boohoo group plc (DEBS) Earnings Call Transcript & Summary

Hi guys, keep it brief as usual. Joined by Carol, John, Shaun. Interesting times, but listen, let me tell you, we're focused on growth. So its all fun and game and it's all good.

Okay. Thanks, Mahmud, and good morning, everyone. So I'm going to give you an update this morning on our financial performance in the first half, and then John will give you an update on our Back to Growth strategy, and the key strategic milestones we've delivered in the first half of the year. After that, we'll take any questions you might have. So let's start with the financial review, and delivering sustainable returns on investments. So we've made substantial progress during the first half, despite the difficult trading conditions. We've improved first half EBITDA margin, we've delivered strong working capital, which we're very pleased with, and we've continued to manage inventory tightly. Our efforts on cost savings and working capital have underpinned the investments we've made across the group. And these initiatives have been delivered on time and on budget. And this is all geared towards ensuring that we're well placed so that the group can rebound quickly and robustly when growth returns. Our medium-term EBITDA margin target remains unchanged. As I talked to you about in May, my focus has been on 4 key areas. Firstly, on stock management. So we've made great progress bringing down inventory significantly, 35% year-on-year, and we've improved stock turn during the period. We're prudently managing all of the costs in our business, ensuring that the cost base is appropriately lean and rightsized for the current environment. We've identified gross annualized savings of over GBP 125 million across FY '24 and FY '25. And these savings go right across the cost of goods, distribution costs and admin expenses. Cash continues to be well managed for all my banking friends in the room. And we've saved GBP 94 million through the reduction in inventory, which is supported by capital investment program. And the cash that we're generating is then being selectively invested to support the future growth opportunities, of which there are many. So moving on to the P&L. Sales for the period totaled GBP 729 million, down 17% year-on-year. And I'll cover off shortly the detail behind our core brands and the impact of marketplace and the performance within our labels. Gross margin at 53.4% was up 90 basis points year-on-year. A strong performance as a result of all the hard work that's been carried out in unlocking deflation, freight prices and raw material prices, which we identified as an opportunity when we spoke to you last time. That has been reinvested back into lower prices for customers into speed in terms of faster supply chain, as well as the work on to proactively manage inventory tightly. Adjusted EBITDA was GBP 31 million, with an adjusted EBITDA margin of 4.3%, up 30 basis points year-on-year, reflecting the improvements in gross margin and distribution costs and from automation and overhead cost reduction as well. We've robust -- we have a robust liquidity position, with GBP 290 million of cash and just GBP 35 million of net debt at the end of the period, which was as expected given our investment program for the year. And on inventory, we've significantly reduced this down GBP 94 million year-on-year, as I've said, and we continue to manage this carefully under our leaner, lighter, faster stock model. So here, we've broken down the revenue performance from H1 last year to H1 this year. So you can see the principal drivers and their impact on the group's first half revenues. Firstly, you can see that due to lower customer demand, we've had a reduction in revenues from our core brands. And by core brands, I mean, boohoo, boohooMAN, PLT, Karen Millen and the Debenhams marketplace. Collectively, they declined by 10%, and that accounted for 8 percentage points of the decline in H1. Then you'll see we have a 7 percentage point impact that's directly related to the successful decision not to chase sales, but instead to target more profitable sales within our smaller brands and labels, which is pleasingly led to improved profitability. Lastly, there's a 2% differential due to the mix impact from higher marketplace sales where we recognize the commission income only as revenues are not the whole of the merchandise venue. This is a positive impact from the tremendous growth within the Debenhams marketplace. More about that later. We've taken steps to rationalize costs, which ensures that the business is the right size for the current environment and has the headroom to selectively invest in the key growth initiatives. You'll find it no surprise to hear that marketing remains absolutely vital to the success of our business. We spent GBP 90 million in the first half, down 4% year-on-year, as spend was optimized across