boohoo group plc (DEBS) Earnings Call Transcript & Summary

Thanks for joining us. I'll keep it as brief as I can. I've got Carol, John and Neil joining. Just look, we've had 6 months been busy buying brands and warehouses and building teams and infrastructure. So lots to do taking our business globally as we move every day. We've got built a super platform, and we continue to do our thing. I'll hand you over to John.

Thanks, Mahmud, and good morning, everyone. Firstly, I'm going to give an update on the first half, where the group sits today, then an update on strategy as we invest for the future. Before I get into that, I would like to take this opportunity to thank our teams for their incredible work, talent and commitment as we continue to navigate through the COVID-19 pandemic. We're now 18 months into the pandemic, and looking back at what we have achieved in that time frame is nothing short of exceptional. Over the last 2 years, we have grown 73%. We've increased our customer base by 46%. We've doubled our market share in the U.K. and U.S., and we've significantly extended our target addressable market with our acquisitions. Two years ago, our target audience was 16 to 24 year olds. Now we can address everybody from 16 through to 50 plus, and the opportunity is huge with 0.5 billion potential customers. That's 0.5 billion potential customers today in our key markets versus 100 million 2 years ago. And we're investing for the future. Our U.K. DC network has capacity today to service GBP 3 billion of net sales, and current investments will take this in excess of GBP 4 billion within the next 2 years. This will continue to grow and become more efficient as we reap the benefits from future automation at Sheffield and Daventry. Our supply chain has been significantly strengthened, and we are investing heavily to provide a platform for growth. We're committing to invest GBP 0.5 billion over the next 5 years and create 5,000 jobs, 2,000 of which we've already created so far this year. Moving on to the first half. We had an extraordinary year last year, and I'm delighted that we've continued to grow in the first half of this year. Macro factors have created some short-term headwinds, that short-term headwinds. Demand has been uncertain with lockdowns and fewer events. In particular, across June, July and August, with a lack of international holidays and festivals. But at the same time, we've seen return rates have been increasing back to pre-pandemic levels. Our proposition has been hampered in overseas markets due to a lack of air travel. Carriage costs are extremely high. On a like-for-like basis, they have impacted EBITDA by approximately GBP 26 million in the first half versus pre-pandemic levels. Labor cost inflation is also increasing as we head into peak trading. All of these factors are temporary, not structural and will subside as the pandemic passes. Demand has accelerated in the latter stages of August and into September, and we are very excited about the opportunities in half 2 and beyond. I wanted to share this slide as we think it's clearly demonstrating not only the structural shift to online that has gone over the last 2 years, but where we as a group sit relative to some of the key listed industry players. Firstly, key apparel markets around the globe are still down versus 2 years ago in the U.K., U.S. and Europe. Secondly, on here, there are some incredible businesses within our global competitor set, and our growth over the past 2 years has been ahead of this group of companies. So not only are we emerging from the pandemic in that group of structural winners, we've been the #1 performer so far and are delighted with that. Moving on to strategy. There are 6 areas that we'll run through this morning, covering everything from the global opportunity ahead of us through to how our technology and infrastructure will act as enablers for us and importantly, how we can do this in a sustainable and transparent manner. Firstly, the opportunity for the group is huge, and we've made great progress over the last 2 years. Across our key markets of the U.K., U.S. and Europe, our power markets remain down versus 2019. The U.K., as we understand it, is down 7% versus pre-pandemic levels. The U.S. is down 11%, and the rest of Europe down 4%. In each of these markets, consumer demand remains uncertain for all retailers. And for us, our ability to service customer remains challenging due to longer lead times impacting customer proposition and increased costs, which impacts short-term profitability. In quarter 2, growth in the U.S. slowed due to the effects of the pandemic. But looking ahead, as travel restrictions ease in November and air travel resumes, we expect delivery times to shorten and our sales growth to improve. Despite these macro issues, compared to the first half 2 years ago, we've grown 81% in the U.K., 126% in the U.S. and 20% in Europe. In terms of market share, what does that mean? We've doubled our total market share in the U.K. and likewise doubled our total market share in the U.S. and are delighted to have done this, which gives us great confidence that our brands are resonating with consumers. And that as we emerge from the pandemic, we will continue to grow our market share as conditions normalize. In Europe, our market share has increased by over 50%, and we know the opportunity there is huge. As life gets back to normal following the pandemic, we are seeing markets react positively. And in recent weeks, we have seen a reacceleration of growth in key markets such as Ireland and France. 2.5 years ago, we had 4 amazing fashion brands, targeting the 16- to 24-year-old demographic with an incredible value and fashion proposition. Since then, we've been strategically adding to the portfolio. Firstly, with MissPap, Karen Millen and Coast, then Oasis and Warehouse and more recently, Dorothy Perkins, Wallis and Burton. We've also now got Debenhams. What does all of this mean? It means as a group, we can address everybody from our core 16 to 24 demographic right the way through to customers over 50 giving them the latest trends, unrivaled choice and amazing value for money. And for us, the opportunity is huge with an addressable market of 0.5 billion people across the U.K., U.S. and Europe compared to just 100 million in our core 16- to 24-year-old demographic. We have acquired a number of brands in recent years with total pre-acquisition revenues of over GBP 2.7 billion, offering brilliant potential to drive sales back up to these figures and beyond as we grow the brands globally. To knock our global potential, it's great to talk this morning about our reentry into wholesale. Strategically, this will allow our brands to rebuild awareness where it has been lost, having disappeared from the High Street and generate awareness in key markets that will complement our own direct-to-consumer growth. We've launched our partnership with Alshaya that will support our brands in the Middle East, and we'll soon be going live on the fast-growing platform About You in Europe. We also have 2 major partners in the U.K. lined up in the coming months, and there are other global opportunities that are being appraised across India, North America and the Far East. Tech is at the heart of what we do. It is the enabler that allows our brands to curate and market their products in the most effective way possible, be it across the front end, digitization of our back office, driving operational efficiencies and embracing the concept of data as an asset. On the front end, we have 1 platform which has plugged into it 13 fashion stores and 81 customer-facing websites and apps. This front end is constantly evolving, so as to drive the best user experience across our brands. And we're not afraid to be innovative. For example, launching Debenhams on a headless concept, which will cater for greater customization and provide us with more agility. To highlight the capability and the expertise of the teams we have working in this area and the technology that supports this platform from acquiring a new brand to relaunching, we're looking at around 8 to 10 weeks in terms of building a website and launching it on our platform, which is phenomenal speed. For back-office functions, we're pulling more and more technology in place to provide a robust infrastructure that is eminently scalable. For example, in buying end-to-end technology will support everything from supplier onboarding and compliance, true to ordering with the order app, supplier management through our hub and real-time tracking of inventory, so we know where in the world our products are, which we think will be a game changer in improving international lead time. In our DCs, we're investing for the future. We're adding capacity and introducing automation to yield major cost savings. Lastly, using data as an asset, we have endless amounts of data, and the challenge is always how can we best utilize it. Through 2021, we have been rebuilding our data warehousing and data lake, which is a huge upgrade to our systems with all of our data feeding into one place, which is hugely scalable and for example, will allow our reporting to be more agile, faster and in real time. The takeaway from this slide is that our global offering continues to scale rapidly, and there are some incredible stats on this page. We have today 13 fashion destinations compared to 5, 2 years ago. With these destinations, there are 81 customer-facing websites and apps, which will grow. Choice for our customer is unrivaled. Our offer has quadrupled in the last 2 years, and our customer has more newness than ever before with almost 1,000 lines launched daily. Our reach continues to grow with 54 million social media followers and 19 million customers from around the world shopping across all our brands and platform. Our group has been founded off test and repeat. It gives us speed, flexibility and efficiency. For our suppliers, whilst we are committing to small quantities upfront, this is spread across thousands of styles, giving them the volumes they require to operate their businesses. With our inventory, we manage this by utilizing data to analyze demand and we back winning styles to maximize full price sales. That gives us low inventory, reduces our markdown and minimizes waste. And we've embedded this into each and every brand, taking lead times in some of our acquisitions from as long as 9 months down to a matter of weeks. Today, we are operating from 4 distribution centers in the U.K. and are investing significant amounts into additional capacity and automation projects. Currently, our capacity across sites and locations caters for approximately GBP 3 billion of net sales, but this will increase. And by 2023, we'd expect to have capacity of well over GBP 4 billion of net sales as we lay down the foundations for future growth and will drive cost savings and efficiencies. For example, our GBP 120 million automation project at Sheffield is due to go live in 2022. And this will be a game changer in terms of driving efficiencies and throughput, would it expect it to deliver a cash payback in less than 5 years. This morning, we are also announcing an investment into a distribution center in North America. This will be our first international distribution center. We are very excited about the enormous potential of the U.S. market and the resonance our brands have with our customers there. We'd expect to go live in 2023 with the site bringing us closer to our customer, shortening delivery lead times and enabling future growth in that market. That would then take our global capacity to well over GBP 5 billion across the group by 2023. And moving on to our final strategic focus area, sustainability and transparency. These are the goals we set out for this calendar year with our year-end results back in April. And as you can see, we've made great progress. As you will know, earlier this week, we published our international supplier list, and we'll be launching our Leicester manufacturing site by the end of November, some really strong progress on delivering on the commitments we have made. And in the words of Sir Brian Leveson, few, if any, companies undertaking due diligence of their supply chains have gone to the lens undertaken by boohoo. Lastly, we're delighted to announce a new concept this morning with PrettyLittle thing launching a resale marketplace in 2022. This will allow customers to buy it, love it, sell it from any brand, not just our own brands. This, we think, is a game changer, tapping into the structural growth of the resale market and further extending our target addressable market. It will extend the life of garments, breathe life into preloved clothing and help to reduce waste. Of course, it's not all about what we're doing within the business, our positive influence spans much wider. Earlier this year, we commissioned a report into the economic impact the group has on the economy and society as a whole. We're proudly a British business, paying tax in the U.K. And since 2009, we've added GBP 2 billion to the U.K. economy. We're committed to investing over GBP 0.5 billion over the next 5 years and creating over 5,000 jobs. In half 1 of this year, we've already created 2,000 of those jobs. So we're well on our way with that piece of work. To summarize, in half 1, we've continued to deliver growth on top of what was an extraordinary year last year. We've doubled our market share in the U.K. and the U.S. over the past 2 years. We've integrated and relaunched 4 new brands, and we've added 2 new warehouses in the U.K. Trading momentum has been improving into the early part of half 2, which is really encouraging. We're investing for the future and looking ahead with more brands, stronger infrastructure and a significantly larger addressable market. Thank you. I'll just pass you over to Neil now.

