess on that, can you talk about the product pipeline you've seen from your major brand partners notwithstanding COVID disruption through the last 4 months or so?

Yes. Look, it's pretty positive, Sam. Our brand partners, internal distributed brands and indeed, third-party brands are all feeling fairly optimistic by what's going on in our sector. If we have a look at our forward pipeline for wholesale orders to our retail partners, they're all very, very strong. And as Matt called out, many of our brands have had record sales. These are for stocks that will hit the market in February, March of '21. And indeed, our own stores are very optimistic about the products they're seeing. In particular, New Balance and Puma are being very, very strong as has Adidas.

And just on the PIVOT, it sounds like you're very upbeat on that opportunity to call out potential of 100 stores, with only one store in the market at this point. So I just wanted to get some color as to your confidence around that and what you've seen in Shellharbour and how you extrapolate that to the rest of Australia?

Well, Sam, good question. And obviously, one that we've been reviewing day-in, day-out since we opened this store. Every day, the stores -- the one store we have, which is some 850 square meters, it's essentially in a car park. We spent no money on marketing, and you have to actually drive to this store. We're not known in the market and, intentionally, we've put it in a place where it's not an area that we know. What we've had is very, very solid results and very consistent results, which is most importantly, with margins holding up nicely. The appetite from landlords is just fantastic at the moment all over the country, particularly on the size of these stores. And we will now introduce a 350- to 400-square meter version of what we've done in the shopping centers, which is where we're getting a lot of calls for this particular product. It also plays straight into what, apparently, is going on in the market with people wanting value, particularly in that space. Our average sale is about $95 to $100. And all the pointers are telling us that it's ready to go. So we're very optimistic about it.

Right. That's exciting. And just on the Trybe, you were upbeat about that a few months, like 6 months ago, 12 months ago, have you -- are you still upbeat on that opportunity? Or are there other challenges with that platform?

No, we're still upbeat, but we've got 4 or 5 different things going at the moment. And it's just a simple matter of pen to paper and saying which one is likely to deliver the biggest outcome in terms of return on equity and inventory, and Stylerunner and PIVOT have just got a lot more runway. We always called out Trybe to be 30, 40 stores that will continue where the deals are right, but the main focus for management will be Stylerunner and PIVOT and Vertical.

Okay. And just final question for me. Obviously, digital is one of your key priorities now and that expanded contract database is, I would imagine, is a key asset that you've got there. Can you sort of expand on what you can do in terms of leveraging off that asset to continue to accelerate your digital presence?

Well, if we take the Athlete's Foot, as an example, with its customer loyalty base that it has and capability, whenever we do a promotion within the Athlete's Foot, it's just super strong. We're learning a lot from what our team in that business are doing, and we will very shortly, in fact, in the coming weeks, launch the Skechers' customer loyalty program, and that will just keep going to -- going around until we get to all of them. But it's -- with that sized database, we're able to really drive exceptional growth. And we're seeing customers simply wanting to join our customer loyalty programs. And we're looking at more and more products that will also be exclusive products to those customers. So it is a big piece of what we're doing. To increase that area, Sam, we're kind of working with 2 different Vs being VV is what we're calling it internally. One is virtual, which is growing very, very strongly for us. And the other one is vertical. But the virtual piece that sort of falls straight in line with what we're doing with digital is going to play a very big part in what we do in '21.

Our next question this morning is from Jo Little from Morgans.

Just firstly, on just on the trading update, and we're kind of -- we're talking about margins before. But we haven't seen much discounting, is that correct? And can you just talk to the early margin performance, I guess, year-on-year, I'm guessing we banked pretty strong on earnings in the 8 weeks outside of the restricted market?

Yes. Thanks, Jo. Almost exactly as you said, the -- we haven't -- from about the first of July, we went back on to full price. And apart from a short drop after pay sale, which Daniel referenced was very strong. We've been at full price since the beginning of the year. So yes, it's safe to assume that margins have been pretty strong, and there or thereabouts to where we wanted them to be in last year.

