Baby Bunting Group Limited (BBN) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us, and welcome to our investor presentation.

Welcome to the Baby Bunting Group Limited full year results presentation. Your presenters today will be Baby Bunting's CEO, Matt Spencer; and Darin Hoekman, Baby Bunting's CFO. [Operator Instructions] And finally, I would like to advise all participants that this conference is being recorded. Thank you. I will now hand you over to Matt Spencer.

Thank you, Paul, and good morning, everyone. Thank you for joining us, and welcome to our investor presentation and a review of the FY '22 financial year. Joining me today is Darin Hoekman, our Chief Financial Officer. Welcome, Darin.

Good morning, everyone.

Before we commence, I'd like to acknowledge and pay our respects to the traditional owners of the land upon which we meet today, and I'd like to pay our respects to all First Nations people past, present and emerging. I have been presenting the financial performance of Baby Bunting for several years now, and I'm pleased to report another year of solid growth and positive financial performance. I'd like to thank all of my colleagues at Baby Bunting, who make these results possible, and acknowledge their outstanding efforts in what I've described as another unusual year. Turning to Slide 4, the FY '22 pro forma financial highlights. I'm very proud of our financial performance given the backdrop of macroeconomic issues that prevailed during the financial period. We continue to focus on growing market share and executing on our growth agenda and managing those aspects of the business within our control. We surpassed the 0.5 billion mark in sales and continue to grow gross profit percent at a time where supply chain costs and inflation were [ big ] costs during the year. I'm pleased to report that the EBITDA margin as a percentage of sales under pre-AASB lease accounting standards which had reached 10%, a significant milestone and a target we set ourselves a few years ago. Pro forma NPAT at $29.6 million grew 13.6% for the year. The pro forma NPAT result does include some New Zealand start-up costs, and looking at the Australian business alone, the EBITDA margin was in fact 2.4% for the year. The balance sheet ended the year in a very healthy position, and I particularly noticed our strong inventory position at the end of the period. Our final dividend of $0.09 per share has been determined, a full year rise on the prior corresponding period of 10.6%. Turning to Slide 5, our operating highlights. Keeping our team mentally and typically safe and our customers safe is an absolute priority as we support new and expected parents. The improvement in our safety performance achieved during the year is a real highlight. We opened 4 new stores, relocated 2 stores and refurbished a further 2 stores in the store network. We had planned to open 4 stores in the second half. However, some of these stores have experienced handover delays from landlords due to challenges around building material supply and trade shortages. The impact of these delays on sales is in the order of around $10 million. We've now had Hornsby opened last week, leaving the other 3 stores to open the first half FY '23. During the year, we deployed a new head of digital architecture, including a new website for both Australia and New Zealand, to complement our store network. I'm pleased to report that the website launch has gone really smoothly, and we've seen some really strong upwards in conversion and sales. We continue to leverage our omnichannel capability through the year, and we widened our store online fulfillment capability to 23 stores, such that 48% of online deliveries were processed through our store network, and this number keeps on growing. This complements our long-term goal of fulfilling 90% of on-metro online orders the same day. With the implementation of our new digital technology platform, we are able to launch our new loyalty program, Baby Bunting Family across all channels. This new program is performing very well as we seek to increase the lifetime value and frequency visits by our loyal customers. We have once again improved our gross margin percentage this by further -- this year by a further 151 basis points. That is a significant highlight. There are a number of contributing factors to this growth, including private label and exclusive products and the realization of benefits as a result of our transformational investment in our national DC and supporting merchandise systems that are not underpinning financial performance. For a long time now, we have reported our differentiated product assortment under the banner of private label and exclusive products, otherwise referred to as PLEX. And we have a long-term goal of 50% of sales being exclusive to Baby Bunting. we ended this year with 45.3% of sales as exclusive to Baby Bunting, another positive performance. These sales can be broken down as follows. 