Adore Beauty Group Limited (ABY) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Adore Beauty Group H1 FY '22 Results Call. [Operator Instructions] I would now like to hand the conference over to Tennealle O’Shannessy, CEO. Please go ahead.

Thanks, operator. Good morning, everyone here in Australia, and good afternoon to our U.S. investors. I'm Tennealle O’Shannessy, CEO of the Adore Beauty Group. I would like to start us off by acknowledging that I am hosting this meeting online from the lands of the Kulin Nation, acknowledging the Wurundjeri People, the traditional custodians of the land. I also acknowledge the traditional custodians of the various lands on which you may be watching or participating from. We would like to respectfully recognize elders past, present and future. Thanks for joining us to discuss Adore Beauty's results for the first half of the 2022 financial year. We will be referencing slides from the investor presentation uploaded to the ASX this morning. Joining me on the call is our CFO, Stephanie Carroll. I'll start with a quick business update before handing over to Stephanie to take us through the half year numbers and balance sheet. I'll then provide an update on how we're progressing with our strategic priorities and the outlook for the remainder of FY '22 and beyond, and we welcome questions at the end of the presentation. We have delivered another strong financial results, producing record half year revenue, multiple record trading days and record customer numbers. Revenue increased 18% over the prior year to $113.1 million, driven by valuable returning customers and multiple record trading days, including 1 in November when we were not in lockdown. We continue to grow our active customers, up 13% over the prior period to 876,000. Returning customers grew 56% over the prior year, and customer retention continues to perform in line with expectations. Gross profit margin improved to 0.6 percentage points to 33.1%, underpinned by product margin expansion and brand funding. Our strong first half performance demonstrates early signs of the operating leverage this business can achieve. We delivered EBITDA of $3.8 million and EBITDA margin of 3.3%, which was in line with guidance. This result reflects our reinvestment in strategic priorities to drive sustainable long-term growth within a large $11 billion market benefiting from significant structural tailwinds. We're well funded for growth with $25 million cash as of the 31st of December 2021 with no debt. As I mentioned earlier, our record half year revenue result was underpinned by strong sustained growth in our key customer metrics. Active customers increased 13% over the year to 876,000, representing a 2-year CAGR of 43%. Just a little bit about our customers, our customers are incredibly sticky and loyal and become more valuable each year they remain with us, increasing both their basket size and order frequency in subsequent years to create subscription-like rates of retention. In the first half, our returning customers contributed an impressive 71% of revenue. The chart on the right shows we're continuing to expand our share of customer wallet with annual revenue per active customer increasing $11 over the prior year to $224. This increase was driven by the larger proportion of valuable returning customers and higher average order value. The next slide shows our customer retention over the past year as well as our strong trajectory of new and returning customer growth over many years. The headline here is that 71% of revenue came from returning customers who order from us on average approximately 3 times per year. This metric reflects the underlying strength of the business, our exceptional customer experience and the high frequency nature of premium beauty purchase. The chart on the right shows our customer growth over time. The gray shaded sections reflect COVID lockdown periods, which accelerated both new customer growth and returning customer spend. As you can see, post lockdown, underlying growth in new and returning customer cohorts continues off this higher base. Pleasingly, while new customer growth and returning customer spend has returned to more sustainable rates, it remains above pre-COVID levels. As we look at calendar year '21 customer retention of 56.2% was down 9.3 percentage points on the prior year. This was in line with our expectation and reflects the larger proportion of new customers acquired washing through. We typically see our lowest retention rates in the first year of acquiring a customer. From the year 2 onwards, our customer retention rates are subscription-like. Retention is a key metric for us, and we have multiple strategic initiatives in place to improve retention and the lifetime value of customers. These initiatives include our continued investment in content as well as scaling our mobile app and loyalty program. I'll talk about both of these a little later. The next slide shows how we grow customer lifetime value over time. As a business, we closely monitor marketing performance across channels and campaigns with the ratio of lifetime value to customer acquisition cost. This is an important measure for us to assess the success of our customer acquisition and engagement strategies. Here at Adore, when we talk about CAC, we include all advertising costs, including above-the-line spend for both new and returning customers. LTV is calculated as a cumulative contribution margin, which is gross profit, excluding bank and merchant fees. It's important to note here this LTV is the actual value returned by the cohort in each period. It's not an estimated or forecast number. The graph shows our strong unit economics. For the calendar year '18 to '21 cohorts, the average customer acquisition cost in each cohort is recovered in under a year, while the lifetime value continues to grow over time. By the fourth year, the lifetime value of the customer is more than 5x the acquisition cost. We continue to invest in our content strategy in above-the-line advertising and in an email-owned marketing channels to build brand awareness, acquire new customers and engage existing customers. Towards the end of calendar year '21, like most e-commerce retailers, we saw increased competition in paid channels as consumer sentiment waning due to Omicron uncertainty. And as a result, there was cost inflation across the industry. However, the disciplined investment that we have made in brand building, content engagement and growing our organic channels as well as the increased collaboration with our valued brand partners through co-funded marketing initiatives is showing strong early results. Adore's marketing as a percentage of sales was in line with our expectations at 14%, which is showing good early signs that our content strategy will provide us with a more sustainable marketing approach over the medium term. We will continue to invest in a disciplined, data-driven way to acquire new customers as we believe these cohorts will deliver similar accretive benefits and lifetime value growth. We have a clear growth strategy based on 5 key strategic initiatives, which lays the foundations for our long-term growth. As a business, we set out to continue to win the market in our core segments. As market leader, the Adore Beauty is well placed to take a disproportionate share of the accelerated structural shift to online we are seeing. We're also continuing to invest in capabilities that build strategic moats around the business and reinforce our defensive ecosystem. These include data and personalization, mobile app and loyalty programs, our own private label and brand awareness. In the first half, we've delivered strong progress on the execution of our strategic priorities. We're ahead of our game plan. We continue to scale our mobile app and loyalty program, both of which are performing well and resonating strongly with customers. These initiatives create additional owned marketing channels for us to engage and retain customers, and they're key to improving retention and lifetime value. Our content-first app is delivering increased engagement, conversion and AOV and is scaling well. The app share of revenue increased from 5.6% in the first quarter, up to 7.9% in Q2. And we firmly believe this represents a significant opportunity to grow adoption and increase key customer metrics. Our loyalty program is progressing nicely with member sign-ups continuing to exceed our expectations. We've hosted multiple sold-out ticketed events over the half, and the program was nominated for Inside Retail Loyalty Program of the Year. We continue to invest in brand awareness and our owned marketing channels. Brand awareness supports new customer discovery and acquisition as well as customer retention. We know from experience that when customers try Adore Beauty they absolutely love us. So reaching the millions of consumers that aren't aware of us provides us with a significant growth opportunity. Our growing owned marketing channels and community are driving industry-leading organic website traffic share, underpinned by a 16.5% growth in content-driven impressions on the prior year. We onboarded 14 new brands in the period, 4 of which were in the men's adjacent category. We continue to see really strong growth in adjacent categories. Our Fragrance category grew 43% to account for 4.1% of total revenue and Korean Beauty increased to 98% to 2.2% of total revenue. Our range authority supports new customer acquisition, higher average order values and growth in annual spend. And finally, we curated Adore Beauty branded packs, and we're on track to launch our first Private Label brand in the skin care category in Q4. We're very excited to share more of this as it comes closer. I'll now hand over to our CFO, Stephanie Carroll, to take you through our strong financial performance.