Jo, I can also add to that. The main reasoning for that is that our stocks are super clean. Our aged inventory is the best I've seen it in many, many years, I mean, we're simply super clean. So the claims we had to do in March, April has played into that, but we're very clean at the moment.

Great. And you've given still roll out guidance this year, which is kind of above what the market was thinking. And then said kind of 30 to 40 over the following 2 to 3 years. So Daniel, just -- you talk about 10% EPS growth being the medium to long-term target. As we get that footprint growth rolling off and maybe you're being a bit conservative on that, but can you just talk to how you're going to piece together that kind of growth profile as the footprint rolls off a bit?

Well, we always want to be a little bit conservative because one of the things is that when you plan for stores in our business, as you're aware, we have to provide for product then buy it 6 months in advance. So you hate to be buying product and the store doesn't come off. But we're very excited about what PIVOT can do, and we're planning for that. We're very -- we're overly excited on what Stylerunner can do and planning for that. The years after that, Jo, our current brand has been -- that are doing well in the market, particularly Platypus and Skechers continue to show growth where we opened new stores. It's quite extraordinary. I mentioned more at field, I think, earlier in Brisbane, it's just terrific. So maybe that 30 or 40 is a little bit conservative. But from a stock point of view, we need to be that way.

Okay. Yes, that's great. And just lastly, just how you're planning for the November cyber event. I can only imagine there'll be kind of steroids on steroids this year. You've probably learnt a few lessons from last year a little bit on this. Are you kind of having a good crack at it this year?

Absolutely, Jo. It's been -- believe it or not, it's been a focus for us since February of this year. We've been managing how we're going to capitalize on in the month of November, together with engineering products, that will be a whole lot more exciting, exclusive. And indeed, our brand partners have come to the party to offer some great products to lead with. But we've got a management team and indeed an overall team totally focused on November. So we're expecting a very big month. I'm assuming customers are still spending, which we assume they will. We're very [Technical Difficulty] November.

Our next question this morning is from [ Ray Tolson ], who's a private investor.

I was actually at the AGM last year, you may remember me being the only one asking good questions. Fantastic results. And yes, it certainly is a nice channel in from what the market seems to be thinking about retail in general. Anyway, last month, FNArena, published its view on challenges facing retail. And it included a comment and I'll quote, "Accent may face headwinds as its wholesale supplier Nike opts for a direct-to-consumer focus on distribution." And then in last year's annual report on Page 8 under the retail banner differentiation there was this comment and I'll quote again, "With increased focus in partnership with Nike on the SB range." So just how will that reported Nike distribution moves affect Accent? Will it change the partnership referred to in the last annual report? And are there any other major brands that you're aware of that are considering a direct distribution? So yes, if you can take those one at a time, please?

Thanks, Ray. Nike [Technical Difficulty] going direct-to-consumer for probably for the last 10 years. And yes, it's getting stronger and stronger, particularly, we've got the best part of -- in the Platypus business alone, 150-odd stores, where we're key to what they do in a lot of these spaces. As an example, in the Platypus business, we actually don't have top-tier Nike product anymore. And for...

I was just going to say, the signal is breaking up a bit. What did you say? You don't have...

We don't have top-tier product of Nike in the Platypus business anymore. That product is [Technical Difficulty] business and target continues to strive. That's been -- we've pivoted our buying towards Adidas, New Balance, Puma, and the results have been terrific. Our #1 brand in the Platypus business remains Vans, which is distributed by us, and we will continue to drive that in that business. If you take knock on the other side of things, there are areas that basically don't push in their own stores and so on. And I'm talking about very high-tier products where we service those through Stylerunner and indeed subtype, which is another business. So of course, [ Ray ], there's always that concern of what brand may or may not do, but this is -- we've been living with this for 20, 25 years since the inception of the Accent Group, that was distributing brands back then. You may or may not be aware that our total sales with Nike for the business is about 6%. It's hardly going to knock us off our purchase status. But at the moment, we're working very, very closely with all of our brands, including Nike. And the support they're giving us is as good as it's been over many different years.

