Accent Group Limited (AX1) Earnings Call Transcript & Summary

Thank you, everyone, for joining the Accent Group First Half 2026 Investor Call. We will begin with a presentation by Daniel Agostinelli, Group CEO; and Matthew Durbin, Finance Director, 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. Joining me on the call is our Finance Director, Matthew Durbin. We will now take you through the results for the half year ended 28th of December 2025 and a trading update for the first 8 weeks of H2 FY '26. There will be an opportunity to ask questions at the end. In a promotional trading environment, growth was achieved across many of our businesses. The Athlete's Foot, HOKA, Merrell and Nude Lucy all experienced strong growth and pleasingly, Platypus also grew. Wholesale sales were ahead of prior year for the first half and forward orders for the second half are also ahead of prior year. Cost of doing business and inventory control continue to be well managed. If I can now refer you to the operational highlights on Page 3 of our investor presentation, which was released to the ASX this morning. Some key highlights include: Total sales reached $865 million, representing growth of 2.4% on H1 FY '25. During the period, we opened 27 stores, taking the network to 898 stores, including online. Growth was delivered across both retail and wholesale channels, with vertical sales increasing to $67 million, now representing approximately 8% of sales. Sports Direct opened online, and we also opened our first store at Fountain Gate with pleasing early results. And we also commenced the distribution of the Lacoste brand, both in wholesale and our first store also opened in the Melbourne CBD. A new Lacoste website will launch next month with several more stores to open in H2. I will now hand you over to Matthew Durbin to talk about the detail of the results.

Thanks, Daniel. Turning to Page 4. Total sales for the year were $865 million. EBIT of $56.5 million was in line with the EBIT guidance range of $55 million to $60 million provided in the trading update on 21 November 2025. Excluding OzSale and Glue businesses, EBIT from continuing business was $72.7 million. 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, the launch of both Sports Direct and Lacoste businesses. We also estimate that the year-on-year impact of currency in the GP was around $6.5 million or 80 basis points. Now turning to Page 5, summary of financial performance. Continuing business gross margin percentage was 54.3%, impacted by the promotional environment, a disciplined approach to inventory management and the year-on-year decline in the AUD-USD exchange rate. Cost of doing business was well managed at 44.3%. Efficiencies were gained across store lease renewal negotiations, store and support team costs and marketing spend, continuing to work hard to offset continued inflationary cost pressures in rent and store team wage rates. Net profit after tax for the half was $28.1 million. Coming on to retail sales and store network. Owned retail sales grew by 5.2% to $719 million, ahead of the overall sales growth because of the transition of those TAF franchises. LFL retail sales were up 0.9% with Q1 at minus 1.7% and a stronger second quarter growing at 2.8%. During half 1 FY '26, the group opened 26 new stores and closed 21 stores, including 12 loss-making Glue and Vans stores. Total store numbers at the half were 898. Vertical owned brands and wholesale sales on Page 8. Sales of vertical owned brands and products grew 1.5% to $67 million, supporting improvement in underlying gross margin. Growth was primarily driven by Nude Lucy, NiLS, Stylerunner and ODE. Wholesale sales increased by more than 9% to $91 million. The growth was driven by HOKA, UGG and the recent addition of Lacoste, where we commenced the wholesale of that in the second quarter of the year. Coming on to our growth plan on Slides 9 and 10. The first Sports Direct store launched at Fountain Gate in Victoria, and it opened in November alongside the launch of the online store. Trading to date has been pleasing, providing confidence in the growth plan. Two more stores are planned to open in half 2 with a third store signed and scheduled for opening in half 1 FY '27. The company is in active negotiations on a further 9 locations, supporting the long-term target of at least 50 stores over the next 6 years. HOKA continues to grow, in particular, digital with the launch of the new website in October. A new HOKA store was opened in half 1 and a further 3 stores are planned for half 2, including a flagship store in Sydney CBD. Further stores are planned beyond FY '26 for this fast-growing brand. We successfully launched Lacoste, supported by marketing activations in conjunction with the Australian Open and the opening of a flagship store in Melbourne in December. A further 5 stores, including online are planned for the remainder of FY '26 with additional stores in future years. The Athlete's Foot franchise reacquisition program is ahead of plan with 9 stores acquired in half 1 and a further 8 stores planned in half 2. Trading and profit from the stores is on track with plan. There's a continued rollout of new stores across the brands with at least 40 stores planned to open in FY '26. In addition to the 16 store closures, there's a further 7 loss-making stores forecast to close in half 2 for a total of 23 stores to close in half 2. Wholesale continues to grow, supported by HOKA and Lacoste, along with a growing forward pipeline of committed orders for half 2. Skechers, Vans and UGG forward orders are ahead of prior year. Regarding cost efficiencies, disciplined cost management remains a key focus for the group with continued cost savings targeted in occupancy, store and support team costs and other cost areas. The company announced today the decision to close the Glue Store business, which, along with the closure of OzSale, which wrapped up in January, improves future profitability and enables more focus and resources on the growth initiatives. Coming on to Page 13, dividend trading update. The company has announced a fully franked interim dividend of $0.0325 per share. The dividend represents a payout ratio of around 70% of earnings per share for the half. The company also successfully completed a debt refinancing, increasing the total facility by $102 million to $372 million on improved terms, including a lower margin and tenure extended to December 2028. Turning to the trading update and outlook. Total owned sales for the first 8 weeks of half 2 are up 7.1% to last year, supported by wholesale new stores and new brands. LFL retail sales for the first 8 weeks of half 2 '26 were flat with the prior year and continuing business margin percentage in January was also in line with the prior year. The company confirms guidance for half 2 '26 in a range of $30 million to $35 million, noting that this guidance assumes flat LFL sales and gross margin percentage flat to prior year. We plan to run an Investor Strategy Day later in the year in Q4, at which point, we will give an update on strategy, growth priorities and medium-term financial framework. We'll make further details available closer to the time. I'll now hand back to Daniel to wrap up.

