Accent Group Limited (AX1) Earnings Call Transcript & Summary

Thank you, everyone, for joining the Accent Group FY '22 Half Year Results Investor Briefing. We'll begin with the presentation by Daniel Agostinelli, Group CEO; and Matthew Durbin, Group COO and CFO, followed by a Q&A session. [Operator Instructions] Now Daniel, over to you. Thank you.

Good morning, everyone. And thank you for taking the time to attend the call today. I'm joined on the call by our group CFO, Matthew Durbin. We will now take you through the results for the half year ended 26th of December 2021, an update on our growth plan and a trading update for the first 8 weeks of H2. There will be an opportunity to ask questions at the end. If I can now refer you to Page 4 of our investor presentation, which was released to the ASX yesterday evening. For the first half, earnings before interest, tax were $30.3 million in line with our guidance provided to the market on the 25th of January. Trade in the first half of the year was severely impacted by COVID-related destructions and lockdowns that occurred across Australia and New Zealand. At times, through the months of July to October, more than 55% or 400 stores in the group's 700-store portfolio were required to close due to government-mandated lockdowns. In this context, I am pleased with the results that have been achieved, along with the continued progress of the group that has delivered against its growth claim and its objectives. Now turning to Page 5. Some of the key operating highlights for the year include digital sales growth of almost 48% on top of the significant growth achieved last year. The opening of 104 new stores, including new concepts and new formats. Growth of 600,000 new contactable customers, including significant growth in loyalty customers in our Skechers and Hype business. Our customer database is now at 9 million contactable customers. Continued growth and performance in Stylerunner with 19 stores now trading and strong results from Stylerunner The Label, which is our Vertical product and the opening of 5 new concept stores in our Glue business, including 4 new stores, which have resonated strongly with the Glue customer. And very proud for us, the new Reebok distribution agreement with a 10-year term between '32. I will now hand you over to Matthew Durbin to talk about the details of the results. Thanks, Matt.

