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

Good morning, everybody. Welcome to Baby Bunting's Investor Day. My name is Mark Teperson, and I am the CEO of Baby Bunting. And today, I'm joined by Darin Hoekman, our Group CFO. I joined the business about 9 months ago with a clear mandate from the Board and an understanding that this was a turnaround opportunity. And today, I'm delighted to be able to share with you how we intend to return the business to growth and deliver shareholder value into the future. Let me walk you through our agenda today. I'm going to start off by walking you through some of the big rocks of our strategy and the executive summary in addition to giving you some key updates that we announced to the market earlier today. After that, I'm going to talk about our customer and talk about the immediate priorities and opportunities that we look at into the business and then break down the key elements of our strategy around how we're going to return Baby Bunting to growth. Following that, we will look at our capability platform and our investment and execution plan ahead of taking and facilitating a Q&A with all of you in the room and for those of you joining the webcast online. As I said, I started at Baby Bunting around 9 months ago with a clear mandate from the Board to return the business to growth. We'll talk about that strategy in detail today, but I'm really clear in my observations of the business that Baby Bunting has strong foundations and a market-leading omnichannel platform. There is much to work with in terms of how we return the business to growth. It has a fantastic fleet of stores, 70 across Australia and 4 in New Zealand. We have more than 800,000 active customers and 32 million website visits per annum. We enjoy a 90 -- sorry, a 73% market-leading NPS score with consumers, and that gives me great confidence that the bones and foundations of this business are in good order. Importantly, the business also enjoys around 300,000 births per annum, which is a great tailwind to continue to grow the business into the future as Australia's population growth is forecast to continue to grow over the longer term. And importantly, we have a large addressable market share and significant opportunity to grow in adjacent categories that we currently serve today to eke out greater margins and sales improvement. I have no doubt that the business has significant potential for operational improvement. And importantly, I also have confidence in our ability to grow margins -- gross margins in FY '25 to 40%. This morning, we published an update to the market, sharing our results over the course of the last 8 weeks. I'm pleased with the progress that we have made over this period since we last spoke to the market. And it illustrates the work that we continue to do in evolving our go-to-market strategy and the ongoing work that we have to stabilize the business. Total sales for the last 8 weeks were up 1% with comps just marginally down for the same period. This also gives us confidence to reaffirm our previous pro forma NPAT guidance of $2 million to $4 million, as we stated in the announcement earlier today. We also announced that we have renewed our NAB facility for the next 3 years, taking us to September 2027. NAB has been a fantastic long-term partner of Baby Bunting. And we took the opportunity as part of a scheduled renewal to talk to them about the immediate needs of the business as we think about the imperatives in the short term to stabilize and optimize the business. As a result, our FCCR ratio has been lowered for the next 3 quarterly periods, and that provides Baby Bunting with headroom to be able to operate during this transitional period, which gives us great confidence as we look to execute our future plans. Now on to the fun stuff. As I think about the opportunity to grow this business, we've really thought about how we encapsulate this across 3 key pillars. I'm going to spend lots of time later in the presentation breaking this down in far more detail, but the plan clearly articulates a pathway back to a 10% EBITDA business, which is built on 3 key pillars: The first one around how we grow our market share, the second one around how we continue to grow EBITDA and the third one around how we improve our return on invested capital for shareholders and into the market. We operate in a fantastic market with $6.3 billion of total addressable sales across Australia and New Zealand. Obviously, the largest portion of this is in Australia with around $5.4 billion opportunity. And given Baby Bunting's current size, we enjoy around a 10% market share of the Australian addressable market. When we break that market share in total addressable market down into the categories, you'll note that we do maintain a strong market share in hard goods. Typically, this would be the area that we would describe to you as nursery essentials or predominantly made up of nursery essentials, which is car safety, prams and cots and furniture. But in the industry definition, that grows to include other categories like safety, toys and also some nursery products. Baby Bunting is a fantastic market position in this place, and we still see significant opportunity for us to be able to grow our hard goods share. Fundamentally, we are most -- we are strongest in our car safety business, and we still have meaningful opportunity to scale our pram and cots and furniture business to be in a similar order in terms of its market size. The reason that gives us confidence, if you think about the consumer at this time of their lives, they are purchasing those 3 key categories typically together at a similar life stage. And through the work that we're doing, innovating our product range, we believe that we can grow our market share in our core business. But as we look to the opportunity for further growth, the soft goods market represents fantastic incremental market share. This is where we typically find margins being much higher in the industry, and it also gives us the opportunity to tap a greater frequency of transaction with consumers. If you think about customers that are buying into this category, typically food and feeding or clothing and soft goods like sleep suits, the frequency of transaction for this customer is much more frequent than the nursery essentials category, which is typically a large purchase upfront in the early life cycle of a customer. For each 1% of market share that we can gain, it represents about $34 million worth of incremental revenue, and that presents us with a wonderful opportunity to complement the work that we have done in building a strong business in hard goods and nursery essentials in addition to leveraging capturing that customer earlier in their life cycle and being able to continue to serve their needs over the life of their child. Articulating a clear plan to a 10% long-term EBITDA target is pretty -- is fundamental to instilling and restoring confidence back into the market but also in the long-term prospects of Baby Bunting. This is primarily driven around 3 key initiatives that we see unfolding over the course of the next few years. First and foremost, it's the delivery of an incremental 500 basis points in gross margin, and secondly, around generating 200 basis points of incremental headroom through network growth and productivity. We'll touch on this in more detail through the rest of the presentation in addition to how we intend to grow gross margin through these 5 key pillars. Again, I will touch on this in much greater detail as we go through the presentation. Today, I'm also excited to share with you 2 new initiatives that have come out of how we leverage the size of our platform and the power of our data across the business. The first which harks upon the fact that Baby Bunting, like most retailers sit on a treasure trove of data and information, but also like most retailers, it very poorly utilizes the full power and the extent of that data. My rich background and history in this space over the course of the last 10 years has given me some fantastic learnings and insights, and we are starting to deploy them in the Baby Bunting business today. So first and foremost, leveraging our data to provide better experiences to customers more personalized communications and more relevant product recommendations is fundamental to how we think we can continue to grow customer lifetime value. The second business, which I'll talk on again in more detail later on in the pack, really speaks to how we harness the power of our data and give our partners greater access to the highest concentration of their target audience leveraging 800,000 active customers in a category so that we can deliver better returns on their marketing investment in the industry. Taking more marketing dollars out of above-the-line investments and monetizing our assets across the group in a far more comprehensive way. And lastly, as I cover off the last of the big rocks that we will cover off is how we think about our growth and opportunities through our store network. The business has, over many years, meticulously planned and evaluated network growth opportunities, mapping catchments across Australia and New Zealand. We see an opportunity with a renewed store environment to continue the growth story to capture the market opportunity that we have defined with demographers to understand and to take the market share that we believe available to us as we continue on our growth story, and Darin and I will touch on more of these execution points later in the presentation. But now I wanted to kind of turn my attention to the customer and if anything -- if there's anything that I have learned over the course of my career is that great strategy is built off deep consumer insight. I was privileged in the first 2 weeks of joining Baby Bunting to facilitate and host qualitative research right across the customer base to give me a deeper understanding of who the customer was, what their needs were, what they looked for out of the industry and how we could better serve them. And these insights have been pretty fundamental in how we have shaped our strategy over the course of the last few months. If we consider that Baby Bunting has been serving customers for more than 45 years, 45 years ago, our core customer was a Gen X consumer. Generation X growing up at a time where there wasn't a smartphone, where the Internet was present but not prevalent. When the store was the core of where you did your shopping, and fundamentally, consumers obtained the information of what products were going to be on special and sale through catalogs and distribution. It's fair to say that the business and the market has evolved significantly since those times. Today, we serve millennial consumers. During that time, the evolution of the smartphone, the introduction of social media and the way in which consumers transact across not just stores but online channels have fundamentally shifted consumer behavior and expectations of retail businesses. We find ourselves in a wonderful position with a strong omnichannel offering to be able to further grow and develop our strategy to be able to capture this, but we need to do work on pushing the business forward. We need to evolve our store experience. We need to elevate the way that we digitally connect and capture customer engagement. And importantly, when I reflect and think about our store network, 43 of our 73 stores in Australia today were designed at a time when we were serving Gen Xs, designed at a time before the first smartphone, iPhone had even been launched and developed and long before the introduction of social media. This presents us with a terrific opportunity through revitalizing our store fleet, we see the opportunity to be able to grow comp sales in the existing network in addition to provide an exciting opportunity for new customers in targeted catchments to grow our market share. So befitting of this opportunity, we took the opportunity to also redefine our vision. Our vision is the world that we want to see, the best start for the brightest future. We think this clearly defines our intent in the market for consumers and helps them understand why they should continue and choose Baby Bunting when making important purchase considerations in this space. So our mission becomes to support and inspire confident parenting for newborns to toddlers. And this also helps to define for consumers the range that they can expect to find in our stores, everything from their newborn requirements right the way through to their toddler lifetime and life cycle. Again, this helps to define the total addressable market and also helps our internal teams define the range and the offering that we put to consumers to see that we can continue to generate lifetime value and growth. Our customer value proposition that has been developed for 45 years of serving customers and projecting into the future to address the future opportunity is really predicated on 4 pillars that the business has been delivering for quite some time. Baby Bunting is synonymous with choice, with range, with product opportunity and also with great value. The service offerings that we have been delivering to customers over 45 years serving multiple generations of families in addition to the establishment of the only national car seat installation