Accent Group Limited (AX1) Earnings Call Transcript & Summary

Good morning, and thank you, everyone, for joining the Accent Group Full Year FY '24 Investor 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. If you would like to ask a question, please let the raise hand button to be placed in the virtual queue. The raise hand button can be found at the bottom of your Zoom interface. Now Daniel, over to you. Thank 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 full year-ended 30 June 2024 and a trading update for the first 7 weeks of H1 of FY '25. There will be an opportunity to ask questions at the end. Within the context of a challenging economic and consumer environment, the company has delivered positive like-for-like sales growth and has made continued progress against the growth plan. I would like to thank the entire Accent team and suppliers and, indeed, our customers for their efforts and support throughout the year. The team's ongoing focus on our customers, both online and in-store, new and fresh product, innovative store fit-out and the rollout of 93 new stores continue to build the strong business for us in the future. If I can now refer you to the operational highlights on Page 4 of our investor presentation, which was released to the ASX this morning. Some key highlights include the opening of 93 new stores, bringing the total number of stores to 895, including our online websites. Our online sales continue to grow strongly, supported by the company's integrated omnichannel model. Our customer database grew by 400,000 customers to 10.2 million customers. Vertical owned brands and product sales grew to more than $125 million now reflecting around 9% of total sales. 36 Nude Lucy stores are now open and trading well within the business and are strongly profitable or were strongly profitable in FY '24. 5 more stores are planned to open by December 1. Continued growth in our Platypus and Skechers stores with 49 new stores opened between both retail brands, and our Stylerunner business continues to perform above our set budgets. Both Stylerunner and Nude Lucy will open flagship stores in Chadstone before December, which we are delighted about. We advised today that as an outcome of the continued drive to improve return on investment for our shareholders, our Trybe business, which had 14 stores has been sold, and we will not continue with the CAT distribution agreement beyond its expiry date in December this year. Along with the exit of the 17 underperforming Glue stores, these outcomes will allow management to focus our capital and efforts and relocate those to our fastest-growing businesses. I now hand you over to Matthew Durbin.

Thanks, Daniel. Turning to FY '24 sales and profit on Page 5. Total sales for the year, including TAF franchisees were $1.61 billion for the 52 weeks ended 30 June '24, up 2.7% on a 53-week FY '23. The reported EBIT of $110.4 million was in line with the guidance provided in July and was inclusive of a $17.3 million non-recurring charge relating to the decision to exit 17 underperforming Glue stores. Inventory levels remained clean with inventory growth in line with store growth. Now on to the summary of financial performance on Page 6. Owned sales were up 3% with LFL sales up 1.7% for the year, improving in half 2 to 4.1%. Within this, our online stores continued to grow strongly, reinforcing the importance of the company's best-in-class omnichannel capability. Within this, owned retail sales were up 6.1% and wholesale sales were down 17%. Gross margin percentage was up around 60 basis points to 55.8%, reflecting a higher retail mix, disciplined inventory management and our ongoing drive to increase the mix of our distributed and vertical owned brands. Gross margin in half 2 was impacted by an inventory provision of $2.6 million within the overall $17.3 million of non-recurring charges relating to the decision to exit 71 Glue stores. Cost of doing business 45.9% was a year-on-year increase of 140 basis points and has now come in lower than planned LFL retail sales, lower wholesale sales and cost inflation, inflation, in particular in occupancy and store team costs. H2 CODB of 46.7% was a 60 basis point improvement on H2 FY '23, reflecting the stronger comp sales in H2 and the implementation of cost efficiency initiatives in a range of areas impacting Q4 costs and beyond. Net profit after tax is $59.5 million. Moving on to the retail and wholesale operating review. During the year, 93 stores were opened, and 19 stores were closed, including 5 Glue stores, where acquired investment return outcomes could not be achieved. New stores continue to perform strongly with 49 new stores opened in Platypus and Skechers and Nude Lucy now has 36 stores and is trading well. Wholesale sales declined 17%, with softer demand from our wholesale customers and reflecting in part the impact of our new store openings. Pleasingly, the decline in half 2 was less than 10%, significantly improved tracking right over half 1. Sales of vertical owned brands of products grew more than $125 million, now representing around 9% of sales, and the gross margin percentage in that program continue to improve. Now turning to customers and loyalty. Contactable customer numbers grew by 400,000 customers to 10.2 million customers. This continues to be the result of a strong driver to invite customers to provide emails in store along with the impact of our loyalty programs now in place across the company. The company has 8.1 million members in our loyalty programs, membership across TAF, Hype, Platypus, Merrell and Skechers driving repeat spend behavior and improved customer insights and values. In November '23, the company launched an exclusive loyalty partnership with Qantas, where Qantas customers can earn and spend points across Accent banners. Early signs are very positive. The average spend on the Qantas linked transactions is significantly higher than the Accent average. And in addition, where we identify the Qantas customers and new to Accent, we also have the opportunity to capture their details in our platform for future brand communications. Our new customer data platform went live in July, providing enhanced capability for more targeted customer interaction online and in-store. In combination with our internal loyalty programs and new Qantas partnership, the reach and insights from this new platform will help drive improved targeting and purchase behavior. Coming on to the growth plan update on Page 9. The company continues to have a valuable portfolio of growth opportunities across its core banners and new businesses, including the continued rollout of new stores with further store rollout opportunities in both its core banners and new businesses. At least 50 new stores are planned to open in FY '25. Further growth in online, leveraging improved customer insights and loyalty programs, improved underlying gross margin from continued growth in the company's moat brands being its distributed and vertical owned brands. Along with margin improvements, these brands continue to provide an unreplicable competitive advantage through product access, forward visibility to global product trends and improved sell-through. Growth in Nude Lucy from the continued rollout of new stores and online growth with 36 stores trading and further stores to open in FY '25. In August, the company launched a U.S. online site for Nude Lucy to test customer demand in that market. Profit growth in Stylerunner with around 10 stores to open in '25. And finally, continued growth in TAF from profit margin expansion through the delivery of distributed brands, as well as the plan to reacquire the remaining 60 franchise territories. FY '24 franchise sales were $170 million. And indeed, finally, expecting further growth from our existing and new distributed brands, including HOKA and UGG, with further store rollout wholesale and online growth planned in those brands. Turning now to dividends and trading update. The business has announced a fully franked dividend of $0.045 per share. And in terms of the trading update, total sales for the first 7 weeks of FY '25 were up 8.7% to last year, and LFL retail sales for the first 7 weeks are up 3.5%. I'll now hand back to Daniel to wrap up.