Thanks, Daniel. Turning to financial performance on Page 6. Owned sales of $525 million or up 12.5% in the prior year. We estimate that our sales were impacted by around $95 million in half 1 due to a combination of government-mandated lockdowns and the impact of Omicron in the last week of December. Gross margin percentage was also impacted by around 700 basis points from July to October, with more than 50% of our stores closed. The gross margin rate from November to January has recovered well, and in January and early February was ahead of prior year. Inventory levels at the end of December were back in line with plan, inclusive of some delays drift from external suppliers. We anticipate continued delays and cancellation through a small number of external suppliers for the balance of half 2. Aged inventory is clean. We are very pleased with the deliveries of new products we've received in January and February, in particular, from our internal distributed brands, Skechers, Vans and Dr. Martens. Cost of doing business was well managed given the decline in sales, noting that in half 1 FY '21 last year in that base, there were nonrecurring benefits from rent abatements and wage subsidies. We also continue to invest in all of our key growth strategies through the half. Turning to Slide 8 and digital, key highlight of the half is the continued growth in digital, with online sales up 48% to $160 million. Digital sales across November to February since stores reopened continue to be strong at higher gross margins. Our digital infrastructure, which includes flexible store and warehouse fulfillment models and mobile customer delivery offers continues to provide a competitive advantage. We were able to offer pre-Christmas delivery in capital cities up to the 23rd of December, and our average delivery time in November and December is under 3 days despite the significant operational challenges experienced across the market, particularly at the back end of December. We continue to see year-on-year growth in site traffic and conversion rates as we invest in new sites and technology. Turning to VIP and loyalty on Slide 9. Our customer database contactable customer base grew by 600,000 customers to 9 million customers, which continues to be the result of a strong drive to invite customers to join in store our new Skechers loyalty program and our new Hype loyalty program and in The Athlete's Foot strength of our market rewards program. Significant investment is underway in our new customer data platform and new loyalty programs. Moving to retail and wholesale on Slide 10. Owned retail sales were up 7.7% to $443.3 million with strong growth in digital and new store list. Inclusive of the TAF franchise stores, the group now operates 738 stores, including 31 websites. During the half, we opened 104 new stores across all formats and closed 4 stores where sustainable renewal terms could not be agreed. Wholesale sales were up 47.7% to $82 million, with the new record for Accent wholesale. A new distribution brand agreement was signed with Reebok for a 10-year term to 2032. We will commence as the distributor in May. We don't anticipate any material P&L impact in the FY '22 year. Benefits will start to flow into the FY '23 year. Turning to Page 12 and our growth plan update. Stylerunner now has 19 stores trading with Stylerunner The Label growing strongly and continuing to increase the Vertical mix. Continue to target a strong network of stores in Australia and New Zealand over the next 3 years. Glue now have 25 stores trading. And through half 1, we opened 5 new concept stores, including 4 new stores that have resonated with our customer and are trading well. Glue continues on gross margin improvement leveraging broader access capabilities, including reductions in category-wide discounting and continued growth in Glue's strong portfolio of Vertical-owned brands. Digital continues to grow strongly with online investment in our integrated digital capability and customer engagement initiatives. Now we feel as though digital sales will reach 30% over time. They reached 31% in the half just gone. However, that was not a normal period as we had all those stores closed. And we're still targeting 30% sustainably over time. VIP and loyalty contactable customers of 9 million, we are well progressed towards our target of 10 million contactable customers. A new Hype loyalty program launched in half 1, with Platypus to launch in half 2 this year. Customer sign-ups to both the Skechers and Hype programs have been strong. The pipeline of new stores remain strong with 140 new stores expected to open in FY '22. New store performance in through the COVID disruption continues to be strong. The assets with franchise buyback program continues with 5 TAF stores acquired in half 1. Our Vertical program also continues to gain momentum with strong growth in half 1. Margin also continues to improve on this product as we grow volumes and improve our Vertical sourcing capability. Now turning to our dividend and trading update on Page 13. Trade for the first 8 weeks of half 2 has been significantly impacted by reduced customer traffic due to COVID-19 Omicron variant. Like-for-like sales for the first 8 weeks of half 2 were down 10% on prior year, flat to the FY '20 year. LFL sales for the first 4 weeks of January were down 19% last year. Very pleasingly, LFL sales for the last 4 weeks for the most recent 12 weeks to Sunday 20th of February and improved significantly and were in line with last year. Following the post-Christmas sales of the group to continue to drive full price, full margin sales and gross margin percentage over the first 8 weeks has been in line with expectations and ahead of the prior year. Due to the ongoing uncertainties around the impact of COVID, we're determined not to provide forward sales or profit guidance for the balance of this half or for the full year. I'll now hand back to Daniel to wrap up.

Thanks, Matt. In conclusion, H1 of FY '22 was a challenging half from a store closure and operations perspective. I'm pleased with the sales over the last 4 weeks as customers have started to return to a more normal shopping pattern and hopeful that we can have a less interrupt in second half of the year. Finally, I remain excited about the opportunities ahead for our business. We continue to build a strong defensible business in Australia and New Zealand. Our portfolio of global distributed brands, owned Vertical brands, integrated digital capability and a large store network at core assets of the group and have positioned the company -- and positions us as a company fairly well for a strong growth into the future. That concludes our presentation today, and we would be happy to take any questions.

[Operator Instructions] I believe we have the first question from [ Hayden Liu ].

So you clearly remain very focused on your rollout strategy during even the periods of lockdown. I'm just curious to what's been driving this accelerated rollout. It's only in August, you guided for 65 for the full year. And then that was revised to 120 and now over 140 stores for the new year. So was it a deliberate strategy to accelerate the rollout or just more opportunities came up along the way?