Right. Yes. So that's not likely to change this particular partnership with Nike on the SB range then. That's a particular thing with Accent is it?

Absolutely, yes, SB is a very, very strong brand in Platypus. They continue to support us very well in that area, and it's continuing to grow for us. This was a range that was not widely distributed, only 2.5 years ago, [ Ray ]. It now is widely distributed, and we are enjoying some great sales with Nike and SB.

And, yes, you already mentioned the last one in your -- my last question in your general answer. So thanks very much, guys. And just as a closing comment, you've got the net value -- you took an 80% reduction in management pay. I thought that was a bit harsh. I can understand the view behind that. But hopefully, that's not going to keep going because without good management, such as yourself and the other people under it, all the shareholders wouldn't be sitting on any dividends this year, and in fact, it might not even be a business. So hopefully, that discount to your salaries is going to stop very soon if it hasn't already.

Yes. Thanks, [ Ray ]. Appreciate that. It was very short lived. And the point of it was right at the end of March, from the closing of stores. We did not know where we were heading and how long this activity, the store closure, was going to occur. It was something that the management then offered, in fact, the entire management team because of the result in Trybe, and the things that have occurred, it was very shortly. So no concerns on that front.

Our next question is from [ Bill Phillipos from Lennan ]?

Daniel and Matthew, great results, what has been a very difficult year. Just in regards to your 30% digital sales ambitions, my question is with the departure of the CDO, Mark, has been instrumental for you guys to achieve that so far. What is the capability moving forward of your digital team to cover this and achieve that target? And will you be preferring to go externally? Are you bringing new blood to fill his position?

Thanks, [ Phil ]. Yes, we will miss Mark. He was terrific for us, and he's left a great legacy behind. Thankfully, we've got terrific bench strength in the business across the board. I'm delighted that [Technical Difficulty] has taken that position on for us. She was indeed, call it, Mark's [indiscernible]. She's very talented. And she's very, very capable. We see no issue moving forward. Indeed, we are strengthening that team at every level. And as I explained, the base strength is not just in digital but across the business is very strong.

Our next question this morning is from [ Shane Brennan from Black Capital ].

Could I just ask you to focus on the employee benefits line. Obviously, what we're looking at here went from $90 million in the first half down to $60 million. And I imagine we're looking at the impact of job keeping your own stand downs. But just if I could understand from your perspective, the dynamic of that going forward. And more particularly, with that experience and what the experience has been on digital, whether it changes the philosophy with respect to owned stores vis-à-vis the online medium?

Yes. Thank you. So to deal with the first case first. In the fourth quarter of last year, we've been clear that we received a net $13 million sort of amount relating to the base subsidy, $23 million, less $10.7 million, which was passed directly through the team to those who weren't working. We also invested significantly in team members in June. In May and June, we call that a $16 million investment over and above base subsidies. And that was to get our team back up and to full-time employment. As we move forward, we've also said that we'll have base subsidies available through until September, and we don't anticipate [indiscernible] beyond September. And that is helping in an environment where at the moment, we've got 20% of our stores closed, but we've kept all of our permanent team split up. So that gives us a little bit of color on the wage line. Apologies, Shane, what's the second part of that question?

Just given the experience that you've had in the digital side, whether it alters your philosophy with respect to bricks and mortar outlets vis-à-vis the online media, like you're pushing still quite hard in opening new stores. I'm just wondering with the experience you've had over the course of the last 6 months enables you to fine-tune that philosophy or alter that philosophy in some way, shape or form.