marketing channels, but we continue to make targeted investments in specific growth opportunities to support customer acquisition, to drive customers to our sites, and to build awareness. In line with our Back to Growth strategy, this is absolutely the right thing for us to be doing. Distribution costs in the first half were significantly lower, reducing by 22% to GBP 165 million, in part reflecting lower volumes, but also the significant benefits that have been unlocked from our automation projects, as well as the rationalization of part of our network with the closure of Wellingborough earlier this year, with costs as a percentage of sales, reducing by 150 basis points year-on-year. Admin costs were also significantly lower as we prudently managed our cost base, rightsizing the organization with a 16% reduction. Looking ahead, we'll obviously continue to tightly control our overheads as a group as we realign our cost base to support investments into key strategic opportunities. We've made tough decisions along the way. The decisions that we needed to make, and we'll ensure that we're well placed for when demand turns and we see the green shoots of recovery. The execution of our strategy and specifically the focus on inventory turn has significantly driven working capital inflows over the last year. During the first half, we've continued to make investments with CapEx in projects that underpin our plans to get back to growth, but we would also expect CapEx to reduce significantly from next financial year as we come to the end of the Sheffield automation project and the U.S. fulfillment center launch. Over the course of the last 12 months, we've funded a large part of our investment program through execution of our strategy and strong working capital management, resulting in a net debt of GBP 35 million at the end of the half, in line with our plans. We retained significant liquidity with GBP 290 million of headroom on our multiyear banking facilities, and GBP 135 million freehold assets, including this building on our balance sheet. As a group, boohoo has been through a period of significant investment. We execute our projects with rigor and have an excellent track record for implementation, which is a testament to the great work from our incredible teams. We've invested in automating key sites for the group, driving significant cost and productivity benefits. Our U.S. distribution center is open, fulfilling orders for U.S. customers for PLT and for Nasty Gal to support growth in this region. Our opportunity in the region is massive, and this will really step change our proposition with fast, low-cost delivery across the U.S. And we're investing in technology, too, to ensure that we optimize our back-of-house systems, driving better speed and agility and lowering cost at the same time. All of these investments will drive boohoo forwards as the group gets back to growth. So moving on to guidance. Our focus remains on executing our strategy through disciplined investments across product, across price and proposition. Given this lower volume recovery than previously anticipated, and the continued targeting of more profitable sales within our smaller brands and labels, revenues for the year ending 28th of Feb '24, FY '24, are now expected to decline by approximately 12% to 17%. In line with prior guidance, adjusted EBITDA margins are expected to be between 4% and 4.5%, given the strong progress made on gross margin and on cost control, controlling the controllables. Adjusted EBITDA is expected to be between GBP 58 million and GBP 70 million, and CapEx is expected to be approximately GBP 75 million for the year. When we introduced our medium-term targets back in May with an EBITDA margin of 3.6%. Today, we've already made excellent progress with an EBITDA margin of 4.3%. As we look forward, we're still very confident that we will improve profitability to between 6% and 8%. We've made great progress in the following areas, and I should add, there's a lot more we can still go after. We're not done yet. We've invested into product, into price and proposition and we expect to see the impact on customer demand from these investments in the coming periods. We've tightly controlled costs and overheads to ensure that the cost base is the right size for the current environment, and is a leaner business going forward when growth does return. And we continue to manage inventory closely in a period of uncertain demand. And as we've spoken about, we will continue to push to unlock deflation as the supply chain issues ease. There's still a way to go. But this gives us clear line of sight for an EBITDA margin of 6% to 8% in the medium term, while investing in product, into price and proposition in a manner that will deliver a return to profitable growth and a sustainable ROI. So with that, I'm going to hand you over to John, and we'll talk later. Thank you.