Thanks, Matt. We are pleased with trade in the opening weeks of H2 for FY '26. Sales growth was up 7.1%, supported by another record back-to-school sale period. The recent strengthening of the AU dollar against the U.S. exchange rate is expected to provide gross margin support for the back end of FY '26 and improvement into FY '27. The company has a strong pipeline of growth opportunities, and I'm pleased with the early trade from Sports Direct, the launch of Lacoste and the forward pipeline of wholesale orders. Recent refinancing supports the ongoing investment in our growth. Finally, I'm proud of the team who remain focused on driving profitable sales, tightly managing costs and executing our key growth initiatives. That concludes our presentation today, and we would be happy to take you through any questions. Thank you.

[Operator Instructions] Our first question comes from Garth Francis.

Could we just touch a little bit more on the contributing factors to the sales growth? So you mentioned it was the conversion of the TAF stores that helped lift sales. Was there anything else on that? And is that -- should we expect a similar sort of uplift for the second half and for '27 as those stores convert?

Yes. Thanks, Garth. In terms of the other factors in that wholesale growth is playing into that and new store growth as well. So there's some significant-sized new stores that we've opened. And whilst we've probably closed more stores than people were expecting, it wouldn't have been many more. And the new stores we're opening, you would expect achieving a higher overall growth in the stores that we're closing. In terms of the second half, yes, a similar run rate to that in terms of total growth as we continue to convert those franchise stores. I won't comment yet on FY '27. We need to do the work on that year, which we're doing over the coming months. No doubt, though, that owned retail sales should continue to grow as those TAF franchisees convert. So yes.

And then just on the gross margin, can you just give a little bit more color around just where the promotional activity was? It looks like you've had to become more promotional in TAF recently and maybe pulled back a little bit in Platypus, which has been a change in what you've had to do. Can you just give some detail as to where you're seeing the weakness?

So the lifestyle part of the business continued to be highly promotional through, I'm going to say, the whole of last half and in particular, from November right through till -- I'm even going to say till the end of January, to be honest. In terms of the Athlete's Foot, there was additional, I'm going to say, market promotional activity around that November period that we had to respond to. However, in respect of January and back-to-school period where TAF is on full price, there was no more promotional activity in TAF. So hopefully, that gives you a little bit of color. Platypus, yes, a little bit less. However, we've had to stay in the market and compete. That customer is still promotionally driven. The nice thing is that, that business has returned to growth, both in sales and in profitability.

Terrific. And if I can sneak one more in, just on the currency. Previously, you've mentioned a 1% currency move is around $5 million to EBIT on a 12-month basis. Just -- does that hold? And how far are you hedged out? And how much do you normally pass through in terms of lower pricing, given you will get a tailwind in '27?

