Accent Group Limited (AX1) Earnings Call Transcript & Summary

Thank you, everyone, for joining the Accent Group 2023 Half Year Results Briefing. We will begin with a presentation by Daniel Agostinelli, Group CEO; and Matthew Durbin, Group CFO and COO, 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 today by our Group CFO/O, Matthew Durbin. We will now take you through the results for the half year ended 1st January 2023 and a trading update for the first 7 weeks of H1 FY '23. There will be an opportunity to ask some questions at the end. In opening, I'm delighted with the H1 results in what is the first uninterrupted half in more than 2.5 years. The teams continue to focus on customers, fresh new product and full margin sales has delivered a terrific result. Group EBIT of $91.2 million is in line with the guidance we provided in our trading update in January and a very significant increase on the prior year. As shown in our investor presentation, which was released to the ASX yesterday evening, key highlights include the opening of 53 new stores bringing the total store numbers to 805 stores, our contactable customer base grew by 300,000 customers to 9.6 million customers, online sales represented 19% of sales and have grown by 160% to $134 million since H1 FY '20. While sales in H1 '23 were below the prior year, I'm very pleased that digital EBIT was up 10% on last year due to improved margins and the efficiency drive from the team. Vertical brand and product sales of more than $50 million and 7% of total sales has been very pleasing for us. And the opening of 15 Nude Lucy stores are now trading and trading with pleasing results. And significant continued growth in Platypus and Skechers with 20 new stores opened in the half. So we're quite pleased. I will now hand you over to Matthew Durbin.

Thanks, Daniel. Turning to the sales and profit on Page 5. Total sales for the half, including TAF franchisees, of $825 million, which were up 39% to the prior year. Gross margin improvement of 190 basis points to 55.2%. Cost of doing business was 42%, an improvement of 470 basis points. EBIT of $91 million was up 200%, and the company delivered NPAT of $58.3 million. Adjusting for the 27th week, EBIT is estimated at $81.2 million, representing a compound growth of more than 13% per annum of the undisrupted H1 FY '20. Inventory levels at the end of the half are clean and reflects strong in-stocks of core lines and wholesale stock ready for sales in H2. Moving to digital and online on Page 7. Digital sales have increased 160% in the last 3 years. It was expected that online sales would pull back in H1 FY '23 on the back of store disruption experienced last year. For H1, the mix of online sales at 19% has grown from under 12% in FY '20 and H1 FY '23 was also a record for online EBIT. The focus for online for the last 12 months has been achieving profitable sales through improved gross margin and lower costs in digital marketing and distribution. All the health measures of digital remained strong, with ongoing improvements in conversion rate, average order value sessions, and we continue to invest in new and upgraded websites and underlying digital infrastructure. Turning to VIP and loyalty on Page 8. Contactable customer numbers grew by 300,000 customers to 9.6 million customers. This continues to be the result of a strong drive to invite customers to provide e-mails in store, along with the impact of our loyalty programs now in place in TAF, Skechers, Hype, Platypus, and Merrill. The company now has 7.4 million members signed to our loyalty programs, driving repeat spend behavior and improved customer value. Our new customer data platform is now live and enabling deeper insights and more effective targeting. Moving on to Page 9, retail, wholesale and vertical. During the half, 53 stores opened, 13 stores transitioned, and 8 stores closed from discontinued banners, and 2 stores closed where sustainable renewable terms could not be agreed. New stores continue to perform strongly, with 27 new stores opened in Platypus and Skechers, and Nude Lucy now has 15 stores, all trading well. At least 20 stores are planned to open in H2 FY '23. Wholesale sales also continued to grow in H1 FY '23, driven by existing and new distributed brands. Sales of vertical owned brands and products grew more than $50 million in H1 and continue to support the improvement in underlying gross margin. Coming now to dividends and trading update on Page 11. The business has announced a fully franked interim dividend of $0.12 per share, which is a record interim dividend. In terms of the trading update, trade for the first 7 weeks of H2 has been positive. Like-for-like sales were up 16% in the prior year and including week 27 for the last 8 weeks are up 24%. Noting the first 7 weeks of H2 last year were significantly impacted, and we were cycling negative -- and we are cycling negative comps. I now hand back to Daniel to wrap up.