Thanks, Tennealle, and hello, everyone. As Tennealle mentioned, in the first half of FY '22, Adore Beauty delivered record top line revenue and produced multiple record trading days. Revenue of $113.1 million was an 18% increase on the prior year and up 47% over a 2-year period. Gross profit margin increased to 33.1%, up 0.6 percentage points on the prior corresponding period and 1.9 points higher than half 1 FY '20. EBITDA of $3.8 million and EBITDA margin of 3.3%, which was in line with guidance, reflecting our reinvestment in our strategic priorities to accelerate our growth trajectory. As the past 18 months has been atypical, it is beneficial to measure the underlying growth of Adore Beauty over a 2-year period. As you can see across these 3 graphs, when viewed over the medium term, Adore Beauty has consistently delivered strong growth, which is continuing to underpin key profit and loss line. Even before COVID lockdowns, Adore Beauty had a track record of delivering long-term year-on-year growth. The next slide shows our profit and loss statement for half 1 FY '22 compared to the prior 2 corresponding period. Record half year revenue was primarily driven by a larger proportion of returning customers who contributed 71% of total revenue. Our active customers are spending more on the platform with the average order value increasing 5.4% on PCP to $106.08 (sic) [ $106.7 ]. Average order frequency remained stable at 2.1 orders per customer annually. Moving down to P&L. We improved unit economics. Gross profit margin of 33.1% was 0.6 points higher than the prior year, primarily due to product margin expansion, driven by optimized supply terms and brand-funded promotions. Increased operating costs reflect our reinvestment to drive growth, particularly across people and marketing. For half 1, while our marketing investment as a percentage of sales has increased to 14%, we recovered customer acquisition costs in just over a year and are growing our owned marketing channels to effectively manage these expenses. In half 1 FY '21, the EBITDA results demonstrated the operating leverage that can be achieved with top line revenue growth. In half 1 FY '22, as we continued disciplined investment in strategic priorities to drive growth, we delivered EBITDA of $3.8 million and EBITDA margin of 3.3%, which was in line with guidance. Turning to our balance sheet. Adore Beauty remains well funded for growth with a cash balance of $25.1 million as at the end -- as at 31st of December 2021 and no debt. Adore's business model is highly capital-efficient. And through building our planning capabilities, we have continued to effectively manage inventory and payables despite record revenue, record trading days and to provide protection for any supply chain challenges. The increase in inventory reflects forward planning for strong revenue growth and seasonal supplier closures. However, inventory turnover remains in line with PCP due to excellent stock management. It is worth noting that inventory is down $4.8 million in January, in line with our expectations. While we did see a limited impact from global supply chain issues, out of stocks are largely in line with PCP. Our healthy balance sheet provides a solid platform to continue growing the business as well as the flexibility to pursue our strategic growth initiatives. I'll be happy to take questions at the end of the presentation. But for now, I'll hand you back to Tennealle.