37.1% of sales are exclusive national branded product, and this is up 16% year-on-year. The other 8.2% of sales are through our own private label brands being 4Baby, JENGO and Bilbi. This was a growth of 31.5% year-on-year. As evidenced by this breakdown, national branded exclusive product remains an important avenue for suppliers to grow their market share in Australia. There is also plenty of upside opportunity to grow our own private label ranges given that this product only makes up about 8% of total sales. As you may recall, our national distribution center opened in Q4 FY '21. In its first full year of operations, it is already driving efficiencies and delivering gross margin benefits as we increase our import program and transition direct-to-store suppliers to a centralized replenishment model through our distribution center. This transformational investment, coupled with our relatively new automated replenishment and merchandise financial planning systems, has underpinned improved stock availability and gross margin improvement. And finally, this morning, we opened our doors to the first of 10-plus stores in New Zealand. This is a significant achievement. During the year, we had over $2 million of sales to New Zealand fulfilled from Australia, and we have commissioned a new distribution center in Auckland, recruited a New Zealand-based management team and made the necessary system changes to support our international expansion, a very exciting time for us here at Baby Bunting. In summary, a very, very busy year with many highlights and a true reflection of the great team method. I'll now take a couple of minutes to share with you some specific financial highlights in a little more detail. And please turn to Slide 7. With $507.3 million of sales, we have delivered total sales growth of 8.3% and comparable sales for the year of 5%. This is a very solid performance given the challenges presented as a result of the pandemic. As an omnichannel retailer, through the year, we saw that the omnichannel shoppers spent on average 2x more than an in-store only shopper and overall, on average, 5x more than an online-only shopper. This really supports our omnichannel expansion and investment strategy to grow market share. The variance to consensus sales number largely reflects the delay in store openings. This was around $10 million of sales and around $3 million was delayed sales as a result of supply challenges, in particular with one of the top-selling brands. These sales are not lost as we were able to secure the orders and the former lay buys, which will be fulfilled this financial year. Slide 8. Whilst being longer-than-expected birthing process, we did successfully launch our new online store and supporting [ business ] architecture stack in January 2022. Our conversion rate is up overall to 46 basis points versus prior year. This investment positions us at the front of our industry to further progress great growth opportunities in our immediate market, which I'll expand upon later. It has also significantly improved our online security posture and is central to the progression of our omnichannel strategy. And a great online experience alongside a great in-store experience is essential if we want to maximize our market share opportunity. Skipping ahead to Slide 10. We continue to invest in the business as we progress our store rollout and drive market share growth. We're at around 50% of our store rollout, and supporting investment is critical to support our growth. Pleasingly, we continue to see leverage of our store expenses through operational improvements and in-store efficiency gains. Of important note is that our store leases are not linked to CPI are positive in times of high inflation. The overhead expense increase of 90 basis points is largely due to the introduction of our new DC and full year associated costs, which adds around 40 basis points of cost. But the gross margin benefits the new DC is enabling -- it is, as we expected, a net EBITDA accretive investment. Our one-off initial investment to get the New Zealand operations established added around $1.5 million for the year or an additional 30 basis points of costs and the changes in the accounting treatment for cloud computing reduces depreciation and increases OpEx. We are well progressing the reduction of printed paper catalogs and in towards digital marketing and leveraging our new loyalty program to drive sales and promotional awareness. Speaking of our loyalty program, can we please move to Slide 11. We launched our new loyalty program, Baby Bunting family during the year. This is an omnichannel program that offers members a range of rewards and benefits. The program has been very successful with about 1.4 million loyalty members, of which around 705,000 members have been active through the past year. We believe this is to be the largest specialty loyalty program for new and expecting parents in the country. Loyalty customers spend substantially more than non-loyalty members. We're in early stages of the journey to really unlock the commercial benefit through personalization and leveraging the customer insights. On Slide 12. New Zealand is a $450 million market opportunity. Opening our first year on New Zealand has taken longer than we anticipated, largely the result of COVID restrictions and our inability to be in market. It is open today, and we're excited. We anticipated opening our second store in Christchurch in Q3 FY '23. We have made significant investments in customer research, brand awareness campaigns and the recruitment of local talent during the Tailored New Zealand offer for New Zealanders by New Zealanders. Our strategy is to sell the widest range of products backed by great service and low prices everyday. It's very exciting for us as we open the door to our first store today. I'll now hand over to Darin, our CFO, who leads our transformation program, and we'll provide some further commentary on financial performance. Thank you, Darin.

