City Chic Collective Limited (CCX) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the City Chic Collective Limited Interim FY '22 Financial Results. [Operator Instructions] I would now like to hand the conference over to Mr. Phil Ryan, Managing Director and Chief Executive Officer. Sir, please go ahead.

Thank you very much, and good morning, everyone, and welcome to the City Chic Collective 2022 first half results call. I'm Phil Ryan, CEO. And with me today is Peter McClelland, our CFO. So a bit different to our results presentation today as all the key numbers were disclosed to the market on the 14th of Jan. Today, I'm going to talk through the result highlights, digital privacy and our ESG achievements and pass to Peter to discuss the financial results. After that, I will talk through our outlook and growth avenues and then open up to questions. Our vision is to lead a world of curves. Our 3 strategic pillars are plus size, digital and global customer numbers, and this has been consistent throughout our story. In what was another extremely challenging period with store closures and supply chain volatility due to the pandemic, on these measures, we've again had a very strong half. Firstly, and always, plus is simple to achieve but really keeps us focused on our strengths and the $180 billion plus global opportunity. On the second measure of digital, in the half, we've achieved 75% total online growth and 53% comparative growth on a global level, and 83% of our sales in the half were online. Visits to our website globally were over 70 million in the last 12 months, and we now have material traffic volumes in all of our regions. Our third, global customer numbers, we are now at 1.32 million, up 64%, and we added over 250,000 customers in the U.K. and Europe. We are now a global digital retailer. Our total revenue growth of 49% and comps of 44% reflects the strength of our increasing product range and its global appeal. This is the bedrock on which our growth is built. The strategic investment in inventory, which I'll outline later, was a key driver of our growth in the first half. EBITDA was flat and margins were 13.2%, which as I said in January, is a very pleasing result. On Page 5 here, I've outlined why I think this is pleasing. The headline is the global pandemic caused so much noise, I should say, in both of these halves, but they're just not comparable. The first thing I would like to outline is that excluding EMEA, which was breakeven in the first year as we said it would be, the EBITDA percent was a very healthy 14.9% and more in line with the historical mid-teens target that we are striving for. If you then take into consideration that this result includes a $4 million profit loss due to the 27% of trading days that were closed in the stores, our margins are even stronger. What this says is that we achieved profitable growth in our established markets of Australia, New Zealand and the U.S.A. This is something we are looking to continue and talks to the health of our business. There is also some austerity measures from COVID and regional and channel mix impacts on margin that Peter will talk through in more detail. As previously outlined at the AGM and then again in January, the Board and management have deliberately taken the strategic decision to increase inventory to protect our growth. What this slide outlines to me is the fact that we have a competitive advantage of inventory ready to continue our growth rates regardless of the global supply issues. This is a strategic decision that was made with the support of the Board to ensure that we had enough inventory to ride through the volatility and be ready for growth that we anticipate into calendar 2022 and beyond. We have deliberately used the cash to build a base of stock to be prudent and mitigate against the risk of supply chain volatility and secure ability to continue to grow globally. We see this as a temporary situation. And as the volatility subsides, we will look to review the inventory investment. On the Slide 6 that you're looking at now, we've outlined the inventory pull in 2 ways to best describe the investment. In the bar graph to the left, we have shown the stock available for sale and the future period inventory and goods in transit. As you can see, over half of the inventory is marked for future period sales or still in transit. There are 2 elements of the future period inventory. The first element and the majority of the stock is the accelerated inbounding for the current season in the home market. That is City Chic in Australia and Avenue Evans in the U.K., USA. This is just stock purchased in advance to be ready to sell in season and not leave us short due to supply issues. On average, as I've mentioned many times before, we've increased lead time 2 months on all new products to allow for shipping delays and logistical errors. The other element of the future period inventory is City Chic product from the Northern Hemisphere summer or the second half of 2022. This is manufactured with the Australian summer product and delivered in the first half. I've outlined before many times that to get commercial volumes of City Chic globally and deliver small units to all of our growing and established markets that we manufacture the product together with the Australian volumes and deliver it to our customers in