Thanks, Matt. Whilst we continue to recognize that there is some uncertainty in the economic outlook, up to this point, we have not yet seen any significant change to consumer spending in our categories. Many of our brands target a younger customer demographic who tend to be less impacted by interest rates and the cost of living pressures. To conclude, I'm very pleased with the ongoing progress that has been made on all our key growth strategies as 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 the large store network are all core assets of the group and position the company well for growth into the future. That concludes our presentation today, and we would be very happy to take any questions. Thank you.

[Operator Instructions] Our first question comes from Sam Teeger.

I was wondering, can you comment on how you're finding February trading compared to January?

Sam, it's Daniel. Well, we're yet to see -- the only way we can measure it is by the comps. And right now, the comps are holding up. February is always a tougher month, but -- so the only measure we've got is the comps. And so far, we've seen no real difference to date based on what we were seeing in January.

Got it. And based on current sales trends in the business and potentially the consumer waiting throughout the year, how much inventory you can carry over CY '23 -- and what's the plans around that?

Given we've not really seen any pullback and look, indeed, it might come, and we won't be immune and all the things, you just can't read the crystal ball. But from what we're seeing at the moment, we have taken a position that we will not be canceling any stock forward orders. And essentially, it's just business as usual. So our inventory position is quite clean at the moment. Any, I guess, deemed over stocks are in core, and they're selling well for us. So we've taken a position to not discount any core lines. Really no need at this stage to do anything but trade on.

Understand. And the 16% comps you're doing in the trading update period, how much of that would be price? Just trying to get an understanding of what's volume.

Sam, Matt here. It's very, very difficult to unravel price in terms of -- if you think about the period we were cycling last year, it was heavily disrupted and we were discounting to clear inventory left over from the period that we've been closed. So there's certainly a fair bit in price, but unraveling how much is removal of discounting compared to how much is price increases is next to impossible if that makes sense. So I can't really give you a sense of how much is volume and how much is price. We can't measure it with any accuracy.

All right. And last question really quickly. Given the success you're having in Nude Lucy, do you think any of your other new or noncore formats get closed over this half?

No, not at all, mate. We've exited anything that wasn't achieving the metrics that we required. Nude Lucy so far is pleasing, and it will have 0 effect on any growth plans we've got in the rest of the banners.

All right. So all the exits of nonperforming formats are done, there will be no more.

No. Not at this stage. Unless the world changes, at this stage, it's all go forward.

Great. Good job and good result.

So the next question will come from Keegan Booysen.

First one for me, just on the GMs. Can you talk a bit about the FX impact to GM in the first half? Because it looks like it would have come off a bit in November, December. And just talk around the trend there? And does this unwind in the second half, and when would we expect that to start rolling through?

Thanks, Keegan. Matt here. So a couple of sort of points on margin for the first half. The increase on the prior year was driven through a few things. So first and foremost, again, unwinding the discount that we did last year to keep our inventory under control. We continue to drive underlying margin improvements with our new vertical programs and our distributed brands and the increased mix of both of those continues to drive that underlying margin. In terms of currency, it was an impact in November and December and, indeed, into January. We had planned for levels of currency higher than low $0.60, which we experienced in late October and November. We bring a lot of our international stocking in those months, and we're only hedged at about 50%. So quite a chunk of that was bought at those lower rates, just what it is. It does start to unwind in the second half. We've popped a slide in the back of the pack, which shows you that our hedge rate for the second half sits at about $0.73. Again, we're usually only about 50% hedged. So the final rate will depend on where the currency sits. But certainly, as we get into the back end of this half, we're hopeful at this point that currency becomes a bit more of a tailwind where it's been a headwind in the last few months.

That's great. And then maybe one for you, Dan. Can you talk a bit about the performance of the new stores you've put down over COVID. I mean you effectively almost doubled your store count. First half '23 should be a relatively lean period. Just keen to hear how you're seeing the economics of the new stores stacking up and the performance by region, please?

