Accent Group Limited (AX1) Earnings Call Transcript & Summary

Thank you everyone, for joining the Accent Group FY '25 Full Year Investor Briefing. We will begin with a presentation by Daniel Agostinelli, Group CEO; and Matthew Durbin, Group CFO, followed by a Q&A session. [Operator Instructions] Now Daniel, over to you. Thank you.

Thank you, Kierra. Good morning, everyone, and thank you for taking the time to attend the call today. We will now take you through the results for the full year ended 29th of June 2025 and a trading update for the first 7 weeks of the H1 FY '26 year. There will be an opportunity to ask some questions at the end. Accent again delivered sales growth and profitability in the FY '25 year. I'm pleased with Accent team's ongoing focus on our customers, product innovation and high standards of retail execution, online and in stores. We continue to make progress against our strategic objectives. 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. The key highlights include, the opening of 54 new stores, bringing the total number of stores to 903 inclusive of our online websites. Vertical owned brands and product sales have grown to more than $130 million, a mix of around 9% of our total sales. New distribution agreement signed with Lacoste and Dickies with Merrell and Timberland agreements also renewed for further terms. Our long-term Skechers distribution agreement was extended to a 10-year term out to 2035. Skechers is our most important distribution agreement, where we currently have more than 200 stores in a large online and wholesale business. In April, the company signed a long-term strategic partnership with the Frasers Group to bring Sports Direct stores to the ANZ region. I'm pleased to report that the Sports Direct rollout is on track with our first store due to open in Melbourne in November. I will now hand you over to Matthew Durbin to talk through the details of the results.

Thanks, Daniel. Turning on to Page 5. Total sales for the year, including tough franchisees were $1.6 billion. EBIT of $110 million was in line with prior year and at the upper end of the guidance of $108 million to $111 million provided in the June trading update. Inventory levels were in line with plan with aged levels clean. The year-on-year increase in inventory reflects the timing of stock in transit, converting TAF franchise stores and inventory acquired in conjunction with the Frasers transaction, along with opening inventory for Lacoste and Dickies. In terms of the summary of financial performance on Slide 6. Gross margin was down 85 basis points to 54.9%, reflecting the more promotional consumer environment and in half to the impact of lower sales and disciplined approach taken to managing inventory, cost of doing business of 46.6%, including less depreciation and interest was an increase on prior year arising from low LFL sales in half 2 and continuing inflationary pressure in store team wages and annualizing rent reviews. Net profit after tax was $57.7 million. Coming on to retail and wholesale on Slide 8. Owned retail sales grew by 2.5% to $1.3 billion. During the year, 34 new stores were opened. New store performance remained strong with sales and return metrics in line with expectations. Of the 57 stores clients or divested, 39 of these related to divestments and discontinued brands with a further 18 stores closed where sustainable renewal terms could not be agreed. Wholesale sales of $155 million reflected the challenging macro and consumer conditions in the broader lifestyle footwear market. Sales of vertical owned brands and products grew nearly $130 million, continuing to improve underlying gross margins. The key contributors to the growth were Nude Lucy, NiLS, Stylerunner and ODE. Turning to the growth plan on Pages 9 and 10. The company continues to have a strong pipeline of growth opportunities. The Sports Direct rollout is on track with the first Australian Sports Direct store plant to open in Melbourne in November, at least 4 stores, including online or plan in FY '26, at least 50 Sports Direct stores are planned over the next 6 years. The Lacoste and Dickies distribution agreements both commenced on the 1st of July, with sales starting to grow in FY '26. There are further store line opportunities across the portfolio at least 30 stores, excluding the Sports Direct plan to open in FY '26, including more new stores in Skechers, Nude Lucy, Hoka, Stylerunner and others. The all-important Skechers distribution agreement has been extended to a 10-year term out until 2035, reinforcing the position that Accent holds as the distribution partner of choice for global brands in the ANZ region. The Athlete's Foot franchise reacquisition program remains on track. On an annualized basis, the 15 TAF stores reacquired in FY '25 generated around $43 million of sales. All are strongly profitable. A further there acquisitions are planned in FY '26. Turning to dividends and the trading update. The company has announced a fully franked dividend of $0.015 per share, bringing total dividends for the year to $0.07 per share. The full year dividends represent a payout ratio of around 70% of earnings per share for the year. Total owned sales for the first 7 weeks of FY '26 are up 2% to last year. Like-for-like retail sales for the first 7 weeks are up 0.8%, and for the year, the company is targeting low single-digit EBIT growth in FY '26. This is inclusive of the start-up costs expected to be associated with Sports Direct. The outlook for half 1 FY '26 EBIT is for a similar level of EBIT to half 1 FY '25 with growth in half 2 FY '26. This target is based on achieving low single-digit LFL sales growth, growth from new and annualizing stores, incremental profit from the athletes franchise acquisition program, new distributed brands and continued growth in Hoka and Nude Lucy. Gross margin percentage and cost of doing business percentage are planned to be broadly flat to FY '25. I and the projection includes the impact of start-up costs for Sports Direct. Now it's back to Daniel to wrap up.