Thanks, John, and good morning, everyone. I'm going to move on to the financial review of the first half. And as I go through, you'll see that we've included 2-year comparisons for some additional context. I'm also going to share in this section some insight into customer behavior and demand patterns and then talk about guidance and outlook. So on to the income statement. And here, it shows that we've delivered 20% growth in H1, compounding the standout performance last year, meaning that we've delivered 73% growth over the 2 years. Gross margin was 54.6% compared with 55% during the lockdown boost last year. And pleasingly, it was higher than the gross margin of 2 years ago and that highlights the strength of our full price sales performance. Adjusted EBITDA at GBP 85.1 million is up an impressive 40% on 2 years ago. And that was notwithstanding the challenges posed by the COVID pandemic. We've seen additional costs of around GBP 26 million during the first half of the year related to the pandemic with extremely high shipping costs for overseas markets as well as returns rates normalizing in the U.K., and we've also been investing heavily into all of our brands and our multi-brand platform as we invest for future growth. And I'll talk a little bit more about those pandemic impacts later. Other profit measures such as adjusted EBIT, PBT and EPS continue to see further great progress on a 2-year view. I'd also like to highlight on this page the exceptional items. As part of the recent acquisitions, we've incurred GBP 15.8 million of integration and restructuring costs. This is at the top end of our previous guidance and is primarily driven by an extension to our transitional services agreement for the Dorothy Perkins, Burton and Wallis brands, which, although costly, allowed the brands acquired to keep trading ahead of moving to our fourth U.K. DC in Daventry in July. Additionally, we're calling out GBP 4.2 million of warehousing, commissioning and disruption costs. These are split between the automation project at Sheffield which is impacting operational efficiencies during the course of construction and also the startup of moving costs in relation to the third and fourth U.K. distribution centers. Looking at the results by geographical segment. As John mentioned earlier, we're delighted to have doubled market share over the last 2 years in our largest markets, the U.K. and the U.S. In the U.K., we've grown 32% in the half and 81% over the last 2 years. International revenues continued to grow in the first half of the year, and we've delivered 63% growth across the last 2 years. Within those international markets, we saw significant gains in market share last year as competition subsided at the onset of the pandemic, and we acquired a significant number of new customers. Against that comparative, plus the proposition challenges that we've experienced due to extended shipping time frames, we're pleased with our performance, particularly in the U.S. where we grew by 24% in the half and 126% over the last 2 years. In Europe, our performance was consistent across the first quarter and the second quarter at minus 15%. But as life gets back to normal, we've seen a reacceleration and a return to growth in key markets such as Ireland and France. Lastly, on revenues, we just wanted to break out a bit of color on our established brand performance and by which I mean boohoo, boohooMAN, PLT, Nasty Gal and MissPap. We've made further progress in the U.K. and international markets over the last 2 years and have delivered 51% over that period and that was evenly split between U.K. and international. On to costs, we've seen a short-term step change in costs as a result of the pandemic and are also as a result of our brand investments. There's a few themes that I'd like to draw out here. Firstly, central and admin costs. We're continuing to leverage these cost lines. At the same time, we're investing in our multi-brand platform and our recently acquired brands. Secondly, marketing as a percentage of sales has been elevated in the first half of the year compared with last year. We didn't have to spend much on marketing in the first half of last year, but more strategically, we're investing in our brands, and particularly those that we've recently acquired so that we can fully capture the opportunity that they bring to the group. We expect marketing costs to come back down towards the 9% to 10% of sales corridor, but we won't be afraid to continue with high levels of investment in order to unlock the growth curve ahead of us. Lastly, on distribution costs. Optically, they're down slightly year-on-year and only up 90 basis points on the pre-pandemic levels. However, this has been aided by the brand and country mix and underlying, we've seen significant increases in international carriage rates, which has materially impact profitability compared to pre-pandemic levels. So going into more detail on cost, we want to draw out today the impact of the pandemic on our cost base, which represent short-term temporary headwinds and something we believe will pass in the course of time as the pandemic eases. Like-for-like, our costs are up GBP 26 million as a result of the pandemic versus 2 years ago. And that's equivalent to 270 basis points of EBITDA margin split across 3 areas that are shown on this slide. Within this, the single largest item in the first half of the year was outbound carriage inflation. That's getting product to and from customers around the world, and that cost is GBP 20 million higher than it would have been 2 years ago. Heading into the second half of the year, there are 3 cost headwinds that we want to flag today. Firstly, outbound carriage, which, as I mentioned on the previous slide, was a GBP 20 million headwind in the first half of the year, and that will reoccur in the second half of the year. Secondly, inbound freight, which is included in our cost of goods sold. This has seen marked increases in recent months, in both the ocean freight rate per container and also the air freight rate per kilogram. Both of these are a result of supply chain constraints as businesses focus on intake for peak trading. But this will be more significant than the GBP 3 million impact in the first half of the year. Lastly, in our warehouses, there's well-documented wage inflation due to a tight labor pool. And this is coming through via higher basic rates of pay and additional incentives for colleagues as we gear up for peak. So piecing together all of those impacts of pandemic-related headwinds plus our brand and platform investments, this slide really demonstrates the underlying resilience in our profitability as well as our longer-term opportunity. We are reporting today GBP 85 million of adjusted EBITDA in the first half despite those pandemic-related GBP 26 million of costs. So if those cost lines had been at similar rates to before the pandemic, EBITDA would have been materially higher at GBP 111 million. In addition, we've invested heavily in our platform and new brands, which have not yet scaled to the same degree as our other brands. And that's worth around GBP 11 million to EBITDA over the medium term based on overhead efficiencies. And lastly, there's a GBP 13 million opportunity from marketing efficiencies for those new brands as they trend down towards the group's 9% to 10% of sales long-term average. So to summarize last few slides, looking through the cycle of the last 2 years, we've delivered 40% more EBITDA, while at the same time, we've invested in our multi-brand platform and marketing all of our brands to capture market share. All this whilst facing those significant temporary headwinds and restricted service proposition as a result of the pandemic. So that gives us a lot of optimism to invest for the future. Moving on to cash flow. We've ended the period with GBP 98 million of net cash. That's down GBP 178 million since the last balance sheet date at the end of February, and that's driven by 3 things: Firstly, CapEx. This year is a significant year of investment across our tech platform, our warehouses and automation as well as in tech and our new offices, with CapEx totaling GBP 172 million in the first half. GBP 72 million of that was for the purchase of our London office in Soho. GBP 50 million related to the automation project in Sheffield. And you'll remember that this is a GBP 125 million project going live next year with a payback of approximately 4 years. GBP 29 million related to our new U.K. distribution centers in Wellingborough and Daventry. And the remainder represented investments in the tech stack supporting the multi-brand platform and upgrading our office environments in both Manchester and London. These investments are all about building a scalable platform and infrastructure that can support our long-term growth. Secondly, working capital. We've seen an outflow in the half as we invest in new brands and building inventory for those new brands, but also building inventory levels generally ahead of peak and getting ahead of the global supply chain issues. Thirdly, cash restructuring costs and exceptional costs amounted to approximately GBP 20 million in the half. We ended the period with GBP 98 million of net cash, and we've got GBP 198 million of liquidity given the group significant headroom. Looking at customer KPIs. We had just under 19 million unique active customers in the 12 months to the end of the period, and that compares to 13 million 2 years ago. That's an increase of 4% to 6% over the course of the pandemic. In the last year, we've seen further improvements in key customer metrics, such as order frequency, which is up 9%. Conversion rates and sales per active customer have also increased, meaning customers are shopping more frequently with the brands and spending more as we capture a greater share of wallet. Over the next couple of slides, I'll talk through a bit about customer behavior and the demand environment that we're currently facing. Most of you will recognize this slide showing our cohorts of customers. It shows net sales by year of acquisition across the 12 months to the end of August. And there's a few aspects in here that point to the impact of COVID on demand last year and the underlying resilience of our customer cohorts. You can see from this chart that our growth is underpinned by a really healthy retention of historical cohorts. And you can also see that we saw exceptional growth from new customer acquisition during the earlier stages of the pandemic. The behavior of the customers is extremely encouraging, and we are seeing continued sales growth from the historical cohorts after their second year. So our brands are really built on the strong foundations of a loyal and growing customer base. The next slide shows how volatile customer demand has been through the different phases of lockdown restrictions being eased in the U.K. In the chart on the left on this slide, it's quite clear to see how stores reopening in April and the delays to Freedom Day in June as well as uncertainty in overseas travel and festivals has really dampened demand at times in the first half. But you can see that there's definitely been a resurgence since just before the actual Freedom Day on the 19th of July. The chart on the right focuses on our brands or our established brands in the second quarter who have started to see a meaningful increase in gross demand since the 19th of July. And on a 2-year stack, we can see customer behavior has demonstrably changed since Freedom Day on the 19th of July when they've got more reasons to shop. Within the U.K., our rate of growth in sessions over that time frame has jumped 20 percentage points and gross sales by 15 percentage points, and it's great to see that momentum has continued into September. Moving on to current trading. We're seeing sales growth accelerating into September, where gross sales growth for the first 4 weeks has accelerated significantly over the rates we saw in the second quarter. Demand has improved through August, principally in the U.K. but also in key overseas markets such as Ireland and France, where there's been a reacceleration and a return to growth. This has again improved in September, where the rate of gross sales growth has increased compared to that achieved in the second quarter of the financial year. So moving on to guidance. We now expect top line growth of between 20% and 25% for the full year, which implies 20% to 30% growth in the second half of the year. The acceleration we've seen in August and September gives us confidence that as we head into peak, we could have a demand tailwind behind us, and that's through the following: ongoing easing of restrictions in different international markets. Greater international airline capacity into markets such as the U.S., and that will improve our service proposition and events such as Halloween party season, Christmas holidays, all of which were canceled last year. Adjusted EBITDA margin is expected to be between 9% to 9.5%, reflecting the impact of those short-term cost headwinds from the pandemic that we talked through earlier. We continue to invest in our tech platform, and we'll start to incur CapEx from the initial phase of investment in the U.S. distribution center, meaning that we now expect capital expenditure for the year to be around GBP 275 million. In addition to the first half investment in the GBP 72 million London office, we are making great progress on our program to build GBP 4.7 billion of net sales capacity by 2023. So with all of those investments in the future, our medium-term guidance remains unchanged for a 25% sales growth per annum and a 10% adjusted EBITDA margin as those pandemic-related issues unwind in future years. So in summary, it's been a strong first half, and you've seen lots of great progress made over the last 2 years. And we're in a great position to keep delivering high levels of profitable growth in the future. And so on that note, I'd like to hand over to Carol.