business, we serve more than 140,000 customers per year installing car seats in a market with 300,000 births per annum. The way that we enhance experience across our stores and our online execution, we will continue to invest and lift to deliver the best possible experience on a national scale right across Australia and New Zealand, and importantly, continue to deliver value for customers. Our price feet in the market is a market-leading offer that ensures that we are the most competitive place for consumers to continue to shop, and it differentiates us and leverages our buying power and scale in the market. Earlier, I mentioned the business has significant potential for operational improvement. In February, when we released our first half results, I spoke to some of these key opportunities. I might just touch upon 2 of them on this slide to demonstrate some of the work and progress. As I've alluded to and spoken about in many forums before the work that we continue to do to evolve our go-to-market strategy is starting to pay dividends. We have seen a stabilization of our transaction numbers and an improvement in our average selling price over the course of the last 8 weeks. This fills me with confidence that the work that we continue to do is having an impact, but the job is not done. We need to continue to find the right strategies, the right channels to market to ensure that we continue to deliver on this momentum, and importantly, continue to deliver new customer acquisition into the business. The second key opportunity that I want to talk to on the screen is the work that we're doing around our product ranging, introducing innovation. As I've spoken to you about previously, the work that we have done introducing new products into our business has had a material impact on those categories where we have been able to execute with supply chain opportunities. The most notable one is around our sleep suits and Manchester. Here, we have introduced newness and innovation into the range. We have been able to grow sales significantly and see an improvement in margin of over 500 basis points in this category. Again, this fills me with optimism around the strategy that we have put together today as we continue to roll this similar strategies across other categories through our business. So as we peel back the layers on how we are going to return the business to growth, I'm going to start with the 3 pillars that I identified earlier in the big rocks. First and foremost, how we grow market share through enhancing our customers' experience. We want to deliver market-leading products for our consumers. We want to enhance the experience and deliver a best-in-class service, and leveraging the power of our data and analytics, we see as a fantastic opportunity to eke out even greater benefits from the investments that the business has made and the wealth of data and insights that the business sits upon. When we think about how we attack and grow our EBITDA, there are 4 key things: growing our gross margin, how we evolve and develop a new media business to capture high-margin revenue opportunity as we scale our New Zealand business to return -- or to deliver profitability in that market over the medium term and how we continue to generate operating leverage throughout the business by focusing on productivity improvements. Finally, as we look at how we can grow return on invested capital through a disciplined capital management approach. This is about how we continue to drive and deliver growth in our network, the refurbishment of our existing store network program and inventory productivity measures and programs that we have put in place over recent months continuing into the next financial year, and also and importantly, to generate medium- to long-term growth, we think about replatforming our ERP and POS to enable richer experiences and far better capability that helps us scale from the platform that we operate today. Market share, growing market share is delicious. I love that image. When I think about the opportunity here, growing market share is fundamentally about how we reimagine the customer's experience. I've spoken to you today already about the work that we have undertaken around how we're reinvigorating some of our product range and the service experiences that the business has already implemented. We see a fantastic opportunity to build upon those strong foundations. When we think about product and strengthening our product delivery, as I touched upon, there is a fantastic opportunity for us to continue to leverage our size and scale in hard goods, growing categories like prams and furniture, cots and furniture to be representative of a similar scale that we enjoy in our car safety business. Beyond that, we also see as we define the opportunities to expand into soft goods through initiatives like private label and also strengthening the work that we're doing in clothing, Manchester, feeding and nursery, where we've also enjoyed strong growth as a result of innovating our range. New product innovation has been key and fundamental to some of the growth that we have been able to turn around in these categories. We need to do it at a larger scale. So work is underway at the moment to implement those strategies across our other core categories to ensure that we can deliver that into '25. As a point of reference, I note that our first quarter will deliver around 25% more newness into the business than what we delivered in the same period in the prior year. And again, this fills me with a level of confidence given some of the early results that we have seen. Another initiative that we're excited to get leverage of is our marketplace. Our marketplace just recently turned 1 year old, and we've generated many insights from this business since its inception. There are a number of products that started in the marketplace that have now found their way into our national network of stores, most notably the Snotty Boss. For any of you who have children out there today, it's a cold season. If your kids are snotty, I do recommend you invest in a Snotty Boss. It sounds quite disgusting, but it's very effective. This product in itself is now one of our top-selling baby health products as a result of testing it on our marketplace. So marketplace provides us with a wonderful opportunity to fast test products in market. It's also a capital-light business, so we can expand our range, as evidenced by the 17,000 -- more than 17,000 new SKUs that we have on our website, which more than tripled our online range. And when we get insights that deliver, we can quickly roll them out to our stores, which is a fantastic radar around what the customer demand is searching for and how we can best leverage that into the network. The job here is not done. I still see this as being some of the very early stages of marketplace. One of the other strategies that we're working on at the moment is how we can deploy it across our core categories, reason being is to further strengthen our dominance in the categories that we are known for to deliver customers with the broadest possible range, every color, every model option and every opportunity. This work will take time. We need to work with our supply partners, and we need to continuously evolve our operations. But as I said, I have been pleased with the results that we have delivered early on, but there is still much runway to be gained. Perhaps for me though, one of the most exciting things about our new strategy is the work that we're doing about reimagining our store experience. I see this as being fundamental to delivering comp sales growth back into the existing fleet, noting the age of the design of some of our stores in the Australian business. I have this fundamental belief when I think about retail. Stores are not just experience centers for customers. They are also distribution centers for product through omnichannel fulfillment, and they are also importantly a stage for our brand partners to be able to bring innovation and new product to life. We need to create the most exciting environments for our brand partners to be able to deliver that product so that they choose and preference Baby Bunting when they're bringing that innovation to market. That puts us in the best possible position to secure exclusive rights, distribute exclusive brands or exclusive products in the market and creating an environment that attracts customers not only for their first transaction but for every subsequent transaction that they're looking to make in the space. We feel that this is a really important and fundamental part of our strategy, and we have a wonderful opportunity with 43 stores in the Australian market that are -- as they come up for renewal to reimagine that experience for customers. We have developed a very comprehensive plan around how we will deliver this to the market, and I'm delighted to share that we have also appointed the G Store as our partner to deliver the store experience. G Store has a wealth of knowledge and experience with large format retail, reimagining and engaging customers, helping with service design and delivery and also delivering fantastic returns on capital investment as we think about evolving this program. The program underway at the moment is not just about how we design the in-store experience but also the service design internally. We are fundamentally changing the approach that we retail. Today, if you were to buy into the cots and furniture or bed time category and you're looking for a cot, a mattress, a sleep suit, linen, you're looking for white noise machine, a monitor, baby blankies and dummies, you will find them spread out through the entirety of our store. This is not a great experience for customers. When customers think about sleep time, they want to be able to find everything in a centralized location. So the big pivot that we are making in our merchandising approach in the new store format will be moving from a category-led rational and functional approach to an activity-led consolidated approach, which we think will deliver on the customers' needs and desires, reflecting on some of that early research work that I did with consumers when I first joined the business. The program with the G Store takes a full design to the end of this first half of '25, and our first 3 refurbished stores will be in market towards the end of the third quarter of FY '25. We're really excited about this program, and also underway is the development of a small format store, which we will touch upon in more detail later in the presentation. Omnichannel retail has been at the heart of my career for the last 15 years. I have spent much time understanding how to leverage the assets of a retail business to fundamentally deliver better returns and create force multipliers across businesses. This is fundamentally about combining the power of our store network with the digital capability of our online platform. It's how we harness the demand, national demand right across the country, but enable the assets that we have right across our business to enable the growth. Towards the end of March, the beginning of April, we completed the rollout of all 70 Australian stores now being enabled for online fulfillment. And the benefit of that was plugging in an additional $50 million worth of inventory, which we already owned across the network now available for purchase online. This gives us tremendous flexibility in our supply chain and capability. To complement this infrastructure, we also reimagined the way in which we distribute these orders. And we built a fulfillment algorithm that gives us the ability to distribute those orders based on the closest proximity to the customer, consolidating the orders into a minimum number of shipments. It gives us the ability to consolidate those orders based on speed to market or lowest shipping costs, and also importantly, now gives us the ability to allocate those orders based on the slowest weeks of sell-through or the highest weeks of inventory cover. From an inventory productivity perspective, this gives us tremendous leverage across our store fleet, enabling us to sell products that are underselling in key locations across the country, harnessing the online demand and moving those products through our network before we get to markdowns at the end of season lines. This is a fantastic strategy that I developed when I was at Accent Group, and it delivered significantly on productivity improvement. It delivered on freight efficiency and cost gains and also improved margin across the business and the network. Expanding our best-in-class services is, again, another pillar of our strategy, which I'm really proud to be working upon. I was pretty blown away to learn that Baby Bunting installed over 140,000 car seats per annum given how many births occur in the Australian market. And we see the opportunity to deploy those learnings around services into other parts of our business to create network effects. The power of a customer in car safety coming back, getting their car seats reinstalled in other cars or buying additional car seats as grandparents become part of the day-to-day life has been a fantastic way to bring customers back into store. And for those of you that have had young children and think about the avocado smushed into the seat, the frustration of having to