Thanks, Matt. I'm on Slide 13, which describes our transformation program, which was defined back in FY '18. It comprised of a number of large investments to overhaul or modernize the business across systems, branding and supply chain. To date, the program is well progressed and already delivering value, notwithstanding it has taken longer than anticipated, largely as a result of COVID and the delays we experienced in launching the new website, which pushed some projects back 2 years. In FY '22, launching loyalty and our new online tech stack were big milestones for the business, and we also progressed work on advanced order management, payroll and time and attendance systems, which will all complete in FY '23. We had also planned to complete the implementation of a new ERP and point-of-sale systems in FY '23. We have now elected to further progress on these 2 projects instead prioritize a significant growth opportunity, which Matt will expand on a little later. The decision to change the timing of these very large projects will change the phasing of spend we have previously communicated but not the expected value of the core cost of the overall program. Slide 15. Matt has already given some insights into margin and costs. I would like to add a little more in relation to the impact of COVID. A reminder that all of our stores across the country remained open to the entire time through the pandemic. We did not receive any job here for payments, and there was a little rent relief received. Predicting the flow of sales during the pandemic has been difficult. And this last year was no exception as we experienced lockdowns, cycle lockdowns, lived through omicron and saw fluctuations in customer buying patterns and channel switching as a result. During the year, trading costs were in the order of $1.2 million, which was similar to last year. And then as we highlighted earlier, direct revenue impact of new store opening delays were $10 million, which will now be picked up in FY '23 as these stores roll out. As we all know, the pandemic has impacted supply chains across the globe, and we have not been immune from this. Turning to Slide 16. We focus on great value every day, every visit. Where possible, we will absorb cost inflation through finding efficiencies in the supply chain. However, inevitably, some prices have increased. The impact to us has been in the area of international freight rates, which substantially increased this calendar year and product availability from local suppliers to import. In the majority of cases, we have alternative, substitute products for the customer. In addition, by utilizing our label capability, we've been able to secure customer orders if product shipments have been delayed. Basically, we saw a disruption to Western Australia and Queensland in the second half of the year as a consequence of flooding, plus we also saw the effects of higher fuel prices. I would like to turn our attention to the financial schedules starting with Slide 18. We are presenting the income statement on a pro forma basis to clearly demonstrate the underlying trading performance of the business. There is a reconciliation explaining the differences between the pro forma profit and the statutory profit in the appendix and also in the full year accounts. But in summary, the current prior year differences relate to the exclusion of employee equity expenses and significant business transformation program costs. Key drivers in our profit performance this year has been the 151 basis points of gross margin improvement delivered without any change to our promotional program and another year of strong comparable store sales growth of 5%. These 2 elements in combination delivered EBITDA margin growth of 90 basis points for the Australian business resulting in net 10.4% of EBITDA margin. At the NPAT line, the Australian business was up 20% year-on-year, which converted into 13.6% of profit growth at the group level. The delta between these 2 numbers is the start-up costs in New Zealand, which were around $1.5 million, plus we incurred 3 months of warehousing and starting costs as we initiated operations in New Zealand. I might just take a second to refocusing on sales. Whilst comp sales growth of 5% overall for the year was very pleasing, this did feature a higher first half comp of 6.8% and lower second half comps of 3.3%. There is a few elements to this half-on-half difference. Generally, the broader economic overlays present in the second half were omicron plus growing commentary in the media and throughout the election of increasing cost of living pressures, plus we also had significant flooding across WA and Queensland, which impacted stock flows in the second half. Through the second half, we did see increased market pressures by smaller players as they remained on promotion for longer periods, discounted the #1 selling car seat in the market. As our commitment to value and to ensure we remain in front of the competition, we met these activities front on as evidenced by us also moving a number of our Bugaboo range to everyday low pricing and to maintaining our price leadership on car seats. More broadly, in terms of our own data points, we didn't see any evidence of the consumer trading down as ASP was up in both the first and second halves. In terms of the specifics that drove a lower second half comp, the key factors were a stock out as the #1 selling brand, which Matt mentioned earlier, this impacted sales by 3% or a little over 1% for the half. We know this as we secure these lab orders, the delivery delays from the supply met these orders remained open at year-end. Secondly, as the first half was featured by national lockdowns due to the exploding total COVID case numbers, people staying at home loaded up on plate year items. As thankfully lockdowns didn't feature in the second half, as such, a half-on-half impact of close to 1% on sales leading to comp growth. This contribution to comp growth was lower.

Can you still hear us?

Why are you having some tech difficulty at the head office?

Yes. We can hear you coming through.