Thank you, Neil, and good morning, everyone. This morning, I'm going to cover off Debenhams and the opportunity we have to grow the business. And then I'm going to cover off our brands on our ever-evolving marketing strategy and how we've reacted to the easing of the COVID restrictions. And lastly, some detail as to how we've evolved our customer database and the significant wider and broader appeal that we have today in our -- with our new demographics. So firstly, Debenhams, we launched Debenhams brand earlier this year as an online-only department store. And unlike our other brands, the website has been built from scratch with functionality to plug in third-party brands to enable us to have a marketplace. The opportunity for Debenhams is huge. Brand awareness of the brand in the U.K. stands at 90%. And prior to acquisition, the website had circa 300 million visits a year and was within the top 10 most visited retail websites in the U.K. The business generated approximately $400 million of sales online with a net turnover of GBP 1.8 billion. In beauty, it was leading in prestige beauty across makeup, skin care and fragrance. It was #2 for beauty and #1 for fragrance. With a customer base of 19 million, 6 million of which were beauty shoppers, it also has 1.4 million members of a beauty club loyalty program, which we'll be launching -- relaunching later this year. We have a fantastic opportunity ahead as we aim to be the #1 online destination for fashion, beauty and home. And to do this, we will further expand the ranges across fashion, beauty and home, improve the overall customer experience to drive conversion and launching a brand-new app, invest in marketing to drive traffic and accelerate the growth in the customer numbers. So we acquired a little bit on Dorothy Perkins, Burton and Wallis here. We acquired the brands in February this year. And just we launched them in April. It was quite incredible. We managed to launch 3 new websites within 11 weeks, all were brand-new apps. It's a testament to the tech teams and the scalable platform we've put in place. And prior to the acquisition, the brands generated GBP 428 million of revenue and had 2.5 million customers. It's another fantastic opportunity for us to grow our addressable audience. So now I'd like to break out the presentation with a video demonstrating what the brands have looked like in the last 6 months. [Presentation]