remove that or wanting to have that removed gives us pause that introducing a pram reconditioning and car seat reconditioning service to customers will enable us to amplify similar network effects in our pram business, creating great theater in our stores but also giving customers a reason to come back and transact. The other thing that I learned when I reflect upon the qualitative research that I did with customers is that whilst this is a really exciting time for all parents, it can also be a very overwhelming time. And when met with a friendly, knowledgeable salesperson, it transforms the experience for the consumer. We don't want this to just happen out of chance. We want to be able to connect customers with our fantastic team. So we are also going to pilot later this year the ability for customers to book one-on-one appointments with our team members, again, helping us with productivity when we think about staffing and rostering but also connecting customers that are seeking out extra help and attention to be able to deliver on that experience for them. I touched upon the opportunity to leverage our customer data in a far more meaningful and material way. Over the course of the last few months, as we've scaled this team, we have learned an enormous amount about our customers. We have new segments. We have new understandings. We are starting to plot the pathway for how customers move from entering our business to becoming the most valuable customer in our cohort and deploying this across the various channels that we have in our business, how we communicate to customers, through e-mail, how we personalize the experience online and also how we think about ranging and execution in our stores. This will continue to serve as a meaningful way that we can get leverage out of the size and knowledge of our platform. I'll remark on the fact that we have 800,000 customers, 3.4 million transactions, and more than 90% of those transactions are linked to a customer record. That gives us phenomenal insight to help predict and also prescribe what customers are likely to want to see from us into the future. As we move to the second pillar of our strategy and we think about how we're going to grow our EBITDA to 10% and beyond, I touched upon the key initiatives that underpin this, but I wanted to spend more time unpacking the important 5 initiatives around how we see growth to 40% gross margin in FY '25 and our ability to extend that beyond. First and foremost, as we think about the important work that we've been doing in simplifying our price architecture. This has fundamentally been about simplifying how we communicate value to the consumers as a result of the fact that Baby Bunting traditionally had layered many promotions over one another. The effect of which, which I'm sure you've all joined the dots on, is that it erodes margin at an accelerated rate. When you have a catalog promotion, you do a spend and save. You also have a loyalty offer over the top. You're not actually generating incrementality over those offers when you run them concurrently. And so simplifying the way that we go to market has definitely helped our ability to improve gross margin performance. We retired an element of our loyalty program in the middle of March. Our Spend & Earn programs, which was a $10 voucher for every $200 a customer spent, was sadly causing the most amount of friction with customers. We've done a huge amount of work selling them a $2,000 pram, and then the experience that they have subsequent to that when it came to redeeming their vouchers was that there were minimum spend thresholds and category exclusions. It didn't make sense to me. We've eliminated that part of the program. And encouragingly, we haven't seen any drop-off in transaction volume or the patronage of customers. Customers continue to identify themselves at pause, feeding the rich data and insights that we're generating from the program. And we still see an opportunity to evolve the loyalty program to be more than just price, and we look to do that work into the course of FY '25. The impact of retiring the Spend & Earn program on the business has been a 150-basis point improvement in gross margin. The business invested around $10 million in this program over the course of a financial year. And so we are excited to see this return to our bottom line, and we build upon our charge towards a 40% margin target. The second piece of work that we're doing is around working with our supply partners to renegotiate our trading terms. This is a reflection of the partnership and the steady growth that we have delivered to the market over the course of many years and the pathway that we have defined to continue to deliver that growth for them into the future. Partnerships should always be about win-wins. We are really invested in how we do this well in the market, and we're pleased to see some of the early results that we have been able to generate with our brand partners delivering around the targets -- sorry, slide moved -- delivering around the targets that we had set at the outset of this program. We see this important work continuing through the first half of FY '25. As you would imagine, we have a large number of suppliers, but concentrating our efforts on the top suppliers to begin with and rolling through the rest of the network is how we intend to attack and approach the strategy. The third part of the pillar is how we amplify exclusive brands. I'm delighted to announce, as we shared today, 2 exclusivity agreements that we have struck over the course of the last few months, which we announced earlier this morning. The first is with Nuna, North America's leading pram and car safety brand in premium department stores. This brand goes up against the likes of Bugaboo and UPPAbaby in global markets, and we are delighted to continue and extend the exclusivity agreement that we have done with Nuna. This also opens up new agreements in terms of the way that we have structured exclusivity in the business, providing brands with dedicated brand space, generating revenue for that opportunity and also redefining how we gather brand development rebates from our most important partners. These rebates go to supporting ongoing training efforts and lifting the sales profile of these brands in the business and creates the alignment across the organization to see that these deals become successful and integrated well in our operations. The second agreement which we announced was an exclusivity agreement with Bugaboo in New Zealand. Both of these agreements are effective as of the 1st of July with Nuna for 5 years and Bugaboo for 3. We are also currently in discussions with several other brands on similar agreements, which we will share with the market in due course as we reach conclusion. The fourth pillar, again, talks to how we scale private label and the soft goods -- predominantly the soft goods opportunity, but also we had some fantastic wins in hard goods in our private label development. Over the course of the last few months, we have introduced new price points in cots and furniture under our private label brand, which have restimulated and generated fantastic sales results across the business. We already have a private label business in our soft goods in the way of baby wear and also in sleep suits and Manchester bedding. But there is a lot of opportunity here to further reduce and eliminate cost in the supply chain, enhance margins and grow market share. This is an important part, and we see our ability to double the size of our private label business from current 10% to 20% over the medium term. Again, just given the supply chain and development time lines, we see this as being a multiyear program, but we see it as being an important enhancer to margin over time, and it also enables us to hit really great price points and deliver value for customers without compromising margin. The final part of the pillar is how we create space and room to continue to grow within our existing fleet and also holding our brands and products accountable for the performance that they deliver into the business. Baby Bunting, for a long time, has been a scale business, which was really about replicating a cookie-cutter approach, being far more disciplined about our inventory management and the opportunities to optimize and segment ranges gives us the ability to refine ranges to really be disciplined about the performance hurdles that we expect from brands and also products not only at a national level, which is typically how we've done it, but also to do that at a micro level in terms of the number of stores that you will find those products in. Again, this delivers better curation for customers. It ensures that the ranges that we have in these environments are going to be more relevant for consumers and also helps us to create the space and oxygen for the margin-enhancing opportunities that I've outlined earlier in this slide. The second of the exciting new business opportunities that I touched upon was how we leverage our data to create a media business. Again, Baby Bunting has some fantastic assets with more than 32 million website views and 100,000 square meters of prime retail big box space. We serve a highly concentrated customer that is highly valued by our brand partners and providing them with channels to deliver product to promote in our store network is a fantastic opportunity for us to build a new revenue, high-margin business in the market. We have appointed [ Sundar ], who is the global expert in large-format retail monetization, and we expect the initial program of works to be completed in the first quarter of FY '25, and we will commence rolling this program out in the back half of the first -- in the back half of H1 FY '25. I'll get there eventually. As we turn our attention to New Zealand, this was a fantastic opportunity for the business to grow and scale in a market that has many similarities with Australia but some very notable differences. My experience in retail over 20 years has taught me that whilst we consider New Zealand to be our sister country, when we treat it like another state of Australia, most retailers will fail. So we have changed and adapted our approach. We have looked to be really localized in that market, representing New Zealanders' customer choice and tastes. Whilst we're still in the very early stages with just 4 stores in market, we can see a pathway to profitability in the medium term. This is predicated on us growing our margins by around 500 basis points and also seeing store sales maturity develop over time. We will add another store at Westgate in the third quarter of next financial year, and we continue to seek out and look at sites to expand our store network. And New Zealand also presents an opportunity for us to grow our small store network fleet, which Darin will touch upon in a few moments' time. Finally, as we think about group operating leverage, there was work that we undertook in FY '24 that we didn't get around to completing entirely. That work will continue in FY '25, predominantly around 2 key areas. The first one is around our supply chain and customer care teams. So this is really about eliminating inefficiency in the network and trying to find greater productivity and leverage across the group. In customer care, this is not about reducing our levels of service but rather eliminating upstream the causes of those friction points with customers, making it easier for them to track their deliveries, making it easier for them to lodge a return making it increasing greater transparency. And the work that we've already done in removing our Spend & Earn program has had an impact in reducing some of that churn in our customer care team. We have made significant investments in systems. Most notably the one that comes to mind is inventory planning. I still see a huge amount of opportunity to get more leverage out of these systems. And so work has been underway for many months now to continue on that pathway. This is about how we drive greater productivity with our inventory across the network and will also help to importantly support the work that I touched when talking about gross margin. And finally, the work in this space around simplifying our operating structure. Over the course of many months, I've spoken to you about how we transformed our go-to-market strategy. The tooling of our business was almost entirely set up about how we build a catalog. Over the last few months, we have been breaking that down. We have been redefining our processes and simplifying the way that we go to market. As you would appreciate, these things often are much simpler on the surface than they are in practice, but we have made great progress, and we will continue this work into FY '25. This is really about how we improve our speed to market, how we simplify our operations so that we can get more leverage out of our existing cost base but also fundamentally improve how our team go about doing their work. And we see not only great productivity opportunities there but great job satisfaction pieces with our team as we look to simplify and eradicate the things that no longer add value to us. I'm now going to hand over to Darin, who will take us through a return on invested capital, and I'll join you a little bit later to talk through some of the last parts of our strategy.