You can hear us coming through? Thank you. So my last point on comp sales differential. As whilst ASP was up in both halves, its contribution to comp growth was lower by 1% in the second half, and this was due to a couple of things. We had significant growth in our mid-price point private label JENGO pram, noting that we launched a new range later in 2021. This has exceeded all expectations in terms of popularity, and whilst impacting comps, it has delivered significant second half margin growth for us that help defray the margin impacts of things such as higher container freight rates and the lower FX rate we had to manage through the second half. And finally, also having some impact, but to a lesser degree was our response to that competitive pricing that I mentioned earlier. So to summarize, overall, both transactions and units were up in both halves, and it was pleasing to see ASP growth in both halves. Impacts on total sales growth were delayed store openings, lower second half sales of prior year and to transition to lower price points at much higher margin pram products but overall a continuation of some very positive trends for the business. To close out the discussion on the P&L, whilst we have been transacting in New Zealand for 2 years. To date, this has essentially been a brand-building exercise as we reinvested margins into customer research and digital marketing. We are looking forward to what can be achieved through the new stores and the local website now that we are live in both. On to the balance sheet on Slide 19. We continue to run our balance sheet with plenty of headroom with the key call out being higher inventory and increases in the lease-related asset liability balances. A few things to call out on inventory, which has increased by circa $17 million year-on-year. The key part of the increase relates to a 2-week increase in safety stock to mitigate variations in the timing of international delivery receipts. Secondly, 4 new stores opened during the year that added about $3.5 million in store stock. And lastly, we commenced infill inventory to our new warehouse facility in New Zealand. This will give us capacity to fulfill 5,000 screens nationally both stores and online customers in New Zealand. At year-end, stock on hand in this DC was around $0.5 million, which will build closer to $3 million through FY '23. Regarding leases, the change balance is primarily related to a significant number of renewals executed during the year, 4 new leases in Australia, our Auckland store now open and our New Zealand warehouse. We continue to retain plenty of headroom in our $70 million borrowing facility, which we renewed for a further 3 years with NAV back in March. Moving to the cash flow statement, Slide 20. I'm pleased with the improvement in our operating and free cash flow conversion ratios year-on-year. Regarding free cash flow, our conversion ratio is impacted relative to more mature businesses that aren't investing as much as we continue on both our transformation and organic growth through the new store rollout programs. Next year's capital investments will again be significant in FY '23 as we plan to roll out at least 8 stores across Australia and New Zealand, continue to invest in our digital architecture and progress the transformation program and hopefully get a couple of store refurbs in also. I'll now hand back to Matt who will discuss some exciting news around future growth opportunities.

Thank you, Darin. now some related numbers that feeds well into what I want to talk about now. and that is essentially why Baby Bunting is an attractive investment with significant opportunities into the future. I'm on Slide 22. I just want to highlight that this slide talks to the unique position Baby Bunting is in a less discretionary retail sector, grown by the approximately 300,000 births per year. On Slide 23, we're the only national specialty baby retailer with a clear omnichannel advantage over our competitors. Our positioning and advantage provides us with future growth opportunities. Some of these opportunities are summarized on Slide 24. We conduct a store network review by third-party [indiscernible] every 2 years and have done so since 2008. The latest iteration of our network plan, which is based on our market share and financial performance, have seen our potential network plan increase to 100-plus -- 110-plus potential stores in Australia and 10-plus stores in New Zealand. In addition to this, our current addressable market sits at $2.5 billion. We believe that through the opportunity of range and product expansion, we can redefine this as being more like $3.5 billion now. We have a leading specialty website, and we see the opportunity to implement Australia's largest and most comprehensive baby or nursery marketplace to support new and expecting parents with all they need in one location, clearly the one-stop baby shop. We see further opportunity to grow within our new total addressable market with a focus on every day value. Our best buy range in FY '22 was 37.7% of sales, and we see retro expand this further back by our 5% price feed promise. And then with the opportunities to leverage our loyalty program further to deliver growth. Darin, can you please provide a little more detail behind the network growth opportunity and the economics of new and mature stores?

Thanks, Matt. I'm on Slide 26, which presents our updated store economics slide. When we first presented this slide back in 2016, our average mature store, our return on invested capital metric was 70%. This average is now plus 100% delivered through continued expansion of market share with higher gross margins and strong management of our store cost base. Our mature store cohort is now up to 42 stores, 39 Metro and 3 regional. For our mature metro stores, 27 of the 39 are delivering plus 100% ROIC with 9 between 70% to 100% and 2 below 50%. Regarding our regional stores, of which there are 6 that have completed more than 2 full years of trade, these stores are delivering capital returns on average of 80%. Actually, all our stores are performing incredibly well. And on a further positive, our shopping center stores, which were hit hard foot traffic are also performing well. Our regional stores without exception have exceeded our expectations on sales and returns such that we are now taking larger tenancies, which will also serve to perform local area online fulfillment. Matt, back to you.