Thanks, Shaun, and good morning, everyone. Back in May, we outlined our Back to Growth strategy, the execution of which will underpin our future growth. These are putting our customer first, investing for growth and delivering a sustainable ROI. We have invested significantly in the group, reflecting our long-term confidence. We have now built a distribution network capable of supporting over GBP 4 billion of sales across the globe. I'll now touch on the major milestones we have achieved over the last 6 months. In the first half of the year, we have been very busy and have delivered some key strategic milestones. We continue to deliver the latest fashion trends at great value while offering excellent service. These are the key factors that define our customer proposition. We have recovered supply chain and input cost deflation, and we have reinvested those savings to deliver faster lead times, strengthening our test and repeat model, while also lowering prices for our customers against the market, which has actually seen price increases. We have also increased the mix of entry price point categories in our ranges, further reinforcing our value credentials. In terms of investing for growth, we've spoken previously about the project to deliver best-in-class logistics through automation in our Sheffield site, which we successfully implemented, and which is now delivering record levels of productivity along with material cost savings this year and into the future. We successfully launched our U.S. distribution center in August, upgrading our proposition with next day, and express delivery options across the U.S. We have successfully migrated a number of our brands onto our in-house technology platforms, giving greater agility and lower cost. We have also continued to scale the Debenhams marketplace, fastly expanding the offering of brands, attracting new customers to the site, and increasing sales. We have also identified more than GBP 125 million of annualized cost savings across cost of goods, supply chain and overheads, which have supported our investment program as well as an increase in adjusted EBITDA margin in the first half. We continue to work hard at unlocking further cost savings, protecting and building our future profitability. It is absolutely right to be investing into price, investing in speed and investing in marketing. Taking this short-term time now to protect our brands place us well for future growth opportunities. As I touched on earlier, we are reinvesting the cost of deflation. We have recovered this through lower input prices, along with deflation in supply chain costs, allowing us to reduce our pricing to reinforce our value credentials. Across the group, the average selling price has decreased year-on-year by around 1%. But this has been more significant in some brands where investments have been as much as 7%. This is in stark contrast to the market overall, where average selling prices have increased 8% versus last year. As well as reducing prices, we have added more of our newest ranges at our entry and lower mid-price points, giving our customer the trend-led fashion they want at great value. We have been strengthening our test and repeat model. We are focused on backing winners, being able to identify those products that gain traction with customers quickly and placing repeat orders multiple times in a season to maximize their success. We can do this because we have worked to bring lead times down to invest in faster transport of product back to our warehouses, and getting products out to our customer as quickly as possible. And by doing so, by backing the winners and reducing the lead time, we are operating leaner and lighter, and stock is turning faster, meaning we are maintaining a fresher, more relevant inventory. And speaking of product, at the heart of boohoo's DNA is fashion. It is crucial that we have a fantastic fashion offering across our portfolio. We have shown here how the product mix has developed over the first half of the year. We have seen strong growth in swim and holiday wear and also denim. As we signaled back in May, we have seen a drop in demand for occasionwear, which had a particularly strong year last year as the world reopened following lockdowns. We are very adaptable to changing consumer demands, and a key strength is that agility through the test and repeat model. It enables us to meet those ever-evolving fashion trends. We have spoken about significant automation investments over the last couple of years, and we wanted to take the opportunity here to talk to you about the cost savings and productivity improvements. Since implementing automation at our Sheffield site, we have seen a sevenfold increase in our pick rate, jumping from around 65 units per hour to over 450 units per hour, greatly increasing efficiencies and adding scalability as we flex output from the site in line with demand that allows us to offer our customer a consistent proposition all year round. The investment has also driven significant cost savings, with payback still expected to be within 5 years. And we're thrilled to see that this has improved colleague engagement and retention rates also. As I mentioned, the U.S. distribution center is open, operational and shipping product as we speak. The project has been successful, opening both on time and on budget without issue. It's still early days, but prior to going live with the DC, our customer in the U.K. was 1.6x more likely than a U.S. customer to complete their purchase. Driving improvements in that conversion is a massive opportunity for us to go after, and we'll aim to unlock it through offering our customer a faster and more consistent delivery offer, which we're already seeing today, driving higher levels of new customer acquisition and improving customer retention and frequency. The market opportunity we have in the U.S. is huge, and this is just the beginning. Now we have the local infrastructure in place and a truly competitive proposition for our customer. We are driving awareness locally, and our brands will continue to go live to optimize operations around key trading periods. I now just want to play a short video to highlight the U.S. opportunity and show you some of the brand campaigns, including more recently, Naomi Campbell for PrettyLittleThing, New York Fashion Week; Tyra Banks in Times Square for Karen Millen; and just last week, Kourtney Kardashian Barker with boohoo. [Presentation]