Thanks, Hayden. Well, yes, lots of opportunities are still coming our way, and we continue to work very closely with our landlords across Australia and New Zealand. We've got some great models that are still very, very prominent and on trend in terms of what our customers want. And we're continuing to explore and develop, in some cases, larger stores, in some cases, complete conversions into -- from 1 banner to another, where they make sense. And as a business, Hayden, the big drive from us is a really big review of what's really giving us the return on investment and return on equity. And that's a big, big driver for us as a business moving forward. Can I expand on that? I can expand a little bit on that, Hayden, to give you an example. We have a very big Platypus store at Melbourne Central here in Melbourne. It's a good store. We think it can be better and return a far higher return on investment and return on equity. So that's still, as an example, will be converted to a Glue Store in the next 3 months. They are the sorts of things we are doing internally to simply push towards where we're getting higher conversion on return on investment and return on equity.

Yes. That's helpful. And just on that, in terms of Glue store, in August, you called out online was about 20% of Glue's revenue. Now given the lockdowns, has that percentage inflated in the half as a result of lower store sales?

Hayden, that's correct. Indeed, that trend has been across the group. The Glue Store portfolio is almost entirely located at the moment in New South Wales and Victoria in metro. And we've basically had all the Glue Stores shut for the best part of 3.5 months. So you can imagine that the online Glue is very high.

Yes, yes. Because I noticed that you gave disclosure on Glue, which is helpful. Just trying to sort of work back to a store sales level there. Is it -- I mean noting that online sales is still might be inflated. But is it fair to say that in terms of your average sale to store for Glue, that's heading back towards pre-acquisition levels. Is that sort of what you're seeing?

Yes. Certainly, we're seeing some -- we saw some very good momentum in Glue through November and December. And early January, as you said, was again impacted by Omicron. Certainly, as we've got into Feb, we're really pleased with how that's going. So -- and that's our objective is to get those stores. We still have some work to do in those stores, particularly the legacy stores that we've acquired. And we've got a program of work over the next 12 months to go in there. We've now got a new concept for Glue to go in and refurbish those stores, bring them up to the standard that we'd expect them to be at.

Our next question is from Keegan Booysen.

Just first question for me. I'm just curious on how to think about vertical brands over the years, how we think about them just because you have significant growth in that channel, and obviously, it's a much higher margin channel. And if you think about Glue and Stylerunner and some of these brands that you're growing, where can we think that should roughly get to in the coming 2 or 3 years, please?

Keegan, it's been one of our boats forever that we obviously will push and give our internal distributor brands, best locations in our stores where possible whilst we still look after the market in terms of who we supply and so on. But indeed, what's happening is that brands are simply getting stronger and stronger. And the portfolio we put together is in -- certainly in our view, amongst the best in the world. The Reebok brand as an example, we expect that to go across all of our banners in some manner. Some far higher or far stronger if you take Platypus and Hype and Glue. We'll see a lot of that product in stores. But in all of our businesses, you'll start to see the same drive as you've seen, hopefully, seen with Vans, Dr. Martens and Skechers. So it's really just adding to what we've done forever being a true omnichannel business from distribution right through to presenting it on shelves.

And Keegan, if I can, I'll then add about the sort of the full Vertical loan program. That continues to be a big strategic focus. We've got a lot of momentum in the first half. We're really pleased with how it's going. We did say 6 months ago, we thought that could get to 10% of sales over time. We're just going to keep driving that and see where it can get to but the margins have kept priming. And we're very, very pleased with the progress there. So I think the answer is, I don't know where it is yet. We kind of looked at the 10%, we don't know if we're at 10%. We don't know if it's more. So we're just going to keep you updated as we move forward on how that's going. But there's right momentum in the first half, and we're confident that's going to continue in the second half.

That's fantastic. And then maybe just secondly, following on from that, just around the gross margin and how we think about phasing throughout the half. Obviously, there's a lot of lockdowns, a lot of disruption in the pcp, which makes it difficult to comment on. But how should we think about sort of your comp base, not from a sales level, from a gross margin level or a bit of the promotional activity in the pcp. And should we expect this to sort of start returning back to pre-COVID levels plus the benefit that you've had from Vertical brands?