So I hope that just gives a little flavor of some of the achievements over the last 6 months and some of the foundations that have been put in place for us while we're investing in the future growth. So on to this next slide. Agility has been key to our ever-changing global landscape of lockdown, and we've been optimizing our marketing channels with the right mix of brand and digital and all of that's being key. Our collaborations have also evolved in their approach. So for example, Oasis launched a collaboration with the RHS is focused on botanical prints over the summer months. Karen Millen continues to see success with Lydia Millen collections. And we worked with artists, [ Kate Bikbon ] and a collection of the most beautiful printer pieces, and I am wearing one today. I always like to wear our product when I can. And we're constantly adapting to the environment around us, and it's been great because we're bringing PR and brand and events back to life. Missed them so much. So it's just so great to be able to have -- we'll have today actually live face-to-face as well. So in the past few months, we've been able to get back to some of that marketing activity that we've all been famous for. So here in the London showroom, we've been having several brand events each week. Internationally, we've had events at Miami Swim Week, New York Fashion Week, where diversity was a key theme. So with our models have been covering up from sizes 2 to 24, mirroring the inclusivity that we offer across sizing across our brands and catering for every woman every size, every shape. And all these events helped to support our growth of our social channels where we now have 54 million followers across the group. Over the past 2 years, our customers have grown from 13 million to 19 million as we've grown our brands and expanded our portfolio. Our addressable audience in this time frame has shot of 5x from just under 100 million people to almost 0.5 billion. The acquisition of new brands has positioned us to address everyone from our teenagers to our 50-plus markets. And not only are we addressing age and gender but sizing, so offering petite, tall and curve across all our brands. We've also launched beauty and homewear. So not only can we dress customers, we can sell beauty to them and homewears to them as well, just giving them all the more reasons to shop with us as a group. So there's lots of upside as we globalize our brands, expanding into new geographies and reaching new customers. Now on this slide, I just wanted to demonstrate the change in inventory. So the agility of our business is one of our key strengths. We've been adapting our brands to ever-changing customer demands. So for example, this summer, you can see we've seen a return to occasionwear. With Coast, it's really been positioned as a brand -- as a go-to dress brand for every occasion. And at Burton, we've seen tailoring and formal wear performed really strongly with the return of the wedding season and a return to the office. So as I mentioned, our strength has always been about agility and ability to meet these ever-changing demands. In the last 6 months, we start the season selling athleisure and casual wear. And today, across the several months, we've seen a surge in demand on dresses, trading as our #1 category, where we have today 28,000 options available across our 13 brands. So finally, to summarize on our results presentation this morning. We have experienced short-term headwinds from the increased freight costs. We've seen a positive start to the new season with demanding trends throughout September. The group has continued to deliver strong growth, it's 73% over 2 years. We have emerged with the pandemic with brands we're launching 4 this year alone. We have stronger infrastructure across technology and distribution with our first overseas warehouse announced today. We're driving sustainability across the business. We can now drive -- address every customer from 16 to 50 plus across our brands. And as I said earlier, that 0.5 billion people with a market size around GBP 500 billion, and we continue to invest for the future. Thank you, and I'd like to hand over to questions.