Thanks, Matthew. We are pleased with trade in the first 7 weeks of 2025, which is a continuation of the stronger sales trend that we saw in H2 last year. The company has many valuable initiatives for growth over the coming year and into the future. I wanted to leave you today with a somewhat business as usual initiative that goes on every day here at Accent. That is the emerging, as a new store source of growth and value. On the back page of our slide presentation, we have an image of our new Platypus store concept at Chadstone in Melbourne. We are very excited with this new concept. In Platypus, and in all of our banners, we are continue evolving our store format, both for new stores and when stores come up for lease renewal. Our Chadstone Platypus store came up for renewal at the end of last year. We renewed our lease and have taken opportunity to completely refit the store with a new flagship concept. Since reopening the store, we have seen trading up very strongly with double-digit growth. Having got this concept right, we will quickly roll this out to a further 10 flagship stores in all A-grade locations that are coming up for refit. This update of the store concept allows us to better showcase brands and product, improved floor space productivity and our competitive position in the market. Thank you for your time today. And we would welcome any questions in relation to the results and our presentation. Thank you all.

[Operator Instructions] Our first question comes from Chami Ratnapala.

Yes. Thanks for that. Good morning, Dan and Matt. Quite a resilient result there. I just keen to get stuck into a few questions. I mean, firstly, to start off with the trading update, I mean, up 3.5% for the first few weeks. How does this look differently, both in retail and wholesale from that exit rate of 4% in the second half?

Yes. Thanks, Chami. So the 3.5% is only relating to retail. So that's the retail LFL up 3.5%. You get a sense of the wholesale result when we talk about total sales up 8.7%. So the wholesale is wrapped in that. So if you take the 3.5%, you add the impact in new stores and wholesale and wholesale has been positive in respect of the first 7 weeks. So quite a good turnaround. Context of the wholesale, we have to remember, though, is that it was significantly down in the first 7 weeks and indeed in the first half last year. So it's great to see a turnaround. We would have expected too. But yes, 8.7%, we're very pleased with in terms of total sales.

And -- thanks for that, Matt. And if I was to ask you in terms of maintaining it to the rest of the first half perhaps maybe remind us, I think the comp start sort of getting less, easier towards the back end of the half. How do you feel about sort of where comps are running into the rest of the first half?

Yes. Look, I think -- I don't think we're trading particularly inspiring comps against the base last year at all, to be honest, right through. So yes, our comps in '24 didn't start coming positive until the second half. That's not to say we didn't have some okay months across November and December, but I wouldn't have said that they were as good as we wanted them to be last year. So look, I'm not going to try and predict the future, but 3.5% is a good start. And with the product pipeline we've got coming, and we're confident.

I think, Chami, exactly to what I was going to also update there. I mean, we look at our forward product pipeline, and it looks very, very strong across many, many banners at least from my point of view, much more excited than what we saw last year. So hoping that the continuation of the comps will be there. Thanks for that Dan and Matt. And then secondly, quickly on the gross margin. I mean, sort of 57% is sort of a math that we've talked about with where you have exceeded the second half deal and thinking about the outlook for FY '25, how should we sort of think about it?

Yes. Look, it's a complex question. The -- yes, there's no doubt that the work that we continue to do in our vertical -- our owned and distributed brands is improving underlying margin. And we would be very hopeful of trying to drive a further margin uplift, as we get into this year on the back of that. Conversely, yes, there's always the unknown of what currency does. So sitting today around [ mid-60s, 67 ], yes, that's okay. And if it holds there, we should have confidence that we might be able to generate a further margin improvement year-on-year. So hopefully, that gives you some color. We get better each year at our error rates in our vertical. We called out specifically that the gross margin in that program had improved again in FY '24. That's now 5 years of consecutive improvement in margin in that program. The margin program, The Athlete's Foot is very strong. So those are the types of things. The other dimension there, though, is that the days of price increases have gone even though there's still some inflation, where we're finding -- we put prices up now the last time was July last year, we had any meaningful price rises. So there's no sort of, I'm going to say, inflationary impact or margin benefits to come from price rises, as best we can see for the next 12 months.