Yes. That's a good question. So there's multiple parts to that question. So yes, I confirm that every $0.01 movement equals about $5 million of, I'm going to say, gross margin dollars, which, if we hold it, will fall to EBIT. So that's correct and still holds true. In terms of whether we are able to hold that or not, I think it largely depends on the promotional environment. So I'm going to say if other players in the market use that to impact price, we're not immune to that. However, it's not our intent to use that at this point in time to reduce price. We intend to hold price, but that will be a function of market conditions as we get to May and June of next year. So I think that adds to 2 parts. In terms of our hedging, we were lightly hedged. I've talked about a neutral hedging policy for our business being at around 50%. We were well below that prior to the dollar lifting to current levels. So we have been able to increase our hedging rate, I'm going to say, above neutral levels in very recent times as we've seen the dollar hit $0.69 to $0.71. So hopefully, that gives everyone a bit of color on that. So neutral being 50% hedged out 15 months, lowly hedged being 30% out 15 months. And currently, we're hedged about 60% out 15 months.

Our next question comes from James Leigh.

My first question is just on the second half guidance of $30 million to $35 million. Just to confirm, apologies if I've missed it in there, is that including Glue losses? Or is that now stripped out of that second half guidance?

Yes. No, good question, James. It's including the Glue losses. So it's $30 million to $35 million on a reported basis. So we haven't called out what we expect the Glue losses to be in the second half. We don't know. However, we will tell you in August when we report the full year results, what that was. But that will be an improvement to the $30 million to $35 million on a continuing business basis, if that makes sense.

Yes. No, that makes a lot of sense. And then the second question on Glue is like, clearly, we're closing the remaining stores, what we can do in terms of kind of re-bannering them, is there much that you plan to do in that space?

There's a little bit, James, where it makes absolute sense. However, we're not going to transition any of those stores unless we would, I'm going to say, choose those locations as a greenfield site for another banner. So there's literally half a handful of transitions that would make sense. The rest will close and be handed back to the landlords.

Yes. We've actually already transitioned some, James, and they've been successful, but we've been quite careful on what gets transitioned and what doesn't.

Our next question comes from Sam Haddad.

Just a question on your cost of doing business. So a great result there. Did you -- can you just give us color as to whether you've taken out further costs in the business? And are there opportunities for further cost efficiencies in the second half? Because we know inflation is always there in the backdrop and your like-for-like is sort of flat and to cover that inflation, you need to be 2% to 3% like-for-like positive. So what's your outlook for cost -- first of all, how -- any color in terms of efficiencies implemented in the first half and outlook for further efficiencies in the second half in '27?

Thanks, Sam. So we talked previously about we've made, I'm going to say, significant inroads into our support office costs in terms of support office team costs. There is more work to be done and more savings that will occur in the second half. And indeed, we expect into the first half of next year because it's been an ongoing program of discipline in that area, particularly as, I'm going to say, Glue stores closed, all of the, I'm going to say, the support office cost that was associated with supporting that business has to come out and is coming out. The second thing is we've been very disciplined on our approach with marketing. We've talked about continuing to drive efficiency in our digital marketing in terms of the amount that we're spending on performance marketing with Google and the like, transitioning to that with the investments that we've made into our own channels and driving traffic throughout our known customer base. And the third area, which is an emerging area is we've now got an efficiency program on frontline team wages, and to give some color to that, we are looking at, I'm going to say, variability between like stores across our banners and using that to identify stores that might be outliers either for underinvestment or overinvestment. And that program has literally just kicked off this month in earnest and will drive benefits into the next 12 months, and I expect there'll be a Phase 2 into the 12 months beyond that. So in an environment where comps are hard to come by and margin is being driven by promotion, externally, we need to be very, very disciplined on cost. And it's one controllable thing that is right in our control. So we're going to keep doing that. I should also add, and this has been an ongoing theme, that we are being disciplined about store renewals. And I'm not going to make any apology for the fact that we will continue to see stores close where we can't get to an equitable outcome with landlords on lease renewals, and we're having some success in that, but it's hard fought every step of the way.

Okay. That's great. Just on Skechers, that's your largest brand. Can you talk a bit more -- provide a bit more color on how that's performed? Because that was sort of a bit of a drag through most of the first half, I understand. And are you seeing improved trajectory in that brand?

Yes. Yes, Sam, there has been improvement. Indeed, the business had a solid January. Some great products are coming to market. And we expect that some of the innovation that we're seeing should connect. So in short, yes, we've been quite pleased with the last quarter with Skechers. And that seems to be the same sort of -- type of results we're hearing that they're achieving in many other markets. So it's all product-driven, as you're aware. And so far, what we're seeing in the forward pipeline is solid.