John Stevenson at Peel Hunt. A couple of questions to get us going. Stick with the Deb's team, regular question, but just wondering what it looks like at launch, just as you look at the appendices, I think you've got a few bit of detail. But what are we going to see in terms of the marketing, what's going to be on the platform? How ready are you in terms of the build-out of product, beauty brands and what Debenhams essentially looks like coming into peak? Second question, just on the U.S. DC. What does that do for your thoughts on supply chain given the sort of tax regime and what it implies. Do we start seeing more product coming out of, say, South America? And final question, just in terms of the guidance and margin expectations. I guess we're sort of baking in 9%, 9.5% EBITDA margins going forward, at least I have this morning. I guess are we saying that the -- when the headwinds leave boohoo the rest of the sector next year, we should expect a bit of upside to that number.

Should I take U.S. warehouse first actually on that one. So in terms of tax duty. Yes, look, it's obvious U.S. direct import duties are higher than what you see into the EU. We will naturally look to preferential country treatment. So for example, Central America, Mexico, North Africa, et cetera, some of those countries. So we'll look at the mix within that in terms of getting that balance right, while still keeping our test and repeat model, there will be open for business. We're looking at 2023. We're down to a number of potential sites. And we'll update everybody on that in the next sort of -- in the coming weeks and months. In terms of Debenhams, maybe leave the brand to you, and I'll do the -- I think from a functionality, we're still building from a tech platform. To give you some indication where we are there, I'd say we're about halfway through the journey in terms of capability on the tech platform. In terms of from product, again, we're at the early stages. It was from scratch new teams taken on board, new ranges taken on board. Maybe give you an example of beauty, particularly around the prestige beauty, we're probably at about 25% in terms of onboarded at this stage within the next couple of weeks, that was up over 50%. So again, all building as we go forward. And equally, I would say the other in-house product ranges and third-party brands are about at the same stage. So early stages and what we've seen so far, really, really pleased. But clearly, a lot to go yet and really the full benefit of that is going to start coming from 2022 and then...

Yes. And then from a branding perspective, we've done the initial -- little repositioning really, it was very important with the store closures to tell our customers or tell the Debenhams old customers that we're still here. So we've been doing some out of home. We've been doing some social. We have launched on TV. We've got new campaigns going into next week, I think, as well. So really, it's about positioning the brand as an online-only department store now, and that's an initial bit. So that's all going. But obviously, all of the regular channels and the formulas we've used in the past.

And the third question, which was about guidance and margin expectations. I suppose what we've seen is an actually a very strong performance, profitability-wise in the first half of the year when you consider that we've got those GBP 26 million of pandemic-related costs that we're carrying. As we -- as those effects unwind over the coming years, then it gives us a lot of confidence to reiterate our medium-term guidance which is sales growth of 25% and above and the 10% EBITDA margin. So within that, you could really see on that slide, we've got the headroom to be able to do those marketing investments of new brands and all the brands actually into new geographies. So we'll have that headroom as those cost impacts unwind to be able to keep that double-digit EBITDA margin and that superior growth rate going.

Simon?

It's Simon Irwin from Credit Suisse. When talking about wholesale, can you just talk about how going to wholesale partners works with test and repeat and very short production runs because presumably, they need stock, they need predictability of range and all the things that are kind of that not kind of core to your offer at the moment where you're trying to kind of push through new products as fast as possible. Secondly, can you just talk about your kind of expectations around air freight and shipping freight as to where you expect rates to come back to and when. I mean there is a -- there's certainly a school of thought, which suggests that air freight rates have been too low for too long and simply aren't going back to historic levels. And how does your model sit if that actually happens? And then can you just talk through the numbers around the U.S. in terms of what you're trading off for higher tariffs and higher OpEx on a site relative to benefits of transport costs.