Perfect. And then my last question, if that's okay, would be on the new stores for FY '25. I think the Trybe format was called out -- just trying to see what sort of benefit we get into new stores? Or are they counted in this as well? Or would there be simple relocation for FY '25?

So in respect of the Trybe, if this answers the question, and I'll pause to see. So the Trybe had 14 stores, they've all been sold. So as we get to the end of the year, there won't be their rule. There won't be not disclosures or anything like that. We will have a line that says sold and it will have 14 plus some online stores in there. So that's the story with Trybe if that makes sense. The store openings, the 50 store openings will come across a number of different banners with ongoing store openings and Skechers, ongoing store openings in HOKA, Nude Lucy, and in Stylerunner and others.

Our next question comes from Ed Woodgate.

Well done on the result. I just was curious, I mean, generally, there's a lot of positives in there, but I think the main thing that it was looking at one of the blemishes, I guess, was the GP second half was down 20 bps year-on-year. So can you just talk through what the reason was for that?

Yes. Thanks, Ed. So the sort of the 20 bps is explained by the $2.7 million or $2.6 million impairment that we took on Glue inventory. That's within the overall $17.3 million impairment. So that bridges to flat. There's no doubt in the back half of the year, May and June, the environment was quite heavily promotional, and we specifically called out that we were going after promotion to both to compete in the market and particularly that younger customer across Platypus and some of our other brands was responding to promotions. So that's how I'd characterize it. We also made sure that we finished the year with inventories clean, aged stocks are as good as they've ever been. And we're very, very comfortable with our inventory position exiting the year and coming into this year. So hopefully, that bridges that for you. Clearly, a tougher exchange rate environment, although we'd never had that as an excuse, but there the dimensions of the reason that gross margin was flat. I'd say underlying flat in the second half.

Got it. That's very helpful. And sorry, just to clarify. So May and June in the PCP was tough on discounting, but you're saying it will continue to be tough discounting environment this financial year.

Yes. We continue to be heavily promotional, so -- and perhaps more promotionally than we thought it would be. The market, I think, because it is a little bit more challenging, there was plenty of people in our segment, driving promotion, particularly through the school holidays in June.

And then the store guidance, so that just seems to be a slight upgrade to the consensus, and you said at least 50 stores there. Just curious how many might be in the first half? And what's the negotiating environment like now that [indiscernible] that would have helped, I guess, your credibility with sticking to good prices with landlords? Or what's -- has there been any kind of response to that?

Well, the environment is, as it's always been, it's probably a little bit more positive from the landlords point of view. There seems to be more customers in terms of foot traffic going to their centers. That's what they're reporting. We're seeing some of the benefits of that. Obviously, we're through our comp growth. We're still held in -- well, we're always held in high regard. We've got this -- our new banners are very, very much sought after nationally actually. And we can only go as fast as the product and our team can go. But it's positive. Our relationships with landlords is good across the board. And indeed, the reason, I called out Stylerunner and Nude Lucy Chadstone, it's purely because there will be flagships and in very, very key sites.

And then just the first, how many would be in the first half? Do you think of about 50%?

We haven't sort of unpacked that, Ed. So let us get to November, and we'll give you an update on that.

And then, if I could just ask about the CODB, so that was great to see down half and half. It sounds like you implemented some great initiatives there and looking to continue to do so into outer years. Can you just provide some color, where those cost savings might come from? And then also, was rostered store hours a part of the CODB saving. And I guess, if that was the case, how much were they down year-on-year in the second half? And how should we think about those into 25?

Good question. There was a number of things impacting that CODB. So with the positive comps that we achieved 4.1% for the second half that goes a long way to starting to set some of the inflationary pressures that we've seen in frontline store costs and indeed rents. In terms of store wage hours in store, there were no cuts made to store wage hours in May and June. So -- so we continue to invest in those. And indeed, that's continued into this year as well. The areas of cost efficiency that we're really getting after are in distribution costs. So we've done a lot of work on our online fulfillment costs across many different areas. There's a thing called split shipments, which means is you end up sending 2 parcels out to a customer because a pair of socks in one and a pair of shoes in another. We've done a lot of work on our algorithms to reduce that particular component. We've increased our online free shipping thresholds across a number of banners without any sending impact to sales. There's further initiatives we're looking at in that area. But we actually made some adjustments to our support office team costs. So we undertook in a quiet sort of manner around a 10% reduction in support office team costs through the course of the second half last year, which will give us benefits into the first half this year and a range of other things across in-store bag costs and those things. So we're trying to avoid touching frontline team costs. Certainly, we've still got efficiency to drive there and where efficiencies can be gained, we'll take those. So hopefully, that gives you a bit of a flavor. But yes, we were pleased with the cost of doing business. And no doubt the first half cost of doing business last year was too high, and we need to crack on in the first half of this year and bring that down quite significantly. That would be our absolute objective.

Okay. That's great color. And then just last question and maybe bit of a double header. So just for our modeling, how much sales and EBIT did Trybe contribute in '24? And just the reason for the CAT renewal, sorry, if you already touched on that.