the Northern Hemisphere at the correct seasonal time. This has been very successful for us and has facilitated us delivery to market a superior product at a better price in smaller volumes, and this has driven our digital business globally. It just requires an investment in inventory. The positive part of the material sales growth -- well, this is a positive part of the material sales growth in City Chic, especially in U.S.A., and we really bought for that growth into the summer '22 season, increasing our inventory position held. The table to the right outlines the bridge from FY '22 inventory to the number in December with a slightly different, more growth channel and then accelerated inbounding approach. What this outlines is that to continue to drive 50% revenue growth, we need to invest further in inventory, and around half the increased investment is in growth. This investment has facilitated our 49% revenue growth in the current half. The accelerated inbounding, that's a mouthful, is the other half, and this is the actually 2 months' lead time that we have built in to counter supply chain volatility as decided with the Board. This also includes extra time allowed for new suppliers in new regions as we diversify our supply chain to allow them time to get our fit and fabrication correct, which we all know is key to our product offering. With our sales trajectory, cost of goods sold is in the vicinity of $12 million to $15 million a month. We have continued this strategy into the first half of '23, with volatility in supply chains expected to remain, and we will see further increases in inventory into June '22. I would really like to outline why I know there is no fashion risk in this strategy. Well in excess of 80% of our range can be moved between seasons or is core product, shapes, prints or colors. As I've said many times, the key to City Chic is fit and consistency in shapes in a lot of dark base floral print and plains. These change very little over time and over COVID as we have shifted inventory between seasons more from a need to rather than a strategic plan, we learned that there was no risk in delaying a strong City Chic print in a known shape for the next season. We will still follow the customer and look to repeat winning prints and styles as we always have. However, COVID has disrupted the ability to reduce past repeats, and we are now taking good prints into the next year. Really, all of this is still facilitated by our reactive business model and flexible structures. When I look to our conservative product stream, they are even more, it's much more everyday clothing. We again use the same model of very consistent shapes with little seasonal change, and also the color and pallets and print taste levels year-on-year just don't vary that much. A spot is a spot, and a black stripe is a bank stripe year-on-year. This is something we understand about our customer, and we deliver to her that consistency in fit, shape, print and color that she wants. All of this is why I'm so confident in investing inventory and purchasing in advance as we have. If sales turn, I can allocate that inventory to next season as we did in COVID. And during the period, we still delivered 50% revenue growth, proving that it works. And there are, of course, items we see as limited lifespan or fashion risk high-value, high-fashion color, shapes we have overinvested in or themes we don't know about, and they are dealt with in the current season and bought on much lower volumes so that we don't have to have that risk in that product. When we see the supply chain normalizing, we can turn back to historic -- turn back to our historical lead times and reduce the increased investment. I'm sure there'll be a few questions around that after my speech. Moving to the next slide. The introduction -- a couple of our key highlights. The introduction of the conservative product stream really, for me, into Australia is the key highlight in the first half. The customer has responded very well to the product, and we see this facilitating our continued AU online growth. The acquisition of Navabi was a big step in our expansion into the European market, and it delivered us a strong customer base to grow on. Sales were materially impacted by supply disruptions in winter as all the product was handled through the U.K. When we purchased Navabi, we didn't have -- we didn't know about the warehouse in Germany. So all orders were still going through our U.K. distribution, which as already outlined, had challenges in winter. For summer, with a more established warehouse, we ship directly to the U.K. -- to the AU, excuse me. The purchase of plus size marketplace CoEdition to customer base in the U.S. was also another great result for us. We were, at City Chic, their biggest brand with very high brand awareness amongst the customer base. I've known the business and the owners for many, many years and been in every conversation with them from product to acquisition. And when the opportunity arose, we were there already. In the first month, we engaged almost 2,000 of their customers, and we -- the e-mails were sent about 1/4 of what we would normally do. The other thing that was very interesting was a good portion of these were lapsed CC customers, i.e., customers that hadn't spent with us on City Chic America for the last 3 years. What