Thank you, Mark. Good morning, everybody. So in addition to the store rollout that you'd all be reasonably familiar with, there are 3 additional material capital investment programs that we intend to undertake over the coming years. That will either deliver strong returns in their own right or contribute to leveraging investments that we've already made in the business. And the first one is around store refurbishment. Now Mark has already spoken at length around the work that G Store is doing to revitalize our store assets. And also importantly, that will layer into the future rollout of the network plan as well as the revitalization of those existing assets. In FY '25, we're intending on opening 3 large-format stores in the new format, 3 small formats and -- which is a new format for Baby Bunting as well as highlighting 3 refurbishments in our existing store fleet. The refurbishment pilot is undertaken to ascertain the sales and earnings lift potential of the refurbishments, which will then inform capital investment payback and then the timing and scale of the rollout. Normally, what we would anticipate with regards to a refurb is a 5% to 10% bounce in sales is usual from a refurbishment given the age of our fleet, and what we've seen over the last 18 months, I'd suggest that we're anticipating something towards the top end of that and from a return on capital perspective, a 10% bounce in the first 12 months after doing the refurb equates to around a 35% return on the capital deployed. If we're to achieve levels at or above that, we would envisage a rollout of and a refurbishment program of up to 15 to 20 stores per annum. But a lower rollout we would see ourselves renewing and refurbishing stores in line with the renewal program of our property leases. The second element I wanted to touch on, and Mark has talked at length about the cookie-cutter approach to store rollout, including sort of inventory and ranging that we've undertaken over the preceding years. In the second half of FY '24, a large amount of work has already been done to identify those lower productive SKUs or brands in our existing range, which we have exited around $4 million worth of inventory in the current year in relation to those lower productive lines. That's fundamentally funded the inventory investment for the new stores that we've deployed into the market in the current financial year. In FY '25, we see a further $10 million opportunity to refine range and free up working capital. And I might give you a couple of examples with regards to that. So I mean all of our stores are not 1,500 square meters or 1,000 square meters. They do range in size. We've got stores on the Gold Coast around 1,300 square meters. And so the footage, and in particular, our focus on car seats, which is our biggest selling product category, we have higher productivity in terms of our car seat range in those smaller footage stores. So what we're saying is we're not really getting the leverage from the additional range that we display in our largest footage stores. So there's an opportunity to pull inventory back there. And then also in the stores that we've been rolling out since 2018, which is a newer design, and there's 27 of those in the market, we have high bay of inventory to present the stock as being in stock. And it's above 1.8 meters in height. That's unproductive inventory, but it sort of presents the store as being full and ready to shop. There's around $2.5 million of inventory that will go back on that, we think, once we deploy the redesign into the market. Finally, I might just touch on ERP and point of sale. We're running with a platform that's now 12 years old. The opportunity with regards to our ERP and point of sale is it will give us a significant amount of functionality improvement for core back-of-house processes through merchandising, financing and also product management. And then from a store perspective, it will enable us to sort of provide operational efficiency within the store. So that's a fundamental sort of piece of capital that we'll start deploying from FY '26 in terms of the capital involved there would be around $8 million to $10 million. Just going to spend a little bit of time on the network plan over the next 4 slides, and we'll just talk about store returns and the scope of the rollout and some detail around that. Through these slides, what you will see the importance of the store network with regards to new customer acquisition as well as our ability to access a greater share of the market in these future catchments as well as its contribution towards growing our online sales as well. So it contributes across the store rollout, will contribute across all 3 channels of sales. And Mark touched on the addition of online fulfillment to all stores. And so this will also further lift the inventory productivity within those stores. Since 2008, Baby Bunting has been building its network against plan designed by third-party demographers, a business called Deepend, experts in their field. And it's -- and the network plan is informed by demographic data such as population growth forecasts as well as consumer spending patterns. We also feed into that planning program our sales data, and on top of that, store economics to sort of ascertain what the appropriate scale of the store rollout should be. In terms of the sales forecast that, that has generated, we have consistently met or exceeded the forecast generated out of that network planning over time. I might just unpack this slide a little bit here. What we've got in the top table is the sales performance of mature stores. So store is greater than 4 years old at 3 points in time. So pre-COVID FY '20, peak COVID FY '22, we got up to $8.5 million in our metro mature store sales cohort. And then in FY '24, so over the last 18 months, that's rolled back to $7.2 million. One point to call out there is that in FY '20, our online sales in our store catchments was around 3%, 3.5% of total catchment sales. So FY '20 in a mature catchment, we were doing around $8.1 million of sales, $300,000 of online sales and $7.8 million through the store, including click & collect. Obviously, we see -- saw a significant ramp-up in the consumer transacting through online through COVID. And then since then, what we've seen is click & collect, which more than doubled through that period substantially wound back to pre-COVID levels. But the online sales that we achieved within a catchment have sort of remained around the same levels that we've seen over the last couple of years. So $8.1 million in FY '20 in terms of the metro catchment sales. In FY '24, that's around $7.9 million. So -- and if we look at our regional stores down below there, we've seen great and consistent returns for our regional stores over time. So FY '20, at that point, we had about 5 stores in market. Only a couple of those were mature at that stage. And then we're now up to 11 stores. 6 of those mature achieving around $5.2 million of sales and a return of 61%. In terms of getting -- going about getting our returns back up to the plus 100% is what we're aspiring to do. Mark has talked at length with regards to the gross margin initiatives, so adding 5% of gross margin lift into these stores is a significant contributor. And then when you compound that with improved inventory productivity and then a moderate lift in the top line through revitalizing these store assets, we think that is very achievable. Look, I just spoke to a number of the metrics in this slide, but this fundamentally sort of like breaks out like what our catchments look like today. So in our mature metro catchments, the stores generating $7.2 million of revenue, including click & collect, plus we're also generating $700,000 of online sales in that catchment. A little bit in those mature metro catchments, plus 200,000 people in catchments less than 200,000 people or our regional catchments. We're doing $5 million of sales in-store and around $400,000 of online. What we've been doing for a number of years is we've also been mapping the online sales performance for future catchments, so to see what the opportunity is today, to see what that growth looks like relative to areas where we may not put a store, also see what that growth looks like relative to our existing catchments. But fundamentally, what you see is that in terms of your ability to grab market share without a store in market, it's very difficult. So today, metro catchments were achieving around $400,000 of online sales. You put the store in, you will grow that metric over time, plus you will add on click & collect sales, and you will also see the sales generated out of the store. So in terms of the small format stores, there is 2 specific opportunities that we're seeking to address here with this small format store pilot. And we're talking about stores that are 400 to 600 square meters in size. The first one is growing customer lifetime value by showing up on the entrails where our customer shops on a daily basis. So by providing them with greater convenience in terms of accessibility to our range and with some adjustments of our range, we believe we can increase our access and share of high-frequency everyday needs for items in the -- that are commonly purchased in the first 3 years of a child's life. We're talking about baby wear, feeding items, consumable items, sleeping toys, those kind of things. What our data tells us is that with our destinational stores that our customer spend is skewed towards pre-birth and early-stage parenting. So those big ticket items, car seats, prams, cots and furniture, a large portion of our sales. So by moving into highly trafficked areas, then that allows us access into that -- the larger component of the baby market being soft goods as well as add-on sales in the hardwoods and toys areas as well. The second opportunity we see with these small formats is enabling access to valuable catchments that wouldn't currently sustain a 1,000 to 1,500 square meter store and give us a return on capital. So catchments that we've already identified. They're below $3 million in value for a smaller store footage in there. And we believe that we get a plus $2 million return, and we'll be achieving returns similar to what we achieved in our larger format stores currently in market. And I'll hand back to Mark.