Well, we've been quite pleased. We did do a lot of work through that COVID period, I suppose, and some of the benefits are coming through now. Where we have opened stores, we have what we call a PET, performance evaluation tool, we use to decide whether the store should go ahead. We've indeed increased the hurdles on that to make sure that before we sign up to any new store, the hurdles are actually more challenging for the team. And that driver has really allowed us to experience some really good new store opening performances. Where we've expanded some stores as well, that's been positive. As an example, Miranda in Sydney. We expanded that store, took more space on and that's been positive. We will look to do that in more centers as we move forward. But in the mean, where we are opening up new stores, not only are we getting good outcomes on EBIT out of those stores, but it's certainly allowing us to drive the database harder than ever before and allowing us to capture more and more e-mails, as an example, the 300,000 new customers that have joined our database, that's really compelling for us.

That's great. So then when we think about the economics of the new stores, it's nothing to say the returns or the margins, even though the sales and the format's a bit smaller, anything different toward the core brands were sort of pre-COVID or before you did this rollout?

No, that's right, Keegan. That's a very safe statement to make, and we're not seeing it any differently. The new stores are performing well, hitting their metrics, no fundamental change. It is true that some of the regional stores were opening performing very well. They're on nice low rents. And you don't have to get the same level of sales. You perhaps don't get the same dollar value of profit as some of the big guns in the super suburban stores. However, return on investment is terrific and the rents are very low. So that's one dynamic that may well be bringing our average sales down slightly and our average profit per store, but it's not impacting the return on investment.

That's great. And then just last one for me. You mentioned before, Dan, around pumping up the return targets that you have for new stores. Just firstly on store growth, do you think it's going to moderate any time soon in terms of the rollout? If not, sort of what brands do you see growing within the core network? And then what are the return or targets that you have on those existing stores now, please?

Well, right now, we still see a long runway. That will be determined by what rental outcomes we can achieve with our landlords. As I mentioned, the hurdles are harder. We've put in harder hurdles to hit before we decide to open the store. But in the mean, I mean, we still see growth in -- major growth in Skechers, Platypus. We've got Nude Lucy. We've got -- all the banners basically, there's growth all over the place. But in the main, it's -- Skechers has still got a long, long runway. You just got to take a look at the products we've got in that business. It's in the best shape we've ever seen and it continues to build momentum.

Keegan, just to sort of add to that. Interest rates are higher, cost of capital has gone up because of that. And we've increased our hurdles. Previously, we've talked about at least 20% new stores now where, as you imagine, we're sort of 5% to 10% higher than that, around the 30% mark is the benchmark for ROI that we're setting for the new stores going forward.

Our next question comes from Sophie Carran.

First one, just regarding the comment around your focus on profit growth in Glue Store and Stylerunner. Can you talk a little bit about how the margin performance is in these 2 banners versus your expectations? And then I guess, a little bit more color on what you need to do from an execution standpoint to get those margins where you'd like them to be?

So I'll take the first part of that. It was pleasing that those banners were -- hit positive EBIT for H1, Sophie. It's, very honestly though, the margins still aren't where we'd like them to be in those businesses. We were still clearing through some product. And we're probably -- we've still got a bit of a way to go to get that right. I might sort of then throw to Daniel, just to talk about some of the things that are underway because there's plenty of activity going on.

Yes. Well, all of it will lead to margin improvement, but we are reviewing all the store base. As you're probably aware, if you take the business, Glue, we purchased it. We were very, very disrupted in that business. We bought products that we ended up being closed, so we have to deal with all of that. But we have made a change in terms of management. Steve Cohen is the divisional CEO of that business as well as Stylerunner and some of the changes that are going on are going on in there when you measure KPIs are very encouraging. And we continue to, I guess, explore where we think there's a niche in the market that allows us to grow a whole lot faster than just doing the same as what the market is doing today. So there's a lot of work going on in that space. That includes some refits. Are we too masculine, are we too feminine? All of those type of measures are being reviewed at the moment, and that takes a little bit of time. But the KPIs are encouraging.

Great. That's helpful color. And then just a sort of follow-up to the previous question. Can you just give us a little bit of color around sort of lease discussions and landlord contributions on store fit-out and just how that sort of balance between the landlord and yourself is going when it comes to opening new stores?

Yes. Look, good question, Sophie. The centers are full. The vacancy rates are better than they've seen in for a long, long time. And I think that's a great thing for the industry overall. It's buoyant. And thankfully, for us, we've got a lot of banners that work in a lot of the shopping centers. So we're able to, I guess, negotiate some key locations. And at least, we think some fair outcomes on commercials. And so far, we -- it's basically business as usual. What that does moving forward, I'm not sure. But we certainly have not had to slow down store growth because the commercials are not as good as they were. That hasn't occurred yet.