that means is we can use the CoEdition platform and the website that we've created within City Chic to try and reengage the volume of lapsed customers that we have in America. We are always and continually in all discussions with all plus-size businesses around the globe that we think will be a good fit for our business and facilitate our customer growth. Looking at Slide 8. The key theme for me is that we are now bigger in the Northern Hemisphere at 55% of revenue. This is a huge result to grow from 40% in the first half '21. There was a few store -- closed stores, but even with them, I think we would still be at least slightly bigger in the North. By channel, I've discussed the online growth of 75%, and this comes from our continued investment in digital capabilities and especially around people and customer service and acquisition of customers that we have made in the last half. It's very hard to measure our marketplace growth as last year was nonexistent, but to get to 5 million shows the opportunity as we onboard more partners globally and get our product mix properly in front of the customers and the partners we already have. In this half, we onboarded DJs, Walmart and Target in the U.S., Very, Alshaya and Secret Sales in EMEA. For me, probably the standout was the growth in Hudson Bay Canada as a new trial region for us. The green shoots were there to further solidify their assortment has global appeal. By region, the standout was the U.S. with 62% revenue growth, and this came from an increase in both traffic and conversion. In the rolling 12 months, our U.S.A. website visits increased 31%. And our customer numbers were 42% up, a tremendous result. Although we always talk about the U.S.A. through our website locations, I really now see the market as one with all of our products sold to as many customers as we can in all of our locations and all of our partners. That said, drilling down a little on locations. The Avenue website is a standout, again, materially above pre-acquisition levels, and CC U.S.A. is back to historical growth levels. Avenue's growth has been driven by the increase in CC assortment within the Avenue location, and that is now the biggest channel to market for CC product in the U.S.A. This gives me the confidence to get our breadth of assortment across as many eyes globally that we can as we know she's responded well to it, and this is why I believe Evans and the EU will turn around. In Australia, to be gaining market share during the lockdown was an excellent result. We increased sales 14% in our most mature market, losing 27% of trading days in stores. Online has gone from strength to strength, off a solid base of the first half last year, we grew 40%. As I said in January, I'm very happy to have acquired 250,000 customers and add $20 million revenue in our EMEA business. We did this at a time when we were not at our best. We did not deliver product to sell to our customers at the correct season, and timing was all off due to COVID-related logistics issues. We now have a volume of winter stock in warehouses to carry over the next year, and we put in place a project to micromanage the summer deliveries into market to ensure we can get inventory to customers. We have our best people on this project, and we'll work with our third parties to ensure a smoother flow. That said, some of the issues related to market-based supply and labor issues, and we are continuing to monitor this very closely. These will be transitory, and I'm really looking forward to European and U.S.A. summer. We have the inventory ready for it to really fly. Before I hand to Peter, I'd like to briefly talk about data privacy and ESG. Global data protection has taken a big step forward in the last few years with GDRP (sic) [ GDPR ] in Europe, CCPA in California and actions from companies like Apple to engage people to increase their privacy. As a global digital retailer, we are adapting to these changes to secure our future revenue growth. We do this -- to do this, we are looking to make more of our own -- more of our data through service side or first party tracking. That is tracking people through their interaction with our server directly. We see the impact of this is enhanced data security and data tracking capabilities, including anonymous tracking for measurement purpose where they have opted for security. Data ownership internally will make third parties less relevant and also has the potential to enhance advertising efficiencies, although we haven't seen this yet. However, as we all know, this evolves so fast, and we will work with our agency in L.A. and [ Jay Dunn ] in the U.S. to make sure we keep in front of this. At an ESG level, I'm really proud of the work our team has done and believe this is core to who we are as people and as an organization. The highlights in the first half were we published our second Modern Slavery Act, although everyone had to do that. On top of that, we continued to roll out our worker surveys with really pleasing results in all of our factories, including our new factories. We were well into tracing of the Tier 2 and Tier 3 levels of our supplier base. We updated and strengthened our cotton region bans and introduced cotton tracing and chain of custody process. I'd like to hand over to Peter to give more details around the financials. Thanks, Peter.