Thanks, Steph. As I mentioned earlier, we've made strong progress on our strategic priorities in the first half of FY '22. Starting with our mobile app. Our mobile app is scaling well and continues to deliver higher levels of engagement, conversion and order value. Our scaling user base contributed 5.6% of revenue in the first quarter, increasing to 7.9% in Q2. And our customers are loving it. It's currently rated 4.8 out of 5 from over 4,000 reviews. This half, a number of initiatives were put in place to encourage download and adoption, including integrating with our loyalty program and our podcast, meaning listeners can download and listen to the podcast within our app. And the next phase of development will focus on further integrating content and enhancing personalization to drive retention, loyalty and lifetime value. Our app provides us with a content-first owned channel to engage, retain and grow the lifetime value of our customers. It enables us to build a deep ongoing relationship with our existing customers so that we can add value to their daily lives, not just when they're shopping. Our integrated media and content strategy is a key differentiator for Adore Beauty. We are leveraging content to become an authoritative and authentic voice on beauty and personal care with a loyal and highly engaged community. It is enabling us to become the destination for beauty discovery. Our growing owned marketing channels now include multiple podcast and blogs as well as follower communities across Instagram, YouTube, TikTok and Facebook. This half, we saw a 16.5% growth in content-driven impressions. Our Beauty IQ Uncensored podcast continues to grow, having surpassed 3.4 million downloads since launch. And we're experimenting with engaging content solutions, including livestream shopping, podcast lives, loyalty master classes and a Preezie guided navigation tool to support discovery. Our investment in our owned content channels reduces our reliance on competitive paid marketing channels and effectively offsets marketing spend over the long term. Adore is a market leader in terms of organic traffic share. Our share of voice is roughly 2x the average competitor across same terms. This gives us confidence the disciplined investment we are making in content engagement, brand building and growing our organic channels is showing strong early results. Our marketing costs to the percentage of sales are also not being impacted to the same extent as other online retailers, where we have seen an industry-wide circa 45% inflation in paid channel cost per click in the past year. We offer the industry's best beauty shopping experience with an unmatched range, transaction experience and customer-led engagement enriched by data-driven personalization and highly engaging content. Our customer-led business model delivers best-in-class levels of customer satisfaction with a Google Review rating of 4.9 out of 5 from more than 29,000 reviews. Over the half, we've demonstrated the scalability of our operations, receiving more than 15,000 orders in a single record trading day. The post-order customer experience in Premium Beauty is just as important as the product discovery and inspiration phase. We offer the industry's latest same-day dispatch cutoff time of 4 p.m., and we continue to improve customer experience to ensure we deliver an exceptional online transaction experience. Another key differentiator for us is our owned inventory and customer fulfillment center, which enables us to responsibly manage volume increases, COVID restrictions and any supply chain challenges. We've been very proud of the way we have managed our supply chain. Through an increased planning capability, prudent stock management and deep brand relationships, we have delivered inventory turnover in line with prior period, even with revenue growth and the impact of limited global supply challenges. As you can see, we have a formidable and distinctive customer service model that is very difficult to replicate. Adore Beauty is proudly a leader in sustainability and diversity. Our diversity and inclusion progress is broader than just gender. But as a business with a mostly women customer base, we lead the way in representation for women in leadership, with a woman co-founder, majority women on the Board and 82% of manager roles held by women across the company. This half, we were very proud to be recognized as an Inclusive Employer by the Diversity Council of Australia. On the sustainability front, we're committed to reducing the environmental impact of our operations. 100% of our packaging and void fill is recycled and recyclable, and volumetric technology has reduced our cardboard usage. This half, we have introduced a new smaller box size to reduce cardboard usage further. And already, we have transitioned approximately 25% of orders to the smaller size. We have also installed an on-site cardboard compactor and recycled over 34 tonnes of cardboard. And we have implemented a partnership to recycle soft plastics into reusable products. We're very proud of the initiatives our team has put in place over the half, and we will continue to focus on learning and growing in this space. Now to our market opportunity and outlook and reiterating the investment thesis for Adore Beauty. To start with Beauty. Beauty is a very resilient and attractive category, one where consumers engage multiple times a year to repurchase products that they use every single day and consider essential. This is particularly true in skin care where we index very highly. In Australia, the beauty and personal care market is $11.2 billion and is growing at a CAGR of 3.8%. We operate in the fastest-growing segment within that market with online sales forecast to grow at a CAGR of 26% between now and 2024. We have a 13% market share of the online market, and we're well placed to increase this over the coming years, supported by our market-leading position and the investments we're making in the business. As you can see, Australia is still significantly underpenetrated in online retail in comparison to other markets. So while COVID has accelerated the shift from physical stores to online, we are still many years behind more mature markets such as the U.S. and the U.K. Other structural tailwinds include the impact of new digitally native millennials and Gen Z consumers