So look, Trybe was neither here nor there in terms of profit contribution in FY '24. So that's probably the best way to think about it. Not material at all one way or another. And look, the overall CAT decision, it was relatively small in the scheme of our business. If we go back 10 or so years when we started to be the distributor of CAT, the EBIT of that was quite meaningful. It's in workwear, and workwear isn't necessarily core. CAT didn't play a significant role in our multi-brand banners, as many of our distribution agreements today, too. So we just felt that on that basis, it was one that was a little peripheral to what we were doing.

Our next question comes from Tom Camilleri.

Team, congrats on the solid result in a pretty tricky backdrop. I think I just want to ask a question more around the apparel strategy just more of a medium-term question. So just on the, I guess, the great success you're seeing in Stylerunner and Nude Lucy, but Glue was pretty much harder than you initially thought. Is the plan still who gets bigger in apparel medium term? And if so, does that imply you need to add another major banner to your portfolio inorganically. Can you just walk us through how that sort of discussions going internally?

Thanks, Tom. Yes, indeed, we're quite committed to apparel overall. The learnings we've had, particularly from Nude Lucy and Stylerunner and the amazing team we put together, in a fairly short time is really starting to show through. We've now got better factories that we are dealing with, who are delivering better products with better margins, better efficiency. And as I called out, we will open another 5, at least 5 more Nude Lucy stores by December. In terms of Stylerunner, we've got a brand in there called Ode, O-D-E. It's showing great signs. Again, very early days, but great signs. So another vertical brand that's in there, together with our Stylerunner brand, which is 100% vertical as well. All of these learnings are coming to one team or a few teams, but reporting to one divisional CEO, and we're just getting better at it. And I think that we will further excel this year. In terms of another banner, absolutely, we would love to find one that suits what we do. That is in our wheelhouse, so to speak or indeed, we have opportunities with the brands that we have within our banners to potentially roll something out there. But right now, we are totally focused on what we've got, mainly Nude Lucy, Ode and the Stylerunner brands, which are all vertical. And you'll start to see in our stores, an extension of all of those brands into particularly the gift area and the add-on sales, as we call it, which will all launch in September of this year, September, October.

That's great, Daniel. And then just on the Nike, I guess, sorry, more on the footwear category. So Nike and Adidas, it seems like they've been pretty soft globally, like what's your sort of exposure to those 2 brands today? And then like how much would that be, I guess, a tailwind to earnings if they started to get the products right for you?

Adidas has actually been quite strong, particularly in Hype and Stylerunner, very strong. Nike has been a little bit soft, as they've called it out internationally. Thankfully, we're not exposed much at all with Nike and never have been. That has been quite a deliberate drive purely because margin issues and so on. So I don't think we're going to get too much of an upside either way with Nike. Adidas is continuing to strengthen. The brands that are doing exceptionally well for us is HOKA, which we distribute. We're seeing great tailwind there and great support from wholesale. It's been very strong. The On brand, you may know the On brand. We are the biggest seller of on in Australia and New Zealand at the moment -- while it's definitely Australia. And I think that will strengthen, many of these are growing also within our Platypus banner, which is great news. And the emerging brand that we're seeing is Puma, where we have a great relationship. So on the back of those 3 brands and indeed some of the other items that we distribute, we're confident that forward pipeline of product is the most exciting I've seen in years. So it's now up to the customer to vote, obviously, and buy it, but that's the feel.

Our next question comes from Shaun Cousins.

Maybe my first question is just on wholesale, just down 16.9% for the full year, and that's an improvement on that 25% decline you had in the first half. Can you just talk a bit about how you were able to expand your wholesale margins on a pre-AASB basis, which you now disclose and thank you for that. Could you just talk a bit about how you've been able to expand margins, how you've been able to take cost out because we're probably more concerned that wholesale is a little bit more of a fixed cost business, but you've been able to do a very good job in expanding margins even though sales have been falling there, please?

Yes. Thanks, Shaun. Let me talk to that. So there's a -- because it's the first time that we're sort of now breaking those out, and we will continue to -- there is some year-on-year reallocation in the base. So we're continually looking at allocation of costs. So some of that is reflected in the wholesale margin. However, what we have been able to do is recognize with some of the wholesale brands, where they have been challenging, and we've called out that Vans has been challenging. We have been able to rationalize the particular, the rep force that we have selling those brands, centralize that more and rationalize some of the accounts. So there has been some cost rationalization there. Distribution is another area, where we've been very focused on working with our distribution partner reduce distribution costs. So there's a couple of things going in there. I think next year, though, we will get you -- we will give you a better read because there is some year-on-year reallocation from the way we allocated last year to the way that we allocated costs between wholesale and retail this year.

Great. And maybe just on the Glue. I think your comment initially, maybe a few -- a month or so ago, it was around a $14.2 million impact, and then you said now at $17.3 million. Can you just confirm the difference appears just to be the inventory sort of number there? And more broadly, on Glue, maybe was it EBIT positive or EBIT loss making? Among those 17 stores that we can think about the outlook? And do you intend to exit all 17 stores? Or will you look to put some of your other brands into some of those locations? I'm just curious around the broader decline in store numbers or do you actually continue to trade under a broader Accent Group in some of those 17 stores, please?