Excellent. That's helpful. And then just one final question from me just around the like-for-like sales performance through the first weeks of the second half. I guess, just any sort of color you can provide around particular strength among different banners? And then to what extent do you think that's benefited from some of the back-to-school support, particularly thinking around the Athlete's Foot?

Well, the Athlete's Foot had a great back-to-school period. Very pleasingly for us. A lot of the products that sold for back-to-school were in the vertical bucket, i.e., products that we now make and own. One of those brands is named Alpha, that is wholly designed by us, made by us and sold through our stores. That's allowed us to enjoy better margins. And that program continues to build year-on-year. In terms of what's going on across the industry, through COVID a lot of the brands almost held back some releases because there was no feel and touch. Now that we've got all of our customers or many -- 80% of our customers going back into the stores, a lot of our brands are releasing products that they probably withheld from the market. And that's been fantastic for us. We're full of fresh new product. There's some fantastic trends going on. And if you take a look at a brand like Crocs for those of you that may have bought a pair of those shoes in the past, I'm not going to argue whether they're good looking or not. The market is loving them and Platypus has been the #1 seller of that trend in Australia and New Zealand. And then I can't bypass Skechers. It's the most on trend we've ever seen it. We have 2 or 3 silhouettes that are just trending super, super well. And we've got a lot of intel from what's going on around North America and Europe about what some of the wins that Skechers are having worldwide, and we're simply the beneficiaries of all that. So we're very, very pleased with what we look like in store, and it's probably the most on trend I've seen the Accent Group in all of its banners in a long, long time.

Our next question comes from John Hynd.

Daniel Matthew, just perhaps drilling down on a couple that have been asked already. On the -- probably for Matthew. On the slide deck, there's an FX rate slide and gross margins. It sounds like in the first half '23, it sounds like what you're telling us, there was still a little bit of pressure from currency and purchasing that's rolled through into second half. But you're sort of suggesting that with $0.73 currency hedged, there might be sort of upside to the fourth quarter margins. Is that what you're indicating? And are we talking about margins closer to first half '20 when the currency was $0.73 again? Or given the, I guess, investments you've made recently in the back to core focus, is there a little bit more upside from that $0.57 level for the fourth quarter?

Thanks, John. Good question. As you described the shape is a very good way to think about it. So as those $0.73 hedges come rolling into the inventory and we get into the fourth quarter, I'm very hopeful that will become a bit of a tailwind to margin. We tend to have a H1, H2 split of margin. If you look historically back to some undisrupted years, H1 tends to be a little bit higher than H2. Part of that's because June sale is a good time to clear the decks. And historically, we've used that to make sure we clean up any gills before we go into the new year. So look, without trying to predict the future, I don't think we'd get a H1 result -- sorry, a H2 result at that level of $0.57. We haven't had that historically. But let's try it and see -- we're certainly hopeful that H2 will be a bit better than last year, and we'll get some improvement.

Yes. I guess taking that one step further, you've got a very clean inventory position now. I think you hosed a lot of the, I guess, clearance items in this half. So perhaps there is that risk with that fourth quarter, you don't have as much stock that needs cleared out in June.

Yes. And that could well be the case. And it comes to how trade goes over the next 5 months. As Daniel said, we're not seeing anything we didn't expect at the moment. We're starting from a reasonably good term. So there was some clearance just to clarify though, into January. So the Christmas sale starts and boxing down, it goes through about 3 weeks. So there's a couple of weeks in the second half where we were chewing through some of that discontinued stock.

Yes. Actually, thanks for the reminder there. Just another 1 or 2, if it's okay. I noticed there also in the pack, you've consolidated the emerging brands in the store count slide. Is that a formality? Or is it a change in strategy on how you're thinking about those new brands, given how strong the underlying and legacy business is at the moment? We normally talk to Glue a lot as well, and I guess it's because the store count is a bit higher and it's new. But on top of that question, I guess, can you also talk about Nude Lucy? I mean you're saying that you've done 15 stores there. What sort of pathway do you think you've got there. And the margins, can the margins compare to perhaps Stylerunner, or are they more attractive?