Thanks, Phil, and thanks to you and the team also for the warm welcome to City Chic. Turning to Slide 22, our financial performance. In H1 '22, City Chic enjoyed strong revenue growth across all of our regions. The group grew by $60 million or 49% to a large $178 million for the half. 2/3 of this revenue growth came from our existing businesses, and 1/3 or $20 million of this came from acquisitions as the business expanded into EMEA. I think this mix of organic and inorganic growth is very pleasing and sets the business up for growth into the future. The Australian growth of 14% was driven by 42% online growth, as Phil has outlined previously, and the stores trade being impacted by the loss of circa 27% of trading days during H1. The Americas growth of 62% to $77 million was through all of our online sites and growth of existing and new partnerships in both the U.S.A. and Canada. It is worth reiterating the point that Phil's raised, the Northern Hemisphere exceeded ANZ for the first time in terms of its group contribution of 55% of revenue, which shows our true geographic expansion. In respect to our gross margin, the gross margin of 59% is below last year's figure of 61%, which is primarily driven by mix given the relative growth of online and U.S. businesses, which is traditionally traded at lower gross margins because of the closure of stores for the number of trading days in this half. Across all the channels themselves, however, margin has remained largely in line with prior year. This has been achieved by the group proactively leveraging the global volumes in order to maintain our product margins and product quality in the very challenging product sourcing environment that Phil's outlined and also offset the increased inbound freight costs, which are a consequence of the widely publicized international freight disruptions. Note also that the Evans and Navabi businesses had lower margins. Both these businesses are still in early days as they were acquired and onboarded during the calendar year 2021. Both businesses were acquired in a distressed state, and we've been investing in [ margin ] and advertising spend to help build those businesses, and we anticipate that this margin will improve with time. When considering the financial performance of the 2 years, it's important to note that the cost structures are not entirely comparable. EMEA traded at breakeven profit levels. Again, I highlight these acquisitions are only 1 year old in the case of Evans, and Navabi is less than 6 months. We're in a rebuilding phase with these businesses and have implemented restructures necessary to bring the cost to be a more sustainable level, while also dealing with the significant COVID-related disruptions at those local levels. We remain confident that these business -- that as these businesses grow, we will achieve the appropriate cost to ratio -- I'm sorry, cost to revenue ratios. Fulfillment costs have increased as a percentage of revenue with pressure on the underlying freight costs but also as online increases as a mix of percentage of revenue. The prior year numbers also benefited from $10 million of austerity measures to manage the initial impact of COVID-19. These included advertising spend, employee-related benefits and other cost-saving actions. In a number of areas, this spend has now returned to more sustainable levels necessary for long-term growth of the business, particularly in advertising and marketing. Even with the -- so the EMEA cost structure and the pressures on freight, the overall cost of doing business of 45.7% of sales is lower than the 50% if the prior year figure of 41.6% was adjusted for the austerity measures. In respect to the impact on EBITDA of the store closures, we previously advised that this was circa $4 million. For the half, therefore, we delivered an underlying EBITDA of $23.5 million, in line with the prior year. This is pleasing given all the variables that we've outlined and our investment for growth. While the EBITDA ratio including EMEA is 13.2%, adjusting for EMEA, that figure would have been at 14.9%, which as Phil outlined, is in line with our expectations. Turning to our cash flow. As Phil has taken you through, City Chic has made a strategic decision to invest in inventory to build for growth to shield the business from global supply chain disruptions and to protect margins. This investment represents a temporary utilization of our surplus cash while stock levels build. This is evident in the reduction of the operating cash flows in H1, whereas in previous years, we've seen strong positive cash flows at the operating level. While we will see a continued build of inventory in H2 as we prepare for the Northern Hemisphere summer, the business maintained strong disciplines around inventory planning and management and fully anticipate a return to positive cash generation at the operating level in time. Also, during the half, City Chic expanded into Germany with the acquisition of the Navabi business. This acquisition has given us a cornerstone to expand our European operations. The business was acquired for $9.6 million with a $4.1 million impact on the cash flow statement being shown of net of the cash that was also acquired. We've also reinstated our investment in our stores. Our store network remains a key component of the omnichannel presence in Australia. And during the half, we invested in 8 new stores and relocated 8 stores. We are expanding the new Gold format to enhance the in-store experience and are migrating to a larger footprint of sites. We are seeing pleasing lifts in these store sales post conversion. Turning to our balance sheet on Slide 23. In respect to our balance sheet, we retain a strong position for growth. We've explained the material movements in the balance sheet previously as relating to inventory store network and acquisition-related. All of these are investments for growth. As at the half year balance sheet date, we retain a strong net current and total net asset position, and the business had cash of $38.7 million, 0 bank debt and a full facility of $40 million debt facility is still available. I'd now like to hand back to Phil to talk about the outlook and current trading.