Yes. No problem. So the bridge of the $14.2 million to the $17 million is in actually in half 1, there was a small amount that we noted taken against Glue and transition. So that was about $3.2 million-ish. And then you add that of $3.1 million, and then you add that to the amount that we took in the second half for a full year impact of $17 million, if that makes sense. And within the $17 million, the $2.6 million sits in there. So hopefully, that bridges that. And then in respect of Glue, it's our absolute intent to exit all of those 17 stores that were loss-making in aggregate, those 17 stores. However, some of those stores we have earmarked as I'm going to call transition stores to other Accent banners, that's only a handful, where it makes absolute sense in terms of the locations of those sites -- and the locations of the sites and the size of those stores, sorry. So we'll do that. And so, it's our intent by the end of this financial year that all of those stores that have closed or transitioned, the majority just straight out closures with a small handful of transitions, where it makes sense. Those transitions, though, we will record, as new stores because there will be new store locations for the banners that they are transiting to, if that makes sense, and they'll be completely refurbished and refit, has the new banner with very, very limited reuse of the current Glue store.

I'm sorry, the EBIT impact of those 17 stores, they were loss-making, could you sort of quantity it?

Yes. Look I haven't -- yes -- no, I haven't quantified that and won't. I mean, you can assume they're making a loss. The banner overall made a loss. So the ones that we're closing might be a loss. But I'll give everyone more color on that when we've closed them and because those losses don't inherently automatically will go away this year because we're still trading some of those stores through this period, so.

And my final question is just around D&A. It was $98.2 million, and this is on a including -- including lease basis. The market for '25 is currently at $181 million for D&A. Could you just talk a little bit about how we should think about D&A for fiscal '25? Should we double the second half conscious that the store closures that you've announced, but then you've also got your consistent significant store opening plan. I'm just curious around how we get the right estimate number there for D&A for fiscal '25, please?

So a couple of things to think about. Just have to reverse out the impairment, which is sitting in the D&A. So I think if you took the second half, there's...

[Technical Difficulty].

Hello.

Hi, team, we've got you back now.

Great. Thank you.

We were with Shaun Cousins. Shaun, did you want to continue with your questions?

Yes, sorry. Just around the D&A, sorry, Matt, and I got your point around the impairment sitting in there. Maybe just more generally, and which obviously sort of takes 14 of your D&A sort of there as well. But just maybe where you're thinking about D&A ending up just in that this has been an area, where I think for retailers had a bit of a tougher time, particularly on a post lease basis, sort of forecasting sort of that as well.

Yes. Can everyone hear me? Can you hear me now, Shaun? Is that good.

Yes. I can hear you now, Matt, fine. All good.

Look, Shaun, I don't know where I got cut off. The thing that need to -- that I think everyone needs to think about is the number of new stores that we've added and the annualization of those new stores into next year and then an assumption around the 50 new stores. In terms of the PPE depreciation, that's a little easier because as the -- over the last few years, our property, plant and equipment depreciation has been increasing, as we've continued to invest in new stores. And if you have a look through our annual report, you get a sense now that, that depreciation is caught up with CapEx. So that component of it is unlikely to continue to increase. So the real trick now is to make assumptions around where the new stores are. So hopefully, that helps.

Our next question comes from Sam Haddad.

Can you hear me?

Yes, we can. Thanks, Sam.

I just wanted to talk about lease renewals on a CPI -- based on CPI plus terms. Can you just sort of give more color as to how those negotiate -- how far progressed you are on those leases, like 6 months ago, you called out there's quite a few to get through over the next 12 months to 18 months. So just wanted to see how that's going. Within that context, your percentage of leases that are currently in holdover.

Well, I might start and then hand to Daniel. So the -- we've previously called out that the percentage of leases that are CPI exposed are about 24% of our overall leases. The holdover percentage is very small, as it always is. But let me hand to Daniel then to talk about the environment, how lease renewals are going?

Yes. Hi, Sam. The environment actually has been okay for us. And as I mentioned earlier, our relationships with landlords is pretty good. We're going into some of these centers with 7, 8 and even 10 banners in some cases. I have to say that we've had fair outcomes on the renewals, some great wins. And in a few cases, of course, in the AAs, some increases. But the overall is positive from where we were, and I think it will largely continue. I don't put [ a pin ] that to just great negotiation from our side, which it is from our property team. But indeed, we're showing up with banners like what you see in the back page here with Platypus. We're still very much investing in our stores, and that's leading to us being able to, I guess, get an outcome on renewals that's favorable.

Sam, I'll add to that. We called out that we had like 150 renewals coming up over the 12 months to 18 months from we went back 6 months ago. And you can see we've closed 19 stores, and we've also called out that we need to drive rent reductions on those -- overall on those renewals, otherwise, that the escalation you get kills you over time. So you can read into the fact that we've only closed 20 that those outcomes have been pretty solid.

And of the 150 million, how much have you sort of progressed through?

We've done about 100 of those.

At least 100, yes.

At least, 100.

Alright. So bulk of them. That's good. Okay. [indiscernible] favorable because some of those were under pressure in the cost base in '24, therefore in '25, do they provide a tailwind to cost of doing business, which was even -- and therefore releverage?