So if I look at freight rates, first of all, so airfreight, and where's the big impacts we're seeing there at the moment, it's really around capacity. And as we all know, there's a lot less passenger planes flying around the world at the moment. And usually, those passenger planes in the belly are carrying cargo. So with that reduced capacity obviously drives up price in terms of demand. If you look, for example, the U.S. hasn't been open to European travel for pretty much 18 months now. And obviously, with the recent announcement that, that opens again from November. So that's going to again, drive more passengers going to the U.S., which will make more aircraft available on those lines, therefore, more supply available for us. We see pieces like that actually beginning to open up that light at the end of the tunnel, and therefore, we see prices beginning to move from that time. Equally, you see sort of Australia from a similar basis. And it's not just about cost, it's about speed. So part of the kind of proposition at the moment is a little bit slower because of lack of numbers of aircraft going over. So I'm going to give you an example, currently a standard delivery to the U.S. would take sort of 8 to 10 days, and that's pretty much twice what it would have been previously. So from a fashion customer point of view, at the moment, waiting that 8 to 10 days versus 4 to 5 for some, that's a consideration. So that's really great news in terms of where we're coming to you in November. In terms of from an ocean freight point of view, really, what we're seeing there, you've got to go back to last year. The world was stopped for many industries, not just retail, therefore, in terms of there wasn't that demand. So what you saw was the freight companies taking capacity off the routes. And what we haven't seen since the world is waking up again and demand, we haven't seen that capacity going back in. So what you've seen is a very profitable time for freight companies in that time scale, but those ships are sitting around the world, and they'll come back in, in the coming months is our view. And again, that will drive more capacity in, which will mean the demand will be that better. In terms of the wholesale point in terms of test and repeat. So we operate the wholesale separately to the main businesses. So the main businesses continues to run on test and repeat. And then obviously, the wholesale orders as they come in from the different customers through the different brands, we'll then meet those orders on those products. So clearly, we have a very good and efficient supply chain still, but we treat them separately. So we're not waiting on a wholesale order before we put down our main order on the brand. So again, really, really excited about that, especially for the brands that we've acquired over the last 12 months or so who were predominantly stores. And obviously, as those stores have disappeared from the high street that brand awareness now, whether it's the U.K., whether it's Europe or whether it's other markets that we're looking into. I think the third question was around the U.S. DC. At the moment, we're expecting the cost savings that we get from shipping costs within the U.S. distributed into customers will offset more than fully increased import duties that we'll have when we ship items in bulk into the U.S. So -- and that business case has got better and better as we've gone through the pandemic based on what we expect shipping cost to settle back to after the impacts of the pandemic have passed.

Okay. I should know this, but are you charging sales taxes in the U.S. at the moment?

Yes. We're charging sales taxes in all states.

Okay. We've had a number of questions from people on the webcast at the moment. So the first question is from Anne Critchlow from Societe Generale. Is the lack of a warehouse in Europe hindering progress in those markets following Brexit? And is a European warehouse something that is under consideration.?

I think we've obviously seen proposition and lead times since Brexit has been slower than what they were prior to Brexit. So in time will a warehouse in Europe come? Yes. But we see the priority being the U.S. in 2023. So if we look at our sort of long-term strategy. We see actually more than 1 warehouse in the U.S. as well and equally, we see a warehouse coming down the road in in Europe. But if we look at Europe today in terms of that proposition, actually, it's getting much closer to what it was prepandemic and equally pre-Brexit. And again, if we look at our trade in Europe, particularly over the last few weeks, some of our key markets like France, we've seen a real acceleration there. So we're not really seeing that. We see the priority really #1 in the U.S., but I do see in the future a warehouse coming down the road in Europe as well.

So we'll just take one more question from the webcast before we go back into the room, from Anne Critchlow. Where sales held back by poor inventory availability and will you have sufficient inventory to meet demand?

No, I wouldn't say sales were held back by poor inventory. I think if you just put yourself into the head of a consumer over the summer, if you look at particularly that's sort of June, July and August period. Most of us would have gone on a sun holiday in that period, and actually not many of us did that this year. So that whole wardrobe purchase of kind of beachwear, kind of beach to bar, eveningwear in the nice sort of 28, 30 degrees when you're outside was very different to what we would have experienced, for example, at home. So that's the big impact. But then equally, if you think about that 16- to 24-year-old profile, we didn't have the number of festivals. We didn't have the number of events. We had kind of the Freedom Day, even in the U.K. pushed back. If you think of markets like Australia, Freedom Day is not for another couple of weeks yet. So that's been more of the impact rather than reduction in inventory. And equally, in terms of inventory going forward, Neil would have talked earlier about those inventory levels at the end of the first half. So we're in a good position. And we're all experiencing those issues around the world in terms of sourcing countries and getting it in. But equally, we're doing things that we wouldn't have done previously. So we're chartering aircraft and filling those aircraft ourselves coming out of countries just to guarantee and get that supply in. So at the moment, we're happy. There are some areas we're a little lighter than what we'd like to be, but don't see anything fundamentally affecting us.

Maybe I could just finish and Critchlow's final question. Are the newer brands still expected to contribute circa 5 percentage points to revenue growth this year?

So the new brands so far have contributed a high single-digit number as a percentage of our -- for our growth rate. And we're expecting that to be the same in the second half of the year, so high single-digit percentage. So they're slightly ahead of where we were guiding before.

That's great. Then if we're getting questions from the room?

Yes. Tony Shiret from Panmure Gordon. Just some background, I think, on marketing. Just wondered if you could give us a sort of rough split of your marketing spend between sort of categories you consider sort of meaningful but something around brand influencers, social and SEM. And secondly, in terms of visits to site, can you give us some sort of idea of how much is organic, how much is SEM and how that's likely to trend with the new brands coming on.

So on the split of our marketing spend, it does vary a lot between the brands and different geographies. But overall, we've got a split between -- of about 30% brand, 30% direct response digital advertising and then 30% around brand awareness and influencers, et cetera. So it's roughly in those areas. But digital, if anything, is becoming a higher proportion of the mix and paid social with the different social media platforms is always becoming more and more important as our influencers as well as our channel. And then in terms of organic traffic, 5 years ago, that was probably around direct and organic, about 8% of our visitors. As we've invested more and more in digital marketing and social media, that tends to come down a little bit more. So it's below those levels, trended down to over 60% in recent years. I think that's been very much in line with trends in the industry generally.

If we can just go to another question from the webcast just now. We've got Miriam Adisa from Morgan Stanley. How long will it take you to get back to the GBP 2.7 billion of revenue from your newly acquired brands? And what are the key steps in achieving this? And which brands do you expect to drive this?

I think in terms of time, first of all, it's about as explained earlier, even with Debenhams and new brands, it's about getting the site functionality up and running. It's about getting the ranges. So a good example of that would be if you looked at Karen Millen when we acquired it just over 2 years ago, it would have had just over 400 styles on the website and available today. That's over 4,000. So it's the opportunity of building out the categories, building out the offer to the customer. We see a GBP 2.7 billion as fully achievable over time. But clearly, it's about kind of building the website, marketing and branding to the customer, getting the ranges in terms of where they need to be. And the key point on that GBP 2.7 billion is really around pretty much 95% of that was U.K. based. So again, if you look at the journey on Karen Millen as an example, just over 2 years ago to now, we're now sort of seeing real interest in the U.S. market in Karen Millen. And equally, we're seeing interest in Australia and a little bit in Europe, particularly in Ireland. So again, just beginning that international drive with that brand. So it's getting it up and running, getting it established. And then obviously, in terms of marketing and then going outside of the U.K. is the journey, but over a number of years is what I would say.