Yes. If I think about the first 8 weeks and perhaps just comment on what we've seen today in gross margin, the gross margins recovered. And it's not sitting at levels we said just above last year for the first 8 weeks. And the nice thing is with that drive the gross margin, our comps have been flat for the last 4 weeks as customers are starting to come back to stores and return to more normal shopping patterns. From where I'm sitting right now, where we're sitting, there's no reason to think that, that can't sort of continue through the balance of the half. Assuming, of course, that we stay open and there's no further massive breakout or rather [indiscernible]. Hope that answers your question. Certainly, currency is a little bit of a tailwind for us as we go into the second half, which we've talked about previously. So that's on our side. And it's our absolute intent -- our inventories are clean and in line, they're absolutely intent to drive full price, full margin sales through this period.

Our next question is from John Hynd.

Perhaps could you offer some more color on trading in January, particularly in February, and some insights, I guess, on the youth category, what happened there? And what were the key takeaways?

John, I might jump in on that in terms of the numbers and then throw to Daniel to some of the sort of trends that we're seeing. But if you think about -- go back to last year in more globally almost starting to say of our business deals with you, that makes sense. The Athlete's Foot and Skechers, also sort of ranging to an older customer, but the vast majority of our customers in the other brands could be described as youth. Last year, in January, we experienced very strong comp sales, and that's continued into early February. So one of the phases of January is that we were comping a really strong comp base last year, and it was still quite buoyant as we go into February. That's what we pointed out on our comp sales against FY '20 was flat in across those first 8 weeks, should that be impacted in the first 4 weeks. So at a macro level, that's what's going on. And you'd say that the youth customer in the last 4 weeks has started to come shopping again, and they're happy to pay full price. So that's how I'm seeing. I might throw to Daniel for any more color.

Yes. Look, John, I mean, like everyone in retail, I think, and for any of you that visit shopping centers, it's not the best experience wearing a mask. It's actually an awful experience. So it's pretty hard to measure anything at the moment, in my view, well particularly in the last couple of months, and it really started around that 17th, 18th of December. So we've simply been disrupted. But amongst that, what's very pleasing is that our -- some of our distributed brands, in particular, Vans and Dr. Martens has been very, very strong for us. So that really tells us that we're on trend, the brands we distribute are on trend, and we think that's going to continue. We definitely have had some disruption of product deliveries absolutely, and that could continue for some time. However, what we are receiving is seeing great percentage sell-through on those products. So that means the market is hungry for new products. Like many other retailers, the freshness that we would all want is probably not there to where we want to have it, but we're very optimistic that slowly but surely, it will all start to get back to some normal pattern where we can do what we do best.

If I can just take that one step further with wholesale. Obviously, a strong number. And I'm wondering what's that telling you about competitive behavior and their trading through this period. Obviously, notwithstanding there was some cancellations of orders, I think, on the pcp and how should we think about the second half given the recent volatility we've seen through that channel?

I might kick off on that one, John. So the -- there's a couple of things going to the wholesale number compared to last year for everybody's benefit. First is that the headline number includes the acquired businesses, which were in the prior year. The growth excluding that, year-on-year is about 17%. This time last year, we were still doing back in the stock of wholesale, we kept a lot of orders through the first round of COVID. So we were coming off what we'd consider to be a depressed sales base in wholesale last year. I think what it does say is that there's certainly some optimism in the market for the coming months. And I think people have been through this tough time, but I think that feel as though they can get into stock and move forward, and that's certainly how we're seeing it. So I don't think there's anything to read into the sort of the growth in that compared to our retail growth. To be honest, John, I really do think it's just off a disrupted base. But I think that the coming period signals some optimism. I might ask Daniel anything to add to that.