Yes, that's a great question. The guarding thought there is that our philosophy of the importance of the integrated sort of multichannel business, digitally, the lead hasn't changed at all, and our commitment to stores hasn't changed. What we have done, though, as we're assessing the financial performance and the return on investment that we need from new stores is that as we do the -- we've got a tool in our business, it's called a property evaluation tool, which looks at the full performance, projected performance and cash flow and return on investment and investment across the new stores. And what we're now doing in that tool is, we are removing from the forward sales projection from stores, the component of sales that is expected to be generated through digital. So it is only the 4-wall customer traffic come in that we use in those sales projections. And that clearly requires that the rent deals on those stores will need to be better than they had been in the past for us to continue to sign on new stores. And that can either be rent or contribution. And with those metrics sort of line up and provide us with our required return on investment benchmarks, we will continue to open as many stores as we can get our hands on and have the capacity to like, and going back to Daniel's comments on inventory pipeline earlier.

And our last question for this morning is from [ Tony Michelle ] from [indiscernible].

This might have been covered before because I got stuck in the traffic. There was an article in the Australia in the other day saying that Accent was looking potentially to buy brands collective. Is that true? And is it true that you looked at it and decided to walk away?

Yes. Thanks, [ Tony ]. We -- it's fair to say that we looked at a lot of different businesses, acquisition, up until 6 or 12 months ago. It was actually a cornerstone of our forward strategy. We acquired Stylerunner as part of that, very small another business called subtype in relation to time. We're in no active discussions with the brands collective, so I can confirm that. And yes, that's where we'll end it, but [indiscernible] the question.

Right. And can you tell me, in light of what Shane asked, what's your return early for opening a new store?

So we don't put that out. But if you think about the weighted average cost of capital in our business now acquired a return from shareholders. You would have to think that it's above 30% to allow for the risk of that store. So you have to think that it's significantly above our weighted average cost of capital so that we have hit the buffer on that risk line, if that helps.

Okay. And I mean, this is a fairly obvious question. But given the demographics of your customers, is it fair to say that the majority of your customers are in that 18 to 35 range, would that be a fair assessment?

Yes, that's correct.

So what percentage would it be approximately?

You'd have to say that 85% in the main business and a little bit outside of that for brands like Skechers and Merrell.

Right, right, right. Okay, And what's -- in terms of sourcing stuff from overseas, do you put currency and everything in place when you buy stuff from overseas? How does that work?

Yes, we do. So we've got a hedge book. And we've previously said that our hedging policy is to hedge somewhere around 50% to 60% of our forward order commitments. And in our slide pack each year, we include a view of what our average hedge rate has been compared to our margin. And then we've flagged that for this FY '21 year, our current hedge book, we anticipate it will be in the range of $0.68 to $0.70.

Right. Okay. Yes, okay. And the final question is, in terms of all your brands, I mean, what sort of market share have you got approximately in the various brands? I mean are you #1 or 2 in the market? I mean where do you -- and what's your objective there?

So I think the best way to answer that is that we've previously sort of estimated the size of the footwear market in Australia to be about $5 billion across -- is that coming through? So that $5 billion...

Yes, yes, yes.

Perfect. Across our business and all our stores, including the tough franchises, we're about $1 billion, fast-growing towards $1 billion. So you could add -- yes, about 20%, [ Tony ], is the way to think about it. And that skews higher in some parts of our business and lower in other parts of our business, but 20% is the way to think about it. We think we're the largest -- very confidently the largest footwear business in Australia and indeed, potentially in the Southern Hemisphere.

Right. So who would be -- who is the second competitor? I mean what market share are they doing?

Yes. Look, the other major competitors that we deal with, and we haven't really estimated their market share, but Reel, Foot Locker, JD Sport are entering this country. They're the sort of the main players.

That is our last question for this morning. I'll now hand back to your host for closing remarks. Thank you.

Terrific. Thanks, guys. Appreciate you listening today.

Thank you all.

Thank you. The conference has now ended. You can please hang up your lines. Thank you.