entering the market has accelerated growth in segments of the market where Adore is particularly strong. This includes premium products where Adore indexes strongly, which is growing at 88% faster than mass and skin care, which is our biggest category. Lastly, we have a strong track record of growing faster than the market. We're profitable, capital-light and have a debt-free balance sheet, meaning we're well positioned to be the online winner and take a disproportionate share of the shift to online. Now to the model. Adore is much more than just an online retailer. Traditionally, retailers have only focused on the fulfillment element of the transaction, making products available for purchase; but Adore's unique content strategy means that we are also becoming the destination for discovery. We've been investing heavily in content for more than 5 years, which has enabled us to move past to just covering convenient replenishment. We can also introduce our customers to the products they didn't know they needed. Through our expanding media network of podcasts and videos and blog posts, we use content to educate, engage and entertain our customers. So for our valued brands, we have become a marketing and media partner, not just a distribution channel. And for our customers, we are a trusted authentic source of beauty information. In terms of our strategy, we remain focused on growing our market share and cementing our online market leadership. We continue to execute on our strategic priorities focused on building our range authority, providing an exceptional online transaction experience and content-led customer engagement. Our range authority will continue to drive new customer acquisition and expanding share of wallet. Adore's unmatched brand portfolio covers prestige department store brands, professional salon and clinic brands, niche brands as well as masstige. We will continue to improve our online transaction experience using data-driven personalization to deliver a highly engaging and relevant experience. This will continue to translate to growth in new customers, improved conversion rates, retention and lifetime value. And lastly, we will continue to reinvest in the business to build the competitive moat that is our content-led customer engagement platform. We are scaling and embedding our mobile app and loyalty to grow retention and lifetime value, and we will continue to expand our owned marketing channels to more effectively manage marketing costs. I'll now expand on our strategic priorities and what this means for our growth over the short to midterm and the longer term. In the near term, as we've said, we are investing in the business to capitalize on the accelerated structural shift to online and to build on the positive momentum of the past 2 years. To do this, we will focus on sustainable top line growth, which means increasing share in our core categories, expanding into new adjacent categories and launching our own private label. We will continue to leverage marketing, promotions and brand awareness to acquire new customers, retain our loyal and high-value returning customers and grow average order value and frequency. This will be achieved through the continued disciplined profitability and reinvesting to build competitive moats, including data-driven personalization and our mobile app. From an earnings perspective, we will focus on growing operating profit dollars. As we've shared previously, Adore is targeting to achieve a 2% to 4% EBITDA margin in the short to medium term while reinvesting to drive above-market growth. Over time, we expect growing scale will increase operating leverage. We will focus on growing contribution margin percentage through scaling margin-accretive private label, increasing marketing ROI and forging closer relationships with brand partners. We expect slowed investment in fixed costs and disciplined investment in the next horizon of growth, which will translate to growing operating profit percentage. As we've demonstrated in the first half, we've got multiple levers to drive revenue growth, and we remain confident in our ability to successfully deliver on our initiatives. Moving to outlook. Adore Beauty continues to benefit from the structural shift to online and the ongoing retention of new customers added over the past 18 months. We've delivered record revenues for the first half of FY '22. And pleasingly, the second half has started strongly. The overall positive trading momentum seen in the first half has continued into H2 with revenue growth over the first 6 weeks increasing -- of the second half increasing 14% on the prior period. We note that there is ongoing uncertainty given the current COVID situation. Adore has a strong track record of delivering growth over more than 2 decades. We've consistently delivered strong revenue growth, and we are executing a clear and robust growth strategy to cement our online market leadership position. Adore reaffirms its target to achieve an EBITDA margin of 2% to 4% in the short to medium term while reinvesting to drive above-market growth. As the business grows in the longer term, we expect scale benefits to increase operating leverage and to deliver further EBITDA margin expansion. Just to wrap up before we move to questions, Adore Beauty is the online market leader in a large addressable market that is still very early in the online adoption curve. Our unique sustainable business model provides us with a significant growth opportunity to benefit from the structural shift to online. Our strong financial performance is underpinned by high levels of customer retention and satisfaction, and we remain the online destination of choice for our valued brand partners and loyal customers. We're executing on a clear growth strategy to cement our online leadership and position us to capture market share in a large and growing market. As the business grows, we expect scale benefits to increase operating leverage and to deliver further EBITDA margin expansion. Thank you very much for your time today. We could not have achieved the results I've shared today, without the passion and the dedication of the whole team at Adore Beauty, so I wanted to finish off by thanking each of them for their efforts this half. Stephanie and I will now take questions. I'll hand you back to the operator to put them into the queue.