I can answer the Nude Lucy part. The margins are higher than Stylerunner by some. The reason for that is that we actually completely designed the product, make it, retail it, wholesale it and, of course, put it through our digital site. In terms of -- we've got 15 stores there. I'd be quite disappointed if we didn't do a few more very quickly. So we're working on that. And I guess, we've now got some stores in the West, Western Australia, Queensland, Sydney and a couple in Melbourne, and we're just trying to make sure that it's absolutely right in all areas of Australia. And at the moment, it's feeling that's quite pleasing. Of course, it's a competitive space. So as far as we're concerned, it's lumbered into our, I guess, vertical drive across the Accent Group and right now, it's pleasing.

John, to pick up on your question of why we've sort of consolidated those 3 together. In part, it's because those businesses all have a fairly significant parallel element to them. It doesn't necessarily -- and as Daniel alluded to earlier, we've now got a very senior competent guy running all 3 of those businesses as the divisional CEO. So we just felt that it was sort of appropriate to put those together. It's the first time we've talked about Nude Lucy as well. Previously, that sort of sat in other. I wouldn't read anything more into that other than that's how we're thinking about it.

Sure. Just a further question on that, perhaps for you, Daniel. 15 stores with Nude Lucy, are you -- and you talked about competition. Would one of the larger competitors in the space be Universal's Perfect Stranger Stores? Is that where you're seeing competition at the moment? I think they've talked to having 7 stores by the end of the year as well.

No. I think they're after a different customer. Our customer, we feel our customer, it's much more in the comfort fashion area. I call it the resort wear, if you will, compared to, I think, their customer is a little bit more streaky and younger. And yes, so I don't see them as competition. But every fashion retailer has got an element of what we're doing in terms of this comfort fashion, but we've managed to put all under one roof. We feel the stores look appropriate. And we've got a great team in there driving not only product but also systems, and we hope to see 4, 5, 6 stores pretty soon, to increase that -- to get over 20 stores very quickly and see what happens.

Yes. That makes sense. Just one more, sorry for me. The dividend was pretty -- was a pretty nice dividend, reflects a pretty full payout ratio. How is the Board thinking about -- I guess how does the Board make that decision? And then how is the Board thinking about the second half as well, please?

I think you'd have to read it as a positive, obviously. We've stated in the past that the business, if we don't need the cash in the business to do what we want to do, and we can do all of it based on what our current cash flows show, then we will pay it out to the shareholders and reward shareholders. And we've had a great half. Cash flow show that we should be rewarding shareholders, and we will continue to do that. But they will come when we want to put up another 100 or 200 stores, and that dividend may change. We may need to keep it. But right now, we're in a very strong position in terms of cash flow. Our balance sheet is very solid, and we took a decision to reward shareholders.

I'll just add to that. People shouldn't say that as any sort of reflection of we're not going to deploy cash in the business for growth either. So the nice thing at the moment with a half like that is, you can pay out a good dividend. We've also got some pretty decent facilities in place that we did a great pricing 18 months ago. And so, it's not a choice between investment or dividend that makes sense. It's actually both.

Yes. You're in a great position to be able to do both. Daniel and Matthew, congratulations on the strong result.

Our next question comes from Chami Ratnapala.

Daniel and Matt, congratulations on a very strong results. Just on vertical sales, I mean, yes, around that $50 million mark at the moment, and just keen to hear your thoughts with those -- the new banners coming through with growth. Where do you see vertical sales over the -- probably next 6, 12 or 18 months?

Chami, so it's certainly a very pleasing performance for vertical. And as you can imagine, Nude Lucy is driving a bit of that with 15 new stores. Stylerunner continues to grow as well. And indeed, vertical's growing in all our banners through socks and accessories in the school shoe -- the Alpha school shoes in soles. So -- I mean, we previously, I think, if I go back 12 or 18 months when we were probably giving out more targets than we should have, we were calling out a hope that vertical could get to 10% of our sales. There is no reason to think, based on the trajectory, that they can't. And we've also talked about margins being significantly higher when we're dealing with vertical product than third party. And we've been on this journey about 3.5, 4 years. We're still learning a lot. There's a lot to learn when we are in lots of different categories of those. So you'd expect that the underlying margin in those products would improve as we get better over time.