All right. And just my last question, just on Nude Lucy, just color on how that's going, and are you seeing trading up behavior to the NiLS brand within that platform?

Yes. Sam, Nude Lucy continues to be solid. It's quite profitable. We're being very, very careful where we're putting stores with that banner. Margins are good, and we've got [ Donna ] and my team, from design to the retail team, running the business and the disciplines are amongst the best in the Accent Group. So we're confident that the forward view with Nude Lucy will be as good as it is now.

And the NiLS brand, that's getting good traction?

Yes. Look, Sam, we've called it out a little bit in our announcement, but we started to do the same sort of thing with a little brand called ODE, O-D-E. It's got the same flavor in terms of numbers that Nude Lucy had back then when we decided to push go on that. We're playing with it a bit, but it's a very strong brand within the Stylerunner business. We're not wholesaling to anyone at this point. But we're really starting to think about, well, should we open a few stores and see what happens. We've got a few pop-up stores, which have been very solid actually. So that could be something for us to get into in FY '27.

Our next question comes from Aryan Norouzi.

Just on the comps, please. So just the first 8 weeks, you're roughly flat and you're cycling plus 2% in the PCP. The rest of the half, the comps optically get much easier versus the minus 3%. I appreciate, when you look at numbers like that, there's always different moving parts, what you were cycling 2 years before that. But is it a fair comment to say that the comps do get easier for the rest of the half or not, please?

Yes, that's a fair comment, [ Arie ]. I think that's right. And certainly, I'm going to say, many, many years in retail, there is a bit of a 2-year base effect, to be honest, sometimes a 3-year base effect. It's almost impossible to unravel in some respects, but it's a matter of fact that we were negative in that period last year, and it deteriorated really badly, in particular in May and June. So I'm going to sit here and say I'm quietly hopeful that against that, we should be able to drive some costs, but let's see.

Great. And then same thing about the wholesale sales. I mean you printed plus 9% growth is a good outcome. But in the second half of '25, you're cycling minus 12%. So you obviously had a big drop off in wholesale orders then. Is your forward order book supportive of a pretty sharp acceleration into the half?

It's certainly very supportive of a growth on the second half last year. And we'll wait and see if it's supportive of an acceleration, I'm going to say, from the 9% growth into the second half. But we've said that we're really pleased with the forward wholesale orders. So I think we're very confident of a growth on wholesale in the second half.

Yes, [ Arie ] the -- as we called out, HOKA has been very, very solid. We're quite pleased with the early read on Lacoste. Skechers continues to be solid for us. And pleasingly, as it is in our own D2C for retail, we're starting to see some Vans comps, but also the Vans forward orders on our wholesale for the first time in a long time are actually up. So we're quite pleased that hopefully, we've got Vans, we certainly found the bottom, and it should start to -- that should start to contribute nicely as we move forward as well. And that sort of seems to be the theme around the world.

Last one. Just the first half '26 result and maybe the full year guidance that you've got -- second half guidance, setting up a business like Sports Direct is obviously costly. Like, can you just give us an idea around how much maybe trading losses and one-off setup costs that you incurred this year that we [ shouldn't ] sort of capitalize into next year and beyond? I appreciate it's obviously uncertain as to profitability of the store. But in terms of setting up one-off marketing support structures, like, I suspect that's pretty expensive.

Yes. Look, in respect of -- yes, I'm going to say this, the first half where we've got one store and digital opened, you'd expect that we would have had very strong trade even for a new brand through November, December and January. So the best way to think of it is it was neutral -- yes, completely neutral to the first half position. In terms of the second half, yes, as we ramp up marketing and we're in the opening stages of a few more stores, you could imagine that it's going to be a slight drag to EBIT. However, that's fully factored into the $30 million to $35 million guidance, our forecast and expectations of that. And if I may, I'll give more color on FY '27 when we talk at the full year, and we've set our plan for FY '27.

[Operator Instructions] We do have a follow-up question from Garth Francis.

Just maybe 2, if I can. So New Zealand sales were down 1.2%. Have you seen any change in conditions there into January? And are you concerned or do you have any optimism around New Zealand?