Thanks, Darin. All right. Home stretch now, folks, home stretch. Important when we think about delivering on this strategy, we think about our capability platform, how we're investing in our people and how we're investing in the capabilities that we either don't have today or we want to strengthen into the future. So when we think about new capabilities, there's 3 key areas that we've been working on, the first one around our data and analytics muscle. As I've made previous announcements through some of the market updates previously, we have appointed a Chief Data and Analytics Officer in this space in addition to appointing a Head of Data and Analytics and also a Head of Insights. This team has already transformed how we are going to market on many fronts, but we feel like we're only just scratching the surface of what this opportunity looks like. The immediate work of this team is really about getting our data foundation right so that we have centralized view and a holistic view of all of our data in one platform. And now that we are reaching towards the end of that phase, we will start to see a faster acceleration of the value that we can deliver through the investment that we are making here. Enhancing and growing, thinking about our growth marketing and our digital and e-commerce go-to-market, there were 2 important changes and appointments that we've made. The first one is a Head of Social and Content. And this allows us to retire the agencies that we have been using over time, bringing this capability in-house. You would appreciate that somebody that works in your business is much closer to your brand and how you can represent yourself in market and the speed to market fundamentally changes. To complement that and to think about the work that we can do to elevate our online experience, we have made some changes to our organizational structure. And whilst this isn't a new headcount, it is a change in definition of role. We have appointed a Head of Online Trade and Experience who will join us in September. When I think about recalibrating the existing capability, the work that we defined earlier on around private label requires us to continue to build and develop team and capability in the business. Traditionally, we have done a private label through working with agents and sourcing houses. And whilst we still see some of these partnerships as being important to our strategy, going vertical and direct and having capabilities in-house will enable us to again eliminate cost in the supply chain and further enhance our margins and our speed of development in market. The work that we have done around merchandise planning and supply chain, also fundamental to the support. We appointed again, not a new headcount but a change of role, a new Head of Merchandise Planning, who, again, in the first couple of months is helping us transform the way that we look and plan for our product and is also very busy working on how we get more leverage out of the investments we have made in systems to support the business growth. And finally, on that front, we have also gone to market to appoint a new GM of Supply Chain. The previous GM of Supply Chain role has been vacant for 2 years. Our GM of Strategy has been leading that in the absence of having somebody into the business. He has had previous supply chain experience, but elevating the most recent knowledge and competency in this space we see as being key to helping us to remove cost in our supply chain. And finally, as Darin touched upon, the replatforming of our ERP and POS. Darin covered over the key points, but one of the other key enablers around this is around service delivery. And so today, just as a tangible example, we serve a customer in our prams department. We might spend half an hour with them. But instead of being able to close the sale and get the customer to walk out then and there, there is a process that they have to go by where they go to the front counter. We can't do mobile POS and selling. It's quite restrictive in terms of the size of our store, and our capability and our current platform doesn't enable this type of capability. It is also very infrastructure -- our current platform is also very infrastructure heavy. And so moving to a future SaaS platform, again, will help us reduce cost over time in terms of the operating costs of these platforms but also give us much greater capability as we think about this into the future. Importantly, I'll just touch upon briefly the investment and execution plan of some of these key elements to help you as you think about the pathway ahead. As we've noted, my first and #1 priority has been around stabilizing the business, and that work will continue into the next financial year. But as I have touched upon, really pleased with some of the early improvements we are starting to see. The important work that we're doing around the store of the future will be rolled out, and we're thinking about this in 2 step phases. The first one is around piloting the new concept. That's through the refurbishment of 3 existing stores, the establishment of 3 new stores with the new format -- sorry, large format stores and rolling out 3 small format stores as an initial pilot. I might pause there and break into the next phase. So we're looking for signal here on the stores improvement. As Darin alluded to, with the capital returns, the range in which it delivers returns to the business will be pretty fundamental in us determining the cadence of the future rollout strategy. If we were to refurbish stores on the current renewal cycle, we are looking at around 8 to 10 stores per annum depending on its renewal cycle. If we see accelerated or improved return on capital results, so we're achieving comp sales north of 10%. That perhaps will give us motivation to think about how we could accelerate the rollout of the refurbishment program as it would be self-funding and generating fantastic returns for shareholders and for the business. But there is much work to be done and still a testing period to go underway. So we see the ability to be able to get signal on this in the first couple of months after these stores open, and after which time, we will obviously come back to the market and inform the performance of these stores and how we are thinking about future growth and rollout. We do see on a network plan the ability of our small store format is successful to open around 20 to 40 stores in addition to the plan that we have articulated in the presentation today. The other 2 material areas of CapEx expenditure was the ERP and POS rollout. As Darin alluded to, this is around an $8 million to $10 million investment that we will kick off from FY '26. This will be an investment program over roughly a 2-year rollout. And the reason why, having done many of these in my career previously with lots of learnings, is you want to do it right, you want to do it once, and it can be a big distraction to the business. So we are slowing the rollout. We're staging it in sections to ensure that it's not an all-consuming task and it doesn't detract us away from the important role we have in returning the business back to a growth trajectory. The last piece of CapEx investment is the ongoing sustenance that we invest in our digital channels. Our online business is now in excess of 20% of total sales of the group and continues to grow at consistent rates year-over-year. The ongoing investment in this channel is important to ensure that we remain relevant with consumers over time. So in FY '25, our financial objectives are pretty clear. I've touched upon how we're looking to stabilize sales, the work that we're going to do around achieving a 40% gross margin target and the important productivity initiatives that we will roll on from FY '24 into '25. We've defined the capital investment program for the next financial year as being around $10 million to $13 million worth of CapEx from operating cash flows, and we will be disciplined in how we manage capital through the year ahead. We are clear on our strategy. We have a great platform and a clear plan to deliver great financial returns into the future. This really is about setting up the best start for the brightest future, and we look forward to hosting a Q&A session with you now. Thanks very much.