Yes. Look, I'm not sure how our competitors are trading. I assume they've been impacted somewhat as we have. But those that we do supply, which is essentially all of our competitors, they're certainly not canceling any orders with us. Indeed, we've been quite pleased given we sell 6 months out, we can see what the forward 6 months look like, including our own internal orders, it seems very positive. Very pleasingly for us, 4 key brands have been highlighting the numbers we've just -- the numbers there in particular Skechers continues to be very, very strong. Vans and Dr. Martens are just right on trend. And the fourth one, which we haven't spoken much about, but we're working very hard on -- with a very talented team is our HOKA brand, H-O-K-A for those of you that don't know the brand. It's the fastest-growing running brand in the world. We're very pleased to have that distribution -- and the early signs, particularly in The Athlete's Foot business are very positive, but also the market forward orders look very pleasing.

I've just got one or 2 more. Would you be comfortable talking to us about Reebok? I know obviously the deal has just been agreed on, but it looks like another really attractive growth avenue from you guys. Can you help us understand perhaps some other options that are available to you there, if you're able to?

Yes. Look, I mean, we're very excited. As you can imagine, they did have a choice to find many distributors in this part of the world. We won that distribution with a very talented team that's going to be -- that's got capability to actually execute this. Right now, the brands are doing some close to that $2.5 billion, $3 billion worldwide. They're calling out that they're going to grow into a $5 billion brand. We believe that. There's lots and lots of heat and momentum around the brand worldwide. We're already seeing our own stores, even though we're buying it from third party at the moment, seeing very, very strong sales come from that brand, particularly in our Glue. Well, indeed, all of our banners are experiencing solid growth with that brand. We don't officially take over until May 1, but we have a team that we've assembled led by a pretty strong capable head of brand. And we simply believe that this brand will be very solid within our business across the board, but also to those that we supply. I think it's a brand they're going to want to carry and have in their mix. Certainly, the request coming in, even though early days from many of the big players around Australia and New Zealand is very strong. But you just need to look on their website and see the sort of stuff they're doing right on trend, and we believe should we execute this, that there's great growth that will come from this brand.

Yes. So to give us an example, I mean can we start to see this as a like a Vans or Dr. Martens offering? I'm assuming you don't expect it to be substantial as Skechers is.

That would be a fair comment. If you look at just the general size of that brand and the heat and momentum behind it, you'd have to assume that it will be as good as a Vans, certainly bigger than a Dr. Martens, but the beast and powerhouse of Skechers will be a hard -- Skechers is just too strong.

Yes, that's right. Last one for me and then I'll jump back in queue. Just you mentioned you guys are happy with your Glue concept now. I've been seeing a couple of stores and they look great and a big improvement to what they were previously. Can you give us some color in your mind? How are you going to be different to peers with this offering? And what is -- a little bit more color on what is the concept that you're trying to bring to your consumer base?

Might throw to Daniel on that. He's the brain behind that one.

Well, John, I'm happy you're seeing the changes. We've certainly got a lot more work to do. What's very pleasing is that we've opened 5 stores and in some big shopping centers, if you take our Highpoint store here in Melbourne, which is a premier shopping center, we're very, very pleased on the numbers coming from that store, including its margins. And the differentiation on what we bring to market is that we're a house of brands, and we've got the biggest brands of the world in our mix. More and more of them are coming our way, wanting to get into those stores. But also, we've got some great capability in that business, which is very, very pleasing as part of the acquisition there. We've got just the most amazing talented team in there that can actually make and produce product, which is Vertical. And I talk about brands like Nude Lucy. There's a brand we have called Article One for men's, very, very strong. So we're developing this capability, which we think is going to be very strong within that Glue business and indeed those we wholesale. But the most important vote is coming from the customer particularly with those brands. And amongst the house of brands of the world, we will do our Vertical mix, which is a very strong percentage of overall sales. But most importantly, John, when you put a new concept together, it's nail biting time because we all think it looks terrific, but what does the customer think that's all we care about. And in the 5 stores to date, we're very pleased with the ROIs coming out of that benefit.

Sam Teeger.