Thank you, Darin, and if we can go to Slide 27. When we presented the half year results in February, I raised the concept of increasing the size of our addressable market, which today stood at around $2.5 billion. The pandemic has impacted retail in many ways, and positively, it has accelerated the growth and the maturity of the transition to online shopping and the omnichannel experience. In Australia, we are now levels of experience consistent with other markets, and the baby category is no different. Many categories such as car seats and prams, cots and furniture lend themselves to a tactile in-store and omnichannel offer. And categories such as toys, apparel, soft goods and feeding has seen a growth online. Additionally, our online range has been governed by our store footprint or format and the associated shelf space. We have historically identified the total overall baby goods market at around $5.2 billion. Our analysis, should I say, has highlighted that, within the overall market, the online channel has expanded significantly. With our significant investment in our digital platforms and our national distribution center, we are now in a position to be able to expand our online offer and, therefore, contemplate a significantly large addressable market. For example, online baby wear as a channel has grown from $130 million to $370 million in recent years. This traditionally has not been a product category that we have supported in our online offer. Alongside our expansion of our online offer, the introduction of a marketplace provides us the platform to broaden our offer a first-party product by dropship and present the opportunity for third-party suppliers to leverage our online traffic to sell differentiated product and hence broaden our range and, ultimately, the total addressable market for Baby Bunting. On Slide 27 and 28, we break down the addressable market opportunity a little further. In particular, the categories of baby clothes or apparel, where we see brand expansion to 0 to 4 years as an opportunity. Likewise, toys where we currently have a limited offer. We see an opportunity to increase our addressable markets for up to 5 years old, leveraging online and marketplace capabilities. And there are other categories where we're looking to increase our range within the already substantial addressable market. Slide 29, I've mentioned marketplace a few times now. Today, we're excited to announce that we have planned to introduce Australia's more comprehensive specialty marketplace for baby products. We're planning to build on the proposition of the one-stop shop, it's a one-stop baby shop, leveraging our 32 million past website visitations to bring together a marketplace that will showcase more products, more brands, more supplies and ultimately give parents and parents-to-be more choice through their parenting journey. The work has commenced as we build out the offer and established a technical platform. We have selected a marketplace technical solution provider who is working with us to establish this capability. We see the marketplace as an ideal way to grow existing categories and grow our market share of our expanded total expandable addressable market, or TAM. We'll do this by first-party suppliers, both existing and new suppliers, and dropship capability. We'll also be introducing third-party suppliers to sell a range of products. We're expecting to launch the Baby Bunting marketplace in the second half of FY '23, and we look forward to updating you on progress as the year progresses. Moving to Slide 29, a brief trading update. As of the 10th of August, comparable store sales growth is strong at 15.3% year-to-date. Total sales growth has been 19.3%. We expect comparable store sales growth to moderate as to cycle periods affected by lockdown throughout Australia. We are committed to great value every day and every visit, and we'll be expanding our best buy range and our loyalty program as part of our commitment to delivering the gross value to new and expected parents. We anticipate opening new stores, 8 new stores in FY '23. 6 will be in Australia, and this includes our recently opened store at Hornsby in New South Wales and 2 will be in New Zealand, including our Albany store, which opened today. Given the continuing economic uncertainty, FY '23 guidance cannot be given at this point in time. Thank you so much for your attendance today. We will now open the floor to questions. [Operator Instructions]. Thank you so much.

[Operator Instructions] Your first question comes from the line of Alexander Mees from Morgan.

Just starting with New Zealand. I'm wondering, obviously, you have a new DC that you flagged in the new management team. You've got one store opening already and one later in the year. Should we expect New Zealand to contribute positively to the bottom line in FY '23?

Alex, I'll take that question. At this stage, I'd say no. It was -- we're investing around about $1.3 million, $1.5 million in terms of fixed costs into that business in the next financial year or adding to that to our cost profile. It really will be dependent on what the new stores and online achieved so at this stage, I anticipate that a loss between $1 million to $2 million for the financial year. And as we scale up stores and as we grow our online presence, that should be -- we'd expect to move that into positive over the future years beyond FY '23.