It's just tough, Garth. It's still tough over there. Yes, there has been some improvement, particularly in Platypus. You could argue that we had a tougher year than the year prior. But we're still seeing it as tough. However, we -- there's also some new stores that we're opening over there, particularly for Skechers in terms of big box stores. But overall, it's still a very challenged market for us anyway.

Yes. And then one that's probably more Matt's. CapEx of $33 million wasn't a huge step-up on the PCP. What should we expect for the second half? Is there a big step-up with the TAF conversions and the new Sports Direct stores?

Yes. Look, not in the second half. I think what we're starting to see is, I'm going to say, outside of Sports Direct, a slower opening of new stores, which we've flagged before and some transition of the CapEx that we were spending on, I'm going to say, other new banners into Sports Direct. And we've called out a couple of stores to open at this point in time in the second half. And then again, we'll be able to give more color on what that looks like in the first half. So I wouldn't say a big step-up in CapEx either for the second half. And indeed, in the back end of last year, there was quite a bit of investment in CapEx that went into the Athlete's Foot new system where we transitioned that on to our core ERP and built TAF a brand-new website. That was not an inexpensive project. So -- and we won't be cycling that this year. So I'd say sort of like-for-like CapEx into the second half, Garth, for this year.

Our next question comes from [ Peter Storer].

Sorry, can you hear me?

Yes, we can. Thanks, Peter.

Good. Sorry, I'm not so familiar with some of these Zoom settings. A long-term shareholder here. A question about the cash flow statement. Why have the payments for lease liabilities gone up 14.3% this year to $78.2 million. That seems quite high. And also, if you take that off the operating cash flow to make it comparable with the years pre-AASB 16, the cash flow is actually quite weak this year. Can you clarify where cash flow is going forward on that, please?

So Peter, I'll have to take part of that question on notice and go and have a look at it. The increase is related to 2 things. It will be related to the ongoing escalation in our rents and new stores. And I acknowledge 14% is a big increase. We've talked about rents going up between 4% to 5%, and that's cash rents going up 4% to 5% a year. You're seeing that, and you're also seeing portfolio growth for new stores coming through. So that, when I add those 2 together, doesn't quite explain the 14%, I acknowledge. And if I may, I'll take that offline and do a bit of further work on it as well.

I will just pause briefly to see if there are any additional questions from our attendees. We do have a follow-up from Sam Haddad.

Would it be the acquisition of TAF stores also contributing to that lease increase?

Correct, Sam. So spot on, that will be part of it, and that could be the balancing number. So I just want to check that before I go back to Peter and everyone else. But certainly, as those come in, that will increase that rent, yes.

And just on the Sports Direct early trading, can you just give more color in terms of sell-through of your private brands and exclusive brands? What trends you're seeing, just further color through Christmas?

Yes. Look, Sam, if I may, I think it's a bit early to comment on that. We flagged a Strategy Day in May, and we want to see a bit more trade before we start to talk about that, if that's okay, in terms of the detail of where that trade is at. We're pleased with the trade to date, but we've really only had a couple of months of read. And yes, so if you let us have a few more months trade before we talk about that.

Yes, sure. And just a more general question about the macro, there's prospects of further rate rises, how do you feel the business is positioned generally? What levers do you have? There's an FX benefit that we can look forward to, but more in terms of product offer levers that you can pull to sort of manage that?

Yes. I mean I think I'll let Daniel talk to the product pipeline in a minute and what he's saying. I think the currency is a good lever and the higher interest rates means a higher Aussie dollar, which is actually nice. And I feel like the -- I'm going to say the higher Aussie dollar is a much bigger lever than the potential impact of interest rates at the moment. So that's certainly how we're feeling about it into the future. The other piece I'd say is that we're going to continue to go hard on the cost of doing business because we can't control the promotional environment. And yes, we'll just have to take that as it is and operate within it. But there's certainly some excitement in the product.

Absolutely in the product. Every brand is showing -- as they need to, is showing great innovation. And we just got to hope that we put in front of customers and they're excited by it as well. Some interesting things when you look at our own forward order book for wholesale, Sam, it seems it's quite solid. Brands that we don't even talk about anymore, the likes of Timberland, although not huge for us, some good stuff starting to come through on some of the, I guess, I call it the iconic brands that we've had for a long time. And I'm really pleased with what the team has done with Vans. As you're aware, it's a big part of what we do.

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

Thank you, everyone, for your time today, and I look forward to either meeting you on Zoom over the next couple of days or we'll see you soon. Thank you.

Thanks, guys.