Look, that's the idea. The ongoing challenges that you continue to have year-on-year increases, and the inflation is still running at down 4-ish percent. So 4 plus 1 or plus 2 is 6%. So you've got to keep working really hard. So we -- I think what -- the way that I've said that we should think about our occupancy cost as a percent of sales is that if we can keep that flat as a percent of sales over time, that will be a good outcome, and that's what we're intending to do. Clearly, it ticked up in the first half last year. So it's our absolute objective to get that back down to more in line with its long-term tracking rate, and we'd hope to be able to do that with some positive comp sales coming through. So hopefully, that sort of helps with that.

And just on the positive comp sales, can you talk again around sensitivity as to where you start to see good releverage on the cost of doing business percent? Is it...

Yes. Look, a simple rule for that is if we weren't doing anything around the cost of doing business efficiency is the comp sales have to match the inflationary increases that you're comping in stores. So we know last year frontline labor went up 7%, and this year, it's gone up 4%, including the 50 bps super guarantee. So -- and then rents still going to escalate at 3% to 5%. So you have to be getting 3.5% to 4% before you put cost of doing business initiatives into breakeven. So in this environment, comp sales have to lift above 3.5% to 4% to get releverage. What we will be able to do is with the cost of doing business efficiency initiatives we're putting in, that will help us start to reestablish leverage in the first half.

Right. And just on that, those initiatives, which you said $6 million to $8 million, which you get the full benefit this year. On the second round -- in the second round of program, any numbers you can point to over the next 3 years, as to what you're targeting in terms of cost out?

No. Look, we're still working on those. And I'd like to wait until November to give everyone a bit more color on that. The main reason for talking about it today is that it has to be a feature of our strategy and our plan going forward, and we're not backing away from it. But we'll sort of talk about more specifics, as we get to the next 6 months.

And just my final question. Just on your U.S. Nude Lucy website, you tried [indiscernible] in the past to enter the U.S. through online, and you found it challenging on the fulfillment side in terms of cost. What's changed since? And therefore, what gives you confidence that this will be more of a profitable outcome? And also, can you talk about opportunities in the wholesale?

Well, as we called out, Sam, it's a test. There hasn't been a huge investment there. But early days, the signs are positive. We've had a really good start with particularly signing up customers to the database. We haven't got any product in the market yet, and we're already transacting at the moment. We've done a lot of work in finding a 3PL for returns and all the back-end functions that need to happen. But we've also had some success, which we [Technical Difficulty] in terms of wholesale. And we've really gone into what we call boutiques, really to start showcasing the brand. But it's just too early to make any assumptions on whether it's going to be right or not. There are others in the same store space from Australia that have gone over there, and it seems to be that you just got to stick at it and get some recognition and then you're off. So we're quite committed to it. But obviously, we have a couple of numbers in mind that we're using internally. It simply read as what does good look like. If we hit those numbers, we'll certainly be investing further.

Our next question comes from Mark Wade.

Continuation on Nude Lucy. I mean, what -- how has it been able to stand out in the Aussie market, which is crowded enough and that is the knob of the question?

Mark, well, that's a great question. That's what we look for every day is what's going to attract the all-important customer to us. And I just think -- I believe our product is great. It's bang on trend. We've got a terrific design team there. And I think if you were to ask some women who shop at -- who shop with us, it's almost like you pick up a great-looking garment and then you get a bit of a surprise, it's well priced. That allows us to potentially down the line review all that. But right now, we're sticking to delivering great product. I think our stores fit outs also say something about what our customers feel comfortable within. And indeed, we're elevating those. So apart from that, I think also our marketing has been absolutely bang on where that trend sits. If you look at most of our product, it's very flattering on almost all women. And I think that plays into it as well, and we're continuing to expand on that. We've got a great basics program, which is building very, very nicely. And now that we've got 36 stores and at least another 5 or 6 coming, that's going to give us further leverage to do even better there, not just from a margin point of view, but also product development point of view. I can also call out that in November, we're elevating a little bit further with a brand called [ Noils, N-O-I-L-S ]. It's 100% owned by us, and it will start to appear in the Nude Lucy stores, and that's going to hopefully allow us to get a higher average sale moving forward. So we're obviously very positive about Nude Lucy. And if you look at some of the new stores, you'll start to see the innovation that's coming through from the fit-out lens as well.

Good on you. I mean, I guess, it sounds like there could be a real success story and to be able to virtually start it from the ground 0 and not came in blue, but to grow [indiscernible] real driven, so well done. And turning to last one on the TAF buyback. You've picked up 2 more stores in the second half. There's 60 to go over the next 4 or so years. What's been the reaction from the franchisees? How have you managed that? Any potential negative pullout also initially concerned about? It seems like it's okay and just remind us of the time line for the remainder. So what's the -- how is that tax buyback going?

It's been pretty good, Mark. I mean, we're not pushing anywhere, but we're a franchisee wants to sell. We're having those combos. Obviously, as leases expire and stuff, we're still doing the absolute right thing with renewal of leases and so on and achieving some great outcomes and then refitting those stores as are the franchisees that were in midway through the cycle. The positive news for us is where we are picking up the stores and put in particularly our vertical products through it, we're seeing margin growth and indeed comp growth. So we're very, very excited. I'm not showing that we've just picked up Campbell well a month ago, is that in our numbers here, Matt.

Not. Sorry In the notes, no.