We'll be taking in-room questions first. So if you'd like to ask a question, please just raise your hand, and one of the roving mics will be brought around to you.

A couple of questions. Firstly, HMC is now one of your biggest shareholders. Just keen to understand how much engagement you've had with them to date. And what do you see the key opportunities from that relationship?

Yes. So it's great to welcome HMC onto our register. And like all shareholders, we engage productively in conversation. I think since I've been here, I've had a number of catch-ups with many of our shareholders and no different with the HMC team. HMC obviously bring a wealth of experience in lots of other areas, some very synergistic with our own growth and goal aspirations. But when we think about, like as Darin alluded to, the work that we've done around our network plan suggests that we've got a clear path to lots of growth opportunities in catchments, which also happened to have some synergistic opportunities with some of the things in HMC's portfolio. But we're clear around making sure that the opportunities that we're going after are right for the business. We're very disciplined in the way that we think about network selection and also we want to make sure that we're getting the best possible deal in market. So it's been fantastic to welcome the HMC team onto the register. We've had some really productive engagements with them in the first couple of months, and we look forward to continuing to engage with them as we do with all of our shareholders.

I'll be even a little bit more specific. And HMC had been a landlord of ours over a few of our -- and very good performing assets. They are -- in terms of our network plan, there is absolutely crossover in terms of the HMC asset portfolio, and we've been chasing access into a number of those over many years. And before these guys joined the register, there was deals that we're working with, and that will be -- continue to be into the future as well.

And in terms of the soft goods expansion strategy, you're increasingly up against large and more sophisticated retailers such as Elmer's warehouse, discount department stores. How do you win in that space longer term? How do you ensure that your value proposition really stacks up favorably compared to those competitors?

Yes. So when I think about the size and the scale of our network, right, our range offer has been one of the defining differences in market. We have the broadest selection for our customer in many of these categories. Think about -- again, I'll just hark on the sleep suits piece. We have the largest range of sleep suits anywhere in the country. So this has been something that the business has been working on over time. This gives us -- we are -- it's a point of difference in the market, but we create ourselves as a destination for consumers. With our size and scale, that gives us access to volume. So it's fair to say in some parts of this opportunity, we're more advanced in the strategy than others. Yes, if you think about baby wear and the discount department stores, it is a pretty competitive space. But we have a captive audience when they're coming in to buy their hard goods and to be able to show them an exciting range of product, which might be unexpected in the first instance but creates us as the destination, is how we think we can win in this space. So each of these categories come with different opportunities to us. Feeding as another example has been a category that we have continuously grown over the course of the last few years, and we're seeing tremendous results up against some big industry players as well. So we've certainly demonstrated that through range innovation and through providing customers with a superior choice of products, we've been able to generate growth. We need to apply that into some of the other target areas that we've identified.

And third and final question. Just maybe on for Darin, with a period of covenant relief that you've been able to secure from NAB to the 3 testing points? Is that quarterly or semiannually? And to what extent can you pay dividends during that period of covenant relief?

So they're quarterly. And there's no real restrictions with regards to dividend payment. So that's not really a factor in this.

It's James Casey here. Just to follow up on that question. Darin, can you just remind us what the debt facility is with NAB, the size of it, what the covenants are and what they've been lowered to?

So the covenant is commercial in confidence. So certainly, we've been given the level of support that we need, James, is what I can reassure you of. With regards to the facility, it's a $70 million facility in terms of debt availability, plus we've also got like a multi-use facility for things like forward cover on FX and banking guarantees for leases when needed, which is consistent with the facility that we had previously in place.

Just curious as to how the relationship with the suppliers has changed over time. So obviously, a bit more of a challenged sales environment. Just are they willing to come to the party more? What are you sort of seeing? And maybe just any anecdotes in terms of what the suppliers are seeing in the baby goods market in different jurisdictions globally.

Yes. So I might take -- well, let me attack this one first. So firstly, the engagement with suppliers has been really good. As I said, Baby Bunting has delivered fantastic growth for these -- many of our long-term partners over a long period of time. We are great partners in the market. We pay on time. We support product launches, and we do a great job of working in concert with them. Just given the size and scale of our business, we need to be assisting them with forecasting and data and information to help them run a good, healthy business. To the second point of your question, just around what's happening in the rest of the market, there is certainly a lot of independent retailers doing it very tough at the moment. And the feedback that we're getting from suppliers is that more and more are going late on payments. And we have noted 1 or 2 going into administration over the course of the last couple of months. Sydney Baby Kingdom closed down their store in Castle Hill recently. So the independent sector does seem to be under pressure at the moment. As we've engaged with our suppliers in thinking about how we restructure and renegotiate terms, they've been very open to the dialogue around how we build a better business together. So we've been actively trying to work with them around how we jointly remove cost in the system. So some -- an example of that is if a supplier is currently delivering FIS, freight into store, into regional areas, we have third-party warehouses that we operate in New South Wales, Queensland and Western Australia. By working cooperatively with those brands, we can reduce supply chain costs and share in the benefit of those things. And they can't achieve that kind of leverage with their other independent retailers. So we provide them not only with an access and an avenue to generate growth but also an access and an avenue to actually improve productivity at the same time. So as I said, we want to be great partners. I think partnership is important. It's got to be a mutual win-win. Otherwise, these things are not sustainable. But I also think as evidenced by some of the exclusivity agreements that we've announced today that brands are also recognizing that as a national retailer in this space and the only specialty national retailer in this space, we present as a very attractive opportunity for them to simplify their businesses and continue to deliver growth.

Just have a couple of questions. So your prior trading update implied April was looking pretty tough, potentially down double digits. May, June have seen big improvements. Just wondering if you could speak to what drove that and how big these months are.