[Operator Instructions] The first phone question today comes from Apoorv Sehgal from UBS.

Tennealle and Steph, just my first question, just to help us understand the trading update a bit better, could you maybe tell us what growth rate you're cycling in January, February of 2021, like the year-on-year growth rate of Jan-Feb '21 compared to the 47% year-on-year growth rate you did for the full January to March 2021 quarter.

Thanks, Apoorv. We're not actually providing month-on-month numbers. What we do have though in half -- in each of our quarters is some key promotional events, and we recycle those again in this year.

I might just try my luck with another way of asking. Just on -- the third quarter '21 was up 47%. Like is it fair for us to just sort of roughly assume that 47% growth rate was kind of fairly consistent across that 2021 quarter?

I think if you look the best -- the Slide 4 in the presentation gives you a good indication of new and returning customers and what happens and what happened in prior period. So that will give you a good indication of -- as we transition out of lockdowns and a more normal trading period, that really is a good slide to look at.

Okay. Just Omicron sort of creating some sort of artificial lockdown over December, January, did you feel that benefited Adore sales?

Yes, I can have a go at that one. I think what we would say is that consumer -- and this is well publicized -- what we saw in terms of consumer sentiment was the uncertainty created around Omicron impacted consumer sentiment generally across retail. So we would say that we saw consumer sentiment wane in particular towards the end of calendar year '21 moving into the start of calendar year '22.

Okay. That's helpful. And just one final question related to cash flow. You mentioned before that inventory turnover was in line with PCP. And maybe I'm just doing something wrong here. But if I look at the inventory balance of first half '22, it's up like 41% year-on-year, but COGS is up 17% year-on-year, sales is up 18% year-on-year. Wouldn't that not imply that inventory turnover has actually fallen versus PCP?

Yes. Look, it's actually on our cash, it's in line. So it was broadly in line with PCP. And I think that the -- what we've done is, with our superior planning and our ability to bring in ahead of closures around Christmas, and it gives us confidence in terms of the number given that the number reduced by $4.8 million in January.

The next question comes from Olivia Salmon from Jarden.

Tennealle and Stephanie, I've just got 2. You mentioned in one of the slides that Fragrance grew 43% on the PCP. Just wondering about your other key SKUs, in particular, skin care generally, not just Korean Beauty and then also color cosmetics.