Thanks, Matt. We are pleased with trading the opening weeks of FY '26. In particular, the return to positive like-for-like retail sales growth. Wholesale sales have traded in line with prior year with strong forward orders we're very pleased with what's happening in wholesale. The Accent team is focused on executing our plan for FY '26, including innovative new product, new stores, launching Sports Direct growth from our existing and new distributed brands and a continued driving cost efficiency, underlying gross margin improvement. The Sports Direct rollout, in particular is a major growth opportunity for our company over the coming years. Finally, I would also like to take this opportunity to personally acknowledge and thank our Chairman, David Gordon, for his support, leadership and stewardship of the company over the past 19 years David has announced his intention to retire at the company's AGM in November, and we wish him all the very best for the future. That concludes our presentation today, and we would be happy to take any questions. Thank you.

[Operator Instructions] Our first question comes from Garth.

Can you guys hear me?

We can.

Congratulations on the results. Just on the trading update, could you just sort of break down the difference in the lifestyle and the performance of lifestyle and the performance of your performance banners, the performance had previously been quite strong, and I just wanted to assess whether that was still a lifestyle that was dragging that down?

Yes. Garth, thematically, that trend continues. So the banners like the athletes, for hacker and Merrell. This is a trend we've talked about now for at least 12 months. continue to perform strongly. And the more lifestyle-oriented banners are definitely softer in terms of the growth. albeit, as we called out. What we're starting to see is a strong forward pipeline of wholesale orders, which gives us confidence as a forward read that some strength might be returning in that part of the business.

Okay. Great. And then just on that, I think the inventory growth was well above the revenue growth. How confident are you that you're not going to have to discount with that stock that you've got? I mean I know you mentioned it was clean, but is that just related to the new store openings? Or is that -- is there something that we need to just be conscious of there?

No. There's no issues in terms of the composition of our inventory of the levels. And that's why we specifically called out the sort of year-on-year, I'm going to say one-off impacts, which is new inventory that's coming in for the athletes franchise stores that have converted. We've got opening inventory levels from Lacoste and Dickies, which will translate into sales. And we haven't made much of a deal about it. We acquired quite a bit of inventory, which you can see in our combinations not there as part of the Frasers deal, part of which will be inventory for our sale and part for Sports Direct.

All right. Terrific. And then maybe one more, if I can. Just the theft has been an issue with one of your peers that was called out yesterday. Are you seeing similar levels? And is that -- have you sort of had to factor in any measures to protect staff and stock?

There's 2 aspects to that, Garth. I might just talk to the financials around shrink and then Daniel can talk to the team. But we're not -- it's a bit easier for us, I think, than others. We're very diligent on it. And when you've got one shoe out on the wall, we're a little bit more protected in the way our business model works. So we're not seeing any dramatic increases in shrinkage, to be honest, in our business.

And on the people side, Garth, absolutely. We're spending a lot of time making sure that our team is safe. We're doing all we can to advise the shopping centers in the main landlords that more has to be done in this space. And hopefully, it all goes away for everyone. But certainly been a little bit of a spike, but we've not had incidents that we've heard that others have had to date. And hopefully, we won't.

Sure. But I guess that just means that you wouldn't be able to reduce the number of staff in store just from a safety aspect. So that probably gives you a little bit less flex on wage costs looking forward?