That's great. Just secondly, if I may, with regard to the gross margin, you have seen some improvement in the ASP and you continue to see private label moving up -- exclusively moving up. I just wonder, can you hold gross margin in the current financial year or is that too much to ask?

We've certainly got a number of programs in place that we're going to try and grow it, but it really is dependent on the kind of the potential cost changes that may come through. But certainly, we're focused on trying to maintain or grow that to a degree in the current financial year.

That's great. And one more very quick one. Just with regard to the marketplace, which is obviously exciting news. Just wondering what sort of investment you might have to put in, in terms of your own inventory to just facilitate the growth of that marketplace in 2023.

Well, marketplace specifically won't be an investment in inventory. The sales -- 1P net sales will be facilitated by dropship. So we don't touch that inventory, we are going to hold that inventory, and then the 3P or the commission-based revenue model that's -- which goes from supply to customer, but that's similarly we don't touch that inventory. In terms of what it means to the metrics for FY '23, There'll be a standup cost of around $1 million and then -- in the current financial year. And then ongoing, we've got a pay for investment around $1 million again per annum. And then there will be a pretty quick charge as we utilize as order flow through the new platform. So that's kind of what it's going to look like in the current financial year. I wouldn't anticipate anything significant or anything material with regards to sales performance, but we expect to get that up in and going in the second half.

Yes. I think it's also fair to add that we've added some further buying capability into our organization. And some of that costs are really starting to run through back end of this half.

Yes. I sort of stand back and look at this and go, it's a low-cost investment for a potentially great ROI and with low risk around it.

Your next question comes from the line of Sam Teeger from Citi.

Yes. First question, can you help us understand how we should be thinking about the CODB growth in FY '23? Perhaps if you can maybe step through some of the key line items such as wages around marketing and anything else you think it's worthwhile calling out.

Yes. Sure, Sam. So our award for our retail stores are lined up with the fair work wage case, which handed down a 4.6% to 4.7% wage increase. And so we will absorb that into our retail store staff and also our distribution center staff. In the absence of any sales growth, then the impact on that in terms of our cost base is around 70 basis points. But obviously, we're a growing business with expectations around further market share growth. And so we think that that's a quantum that we can. Hopefully, it's all in terms of head office costs, it's -- which aren't attached to that wage case. Certainly, there are some sort of pressures with regards to wages in the market, but that will add -- would add something in the order of $2 million to our cost base in the current financial year, I would have imagined. You then overlay that with regards to -- in terms of the standup costs in New Zealand that we've mostly invested all of that, there might be another inventory $300,000 to $500,000 to close that out. We've added are adding 3 new category buyers, which is really exciting, and we're going to sort of support that targeting the expansion of the TAM from $2.5 billion up to $3.5 billion. We've got those fixed costs that we're adding into New Zealand that I talked about. And then as we add stores in, that will obviously increase our retail cost, and then there will also be some scaling costs in head office to support that expanding store network in the operations in New Zealand.

Right. And just in terms of just your rent, I know you guys aren't linked to CPI. So what would you be expecting for your existing stores?

So our existing stores are on average actually, you know what? That is a commercial number. And I'm not going to call that out. But it doesn't change the profile of the P&L at all. So the depreciation and the interest costs go up as we add new stores. And then as you pay the lease rent, you can see them sort of -- you can see those balances on the balance sheet slow down. But it doesn't change the profile. But the good thing is, as you point out, the thing to highlight is that we have got fixed low single percent numbers, and they're not CPI attached.

Got it. And then on the subject of stores, you're saying at least 6 to 23. What's the first half, second half split? And just a mix between metro, regional and shopping center.

It's 6 in Australia, 2 in New Zealand. New Zealand has opened 1 now. And then with a second one, we did hand over. It's going to be between December and January the taking over of that store. In the first half, we're expecting to -- well, we've opened Hornsby already. We're opening the [indiscernible] Melbourne, a store called onside. That will be opening in late August, mid-September around there. Then we take on [indiscernible] the second half. And then we've got [ Lovenholm ] also in the second half. Yes. So it's basically a half-on-half split. I might add just on that store role as well is that they are all committed leases undergoing builds. We're in negotiation on a number of other opportunities that could potentially land in the financial year. But just given what we've experienced in FY '22, we're sort of calling out those stores that are opening more in near term we've got confidence around but as we go through the year, we'll give another update at the AGM and then another update in February as to the store rollout as it progresses through the course of the year.