A follow-up question from Miriam. What contribution to revenue do you expect from wholesale?

So this year, it's going to be pretty negligible, certainly in a low single-digit percentage, but we are -- we've got that as an opportunity in the second half of the year. And -- but we're not creating any great expectations around it straightaway, but we see it as a big opportunity for the back end of the year and into the next year.

And the final part for Miriam's questions. In Europe, your market share development was not as strong as the U.K. and U.S. Why was this? And what do you think about the customer proposition here?

So I think the opportunity, I would describe it in Europe is more really to talk about. So our key markets in Europe would really be currently France and Ireland. Clearly, Europe is a lot bigger than those 2 countries. We have some Germany business, very small Spain, very small, Italy, very small Scandy, very small, Eastern European. So actually, I would describe the European journey as really just at the beginning, and it's about the opportunity in terms of marketing and getting our brands in there. What we have seen, even in the markets that we're pushing in like France and Ireland, actually, there's a real appetite for the brands there. It's really about expanding on that market opportunity and taking it on.

Let's quickly just to go other questions from the room, if we have them.

It's Charlie from Exane BNP. Firstly, so I just want to the obvious question. You've given some encouraging unscaled chance with respect to the improvement in gross sales trends in September. I just wanted to qualify, are you now confident enough to believe that you'll be back in that 20% to 30% range that is implicit in the second half guidance within Q3? And secondly, I just wondered on the top of acquisitions, you obviously did a huge number of brands in the in the last 6, 9 months, but your logistics is obviously all in the U.K., and you do have challenges outside. So is M&A on the back burner for now, whilst you digest? Is it constrained to the U.K. until you've actually got logistics to support a brand in foreign markets? Or are you looking very actively worldwide so.

So on the demand into Q3, yes, we're very confident that we're on that trajectory. And you could see that although the charts were on scale, you could see a big increase there in the gross demand as we go to the -- through the back end of August and into September. So that gives us a lot of confidence. There's a long way to go, of course, but there's definitely been an acceleration. And at the same time, we've seen the returns rates in the U.K. go up significantly, but that has stabilized going into Q3, but we're seeing that acceleration of gross demand. So that's positive, I think, for the for the third period, which will be the next time we report is about the 4 months to the end of December. I think in terms of European proposition and generally international proposition, generally, I think what we are seeing is, as the world is beginning to reopen, and freight movement, aircraft movement, et cetera, increases, we see that proposition really coming back to what it was previously. We can see Europe coming back quicker. And clearly, for example, key market, the U.S. obviously, once November in terms of air passenger travel is allowed again between Europe and the U.S. We see that really expanding in terms of availability of aircraft. So Europe is very close now to what it was pre U.S. is still sort of 10 days versus 5 days previously. But again, we see that in November improving. In terms of logistics and long term, we can -- pre-COVID, we can service and grow very well in international markets. We've outlined this morning our first distribution center in America in '23. But if we look at our road map in terms of where that takes us, we would probably see a European coming after that and then probably U.S. too after that as well.

Sorry, the question was also related to app site for further M&A versus sort of digesting and getting up and going with events and cycles.

Yes. So I think we'll always look at interesting opportunities as they come along. Again, at the moment, in the kind of weeks ahead as we head into peak, that's our kind of real focus now. But we're always looking at interesting opportunities is what I would say.

Just a follow-up. I mean, a year on from the [ lever ] report. Can you just talk about what's changed in the balance of your sourcing, particularly in -- I mean, obviously, we've seen all the changes in terms of process, which that are some letters of update us on. But in terms of actually where you're sourcing from has anything changed materially?

I think what you'll see, if you've had a look at the global supply list that we issued on Monday of this week, what I would describe it as no surprises really in there in terms of garment making countries. So in Asia, China, Bangladesh, Pakistan, India, Vietnam, Myanmar, Europe in the sort of Italy, Turkey, in terms of what's coming through there. We've said and I've said before in terms of the kind of natural mix of the U.K. would go down anyhow because of the type of garment that we make here in the U.K. And as the brands in terms of the acquisition, making jeans, jacket shoes, all of those product categories we couldn't make here. So that will just expand the offshore mix. And the U.K. mix, while it's still important to us, but just as a scale of company now, that will come down naturally. We obviously have our factory opening in Leicester at the end of November. So we're really pleased about that. And again, that will service all of the brands, and that will be up and running by the end of November and again, for that kind of fast test and repeat. And obviously, again, just kind of again supporting the importance of kind of #1 in the U.K. jobs, but equally our model and been able to get goods fast that will really, really be important to us then.

Okay. Maybe if we have another one with the questions from the webcast from Adam Cochrane from Deutsche Bank. Do you expect any of the short-term headwinds to carry into FY '23?

I think it's difficult to say at this point, but I would expect them to carry on into FY '23 in terms of those elevated freight costs as we ship orders to overseas markets. Inbound freight, not sure about that, whether that will normalize in time. I think on the positive side, we're seeing flights open up to the U.S. in November. So maybe those headwinds can start reducing now, but whether they'll be eliminated by February, it's really hard to see. I'd like to think that air capacity is really going to be ramping up quite quickly from November. As John said, Freedom Day in Australia, so maybe restrictions open up there. But it's likely there's going to be some drag left into the next financial year. But hopefully, we'll get past the worst of it soon.

And Adam's got a few questions. How many of Debenham's customers have remained engaged with the brand?

I think we haven't got numbers right now. Debenhams is a huge opportunity, but we're just starting with it. We're developing the proposition there. And really, the big launch for Debenhams is before peak for this year. So there's not really much to say on how many of the Debenhams are engaged. But because -- in terms of e-mail list, it's very engaged. We do see good levels of traffic already. But that's going to increase as we develop the proposition on the Debenhams website.

And last question from Adam Cochrane, why have the higher outbound freight rates not being passed on to the customer?