Moving on to Debenhams. We are delighted with this performance, having achieved strong triple-digit growth in the first half, with the business in its second year of profitability, and this year is on track to record marketplace GMVs compared to -- increased marketplace GMVs compared to pre-acquisition. We continue to focus on onboarding more partners, more brands, and therefore, giving more choice to our customers across fashion, home and beauty. Debenhams continues to have huge brand awareness, and it's a capital-light stockless model, which will at scale, deliver superior margins. So in summary, we have achieved a lot over the first half of the year, invested a lot and executed a lot. We have improved lead times, strengthening the test and repeat model and captured cost deflation, reinvesting that into lower prices to reinforce value credentials across our brands. We have successfully launched our U.S. distribution center, transforming the delivery proposition in a key strategic market. And our automation project at Sheffield is delivering meaningful efficiency improvements and cost savings. It is absolutely right to be investing in price, investing in speed and investing in marketing. Taking the short-term pain now to protect our brands places us well for future growth opportunities. Thank you. I will now open the floor to questions.

It's Alison from Numis Sec. Two for me, please. First one, just thinking a bit about the pricing architecture, and what you're talking about in terms of the investment into both price points on your kind of core product, but also the kind of increase in terms of the entry price points. I suppose interest as to how you're thinking about that, and your sort of benchmarking that pricing architecture versus like a SHEIN or someone like that. Are the kind of lower price point stuff you're bringing in design to sort of match that? And I suppose, how are you kind of going about designing those pieces? Is it just investment into the price kind of like-for-like product? Or actually, is it kind of stripping out some of the bits of the fabric and the kind of embellishments to kind of design a different sort of product? And then the second one is on warehousing. So if you want to take them separately or I can run straight through?

We should go quite a bit in the first one, before we forget that one. So I think, look, if you look at the U.K. market, as an example, since 2019, in particular over inflation in the last sort of 2 years, a parallel prices have increased probably in the early 20% versus back then. And I think you're seeing retailers under pressure with inflation, trying to squeeze from price ups to help them with that. We've been very clear about -- deflation is clear. Raw material prices are down, freight prices are down, energy prices are down, and we have set out earlier this year and very clear to recapture that deflation. Clearly, we want to reinvest that deflation. We don't want to bring it all to the bottom line, as we've been very clear equally today. And pricing is key. Our young fashion brands, as an example, have always operated in the value end of the market. So in terms of pricing, competitive with the other key players in that market. And it's about remaining competitive. And it's equal, we all know it's tough times out there for consumers. And we're very confident with the investing in price will drive volume in terms of where we're going there. With regards to the garments. We're not taking anything out of the garments in terms of to drive the price down. It's about capturing deflation and then passing that deflation back to consumers with those selling prices. So we're not taking anything away from a garment to hit a particular price point. It's about capturing deflation and then reinvesting that back into price.

And just to be clear on that, Alison, so like-for-like products, we have reduced prices. But also, we've increased the mix of entry price within ranges. So the overall mix entry is bigger as a percentage of the total. So it is both of those things.

And then the next one, I suppose on the warehouse automation that you've done. So obviously, unit pick rate flying. How are you thinking about, I guess, kind of the pack rate and that kind of outbound? And is there kind of efficiency that can be looked at there? Or are you getting, I guess, a bit of a bottleneck, if you've kind of increased that quickly in terms of ability to pick through?

So we've given a pick rate as an example, but you can imagine that's not the only improvement across the site. So every kind of measurable KPI is improving. But we've given the pick rate just as an example in terms of showing where we were pre-automation in a labor-intensive warehouse versus automation today. And equally, I did mention in my piece also, just that staff retention has been quite interesting as well in terms of turnover, kind of post-automation. So we're holding on to staff longer, obviously, enjoying their jobs a little bit more as well, which is interesting.

Anne Critchlow from SG. I've got two questions, please. So first of all, on the test and repeat model, what percentage of your products are now sourced through test and repeat? I think it used to be near 100%. I just wondered if you got back to that. And then the second question on the smaller brands. Is there a case for discontinuing any of these? Are any of them unprofitable on a full year basis? Or are you relying on them for future growth?

So I think in terms of test and repeat, everything we do in our business is test and repeat. So not just product, it's marketing, it's how we look at absolutely everything across the business. So I would say from end to end, no matter what we do, it's test and repeat in terms of DNA and culture. In terms of the smaller brands, it's really about -- we've described them as brands versus labels. So we see those as good and important labels, but really kind of the focus is on our core brands, boohoo, PrettyLittleThing, Karen Millen, Debenhams as an example. So those brands can be profitable. They existed sub-brands within the Debenhams stable. They're interesting wholesale, brands also for partners in the U.K. but also outside of the U.K. So they will be profitable. It's just about kind of where the focus is. And the way I describe it is, look, you've got your core brands, and your labels really exist within -- mostly within the Debenhams environment.

I think it's also quite important that once the label gets to a bigger size, it then moves into the brand and gets more investment in that. So it's a staged approach.