Sorry. Thank you, Peter. I'll now talk about the outlook and growth prospects, as I said. As outlined in AGM and then again in Jan, in the ordinary course, we see the second half profitability stronger than the first in FY '22. In the first 8 weeks of the second half, we've continued to deliver top line growth and comparable sales growth globally. In Australia, online has continued to grow on what was a strong quarter 3 2020 coming out of COVID. Stores have been more challenging with New South Wales and Victoria performing above average, and WA, Queensland, and SA materially impacted by the pandemic. U.S.A. growth has continued at still very strong levels but not as high as the first half on the back of what was the stronger second half in 2021 again. Our City Chic range continues to show exceptional growth. And our partners, especially Macy's in the U.S.A., have shown pleasing results as the product range starts to grow on their sites. Of the new partners in the U.S., Target has really been the strongest and is a bright point. U.K. and EU are showing signs of recovery and getting close to pre-acquisition levels. Very, our U.K. partner, has only been able to get a very small sample of range up, and it's performed excellently. And what this does for me is it solidifies that our range has a strong appeal in the U.K. when we have it in, and in front of the customer at the right time. As outlined earlier, to achieve that, we have a project team working to micromanage our logistics partner to ensure the summer inventory is available. I've already talked a lot around inventory position we've taken in to ensure supply chain for growth, and as I've stated many times, it's a key focus in the second half and FY '23. Stock levels will continue to build in the second half, in line with the strategy outlined above. To secure the inventory until May, we've already received a lot of the deliveries pre-Chinese New Year, leading to a spike in working capital requirements. This will mean a temporary and partial utilization of the company's debt facility in the second half associated with the Chinese New Year stock build, as Peter also outlined. Our key levers of growth into FY '23 that are facilitated by this inventory investment are, firstly, our market share expansion in the Americas. In the biggest global market, we have a very small market share with many channels to market and a product that has resonated with the customers. We just started our journey here. Market entry for our conservative value in Australia and New Zealand through utilizing our traffic-based asset, we have already started to bring the increased lifestyle to the Australian customer, and the aim here is to facilitate historic growth levels in our Australian online business. Market share expansion in the U.K. The key here is to sort through our logistics issues and get the range in front of the customers. When we have it, it's sold. We've already seen improvements in traffic. And with a 4 rating now on Trustpilot, we have a service proposition ready to take market share and have ownership of the most known plus-size brand in the U.K. in Evans. We've talked a lot about the other one in our market entry into Europe. And on top of these are key drivers. We have trials with partners in Canada and the Middle East showing pleasing results, and our partner opportunity globally is really starting to take place. We're also involved in all discussions with all plus-size businesses around the world to understand their position and be ready when opportunities arise, like Navabi, CoEdition and Evans [ almost in ] the last 12 months. The pandemic continues to create uncertainty. However, we've been managing this for 2 years now and feel we are well equipped to see through whatever the next stage of the pandemic is and be ready for growth. I could not do this without the team of CCX who, in very trying circumstances and working from home completely, have been amazing. And lastly, our loyal customers around the world, she is amazing. Thanks, and I will now open up to questions.