Yes, sure. So if I miss anything, Darin, please chip in. So May and June are among some of our largest trading months in the year. The improvement that we have seen has really been on a few dimensions. So we've now seen more of a consistent transaction volume way through. We have delivered increases in ASP. So the average transaction value has lifted. And we've also seen improvements in new customer acquisition over this time. And as I kind of suggested through the presentation, this has really been continuous -- continues to be an outcome of the changes that we make with our go-to-market strategy. We've tuned and tweaked a number of our campaigns. So that have proven to be very successful in driving improvements in prams. I think about one of the campaigns that we ran in May. And in June, as well we are trading much closer to our forecasted sales -- our internal forecasted sales numbers, which again just give me greater confidence that the work that we are doing is stabilizing the business. I don't, by any stretch, think that we are out the woods yet, right? The consumer is still tight. But the work that we are doing is starting to show impact and improvement. So it was a pleasing result over the course of the last 8 weeks.

Cool. And then, I guess, your gross margin targets. So you've got a target of 40% in FY '25. Is that for all of FY '25? Or is that kind of by the end you're hoping to get to that level?

That's the target for FY '25 delivery. So -- and again, when we think about that, you take us a jumping off point of around 37%, got 150 basis points of margin delivery through the retirement of the Spend & Earn program. So the incremental that we are looking for to deliver out of those 5 key initiatives is another 150-odd basis points roughly into the business to achieve our goal. So given the work that we're doing, we feel like that target is achievable. But we've got work to do to ensure that we deliver that. And then we think about beyond that into 2016 and beyond, how some of these initiatives pay back over a longer period of time.

Yes. Okay. That was kind of my next follow-up question. The 42% medium term, is that kind of '26? Or is that kind of a few more years beyond that?

I think it will take us a few more years beyond that. I mean I'm going to drive as hard as I possibly can to bring it forward as quickly as we can. It improves our returns. It improves our working capital. It also improves our ability to scale the business faster. The success of it will obviously be -- some of these initiatives have a longer gestation period. So as I spoke about with private label development, there's product development life cycles. We still need to bring some team and people in to help us scale some of this. And when we think about the margin renegotiations with our key suppliers, we have a long tail of suppliers, right? So that process will take us through the end of the first half. We're obviously prioritizing the biggest and most important ones upfront and trying to generate as much momentum out the gates as we can. But I see this as being a multiyear program to achieve -- to get to the 42%.

And then just last one. You mentioned a few consultants, I guess, throughout the presentation. You've got the store redesign media and demographics. Just wondering, are they -- do they form your sort of your CapEx spend next year as well? Or are they going to be OpEx?

No -- sorry, the store design is part of capital expenditure. So there's a big body of work that gets done upfront, and then the ongoing layout and plans become much smaller in volume and cost impact. And also the work that we're doing with [ Sundar ], for example, is a phased project approach. So it's more of a one-off investment that we make in some of these initiatives to set up the businesses, and then we roll into operational expenditure.

So firstly, on to ask about the media model. Could you help us understand the potential that you see there, how you expect it to operate and how you'll communicate the financials of that in your results?

I'm going to take the first part of the question, and Darin, you can take the second part. So just in terms of how it operates, so we -- given the business' origins around catalogs, we used to generate space fees for catalogs. Since we have retired that, we have pivoted that spend and investment into digital media. But it's in a very unsophisticated or unstructured kind of way. Before a supplier used to buy a page in a catalog, they knew what they were getting. They could see it and touch it. But in terms of how we have monetized our retail space, it has been an untapped opportunity. We have fantastic drive-aisle locations as you find in supermarkets. We have end caps, which are monetized by most large format retailers. This has just not been something that Baby Bunting has previously approached. I don't have a huge amount of experience in the space, which is why we've engaged with [ Sundar ] to help us. They have been the ones that have informed most of Australia's large-format retailers in monetizing their assets. You'd appreciate, as you think about this, there is a value that you place on those assets, and then there's the utilization of what you can sell it for. But we do see this as being a potential to unlock millions of dollars' worth of incremental high-margin revenue into the business. We're still at the very early stages. So it would be, I think, remiss of me to give you a full steer on what we think the expectation is. We're still in the evaluation and scoping stage. But by the end of the first quarter of '25, we will have finished and completed that body of work, and we'll be able to provide a greater update later.

In terms of the accounting treatment, it's -- once the program is defined, that will inform how it's treated. I'm assuming it's -- like it's just another form of sales revenue. Potentially.

Okay. So that should help the gross margin story as well?

Yes. And obviously, we didn't call that out and that's in that bridge.

Yes. Okay. And then it is a big step-up in gross margin that you're targeting. In terms of your positioning as the low-cost option for consumer and best value, price guarantees, et cetera, is any of that changing? Do you still think that you can offer that same relative value proposition?

Yes. Fundamental shift, which I touched upon, but I reinforce, is Baby Bunting certainly over the course of the first, let's call it, 6 months that I was in the business, was layering promotion over promotion. And that just eats away at incrementality and your margin. So that's like -- that's a fundamental change to the way that we're doing it. So when we go out to market now, we're crisp and clear. This is what the promotion is. This is the price that you're going to pay for that. Consumers appreciate that transparency. And we actually get much greater cut-through because the customer knows exactly what they're going to pay for. The price guarantee has been a great way for us to neutralize pricing in the market from aggressive operators at points of time. It hasn't materially changed in terms of the cost of operating. It runs at around 120 basis points of investment and give -- excuse me, given what it does in acquiring new customers and also keeping returning customers, we see it as being actually really valuable investment. We are looking to make some tweaks and changes to the price feed. So we're evaluating at what threshold the price speed comes in. So items under $50 creates a lot of work and noise. It doesn't generate a huge amount of sales, but it's an opportunity for us to find some productivity in terms of the people power that it takes to actually serve those customers. It's not actually delivering huge amounts of value or incrementality to the business. So we're looking at how we can tweak some of these programs around the edges, but we still fundamentally believe in the importance of price beat. Simplifying the go-to-market and the promotional structure, again, just reduces the compound impact of margin erosion. And that fundamentally just helps to lift the normal trading margin with the existing terms. So we think we can get some improvement out of price simplification. As I said, we're only just a couple of months into this, but we're seeing pleasing results.

Maybe you want to touch on special bias and the forward plan.

Yes, and special bias. So again, just the work that we're doing around enhancing our planning opportunity. When I think about the work that I've done in retail over 20 years and capitalizing on opportunities like cyber month, engineering product for those opportunities to be able to deliver fantastic prices for customers and not compromise your margin because you're discounting in-line product is a key part of really juicing opportunities like that in the market. Given how retail is moving with more sales kind of moving into the cyber period, outside of the Christmas period, it's a great way for us to enhance margin at the same time as growing sales and not compromising our ability to deliver valuable price points to customers. So there's a few strategies that we're deploying through the business as we have kind of stretched our planning further and further out, and given supply chain and lead times, we're now working on being able to kind of capture that for this coming half when we think about cyber and also store take.

Right. And maybe just one last one. I think at the last couple of trading updates, you've spoken a bit to smaller competitors who are out in the market discounting. And there's no sort of mention of that at this trading update. Has that stabilized? Or is that something you're still seeing?

We're still seeing it. The market -- trading conditions in retail is tough. You just need to pick up a headline at the moment to kind of see what's going on. We are still seeing some of that behavior out in independent land. We've also seen a couple of them go into administration over the course of the last few months. As we've spoken about previously, you can't discount your way to greatness here. It's -- the independents will run out of cash at a point in time if they continue to price themselves at those levels on an ongoing basis because we know what the margins look like, and we have better margins than they do. So how much longer, I'm not sure there is still noise in the market, and we do see that. But there's also a lot of new products coming into the market in those categories over the course of the next 6 months. And we're working very closely with our supply partners to see what we can do to ensure that, firstly, when new innovation comes to market that there's clear air so that you're making the most of those sales opportunities. And through good brand management, how you can grow sales and profitability in the sector, which everybody is looking for. So new product innovation is definitely helping to differentiate us. And we are leveraging our size to be able to capture as much of those opportunities as we can.