Emily Johnson from Barclays here. I'll go for two questions as well. The first one is around the -- what you've spoken about around reinvesting in pricing, getting better lead times, et cetera. How should we remedy that with the top line performance? I guess the market has been weak, but it looks like you're losing market share in some of those markets. So is it that you are seeing competition getting more intense in general that they're also reinvesting in pricing? Or is there anything else kind of still to come that you think will help regain market share? And then the second question linked to that, given the comps, given the reinvestment into product, the new U.S. distribution center, the marketing that you called out, should we expect the U.S. market to return to growth in the second half of this year?

So I think in terms of lead time, I mean the best way is to kind of just reflect back a year ago. So if you remember, obviously, the world supply chain crisis. We talk a lot about the cost of a container or the cost of air freight. But actually, it was equally slow but also quite prohibitive. So what we would have done air freight previously had to go by sea just mainly because we just -- the price was too expensive. We know now that those prices have come back down. So we're able to flip back to our model of test and repeat. So again, what was on plane went to sea, now it's back in terms of a plane. So we measure our speed in terms of -- we've got 3 modes of transport. We've got plane, we've got road, road mainly is coming from Europe, and then we've got sea. And our test and repeat model now is back to where it was pre-kind of supply chain crisis. So it's about really just going back to where we were because freight prices have come down, and that's allowed us to get our model back in terms of test and repeat. With regards to the investment in pricing. Again, we are capturing deflation, and we think it's important to pass that back. It's a tough economic climate out there. And it's important to pass that back to consumers and not take it all for ourselves. So we'll continue to do that. And what made boohoo great was price, great garments and great price and fashion. So it's about making sure our marketing supports that. Our lead time is back to single-digit weeks. So again, all of the kind of things that we were fighting quite difficultly because of price, because of slowness, the model is back to where it is now because of that deflation, because of supply chain crisis been over. So it's really about, kind of, we were unable to execute because of pricing and delays, that problem is no longer there, and it's about getting back to where we were.

We have a very simple model. Buy the right garment at the right price. That's it.

Maybe to kind of wrap that up though, within your guidance, is it implicit that the core brands where the proposition of the product is now back to where it should be, that the core brands will outperform the market?

So I think -- so let me try and answer that, Emily. So I think, about the reinvestments in price, we focused that reinvestment in price on to the core brands, and we talk about the smaller brands and the labels where we've managed those for profitability. So we've seen a more significant decline in the top line. On the core brands, where we've pushed price, we've seen a decline of 10% in the first half, which I think is probably in line with the market or thereabouts. So I'm not sure we've lost share to your first point there. I would say, that's in line with the market. Do I think those brands will outperform the market in the second half? I mean, that's really hard to say. I mean our focus is on making the right investments in the business, whether that is in price whether that's in speed to get product back into the business or whether that's in marketing in terms of customer acquisition or building awareness, investing in the brand. We're making those investments. We're confident in the Back to Growth. Those -- all of those things underpin the Back to Growth strategy. I can't tell you, sat here right now, exactly when the recovery comes. I wish I could, but I can't. But I do know that we are well set for the recovery when it does come. And we're a leaner, fitter business as a result of all the work that we've done and as a result of the investments we've made. So when that recovery comes, we'll be ready and we'll be able to lean back into kind of the green shoots of growth. And you asked specifically about the U.S. as well, and does that get back to growth? And it's largely the same answer. I'd love to tell you that in the second half, now that we've made the investments in U.S., one that we're going to get back to growth in the U.S., I can't tell you that. But I do know that we've put in place a proposition that is very competitive in the market. So we are delivering product to U.S. customers on average in 3 days. And we've got low cost express and next day shipping to the whole of the East Coast, including New York, which is our biggest single market there. So I feel good about the investments that we've made and where it positions us for the second half. Can I tell you right now that we're going to get back to growth in the second half in the U.S.? I wish I could. But I think we've done the right things. I think we've positioned ourselves well, and I feel good about and confident about where we are. And when it comes back, we'll be there.

I think probably just to highlight also in the U.S., remember, we've only gone live with PrettyLittleThing kind of middle of August, and we've just gone live with Nasty Gal kind of in the last 2 weeks. So not all of our brands are going to be live for the second half, boohoo and Karen Millen will be kind of late spring, early summer next year. So it's not all of our brands live at the moment.

And our marketing campaigns are only a couple of weeks old. Yes.