Okay. So it's an ongoing thing, Mark that we're working with. But the one I'm delighted about the most is a store that miles away from us in Cairns. We've bought that store, and it's been very positive indeed. So I think that there's some great upside for us coming down the line.

Our next question comes from of [indiscernible] Francis.

Just one quickly on CapEx. Could you just give us a sense of where you feel CapEx is going to lie, especially with the acquisitions? And just landlord contributions, again, seem to be at a similar rate as they were. Is that something that you continue to receive?

Yes. I might break that into 2 parts. So if I think about -- I'm going to call it the CapEx for new stores, refurbishments and just general maintenance CapEx, you could expect to see that roll forward at similar levels to where it's been. It will go up and down slightly depending on the number of new stores that get opened in a given year. So certainly, the landlord contributions we're getting to new stores are still strong, and that's allowing us to open a lot of new stores, which is terrific. In terms of the -- the CapEx for acquisition of The Athlete's Foot stores, that will occur over 5 years. It was small in respect of the year we just had. However, it will ramp up, in particular in '25, '26 and '27. I send some estimates of what people think -- ranges of what people think we might need to spend to acquire all of those. And yes, it has a component of that, that's reacquired rights from the franchisees and the component that will be working capital for inventory. But the overall investment range that people have sort of called out is somewhere between sort of $88 million to $100 million that we'll invest over the next 5 years across those components.

And then just on gross margin, you covered off the impairment aspect of it. Were there any other like a freight impact for the second half that reverses out in the first half? Or are you -- how well contracted are you? And does that become a headwind going to the -- into the Platypus.

None our freight costs are increasing in terms of international freight. And I previously said that, that's something we have to manage within the mix of currency and freight. So look, I'm not seeing it as a massive headwind in the first half, to be honest. Yes, we've got to continue to do a lot of work on margin, where the currency is sitting mid-60s. So -- and we've done a lot of that work already. So I think it's there or thereabouts.

And maybe just on Glue, if I may. The stores, we do have the transition element aspect that I understand, but the stores that you're retaining, can you give a sense today that on a 4 walls basis, are they in line or below group in terms of profitability?

I'd say they are in line in terms of profitability. Otherwise, we'd have to consider whether we close those as well. So in terms of making the decision about the stores that closed and the stores that remain open, we looked at the return on investment of those stores. So I think you could think of them as in line with the group profitability.

Our next question comes from Benjamin Jones, Benjamin.

Can you hear me, okay?

Yes. Thanks, Ben.

Great. A quick question on your wholesale accounts and wondering what you're seeing in terms of the conversations you're having with those wholesale accounts? And if there's anything in particular you want to call out in terms of the mix of maybe brand interest or account sizes that's driven that, that performance this year.

Yes. I think the way I talk about that is the customers wanted to get their hands on HOKA. We could be selling a lot more HOKA into the market right now to a lot more customers. However, we're being considered in our approach to that. Similarly with UGG, there's lots of customer interest and lots of customers wanting to buy UGG at the moment. So in the brands that we've had for some time, we've called out the sort of the challenge in Vans, and that's a global challenge that they've got. So that's impacting it. It's a little bit driven by the fashion and the style in there. It feels like some of our wholesale accounts are doing a little tougher than we are in our retail business as well. So we called out that there's a retail mix going on, as we roll out new stores. So they're the sorts of dimensions to think about there, Ben. The positive thing is that in the first 7 weeks, we've seen a sort of a shift back to positive growth in there and HOKA is going very strongly. UGG's going very strongly. Skechers is going very strongly. So it's good.

Yes. It sounds like fairly consistent themes there. I'm just thinking on your distributed brand portfolio, I note your comments around the exit of CAT. Can you just talk to how you're thinking about any further additions to that portfolio or any maybe potential exits that may be down the track.

In terms of potential exits, we will only exit something if we can't see it really adding value to particularly our banners and selling those items through our banners, but for obvious reasons, margin and exclusivities and all those sorts of things. In terms of new brands, I mean, we've got -- we're talking to a dozen at any onetime some in apparel and many in footwear. And I look at it, this is just what's the hot new brand? And can we do a deal for 5 to 10 years of that brand? And will it be hot for all of those years? And most importantly, will it sell through our banners. That's the theme. As Matt called out earlier, in terms of [ UGG ], it's just not a brand that would sell through Platypus or indeed Hype or Stylerunner any of those banners. So therefore, it was best to move on and put those efforts and that rep force onto another brand.

Our next question comes from Kade Madigan.

Can you hear me, okay?

Yes. All good. Thanks, Kade.

So I just wanted to ask a follow-up on the trading update, specifically on the like-for-like sales growth. So it seems the early trading into '25 sales growth momentum has slowed from 2H '24, in particular, what I would guess is the exit run rate of 2H '24 despite, as I think you may have put it on the uninspiring base. Is there anything there you'd call out in terms of trends, like generally speaking, for the consumer? And is that sort of like -- do you expect that sort of momentum to continue into FY '25? Or is there something else going on there?