Yes, I think so. Well, we never have -- we very rarely have any store with just a single person in store at any rate. But yes, I mean, so far it has not affected our rostering methodology to this point.

Our next question comes from Chami.

Congratulations on some of the announcements today. Good to see. Maybe starting off with the outlook, just to add on to the previous question as well. Considering the a bit more than usual skew in FY '25, could you talk to sort of when you earlier said first half to be a bit consistent? And then second half growth? Could you elaborate here for EBIT?

Yes. Look, there's not much more to say, Chami, I think that -- if we look at, I'm going to say, a normal split of first half, second half profit and we have a look at what happened in the second half last year. And I'm going to say, project through based on the comp sales that we're expecting in the first half and margin and cost of doing business. that growth in the first half on the first half last year, which was actually pretty solid, particularly in hindsight, we think will be challenging. So -- so it's trying to set expectations. First half this year, we're expecting to be flat, and that's what we're targeting and growth in the second half last year -- sorry, the second half of this year against what was, frankly, a disappointing second half.

Also, Chami, I can add that, as I said, we're quite pleased with what we're seeing with forward orders on wholesale. It's been quite positive. And hopefully, that will hold up, obviously, led which is and Hoka being [indiscernible] brands. So that's really a good sign for us.

Great. And then just on that lifestyle. And obviously, macro would be a bigger beneficiary there than the sports brand. How do you feel about the outlook through the next few months or even a bit longer term?

Look, I think it all comes down to what's the economy doing and so on, but there's good momentum. Certainly, we've seen good momentum. Our -- one of our strongest banners at the moment, Chami, is Platypus in the past 7 weeks. We're very pleased with that. Our height business continues to hold, which is great. where we are facing some challenges with fans, which we've called out over the last couple of years. It's been very soft. But thankfully, the new products that have come in like Hoka and so on has been really, really, really positive.

Perfect. And then secondly from me, looking at the new store FY '26 out of Sports Direct at least 30. What are you prioritizing here outside that key banner outside the key Sports Direct punnets?

I think there's still great growth in larger Skechers stores, where we've tried a couple, they're being solid. Given what's going on with anything sport, and we're very happy with what's going on in Athlete's Foot. We will look to convert some of our current bigger stores into Athlete's Foot and indeed look for new ones based on what we're seeing. So I guess that's where the growth will be. But by the time you get 4 or 5 Stylerunners, 4 or 5 new leases there's 10 stores right there. I think it's going to get down to, Chami, we're driving pretty hard negotiations with our landlords that if we can't get the right metrics, we simply won't do it. We're in no rush to just be at on a mad run to open more stores, they have to hit the metrics. But there's great opportunity. On top of that, we've opened a couple of Hoka stores in the last couple of weeks, one we opened yesterday, and we're seeing pretty strong results out of those stores. So there's -- there's a pipeline of stuff that we can do there. Also, I can add that we're in the market at the moment, looking for the cost stores. So by the time you add all of those up, we should easily achieve what our aspirations are in new store openings.

Our next question comes from Sam.

Just on the guidance, just to be firm. So it sounds like in the region of $118 million to $120 million of EBIT on the $110 million is what you're thinking is high single digit. Just given there was a one-off on the $110 million, so we're on the same page?

Yes. That's a fair assumption, Sam, given the projection there for low -- sorry, high single-digit growth into FY '26. Mathematically, $118 million is high single-digit growth.

Okay. And can you sort of give further color on the start cost from what that includes marketing team and other components? And any numbers around that just to help us understand what that is within that guidance.

Yes, no problem. Look, I won't provide any numbers. However, the types of costs that are occurring incurred ahead of the curve are clearly standing up a team to get the stores launched. There's buying teams, there's planning that needs to be done. The store operations, back-end warehouse operations. So there's quite a bit of investment that goes into that, some of the CapEx, some of it OpEx. And then marketing is also a big cost when you're trying to establish a brand. So in terms of the -- I'm going to say, the ahead of the curve components, those are the 2 you're dealing with. And yes, we aiming to open 30 stores over the next sort of 3 years, you can imagine that marketing is insignificant in terms of what we're thinking about over that period of time.