I think from a competition point of view, clearly, in the different countries that we operate in, that's our first and foremost that we make sure and ensure that we're still in that competitive space. We see the current freight as short term, which we keep saying. And therefore, what you don't want to do is take any short-term steps from a pricing point of view versus your competitors that could impact your business in the medium term. So we look at everything, we look at efficiencies in the warehouse. We look at pricing, we look at sourcing, everything that we can do. But obviously, we've got to make sure that we keep it in our competitive set.

Maybe we just take one more question from the webcast before we go back to the room. Georgios Pilakoutas from Numis. What does the increased CapEx guidance relate to? Is this pulled forward of out your CapEx? How much of this relates to U.S. warehouse?

So the increase in the CapEx guidance is around the progress that we're making with the program that John talked about to achieve GBP 4.7 billion of net sales capacity. So we're making great progress on the automation project in Sheffield. And also we've got the U.K. DCs up and running. So the additional amount of CapEx over and above that relates to a few things that are coming into play. One is the international, as we pointed out there. So we're going to see the investment in the first phase of the U.S. DC towards the end of this year now. So that could be around GBP 10 million of the GBP 25 million increase in the guidance. And then the other amounts relate to just pulling forward the program around our tech. So improving our front-end apps and websites for all of the brands and including the new headless e-commerce platform for Debenhams and then improving the office environments in Manchester and London as well. So that's what the additional CapEx guidance is around.

And do we have any questions from the room.

Yes. To ensure just a quick -- it's not a follow-up, it's a separate issue. Involved with a sort of small -- much, much smaller, a new clothing company. And we've been having a few problems with -- a lot of problems, in fact, with supply out of Vietnam and China in the last very short period of time. Just wondered if you're encountering any issues with that? And how big you are in terms of your total supply of Vietnam and China?

I think Vietnam, firstly, is probably the worst affected in Asia in terms of supply chain. We have tiny, I would describe it, very, very low single digits coming out of there. So it's not really an issue for us. But I know there's been a lot even in the last week about trying to get Vietnam reopened and kind of factories back working. But it's not an issue for us. In terms of China, we're like most countries in terms of getting it into a port, whether it's a port or an airport, getting it on a ship or an aircraft, getting it over here. It's lower than what it was previously, but we're getting product through. And if I look at China as an example, last week, we would have chartered a jumbo to take out our phrase, and we have another one coming out next week. So we're again kind of just working slightly differently to make sure we're getting our product in at the right time and getting that volume moved for us. So Vietnam, no issue. China are issues there, but we're working our way around that.

And if you we go in China?

Sorry?

How much from China?

So we've probably got about 30% of our capacity coming out of China.

Andy Wade from Jefferies. Just on the revenue acceleration that you're going to see or you're expecting to see in the second half. I'm just wondering if you've got any guide as to how we might expect to see that pan out geographically. There's obviously a lot of stuff going on in terms of delivery proposition and annualizing store reopenings and events and stuff kicking off again and unlocking and so on. But can you just give us a bit of a hand on how geographically you might expect that to pan out?

I think geographically, the best way to think of it is that we are seeing that strong reacceleration in the U.K. and some of the European markets. So I think we're going to see it in the U.K. initially and Europe initially. But as Europe is going to increase through the period as different markets go through that pattern, we've seen it in some of our markets, both start momentum starting to grow in Europe. And then the U.S., I think, is going to be around the the kind of run up to the holiday season through Halloween holidays and then through Christmas. As we generally see, I think we're going to see the demand stimulus in pretty much all markets be quite different to the way it was last year. So this year, we -- all of those events are going to be happening this year whereas they weren't last year. So actually, I think it's going to be pretty evenly spread across the geographies that we're going to see improvements in -- across the geographies. But in the order of events, I think you're going to see it in the U.K. first, continue in Europe and then the U.S. as we get through Halloween.

Great. And then sort of a big picture one. I mean, Obviously, we've seen growth a bit slower through the current period. Would it be fair to say how you're viewing it a big picture level is? We're obviously up against very big comps last year, a year where you made great progress and there's some disruption going on. But we'll get through that. We'll get through to next year and we'll sort of be back to normal and you're talking about 25% growth rate again. I mean is that oversimplifying. Is that sort of how you're thinking about it?

No, that's a good summary. I think we're definitely thinking of it like that. The pandemic has dragged on in terms of those transit times for the international business. As soon as those get back into the more normal levels, then we've got a really competitive proposition. And hopefully, that's going to be in the second half of this year to a certain extent and going beyond that. So for future years, definitely, we've reiterated that medium-term guidance of 25% year-on-year growth and the 10% EBITDA margin. And we're pretty confident that this is short-term temporary factors around the pandemic, and those are going to subside. What the exact timing of that is nobody knows. I don't think, but hopefully, it's sooner rather than later.

So we can now go to a question from Ben Hunt from Investec. Inventory levels are significant -- are up significantly particularly from supply chain disruption. How clean is your stock position?

So our stock position is very clean. We exit the season clean. Become very clear disciplined across all the brands in terms of where we get to. So we're happy with our stock mix in autumn. Clearly, we're coming towards peak. We need those coats, knitwear, boots, we need the party dresses in. And that's coming through and where we need to get them in if they're not moving quick enough like we just talked about was we'll take an aircraft and fill it coming out of China. So we're happy and we're clean, I would say.

And a follow-up question from Ben Hunt. Gross margin is up significantly in the U.S. but down in the rest of Europe. Are you keeping your pricing proposition competitive enough in the U.S.?

We would say that we are very, very competitive on price in the U.S., but we're always every day, every week exploring that elasticity around that. And it very much depends on what those demand stimuli are. So we'd say yes, but we're always testing that and testing that elasticity.

I've also got a question from Paul Rossington from HSBC. Is increased competition impacting your performance in Europe and U.S?

We've had competition around for a long time, and we fought competition for a long time over the last number of years. And as we've demonstrated, if you look at the last half year, look at the last 2 years, we've continued to grow very strongly. So competition is good in our minds. And clearly, the big shift that everybody has seen in the last 2 years is just that structural move more to the online. Yes.

So maybe we could go to a final question from the floor.

I'm Rachel Birkett from Zeus. Just a very quick one, having seen your really great showroom upstairs, is there any chance you would ever consider opening any kind of physical retail just a pop-up for a flagship? That might be the answer. It looks great.

We link that to the competition. Okay. Thank you, everybody.

Thank you very much.

Thanks.