So all of our categories grew. The 2 that grew the fastest were Hair and Fragrance. So those have continued to grow. I think we've called out Fragrance, which was 43%, and Skin Care continues to grow as well, not just as fast as the other two.

Okay. Got it. And with Hair growing the fastest along with Fragrance, is that around the 40% growth as well? Or is that less?

I think it was about 30% was the growth in here.

Yes. I think it's -- just to add to that point, Fragrance and -- we've called out Fragrance and Korean beauty, and we're seeing really strong growth rates in those adjacencies. Important to call out that they're growing off a much smaller base though.

Understood. And I'm just sorry to harp on about this. But just in terms of color cosmetics, I know that Adore Beauty is mainly a skin care and hair care retailer. But when you look at overseas comps coming out of lockdown in North America and Europe, they do talk about this kind of makeup renaissance and do talk about prestige color cosmetics growing. I know we probably don't have exact figures in front of you, but are color cosmetics at Adore Beauty growing single digits, double digits? Is this something that's always going to grow below market levels at Adore because it is online and color cosmetics lends itself more to bricks-and-mortar stores?

When we think about color cosmetics, I've also seen with some of the global beauty brands, in particular, when they talk about growth in markets that have transitioned out of lockdown for a longer period, so the U.S. and the U.K., there is that return of color cosmetics. I think what we would say is on our platform, and it's probably reflective of lockdown conditions here in Australia, we would still consider the transition out of lockdown to be happening. And so we are still seeing that historically makeup -- color cosmetic makeup growth has been a little subdued on the platform because people were staying home, wearing masks, those kinds of things. We would expect it to tick back up as things open up and people come back into the office and head out a little bit, but we're not yet seeing that fully play out.

Understood. Great. And then in terms of the 14 new brands that you onboarded, what level was it in the PCP? And those 14 new brands, are they exclusive to Adore Beauty?

Yes. So what we do with our brand portfolio is we don't target a number of new brands, rather we curate the portfolio to ensure that we're offering what customers are looking for. And so you'll see us in each period both onboarding new brands to respond to customer feedback as well as making a decision not to range further any brands that aren't resonating with customers. And so we've been continuing to grow new brands, but I can't recall the number off the top of my head, but we had added a similar number of brands in the prior period. But rather than focusing on a number of brands, what we do is focus to ensure that we have the right mix of brands that cover off what our customers are looking for. And to give you a good example there, we've had some really strong feedback from customers on the importance of Korean Beauty and how much that was resonating at the trend. And so we've really built out our Korean Beauty subcategory to meet our customers' needs in that space.

Okay. Great. So the 14 new brands that you onboarded, are the majority of those in Korean Beauty?

A portion of, definitely not -- I wouldn't say a majority, but yes, there are a portion of.

Okay. Great. And then how many brands did you get rid of from the platform in the first half '22?

Well, I'm not sure. I don't think -- we haven't communicated that number. We don't usually communicate to that level of detail, but we're constantly curating brands and taking them on and off the platform. It's quite a dynamic approach.

The next question comes from Elijah Mayr from CLSA.

Tennealle and Stephanie. Just a couple from me. Just firstly, on the gross margin up year-on-year and sort of down half-on-half. I understand that it has got -- it impacted from the timing of rebate. I was just wondering if there's been any change in supplier terms or brand funding half-on-half that you could call out? Or if there's any change maybe particularly with key land freight carriers that may progress into the second half as well?

No, nothing, no material changes. We continue to work on supply optimization and brand funding. From a carrier point of view, we diversified 12 months or so ago, and we continue with that diversification, and there has been minimal sum, but minimal cost impacts there.

Understood. And then just secondly, just with New Zealand, are you able to give an indication of what that contributes in terms of sales -- as a percentage of total sales in the first half versus -- first half '22 versus first half '21?

We know -- we haven't provided that level of detail, but it's not -- I mean, it's not material.

Understood. And then maybe just one final one for me. Just in terms of the private label initiative, I think originally it was expected to sort of be launched in Q2, Q3. And it now needs to be pushed back to Q4. Is there any particular reason why the private label strategy is being pushed to Q4?

Well, sorry -- I'll just start -- sorry Tennealle and then I'll hand over to you to provide more context. I think from an inventory point of view -- I mean, from a supply chain point of view, we talk to minimal supply chain disruptions. However, the area that we've had the disruption happens to be in private label and relates to packaging. So that is one area, and that is what has pushed our timing. I'll provide -- hand you back to Tennealle for more clarity.