It's [ Emily from Citi Sales ]. Just on the store redesigns, the 43 stores that you mentioned that you've identified. I mean I appreciate this is probably dependent on how the refurb pilot goes. But what can we think about in terms of the cadence of those store renewals and those lease expiries? Like is that over a couple of years? Or do you have a rough idea how we can kind of picture that?

Yes. So typically, our lease renewals run at around 8 to 10 a year on average. So if we would just refurbish on a normal expiry cycle, that's what it would look like. If we're generating returns north of 10% -- sorry, we're seeing comp growth north of 10% and generating superior returns on capital as a result of doing that. To the extent that it makes commercial sense and we can engage with landlords to lengthen lease periods because you wouldn't want to enter into deploying huge amounts of capital with short lease expiries, we could potentially look to accelerate that, but it will all be dependent upon the results that we see in the pilots as we roll them out in Q3.

Yes. Just a follow-up on Slide 46, there's comment $10 million to $13 million of CapEx funded from operating cash flow. In the assumptions behind that, what are you assuming for the consumer in FY '25, more of the same or an improvement as tax cuts start to come through and other factors could potentially benefit the consumer?

Kind of assuming more of the same really. So it doesn't assume sales growth of any particular magnitude. It's really around lifting margin, and then there's some productivity initiatives that we've also got underway.

Thanks, Mark. We've a number of online questions. The first one is from Alexander Mees from Morgans. He asks, what was the comparable sales growth in the same period, that being May, June of last year?

Yes, it was around negative 10% over this period in the prior year.

Alex has a follow-up question. How do you see the proportion of flex products in the sales mix evolving as you return to growth?

Yes. So the business, I think, does around 46% of its sales in private label and exclusives today. I think what you've seen today is we've sharpened our focus on how we define exclusive. So with a huge priority around exclusive brands because that gives you true differentiation and the ability to really kind of flex and leverage in market. So we're putting a huge amount of energy around that at the moment. And we want to be able to scale that. We see an opportunity to scale that. They're with national or international globally recognized brands, and we think that there's an opportunity to accelerate sales in some of those brand categories with some of the work that we've done in store fixturing and displays, the marketing collaboration and co-op agreements that we have struck and also brand development rebates that allow us to invest in training to ensure that our teams are equipped to be able to sell these brands and hopefully preference them because of the margin enhancement that we get to deliver across the business. We're still very focused on exclusive products from global brands where it makes sense. And again, this is about -- and we have secured a number of them in areas like car safety and also prams and strollers. And this is also an important differentiator. More often than not, we get to negotiate the best color as an exclusive with global product lines. And Australia is one of the limited markets in the world where suppliers actually allow for that to happen just given our size and scale relative to the rest of the market. So we see our ability to kind of continue to push in that space. We've defined private label is doubling the size of the opportunity. So the 46-odd percent that we have, 10 of that is private label at the moment. And our aspiration, as we stated, is to double its size, so to get that to 20%. And whilst they haven't put a number on the exclusivity in terms of its size and share, we will continue to invest in those programs so long as they continue to deliver superior returns and differentiation for us in market. So I haven't put a ceiling or a limit on how big it could get to, but that's the way that we've been thinking about the prioritization and dialing up strategy.

Thanks, Mark. The next question from Alex is what was it that encouraged Nuna Australia and Bugaboo NZ to enter into exclusive supply arrangements with Baby Bunting? And can we expect further major brands to enter into similar arrangements in the future?

We've had a relationship with Nuna for a couple of years. And this was really about extending and building upon the work that we've done with them to date. This agreement sees us enhance our margins. It sees us generate space fees in our stores. It sees us generate brand development rebates and fundamentally elevate the relationship that we have with Nuna in the market. And we think this is a fantastic way, again, to differentiate ourselves and also transparently keep the market honest about elevating the high watermark of what excellence looks like. And so this has been a really important agreement for us to kind of reset the expectations in market and for us to increase the high watermark. In a market where you are the largest player, sometimes it's difficult to redefine relationships in meaningful ways. So we've really sought to why we've made the announcement to the market today. Our buyers pick this up. As we go through the renegotiations with supplier terms and agreements, we have set the high watermark around what excellence looks like, and that helps us with future negotiations. As you'd appreciate, space is at a premium. Everyone wants more shelf space. But this is about -- this is a pay-to-play model, and we've got to deliver great returns back to our supply partners for that to work into the future. So the sophistication that we're bringing to how we think about space fees, for example, and the work that we're doing with suppliers is really kind of leading the way in how we change and reimagine how we operate in this market. So it's great that we were able to sign both Nuna and Bugaboo. Yes, as I alluded to, we are still in discussions with a number of other major Australian and international retail -- sorry, brands around exclusivity agreements, and we'll update the market in due course as they come to fruition. But I'm very driven to deliver much better outcomes for the business and leverage the size and scale of our platform so that we can generate much better outcomes for our business given the investment that we have made in the platform over many, many years.

And it's fair to say that the one thing that our suppliers do want is more store rollout.

That's for sure.

So there's a degree of symbiosis here.

Alex goes on to ask, are you able to quantify the approximate sales impact of the proposed deranging of underperforming brands and products?

It will be a redirection of OTV into other brands. So it's replacing underperforming brands with performing brands.

So Darin touched upon, I think we've moved through about $4 million worth of inventory at the moment. This is not a one-and-done strategy. This is constant reevaluation at the end of seasons or ranges to make sure that what we are ranging is continuing to deliver at the levels that we expect. This also helps to create accountability with our supplier partners. So it's not just once you've got it ranged in Baby Bunting, you get to all stores. You've got to earn it. And so that will also drive greater investment in our store environments because they'll want to make sure that their brands are performing at the level that we need them to in order to maintain and grow shelf space.

Thank you. The last question from Alex is what P&L impact of the ERP, POS replatforming should we expect in FY '26 and FY '27?

So what the question that Alex is asking really reference is the degree to which the accounting standards allow for one-off expenditure to be considered CapEx as opposed to OpEx. That is not definable until such time you actually have defined what the program looks like and then how the bills looking like. But it's fair to say that it's likely to be a software as a service, in which case that will mean that there will be a large proportion of one-off spend in relation to the asset build that will flow through the P&L in those years.

Thanks, Darin. Our next question comes from Tony Cho from [ Benton AM ]. He asks, what is in for the major brands to be exclusive with Baby Bunting?

I think I might have addressed some of the parts of that question earlier. But I think we are a national listed company, pays our suppliers on time. We're great partners in providing a national platform for them to access a highly concentrated core customer base and arguably probably one of the most efficient ways for them to reach and grow their own market share. So we're very clear -- I'm very clear on the value that we provide back to partners and suppliers. As I said, we're bringing some more sophistication to how we value that partnership and how we're able to better monetize that into the future. But we have to be able to deliver results, and we have a proven track record with brands over many years of growing our store network and then being able to grow their sales off the back of that. So we feel confident in our ability to deliver that for suppliers.

Tony also asked, does it give Baby Bunting monopoly with those exclusive brands?

No, we certainly don't think about it. I mean firstly, exclusivity is a choice. And so a brand can enter in an exclusivity agreement with us because they choose to do so. We're certainly not forcing anybody's hand to think about it in that way. They choose to do that because we are the best partner for growth. We help them simplify their business as we help reduce costs in the network and the systems, and we provide them with a reliable source of growth as we grow our store network as we grow our sales online. We have continuously and reliably delivered growth for almost all of our brand partners over time. Those are the reasons why they choose to do it.

Thanks, Mark. There are no further questions on the line. If there are no final questions in the room, I'll hand back to Mark for closing remarks.

Fantastic. Well, I just wanted to say thank you for everybody that's joined us both in person and online today. It's been a great pleasure to share our future growth strategy with you all. I hope you take a level of pause and comfort in the work that we have put in and also some confidence in our opportunity ahead. Thank you very much for joining us. We look forward to catching up with you again at the full year results.