John Stevenson at Peel Hunt. A couple of numbers questions, and another one on the U.S. In terms of the U.S., I get that the lead times, I picture, it's really, really early in terms of how long you've been running. But could you maybe comment on the sort of the impact that the fast delivery service is having on customer response here? What's the -- what percentage of your customers are actually taking premium delivery now? Is it sort of catching light? And in terms of your plans for the second half, I guess last year, you would have taken your foot off the gas because you didn't have a delivery proposition. Is there a significant increases in product launches and events, and the scale of those events in the U.S. coming into peak, given you've now got distribution? And then just in terms of numbers, the annualized cost saves, I don't know if you can talk what they are sort of year-to-date, or for this year and versus what's to come for the future? And on the gross margin, the sort of the 90 bps, I don't know if it's possible to give a sort of sense of the moving parts between investment versus sort of deflation.

I take the U.S. [ delivery one ]. I think it's really too early to comment, John, in terms of what we're seeing from a customer reaction. We're literally a couple of weeks in. We're obviously monitoring also our carrier partners in terms of actually -- next day is fairly straightforward, but actually what's our standard delivery. So customers who are choosing standard, we've got different zones across the U.S. that we look at. And obviously, they're kind of closer one. So if you're in Pennsylvania, Philadelphia, New York, et cetera, what's the standard delivery actually taking there? And then what's the standard taking, for example, in California, in L.A. And that's looking really interesting, I would say, on the standard delivery across the whole of the country. But I think it's too early really to sort of say customer reaction at this point, because Carol's point, we're just beginning to step one, operationally, get up and running before we start pushing it to our consumers. So that's really just beginning to be pushed now. So I would say, look, when we come back next time, I think we'll have a lot more data, but initial signs are looking really interesting. That's what I would say.

I think operationally, John, honestly, I'm not sure it could have gone better. And launching a U.S. distribution center is not trivial. And I've seen this movie before. Alison will remember it well from our [ ASOS ] state. It's tough, right? And I think the teams did a fantastic job getting us up and running on time, on budget. In terms of customer reaction, yes, we mentioned things like conversion, new customer acquisition, all the things you expect us to measure. Are we making good progress? I just don't want to call it yet. On the numbers question, GBP 125 million cost savings. Look, broadly, we break that into 4 buckets. So there are -- there's product pricing. So cost prices on products, raw materials prices, cotton price, all of those things. That's the biggest single part of the GBP 125 million, is improvements in product prices. There's freight prices, which we've seen come down significantly, and we've made dramatic improvements there. And that's both on air and on sea. There's automation benefits, so where we have automated Sheffield, and we've seen a significant reduction in labor as a result of that. That's the third bucket. And the fourth bucket is around overhead. And of course, when at a top line level, the business has declined 17%, 10% on core brands. It's incumbent upon us to rightsize the business and make sure that we are leaner and fitter and ready for the next phase. We have to do that. That's going to be job never done, right? And once the recovery comes, then we'll think about the kind of next phase of investments as well. So I'm not going to break out the GBP 125 million into those buckets, but it is those 4 buckets. A chunk of that has already been done. As you'll understand from how we've broken the book. It's also the automation but it's locked in. The -- a lot of the product pricing, we've seen already, we've taken some significant improvements there. But there's more to come, right? Freight prices largely done, but we'll keep pushing. And then overhead, yes, there's more to do. You'll notice, though, that marketing is not part of that GBP 125 million cost saving booking, and that's because we choose to continue to invest in marketing in the brand and in customer acquisition. And we could take some short-term decisions to cut back marketing spend and improve EBITDA. We could do that, of course, we could. But we -- but we think it is a short-term view, and we choose to invest for the long term, and we think that would damage the long-term health of some of the brands, and we don't want to do that. So we continue to make those investments. The GBP 125 million allows us to make the investments that we talked about -- that John's talked about in price and in speed and in the marketing as well, the additional investments we're making there. So look, that's the unlock. GBP 125 million is the unlock for the investments that we'll make that support the Back to Growth strategy.

And it is not over, is it?

It's a work in progress. That's what everyone's got to understand, and we fill them 4 buckets. And there'll be some more buckets, that's just -- that's what this business is. We will take -- we'll always be taking a view, and we'll always be turning over the stones, and we'll always be doing what we have to do, regardless of how people think we're doing. We have to run this, and we have to do it and run it well efficiently and profitable, and the way we're comfortable doing it, which is what we feel is right. And that's what we'll carry on doing regardless of what anybody thinks. We'll run the business how we see fit. And it's always work in progress. This won't be over. We'll be hearing 10 years talking about work in progress.