Yes. And so with this one, I think we've spoken about private label. This remains a key strategic priority for us and one we're really excited about. And our vision for private label is to be creating an independent stand-alone brand that resonates with customers and really speaks to an identified gap in the market. And so given our vision for this particular strategy, we made the decision that it was really important to get the packaging elements right, which is why, when we saw some challenges on the supply chain, we felt the right thing to do was to delay slightly the launch so that we can get the products right.

The next question comes from Aryan Norozi from Barrenjoey.

Just first one for me, a follow-up on the inventory turnover. So your inventory is up 47% year-on-year, but your cost of goods sold or your revenue is up 17%. So how turnover -- inventory turnover flat, please?

Yes. So it's -- based on an LTM perspective, it's broadly in line. I mean it's something definitely the same, but it's broadly in line. And it is timing related. As we've also talked about. It is -- it came down $4.8 million in January.

So that $4.8 million, by disclosing that, are you basically saying last -- same time last year you didn't have that, it's all basically timing in terms of the day at the end of the period, just nothing to do with conversion or anything. It's just basically timing of your sales? So this is why...

Yes, that's right, yes.

Okay, okay. And if I look at your trading update, so I mean you've given us 2-year CAGR throughout the presentation for your results, which is really helpful, except for the trading up there. And I think from a consensus perspective, what company cycle changes interpretation of the trading update? So if I look at your first half of '21, you were up 47% per annum revenue. And if I look at third quarter '21, you were up 20 -- 47% as well. And so if you assume you were doing the same sort of number in January, February last year, you're up about 29% per annum in January, February of this year versus consensus at 10% per annum. So -- and I'm throwing a lot of numbers at you, apologies, but why not providing any color around the 2-year average, are you saying you're comfortable with consensus? And just can you give us a bit more color around that comp, please?

Yes, certainly. So I can have a go at that. So I mean, first and foremost, we're not providing guidance at this time, given the uncertainty in the environment. And what we would say is that 6 weeks' trading is too small a period for us to draw any meaningful conclusions. So we continue to watch trading and have called it out in terms of what we're seeing. But the bigger point is around the uncertainty. Looking forward, however, we remain very confident in the investments that we have made in growing brand awareness, new customer acquisition and customer retention will continue to place us really strongly to grow faster than the market. And in addition to that, we do have private label coming on board later that is incremental to what was on previous year. So that's how we think about the trading period moving forward. And really, it was to share that we understand the consensus that is out there. At this point, we're not able to provide a guiding statement. However, we're very confident in our ability to grow faster than the market.

Okay. Cool. And my last one, just around the comment you made around customer retention. So I think you mentioned that in the first year customer retention is soft. And then after that, it's subscription-like. So is it fair to assume that sort of after year 1 the customer retention of those -- of that cohort is closer to 70% or 80% moving forward?

So for year 2 onwards, we would -- our retention rates are subscription-like. So these customers are incredibly loyal and sticky, and retention rates are higher than that again. So the way we see the typical profile of a customer on our platform and our cohorts have a very stable and predictable retention patterns. So on average, in the first year, we retain them at a lower rate. But post Tier 1, these retention rates are incredibly high, they're subscription-like. And so whilst we saw that aggregate retention at 56%, the driver for that is that we had a larger proportion of those new customers washing through that number. The initiatives we've got in place like our mobile app and loyalty program we expect to continue to improve that retention and lifetime value.

I think -- and sorry, if I can squeeze one more and apologies. Just turning to your awareness, could you give us an update, please, if you haven't I don't know forgot kind of stating in presentation, but just your customer awareness, please, and how you're tracking rest of your targets?

Yes, certainly. So brand awareness, brand awareness is a key strategic priority for us. We know that our levels of brand awareness continue to be behind best-in-class in terms of the targets we set ourselves. In the first half of FY '22, we actually focused and expanded our measure for brand awareness to focus on the full market opportunity. So I think we've shared previously, that within our core demographic cohort of 25 to 45, we were sitting at brand awareness levels of 58%. What we focused on for this half was looking at growing brand awareness outside that core demographic. And so we've increased our measurements of the full market to understand the full market opportunity. What we've also done during the half to better understand and inform the efficacy of our brand investment, we added an ongoing MMM review, which is a media mix modeling review, and measuring our channel return on investment. So with this sharper measurement, we -- the measurement has informed adjustments that we've made in our brand media mix this half. And we'll continue to see those results moving forward with a real focus on having the data and analytics so that we can focus our investments on the highest-return areas. So brand awareness has remained stable overall, but we've seen strong improvement in those demographics outside our core demographics for under 25 and over 45.