So a couple of things to think about there, Kade. We called out that was a pretty aggressive promotional environment in May and June and certainly the comps we were cycling the base were lower than the comps that we started to cycle in the first 7 weeks. So I'm really not reading anything into the consumer rather than the consumer strengthened in April, May and June. And we feel as though what we've seen in the first 7 weeks is a continuation of that. And so that's been a 4-month sort of trend shift, which I don't usually call a trend shift until I see in a quarter then I think we're seeing that. So again, not predicting the future. We've got every confidence that, that strength can continue over the next 6 months to 12 months from what we're seeing right now today. Hopefully, that answers. I don't really see it as a weakening if that makes sense, very much a continuation of that improved trend.

Our next question comes from Wei-Weng Chen. We can move to Ed Woodgate.

Sorry. Sorry, I'm here. Yes. I didn't realize that to press mute. Sorry, my bad. My question was very similar to the last one, just in terms of Accent haven't been alone in seeing improving trends. So I guess, what's your sense of what's driving this next wave of kind of consumer resilience? And then within the strengthening consumer, are there any sort of demographic trends that you'd maybe point to?

Look, the way I characterize it is -- and we've called out a few times over the last sort of 6 months that at the top end, it feels like it's going really well and nothing's really changed there. So we call out the strength of HOKA, the strength of performance running in The Athlete's Foot, and that's all at price points over $200, and that keeps going very well. Skechers has just gone from strength to strength and continues to be strong as it is globally. Their product pipelines are outstanding. And the sort of the more challenging area has been in our sort of call it youth consumer space. Sorry, I should add that Hype has been going very well and continues to at the higher price point end. So I think what we've seen is that the -- that youth consumer is coming out a little stronger. And some of that's the product offer that we're putting in front of them, which we've evolved and some of it, it feels like we're perhaps through the worst of the sort of spend that they were able to do. So it feels like that may be strengthened a little bit with tax cuts and other things. But -- so hopefully, that gives you some color that top end has remained very strong. Skechers remains strong and that the areas that are a bit more challenging have got a little better.

And then just a quick one on Trybe. Are you still going to like, sell into Trybe or distribute into Trybe?

Yes. Yes, we are. Indeed, every brand that Trybe will want to continue that we distribute will be supplied in there. I can also call out that we would also -- the -- we will also be selling kids footwear within all of our banners. So there's nothing to stop us doing that at the same time. But Trybe, in particular, Skechers is very strong in that banner.

Our next question comes from Ed Woodgate.

Just wanted to get a little bit more color on GPs. Does the promotional environment continued into July? And in the second half, can you call out any specific number, dollar number what FX -- how FX impacted the second half GPs, please?

I think it's hard to call out a specific number. What we've talked about is that through that period, we plan for a sort of [ 64, 65 ] FX rate. And for the full year, we achieved about [ 67 ]. So it was slightly better than what we planned for, but still behind last year in terms of the aggregate rate achieved. So what we have said is that every [ $0.01 ] of movement in exchange rate to the positive across the course of 12 months, all else being equal is worth about $5 million of EBIT. So hopefully that gives you a little bit of a sense. But it's difficult to talk about specifics because it's freight in there and all sorts of other things that we have to do.

Okay. And then just a quick follow-up on -- sorry, just a quick question on marketing. So that looks like it's been very well managed, down 100 bps percentage of sales in the second half year and year. It sounds like that's been partly due to the ongoing strength of the loyalty program, but is there any other factors or anything you'd like to call out there? And do you think those savings are sustainable?

Yes, I do. So we've been doing a lot of work, as we've talked about with our spend on performance marketing and also looking at efficiencies in other areas of marketing. For example, we spend a lot of money on, I'm going to call it, signage for stores. And as we've been refurbishing stores, we've also been retrofitting screens into those stores. So we're getting efficiency in the spend that we have to make on call it, paper and plastic signage for those stores, which is also hopefully good for the environment, albeit there's electricity we use in the signs. So that theme will continue. In The Athlete's Foot, there's a little bit of reclassification of marketing and cost because of the transition of the franchises, but that's a smaller component of it.

Yes, I think a very good result considering the environment. So I'll let you go.

We've got one final question from Peter Richards.

Just a question with the Trybe announcement you just made, Is there going to be any impairments coming through from that? Or is it fairly minor?

Yes. No impairment whatsoever, Peter. So we were able to sell that for book value. So no financial impact at all in respect of that divestment.

And one last question from Sam Haddad.

Just to clarify on the OpEx $0.01 outlook. So $0.67 is now the neutral baseline for FY '24, and therefore, a tailwind would only be if the FX is above $0.67 in '25. Is that the right way to read that?

I think that's a good way to think about it, Sam. So we talked about for this year, we planned again for $0.65. If we're going to achieve around $0.67, then we'll end up booking about the same amount of profit in relation to currencies we did last year. So I think that's a reasonable way to think about it.

So the current spot rate is neutral rather than a tailwind, I thought the $0.64 was your original base, but now we're looking at $0.67, as a starting point.

Yes. You've got to think about what we planned for and then what actually eventuates because if we plan for $0.64, and we get $0.67, as we did last year, we bank an extra $0.03 into the profit margin. So those sorts of characteristics have to maintain, if that makes sense.

That brings our Q&A session to a close. Daniel, I will hand back to you for closing remarks.

Well, I just wanted to sort of thank you to you all, and we're out there doing what we do best, and we'll talk again in November. Thank you very much for your time.

Thanks, guys.