And John, you mentioned the 90 basis points improvement in gross margin first half. We think that's a good outcome. That's a combination, of course, of the product price improvements, cost price improvements, the freight price improvements, less the investments that we've made in price and air freight. So we think it's a good outcome. There's more to come within the second half gross margin will be ahead as well. Maybe it's not as far ahead as we saw in the first half, but let's see. We've got to keep pushing. So yes, look, we've really focused on controlling the controllables.

And we say medium term, 6% to 8%, but really, we'd want 10% and above. That's where we want to be, doesn't it? Let's be honest. That's where we used to be, and that's where we can be. It's not out of reach, is it? It's achievable.

We have a line of sight, to 6% to 8% in the medium term in EBITDA. But absolutely, as Mahmud says, like we're not stopping there. We will absolutely keep pushing, and we think 10% is achievable. Again, we've been there before, we'll be there again.

And now we talked about deflation, nobody else was talking about deflation. And we've proven, we've got it, we've proven we've delivered on that. We've successfully launched automation in Sheffield, we've successfully launched in the U.S. So we've been busy in the last 6 months, delivering some key projects, capturing deflation, reinvesting that money, not just taking it into the EBITDA margin. So all about the future growth.

And look, let's be honest, we've actually had some criticism for pushing suppliers on cost prices. We're working with suppliers to reduce cost prices. We saw cost prices go up left and right, right? Raw material prices went up and suppliers have to push their cost prices up as a result. Well, all of those input prices have come down. And so we have to work with our supply base to make sure that we get our fair share of that back because we want to invest in lower prices for customers and faster delivery into our business and marketing investments, and all of those things we've talked about.

It's Anubhav Malhotra from Liberum. Can I just ask on the average selling price reduction in the first half, and comparing it with the market plus 8%. Is there an acknowledgment in that, maybe last year, you went a bit harder on price because obviously, you did not have the U.S. D.C. and you have a test and repeat model, which is dependent on air freight, and both of those costs were impacting you a bit more than what they were others. Yes, no? And then I have another one on the return rates, which is; the mix has moved a bit to lower price points. Has that helped in any way in the return rates?

On the ASP, it's -- I think the market moved generally. We always watch our competition to make sure that we sit in the same position. And again, if you look at the U.K. as an example, in the last 3 to 4 years, I think it's going to be about 21%, 22% apparel. So we kind of watch where we are in our young fashion in the value sector. We make sure we keep and protect that position. But what we said earlier is that, look, we see deflation coming through now. And while the market continues to move up, we think that's a good opportunity for us to capture market share. So investing in price technically drives volume. And that's the strategy, and that's what we're looking to do there. In regard to returns. I think our returns come down. We're clearly doing lots internally. We're looking at fit, we're looking at fabrics, we're looking at -- but I would say, what's driven returns mostly in terms of that year-on-year decline is around occasion, and it's around ASP. That are probably the 2 biggest things that have kind of give that returns year-on-year decrease. But we are doing lots of things. We're looking at fabrics, fits. We're looking at lots of things as well. But the 2 real big kind of drivers of that is occasion down year-on-year and ASP down year-on-year.

David Hughes from Stifel. On the working capital reduction, obviously, kind of GBP 90 million inflow, do you see that there's more to go after it, there's kind of more cash to come in? Or would you say you're more at the right size? And just kind of a follow-on on that. In terms of the stock, are you seeing any different trends in the newer stock with the kind of faster lead times versus some of the more kind of legacy stock that you're selling through in terms of the newer stock performing better?

Should I take the first half, can you do the second half? So on the working capital reduction, look, I think it's controllable. And our focus has been on controlling the controllables. So absolutely, we've wanted to hold inventory tight. And so you see a significant reduction in inventory. It's down 35% year-on-year. It's a continuation of what you saw at the year-end. I think that's been the right strategy into a period of uncertain demand. Like, if you look and you heard others talk about this, July and August were wet. But at the end of the summer season, being wet is not helpful. But actually, because we held our inventory very tight, that we come out the other side, and we're not set on a ton of spring some inventory that we now got to mark down. So that's a good outcome, I would say. So is there more to go up? Honestly, I would say we're in the right place. There are definitely moments during the first half because the other side of holding inventory tight is availability. You need to manage availability, too. And there's definitely been moments when that's been a challenge. And we've missed some sales because we haven't had the right availability. But you know what, sat here right now, I'd much rather be in a position that we've held inventory tight, and we come out of the season in a good position on inventory, and having -- knowing that we've lost a few sales because availability wasn't always perfect. I think that's an okay outcome. So I think we're in the right place on inventory now and we go forward from there. And I expect to see us as we see the recovery to start to lean in again and making some more investments in stock and in availability.