Sure. And then just final question on the marketplace strategy. But will the customer be able to differentiate as to what's on the marketplace, just what's kind of on your existing website? And to what extent will the company be screening new brands that wish to sell on the marketplace for things like product quality, safety, ability to fulfill just any customers in the marketplace have a good experience?

Yes, absolutely. Good question, Sam. So the marketplace actually is one integrated space which is Baby Bunting or from [indiscernible] respectively. It is very clear have to -- the technical build of all is at moment. So it will be clear that where the product is being sourced from. So that will be -- is it sourced by Bunting, a third party. That will be very clear to the consumer. We certainly want to put some rules around it from a customer experience point of view. So obviously, we'll be managing and monitoring fulfillment and fulfillment promises, et cetera. And so we're doing a lot of work around fulfillment in our organization today with -- also with advanced order management occurring in the first half of this year. And so certainly, we'll be looking at making sure that customer experience is in line where we're at. There's some finer detail around how do you manage calls, returns, et cetera, and we're working through all those on an individual basis. We've certainly built -- started building the team around this to give us the best possible opportunity to understand where the pressure points are in the space. We are -- from a product compliance and safety perspective, essentially, the [indiscernible] is the person who's accountable for making sure that all the compliance things are right, but we've seen you've got a very strong compliance program in our business. And we won't be -- we're making sure that what we open in our marketplace is absolutely in line with our expectations.

Right. And sorry, just on the subject of marketplace, were you trying to make the marketplace from a supplier profitability perspective more appealing in other marketplaces such as eBay and Amazon to try and give it a real kickstart?

But I think from our perspective, we are already the largest specialty baby goods retailer. With the highest amount of traffic there, we'd expect that there'll be many, many suppliers or people who would like to get on -- take advantage of the eyes that we already have there. We are around 3 million unique visitation sales to our website through the year. And it's certainly a destination for specialty baby goods. So clearly, we believe that there'll be a significant uptake of suppliers wanting to participate. We're still working through what that commission and revenue-based model is. I mean that's all commercial and customer compliance and so we're working through all that. But look, we certainly see that there's a benefit for, first and foremost, the customer to go to one location in Australia for all their baby goods needs. And for suppliers, it's great to have their product showcase especially when there's new store sustainable products, et cetera, we might not have already at the moment.

Your next question comes from the line of Rachael Harwood from Macquarie.

Just first one is on the online. So I mean, you mentioned the shift online is growing as a proportion of sales. Could you maybe just comment on the mix shift in terms of the impact on margins? And then how you're thinking about this going forward and maybe how you're seeing the competition in the online market?

So I think the only real differential in terms of online margin to in-store margin is the cost of delivery. And -- but that is offset by lower fulfillment costs being delayed to fulfill that. And so on a store level, relative from a contribution perspective, it is consistent with our mature stores, 20% above. In terms of the online, the categories that we're sort of targeting in terms of the expanded TAM, they are higher-margin categories. And then we're certainly sort of building out our online range about 4,000 3P slots opening in our DC that we can do we plan to put product in there. If you then look at what is the impact going to be on marketplace in terms of overall margin, I think it's too early to say because we don't understand what the balance between 1P and 3P is going to be. 3P is essentially commissioned that is 100% margin. And then the 1P, which is drop ship product, the cone going through our P&L and then you got to the margin there. I think what the opportunity that does present is where we can get a lot of great wins on our website that we currently don't range. And so -- and there's no risk, no inventory risk associated with that. So and you got a low cost to serve. That helps to answer the question for you, Rachael?

Yes. And just last question for me. Apologies if I missed it, but just looking at inflationary costs I mean you mentioned some inflationary costs like wage increases. How -- to what extent are you able to manage this with price increases and promotion? And then could you maybe just comment on freight costs and FX rates heading into FY '23.

So if we miss one, we'll call it out. So we did talk about -- so our stores and our DC staff will take the benefit of the share rate rise, which was between 4.5% to 4.7%. So that flows through. Assuming it's on a 0 sales base and we are certainly not expecting that, to give you a sense of scale, that would add around 30 basis points of cost. But as you ask, so it's really around will it leverage or deleverage? It depends on what our comp sales are really relative to that number. And then we're anticipating probably around a 4% CPI for our head office staff also. Now just given the other 2 elements of the question.