Just wondering, the delivery delays that you're flagging. What do you anticipate that impact the second half sales to be from them?

Dan, that's a good question. We haven't sort of called out what we think that will be. Perhaps one of the ways to think about the question is we're seeing delays in our external -- some of our external brands. And it is a sort of 20% in a selected number of those external brands of delays in cancellations. Those external brands represent a smaller and smaller portion as we move forward. But that's how we think about it. Sometimes, you get the demand there, you can do the sales with less stock. So that's -- it's a little bit of having the pieces of string ] on that one. But if you think about this 20% cancellations of delays across a couple of selected external brands.

Well, I think I can add a little bit to that, Sam. Pleasingly for us, if you take our Skechers business, we're certainly not 100% fully stocked, but it's fast getting there. They've done a great job to get us back in the stock. That's the one that really matters the most to me in particular. And it's -- there's enough there for our team to say we haven't missed budget because we haven't got the stock. I mean that's the driver I've got with the management team. But to your point, who knows what's going to happen there. But the CEOs of the big brands I talked to consistently tell me that it's starting to come good. That's as far as they'll go. And I don't think we can elaborate any further because we simply don't know.

Right. And when you walk around the CBD and the shopping centers and have a look at some of your competitor stores, are you seeing them able to secure some of these stocks?

No. At least I haven't been in the back rooms and all that sort of stuff of competitors. But just looking at what's on their shelves, it seems to be as disruptive as we are. I'm sure there's some brands that they may have a bit more of. But in the main, they're disrupted as much as we are, I would say.

Okay, makes sense. How many stores have you opened net in January and February today?

I don't have that number on hand, Daniel, you might have it?

Look, Matt, it's really a handful. You're talking 3 or 4, but typically, shoppers are on leave in January, the January month, we also don't want any disruption to that particular month. In March, I think we have 8 stores to open across the business. And it hops up from there further right up until June 30, and that includes some refits, which we don't count as a new store, but it takes the same effort in terms of refitting.

Next question is from John Price.

I'm from Teaminvest, and I'd say most of our members all own shares in Accent Group. We've been very happy with that over the years. And something that we -- I like your reference to your company as a house of brands, I think that captures it very well. So but just what would you consider as just strongest economic moats?

Yes. Good question. John, I might jump in there and we sort of alluded to them in the back end of the release. Our distributed brand relationships, no question a moat in this country. And if you look at the biggest of those, Skechers, that's an agreement that we extended early until 2032. It's one of the big brands of the world. The fact that we've now secured Reebok within that and Dr. Martens and Vans are also very strong. We've got HOKA as well, HOKA. So that portfolio just continues to get stronger on long-term deals. So I'd say that's in our store network. And the store -- 700-store network is not easy to create. It's not easy to replicate. And in an age in digital and omnichannel, that gives us a very direct line of access to our customers, delivering it from the store and get product to them quickly. So there's, I would say, 2 of our strongest. Might throw to Daniel if he could add some thoughts on this as well.

Yes. Look, I think, John, one of the things that we're pushing as a business and it's certainly in the moat sort of bucket is the fact that we are fast moving deeper and deeper into being a pure omnichannel business, which we think is very important moving forward. So you've got distribution. You've got retail. You've got a very capable digital business. And the fact that you can get products semi-vertical, if you call it, because it's -- they are distributed brands but certainly higher margins on that product, allows us to have a bit of a moat. If you go into any of our stores, it's no secret of why you will see brands like Vans, Dr. Martens and the likes called out. They are our moats. Most importantly, though, John, we start with one thing. What does the customer want? That's the main -- regardless of margin, regardless of what we're trying to do to beef up our profits. We always start with what does the customer want? And that's a big, big driver moving forward. And we are very, very entrenched in product, product, product, regardless of where that margin land, have we got world-class product in our -- in our semi-distributed brands, which we call in-house brands that they are distributed. But we certainly feel that they are the most on trends around the world, and you can just look at what's happening around the world with some of those brands. But indeed, if you take a look at some of our products that we are making from scratch. We're at 100% vertical. We would say that we're up there with the best in terms of where it's going, but we certainly wouldn't call out that we feel we are 100%. But we are fast getting capability in all of our vertical businesses to really play on that. Do we have a world-class product which will end up being a moat?