You're aware obviously -- I mean, that is one of my -- basically, my -- particularly, my biggest driver with my teams on the field that this area here has become very exciting for our business, because one, it gives us exclusivity, but also you get the margin drive and Matt's called out socks. And you think socks is just a little add-on sale here and there, but it's super, super strong. We're very, very pleased with what's going on there, and the GP dollars coming out of that is very, very pleasing.

And just to clarify, in the 20 stores for the second half, could we assume that 3 to 4 would be Nude Lucy or...?

Chami, just -- sorry, just could you mind saying that again? You just broke up.

Yes, okay. Sorry about that. So the second half with 20 stores, is it fair to sort of assume that Nude Lucy could be 3 to 4 there or...?

Yes. That would be fair. Yes, that would be a fair assumption, for sure; 4 or 5 will definitely be Nude Lucy.

Our next question comes from Shaun Cousins.

Just the first question just on cost. Just can you talk a bit about how you're managing the labor cost sort of pressures with just the broader inflation there? And just remind us around how the CPI linkages play in your leases? I believe they might be 25% of stores. But if you could just remind us of that, please?

Yes. Thanks, Shaun. Good question. Lots to unpack in there. If I may, I might just talk quickly about how we achieved some of the cost improvements. So we certainly had a very strong efficiency drive in costs, in particular, around the costs associated with digital. So we've been very focused on reducing performance marketing costs, leveraging our customer database rather than paying external providers for clicks and that efficiency has been terrific in the last 6 months. We've also had a very strong focus on distribution costs and changes to charges for delivery, driving click and collect in store, and indeed increasing our delivery thresholds. And customers, we've observed, have been prepared to accept those and that hasn't missed a beat either. If I come to the question on team costs, so the JIRA award increase was effectively 5.3% for this year. So we experienced that through the first half. So we were able to continue to get wage costs -- keep wage costs under control even in regard to that increase that we've passed on to all of our team members. And correct, about 25% of our portfolio is exposed to CPI increases. Again, we clearly had a number of those come through in the first half where leases came up for expiry. But I'm fairly certain, if you take our lease costs and look at them as a percentage of sales, you'll see that we've gained some efficiencies over the prior year. You'd expect, absolutely, that we would have over the last 2 years, where we had stores closed, but I now think we're sort of back even under levels experienced in previous years. So efficiency -- cost efficiency is a strong drive for us. We've also called out that we felt that team costs and support office grew ahead of the curve through COVID, and we're very conscious of getting those team costs back to where they need to be on the basis of the sales that we're doing.

Great. And then maybe just more broadly, you've touched a little bit around how you're optimizing your performance marketing there. But just how effectively do you believe you're engaging with your 9.6 million customers? How can that sort of further be optimized sort of going forward, please?

First and foremost, it's a huge -- a huge project for us in terms of doing better with their databases. We've put some work into, particularly our Athletes Foot database, which is very, very strong, and the outcomes have been very, very pleasing. That's starting to happen across all other banners. So we see upside there as we move forward. I guess, what's happening is we're getting all these databases together, and the fact that our banners are just becoming better known in the market is allowing us to spend less on trying to, I guess, compete for the likes of Google and so on. If they think Platypus, well, they're going straight to Platypus, or Skechers and so on. And that's really helping us save the costs there. But to answer your question, there is a major, major drive on what we do with our loyalty programs in particular for the database as we move forward. It will be a big, big player in what we're doing. And this has been our strategy all along, to get to a pretty big base of customers, where you can really drive promotions, exclusive products and the likes. So to be honest, it's one of the most exciting parts of what I think you'll see us grow in the future.

Great. And then just finally, just around The Athletes Foot, they -- just assume the performance there has gone rather well, particularly, with a strong back-to-school there. Just do you see any sort of changes there in taking on as a corporate some of the franchise stores or your franchise bases? Just curious around how you're seeing the movement there, please.

No, it has been very positive. We've got some 65, 70 franchise stores out there in the main. They're great operators. We've now got -- a larger portion of that network is wholly owned by us. Those stores are performing very well. Margins are up in those stores, purely because there is a major drive on -- the continuous drive of vertical products in there. But we've also got some great growth strategies in there with -- at one end, your fitouts, and 2, the product mix going on in there. I mean, you're aware that we distribute and own the distribution of the Saucony brand. That's been very, very strong, and we're simply delighted that we've got the distribution for Hoka, which is one of the fastest growing brands of the world. That's become a big, big driver in that business, and the results have been fantastic. That will continue to drive that banner. So in the main, with Athlete's Foot, it's simply we just keep on the current trajectory and strategy. It's very pleasing.