[Operator Instructions] Your first question comes from Marni Lysaght with Macquarie Capital.

Just a few quick questions for me. Just around your outlook comments around use of the debt facilities to inventory [ drive in terms of that as being new news that we were filing on that ] back at the update in January. Just in terms of when we're thinking of just the cash that will be deployed over this half, you dig –- will you materially dig into this debt facility? Because it's been a pretty big step up in inventory you've recorded at December.

The guidance we've given, Marni, is that we'll partially draw down on that facility. So what we would see, as we've indicated, is we've still got an inventory build as we head towards summer. We also -- you have to invest ahead of the curve before the Chinese lunar year breaks. So we'll sort of use that facility as we sort of get that trough -- I'm sorry, that peak of inventory come in, we'll start to draw down on that facility, and we'll start to repay that facility as the half progresses. But we're also pretty confident that we've got good forward visibility of what that inventory pattern looks like, how we manage that inventory. As you start to get those summer sales in Northern Hemisphere, that stock obviously converts into cash. So we've got good visibility, good management disciplines. We've got the luxury of having the facility there that we can draw down and then repay as we need.

And Marni -- sorry, Marni, what you're going to see into Chinese New Year is that you've really got to buy up to almost May now if we're going to be in front of the logistical issues. And in many cases, we have stock that didn't make boats for pre-Chinese New Year that we -- not for now stock, it's for later stock. But if I was trying to send that in March, April to be from May, it would be a challenge. And that is why we are doing what we've seen, and I don't know if any of you have seen the pictures of boats sitting off Long Beach or boats sitting off China and the amount of inventory. We were -- I won't use the word lucky. We took a strong strategic decision to invest well in advance couple of months, which is a material volume of investment. And then through February, you bought that 2 months with almost 2 months' closure for Chinese New Year becomes a real dip in the working capital cycle, which will correct through the season. However, we do still see growth, and we are still facilitating that to our inventory.

Okay. So just the way to think about it, you'll get into the facility only partially over the half. So when we get to June, you'd still have a very low debt balance or you could still have a debt like 0? Or...

I wouldn't say 0, Marni, I think it wouldn't be a material drawdown. You've got to wait a little bit around the uncertainty of stock arriving which is what we're planning for, but it would be reasonable to assume that any drawdown at the end of end of June would be small.

And Marni, that's also -- sorry, Marni, that's also -- there's a lot of volatility in the sales numbers and how that goes through and also how that plays out in the next 4.5 months will have a material impact on that as well.

I understand you've been quite meticulous and measured in what you ordered. But say if things didn't pan out as well as you thought and you had a lot of inventory left over from the Northern Hemisphere summer, how easy is it to like -- and I know that it wouldn't be cost effective to rebrand or relabel it to City Chic. But can you send it down to the Southern Hemisphere? Or can you...

I think, Marni, to explain that through COVID, what we did was shift material volumes of inventory that were designed for one season to the next. So pushing our top out. If you look at City Chic, we are a black-based floral business in dresses. If I could show this call what I mean by that, it would be a lot easier. But we -- the secret to our business is we know her body, we know her shape, and we know we give her something around that every season. For the last 2 years, we have shifted stuff between seasons all the time, and what that has shown me is that a good solid print is the same next year. What we do if sales don't turn, yes, we will have an investment in inventory that we'd have to sit on that never saw the light of day, but it's poly-bagged in a nonpeak warehouse ready for deployment at the start of next season. And depending on supply issues then, so I'll put that caveat. But if this continues, I'll make sure that we have inventory to grow, I would have the utmost confidence that we can then deploy that inventory next season. And that has happened, and we've delivered. We've done that and delivered 50-plus percent growth. So I'm very confident. This is what we've done in the last 2 years. The bet is a bit bigger on it because I'm very worried about getting the product in time. And if sales turn, we hive off 5% to 20% depending on the numbers and what happens into the inventory for the next season. And as Peter said, this is the best use of our facility right now to secure our growth. No one's going to get [ any flow ]. What we need to be showing is that continued growth, and we need to be ready to do that. And COVID has shown me that if I've got inventory there in a warehouse that hasn't happened then putting it out the next season is not a problem. Now there are elements of our range that we don't do it to. So I don't want to say all of our range has that crossover. But there is -- what we've invested big into is what we -- is our core, and that is the product I'm very, very comfortable that has viewed throughout the seasons. Many of you would have seen me show you the hydrangea dress that have sold in the stores for 12 years at $160. Still freaks me out. And that mentality in those learnings over the last 16 years about what this customer wants and us delivering to her, what she needs and how she needs it is what gives me the confidence, and it's worked for the last 2 years.