So I think -- I mean, it's pretty much the same point, to be honest with you, in terms of new stock versus old stock. We don't really have old stock. So if you look at the kind of full year of where we were on inventory year-on-year, we were down substantially. We're down substantially at the end of the half year, down 35%. So we are operating much leaner all the way through the half. The lead time is getting quicker. So that helps us. Shaun said, July and August wasn't helpful for a lot of retailers because of the weather. But actually, because of our tight inventory model, we were able to exit spring, summer in a really good position, and into autumn, winter. So to say, household, new stock performing versus old stock, really, we're turning very quickly. And our lead time is very short. So there's not really a differential. We've just exited sort of spring, summer going into autumn, winter, peak is ahead of us. Let's say, we're confident, but we continue to keep stock tight. We'll continue to be agile, and that test and repeat is just getting better and better all the time, is what I would say.

We've got a few questions from the webcast. First question is from Adam Cochrane from Deutsche Bank. What is the sales and profit split by core and noncore brands? And how much did the margin of the noncore brands increase given the profit focus?

Yes. So as Adam will know, we're not going to split that out for him. So to help understand the business and the top line performance, we took the decision to split out the share, the relative position of core brands versus the noncore. And the core brands, boohoo, boohooMan, PLT, Karen Millen, Debenhams marketplace, with a decline of 10% is in line with where we guided 6 months ago. So it's in line with our own internal expectations. The profitability on the smaller brands and labels, yes, we've managed. Those have seen a more significant decline because we took the decision partway through the half to pivot towards profitability on those smaller brands and labels. We think that was the right thing to do. We're focusing our investment, our energy onto those core brands because ultimately, when the recovery comes, those are the brands that will make the biggest impact for us.

Next question is from Matthew McEachran from Singer Capital Markets. Your midterm guidance for EBITDA margin of 6% to 8%, what are the key assumptions behind the variance? And what further actions can be taken on invested capital to improve return on invested capital?

Yes. So we are always focused on the returns that we're driving. We take a very diligent approach when it comes to making sure that the investments we make deliver the right return, and there's a long list of stuff that does not met the bar in terms of the hurdle rate that we use internally for that decision-making. Look, we -- the difference between 6% to 8% is just the variability in the future and the uncertainty in the future. We have good line of sight to the top end of that range. Now, we have to go and deliver all of that. And you heard us talk about, we've got to go and we've got to wrestle cost price improvements out. We've got to continue to deliver those freight improvements. We've got to go in and rightsize the whole business, lift every stone on cost. We have to do all of that. We've done a whole bunch of it, but as Mahmud talked about, there's more to go. There's absolutely more to go. So yes, we feel good about the 6% to 8%. We feel good about the top end of that range. But we have to go and do it. And so we're not going to sit here and commit to -- that's definitely what it's going to be. There is -- the future is uncertain inherently, but we have good line of sight.

John, that's all we got time for now. Maybe hand back to yourself for any closing remarks.

Okay. Great. Thank you, guys. So I suppose, look, overall in summary, it's a difficult backdrop. There's no doubt about that. Consumers are under a lot of pressure. But everything we set out to do, we talked about controlling the controllables, we've done that. We've talked about capturing deflation, we've done that. We've talked about managing costs and managing cash, we've done that. We're investing in price. We're investing in speed. We're investing in marketing. We're in investing in fashion and trend. We've delivered automation in Sheffield. We've delivered a U.S. warehouse. We're bringing our -- some of our brands of -- onto our own in-house platform. So we're doing everything that we need to do. We're taking some short-term pain. But we've got to keep a focus on the medium term. And the medium term, we're very, very confident about getting back to growth and getting back to our EBITDA margin. So thanks, everybody, for coming this morning, and we'll see you all again soon. Thank you. Bye.

Thanks, everyone.