Our next question comes from Mark Wade.

Just on the -- Daniel, just -- the results are very, very strong. And I'm just trying to get a sense of why wasn't the 6 months to June as strong as what we've just seen in the 6 months to December, when it felt like as announced the macro was pretty similar environment. So yes, just can you try and give us a cogent explanation on the sudden improvement there?

Well, as we come out of Omicron last year, which was -- I mean, we were trading -- we were trading okay. So of course, we're getting a little bit of a tick there for simply doing it right. But as I mentioned, a lot of the brands did hold back product. And as that product was released to us, we saw almost instant and was almost overnight customers really biting at new color, at new trends, and as I just mentioned, Hoka has been very strong for us, and it's a new brand for us. So I'm going to put it down to product, but I also got to put it down to the team. I mean, we feel our stores are looking on point. We're very, very driven towards the old customer service, which people talk about. But we're really putting a lot of effort into how do we serve our customers better and produce an environment that is exciting in that space. And to explain a little bit on product, if you take a look at the Skechers business, it's been very, very strong for us, purely driven on products. So we haven't had to do much, but put the product in our customers in phases and they're voting with their wallets. They're hungry for new products. And I see there's a -- the shift from the brand shoes market to what we do in terms of comfortable, fashionable footwear at a fair price, that's continuing to trend up. And you're hard-pressed now to go into the market and see too many people not wearing a brand and, thankfully, for us, it's usually a brand that we either distribute or we have great relationships with a third-party operator.

And on the wholesale business, we're no longer getting separate sales for that. Can I just get a sense of how do you feel, like, the customers -- your wholesale customers are reacting at this point, given where things could get a little bit tighter? Are they reacting kind of as expected?

Yes, Mark, the wholesale channel has been very, very strong indeed, and we get forward visibility through sales up to 6 months out into that channel. So it continued to experience growth. Certainly, the forward order book is in great shape, and yes, Daniel called out -- so Hoka is being a strong addition. We wholesale that brand. Frankly, those Skechers performance and Dr. Martens in our core brands in wholesale have been very, very strong as well. So they -- it feels like we just continue to get a bigger share of shelf space with our wholesale customers. So it's very positive.

No, a good place to be. Long may it last. And just lastly, Matt, on the backend, the consolidation of some of the systems and at one point, you're looking to cut down the number of ERPs, you have from about 3 or 4, down to 1. Just give us an update there, if you can?

Yes, absolutely. So we're flat out full steam ahead, doing a conversion of Glue on to the core platform. We've already done some of the lifestyle brands that we acquired as part of that -- as part of that transaction and so -- including Nude Lucy and some of the other banners are on AP21. So we're flat out doing Glue at the moment and then we're going to move to the Athlete's Foot after that. So it's going well. These things take time, they're complex, and we want to get them right.

Okay. Good update. Yes, spectacular results. So keep it going.

Our next question comes from Keegan.

Just last one from me. You paid down about $20 million of debt in the half. Just keen to get a sense of how comfortable you are with the current level of gearing, particularly in the context of your comment -- your comments, Dan, around funding growth and also returning capital to shareholders. Things are going really, really well now. But how comfortable are you with the level of gearing through the cycle and sort of -- i.e., should we expect for the paydown in debt or that capital to return?

Thanks, Keegan. Great question. The governing authority has been very comfortable with the level of debt, a gearing ratio -- 0.5 turn is very comfortable on any measure. If there is cash available, the intent is to both pay dividends and pay down debt over time. We don't want to slow investment though. So we'll see how we go in the next 6 months. But it is possible that you could expect more debt paydown over that period, yes. Things are strong and pay to the shareholders and pay to the banks as well.

We have no additional questions at the moment. Daniel, I'll hand it back to you for closing remarks.

Well, if there are no further questions, we will get on with doing what we do, and hope you guys have a bright day, and thank you very much for taking the time to listen to our update.

Thank you.