The next question comes from the webcast. Michael Brinkley would like to ask, given the rise in men's beauty care, is that something that will be looked at? Or will the future focus a 100% female?

A great question. I think that the men's opportunity is one that is very exciting for us, and we have been experimenting with or piloting initiatives to grow our men's category. So in the half, we increased the number of men's brands that we have by 4. And we've also been experimenting with more targeted -- first of all, how we present the category on site as well as more targeted content that speaks to a male consumer. So as an example, we launched a subset within our Beauty IQ podcast called Mr. Beauty IQ that was focused on entertaining and educating our male audience around skin care. Our holistic approach to beauty and personal care is one that is very inclusive. And so I think some of the trends around beauty generally is to move away from a gender view of beauty. And so we would look to have any approach to our presentation of beauty to be one that is inclusive and encourages all of our consumers to be really comfortable being themselves and doing whatever makes them feel comfortable in the beauty space.

The next question comes from the phone. It's a follow-up from Olivia Salmon from Jarden.

Just following up just on the launch of your Private Label skin care in fourth quarter. Obviously, slight delays due to packaging like you've mentioned. I mean we're expecting that a private label brand would be higher margin than the third-party brand you're selling. But these delays in packaging, you're anticipating an increase in costs, and therefore, lower margin from your private label due to the supply chain issues?

So I think we would -- if I spend a little bit of time talking about Private Label, we would -- we -- success for us in the Private Label is that we are establishing something that is part of our business that is high enough to be meaningful, but not so high as to constitute a pivot away from our multi-brand strategy. Our customers shop with us because they love access to the broad range authority that we're able to offer through our third-party relationships. What we would say is that we are still working through various decisions in the product development cycle around pricing. We would believe that a private label brand will allow us to take to market an offering that is both revenue accretive and margin accretive. And we are not seeing that there is, I guess, the delays that we are seeing in the packaging, we are not seeing that flow through to any impact on margin. Rather, we took the conscious decision to launch the product when we believed it was ready and was everything it needed to be to achieve what we were wanting to achieve in that space.

The next question comes from the webcast. Venicia would like to ask, would you consider giving dividends to shareholders?

Steph, would you...

Sorry, sorry. I am sorry. Will just take it. So look it's not something that -- we think -- from a value point of view, we think that reinvesting our profits is the right thing for now. But obviously, it's something that we will continue to reconsider over time.

The last question today is from Aryan Norozi from Barrenjoey on the phone.

Sorry, for hopping on again. Just the advertising costs and the customer acquisition side, I mean I think your tax were up about 50% year-on-year, which is similar to the dynamic across the industry. Could you give us an idea, please, of how much of that increase is market-driven, so rising digital advertising costs in the industry versus how much is Adore purposely pushing the customer acquisition lever?

Yes, certainly. So I'm happy to take that one. It's a good question. And I think that the other thing that I would add in there that is at the same time we grew revenue 18% over the period. So this is a business that is investing to grow revenue and demonstrating that above-market growth. So we delivered marketing as a percentage of sales at 14% in the first half, which for us was in line with expectations. As we look forward, the outlook for marketing remains uncertain given the broader cost inflation we're seeing at an industry level. What we are doing now, and this is a stated strategy we've been following for several years, is we're going to continue to invest in our owned channels, which is helping to minimize the impacts of this industry inflation we're seeing in paid marketing. And so what we saw is our marketing costs when viewed as a percentage of sales was up considerably less than the inflation we saw in the paid channel. And some of the results that we're seeing in the short term that give us confidence on this is if we start with organic performance. We're an industry leader in organic traffic market share. And then also during the half, we achieved strong content-driven impressions in the first half, up 16.5%. So that's how we think about marketing. We acknowledge the cost inflation that occurred in the period. We believe that our stated strategy and our focus on growing owned marketing channels will effectively offset that and is showing strong early results. But in terms of marketing, we view that as a key investment lever, and we will continue to invest in marketing in a very disciplined and data-driven way using the key ratio of lifetime value to CAC to attract and retain customers that we believe will deliver similar accretive lifetime benefits as what we can demonstrate with our historical cohorts.

Thank you. At this time, we're showing no further questions. I'll hand back to Tennealle for closing remarks.

Great. I'd just like to say thanks again for joining us today. We really look forward to connecting with many of you over the coming few days. Thank you again for your support, and we'll now close the call.