And when will that marketing start before the first launch? Or will you wait until you get a few stores under your belt?

Yes. Concurrently, it will start with the first launch, but the investment around that first launch will be localized. Yes. very focused on that store opening and then digital. We expect the online site will open at around the same time, if not a bit earlier than the store. And yes, performance marketing other digital marketing. And then as the network starts to grow, we'd expect that, that marketing will be more broadized.

It's encouraging that you've locked in look,your called out 4 stores and at least 4 stores. So it sounds like securing site surprise, you've got a good line of sight there.

Yes, Sam. I've been quite surprised. It's amazing when there's no space, but then you get a hot business coming to the market, they tend to find the space. Yes, we've got many we negotiating on at the moment, but we're really -- we're being very picky to be honest, of where we'd like to open. And of course, we need the metrics to match. So at the end of the day, the consumer is going to bone. But I think what we've put together and what we're seeing coming from the Frasers Group internationally, we're excited about getting this one open.

Final question for me. Just on the encouragement to see lifestyle improved. Can you talk about whether that's product-driven, macro-driven execution-driven or combination?

I think it's a combination, Sam. There's definitely more momentum. We felt it coming for the past 6, 7 weeks. Our comps have improved. And there has been a little bit more of product innovation, and we're fairly confident of what we've seen in the forward pipeline from all of our brands that there's good innovation coming, albeit a lot of it is spot sport-inspired. If -- and that sort of what the market is wanting at the moment, and that's starting to bleed into the lifestyle space, which is good news. Part of the great results coming out of high is purely chasing that trend and the likes of Platypus and so on are very close behind that now, growing in that area fast.

Our next question comes from Ed.

Can you hear me okay?

Yes.

It was good to see the EBIT coming at the top end of the guidance range. So I was just curious, given that you provided that in June, did anything change through June? Was there any improvement in the macro environment? And then have you seen any improvement in the gross margin environment? Or is it too early to say?

So a couple of comments around June. You can deduct fairly easily looking at our trading update in June and then the final comp number for the second half that the last 3 weeks of June were very challenging. And that's like a little bit of a trend of what we're seeing in that lifestyle period is when we go and sell. We're not getting the uplift that we have seen in the past year or 2. So that certainly happened. Now we've seen that trend and factor that in. It's part of the reason I'm going to say that, that guidance range was a surprise to everyone at the time there was a projection in that, that ended up coming true. So we didn't say anything we didn't expect. I'm going to say in that last 3 weeks of June, which is why we were able to hit the top end of guidance. I'm very reluctant to call out margin at the moment. We've said that we expect it to be around the same level as last year. And as we sit here right now, I'm very confident of that projection that we're only 7 weeks in.

Okay. No, that's helpful. And then you've also talked to like-for-like sales, retaining growth in FY '26. Just talk through what you think drives that as a more full price sales, more foot traffic, like which way should we be thinking there? I know you're kind of careful to say pull our margin now. But what's implied in that?

I think there's a couple of things going on in the macro. So I think certainly, interest rates are going to start to help us in the back end of last year, in particular, we were cycling some sort of pretty strong comps in sketches from the prior year. That's now out of the base. And so that's positive. We're starting to say, as Daniel said, some positive momentum in plates. So there's a few things pointing to that lifestyle side of the business starting to recover and certainly the forward wholesale pipeline being strong, we feel gives us a forward read. And it's as strong as we've seen it for 18 months. So that's probably -- that's -- we say that is reflective of our others are sort of thinking about the next 6 to 9 months as well.

Ed, the other thing that we've been experiencing, which is great news for us and the industry is the average transaction has gone up in many of our banners, particularly in the hype and Stylerunner business. So that's really positive for us. A lot of it -- a lot of the reason for that is because some of the shoes and the styles that are coming in have got some performance within them. And that obviously causes an extra cost and price. But there hasn't been the resistance that I thought we may get, particularly in the last, call it, couple of months. So that hopefully would lead to easier and easier mentor to chase the comps.

And then maybe just one last one for me, and apologies if you've addressed this summer in the tiers already but just -- the comments, but the FX rate that you came to hedge for the '26 any collative there?