[ Bruce Karl Michael ].

I'm Bruce Karl Michael. I'm also from Teaminvest. So good morning. To date, your growth strategy seems to be mainly organic growth, and it's pretty impressive. But looking out over the next 5 to 7 years or so, when do you think that you might be running out of runway for your organic growth? And you may then have to consider perhaps strategic acquisitions or even perhaps other markets in other countries.

Bruce, good question. It's one that we obviously strategize internally. We feel we've got good capability internally towards growing businesses organically. Some of the businesses, we think, have still got a lot of growth, particularly we feel our Platypus business can certainly grow into areas that we've never imagined only 5 years ago. And by that, I mean areas like, call it, B and C-grade shopping centers around Australia. And smaller towns, we're actually doing very, very well when it comes to what we invest and what we get as a return. One of the big pushes for us, as I've mentioned, is the return on equity and return on investment. That is a big, big driver internally at the moment. And at the moment, you have an acquisition, you end up with a goodwill in your balance sheet and your ROE goes down. We would prefer to spend that money on organic growth and new businesses. And even at the cost of business failing whilst it's small to simply convert and put that money wherever that bullet may be going. But that is the overall driver of what we're doing as a business internally.

That is actually where I was coming from because when you make an acquisition, with all the goodwill, it slows down your return on equity definitely. And you guys have an amazingly high marginal return on equity, which means that if you can grow the business very, very quickly from where you are without having to hold up your hat for shareholders' funds or raising more debt.

Well, yes. The big word for us there is, Bruce, execution and continuing to invest in that back end which is all important as a foundation to what we would like to do. But in terms of growth, if you take the Glue business, well, we're not even in Adelaide at the moment. We're not in Perth. We're not in New Zealand. We're not in -- Queensland, in the Main, we've got 1 store. So we see a lot of growth in the current businesses and sometimes less is more. That will be a bit of a push really have a review of the overall business and say, lie in the sand, what's working, what's not, convert to -- if something is getting an okay ROI, I certainly don't want to be in the average bucket. I would prefer to make a move and move it into the high return on investment bucket. And they're the sort of things that we will do over the next 12, 18 months.

We currently have no more questions in the queue. [Operator Instructions] Peter Storer. ]

I just wanted to refer to the balance sheet. We've got a current ratio of only 1.15 at the moment. So we've taken quite a hit, I think, on the -- not just on the P&L this half, but also on the balance sheet, but also the borrowings have gone up 2.5-fold and giving you the gearing of about 20%. Can you give us an idea of where you sit with borrowings? Is that going to be a priority to pay that down? Or are you comfortable with the current level of borrowing?

Yes, that's a good question. Thank you. So we took out a new debt facility. We considered a new debt facility in around November last year. That increased our total facilities to around $300 million. As at the end of the half year, we have drawn about $91 million of net debt. That higher level of debt. So previously, we've been at around $40 million, that higher level of debt we would anticipate to have over the next 12 to 18 months. We've called out acceleration of growth strategies, new stores, the work that we want to do in Glue, the work that we want to do in Stylerunner. And I think in the short term, medium term, that's going to result in a higher leverage ratio. Certainly, we don't think a 0.8 leverage ratio is anything to be concerned about. So right now, we're very comfortable with our levels of debt. They're absolutely in line with where we projected them to be. And we've got heaps and heaps of headroom if we need it against any shocks. I hope that answers the question for you.

Yes, it does.

There's still no more questions in the queue. [Operator Instructions] There are no more questions. Accent Group team, back to you.

Thanks very much, John. Thanks, everyone, for attending today, and we look forward to connecting over the next few months.

Thank you very much, everyone.

Thank you, guys.