Okay. The other question I have is just around the marketplace. So you've given us almost like a tracker of what was launched in the first half of '21. Is that -- first half of '22. Is that all now integrated in line?

In the first-half ones?

Yes. Sitting at Slide 20.

Yes. Not all of the second half ones, Marni, are done yet, but all of the first half ones are done. I wouldn't say they are very well -- like we are still not getting all of our product mix around all of these brands by far. It's not easy when you're trying to integrate systems and you have to rely on them to do more. However, we are -- they are all live.

Okay. And the ones that are like slated for the second half, is like Zalando up and running? Because that's been taking some time.

It has. The Zalando was the issues of logistics in the U.K. to stop that. It wasn't technical. We now have them a small volume stock that I expect with the investment in summer inventory that we would -- we now have a secondary warehouse, 4 partners alone in the U.K. that we operate for the midterm just to get in front of the customers because to me, acquiring market share in that market is now what we're about.

[Operator Instructions] Your next question comes from Shaun Cousins with UBS.

Maybe just a real, hopefully, a simple question. Just do you expect to be in a net debt position at the end of fiscal '22? Or you will just be in a lower net cash position, please?

Peter, I'll let you take that.

Yes. I would be anticipating a small net debt position at the end of the year. As we've highlighted, a lot will be determined by the timing of revenue, the sales coming in. In fact, last quarter, I mean the last quarter is a very strong quarter in retail, as you know. So you will have those ups and downs in terms of timing and freight arriving, et cetera, but I would assume a small net debt position at the end of the year.

Your next question comes from Wassim Kisirwani with Jarden.

Phil, just your comments around the trading over the first 8 weeks. Granted it's more subdued just given how strong it was in the first half. But can you give any more color in terms of what sort of growth rates you're seeing across the U.S. and ANZ online?

Yes. Look, as I said, they're not sort of the heights of the last year, but we're off a much stronger second half last year. The Aussie to be growing double digits is still very pleasing. The U.S. is still strong, and I would say the Avenue is above pre-acquisition levels. And also CC U.S.A. the locations are good. Macy's has been really strong. I think Macy's for the first time got the Avenue product up 3 weeks ago, and that has made a material difference. And Target last week put our discounted price through, and that has also grown.

Okay. And just a sort of follow-up on those partners in the U.S. How much inventory do you expect to be sort of allocating to them over the second half versus kind of what the level that they've been carrying previously?

Yes. The beauty, Wassim, is we don't allocate inventory. It all pulls from that one, hence, the technical issue. So I don't have that who's going to sell what issue. We have one pool of stock in the U.S., except for our new partner, Dia, this year. I'll talk about that probably a bit later. But all of those partners pull from that one pool of stock. And that -- hence, that's why it's not as easy as a lot of other people. I truly believe you have to offer as wide assortment as you can, and the best way to do that is have it all in one place, and that's been very successful. So that's why I'm trying to say I don't see multiple businesses. It's just one business that has different sort of fronts. When you talk about our stores, we don't talk too much about the performance of Fountain Gate versus the performance of Penrith. We talk about the stores. And the U.S., in my mind, especially the inventory purchasing level, is that business.

Your next question comes from Sam Teeger with Citi.

Can you have comments around potential acquisition opportunities in terms of why you didn't pay dividend, one of the reasons why you didn't pay dividend? Can you talk to us, are there any transformational M&A opportunities likely over the rest of FY '22 or any acquisitions likely to be more bolt-on in nature?

Look, my comment is that we are talking to everyone, and you guys can map out the plus market. It's probably simply as many around the world. My job is to be there when these things happen, like CoEdition was a -- I'm closing the business down. I don't do it, but I'd been speaking to him, knew the business, knew what to do and was able to move very fast. We would have to tell the market if you have something transformational in the way, I guess what I'm trying to get to you guys is, as part of our growth strategy, I see a huge amount of organic areas, but I'm always in those conversations everywhere in the world.

Right. Maybe just kind of just following on that. Given the big investment you're making in inventory at the moment, are you less likely to do something transformational this half until maybe the inventory position normalizes? Or if something is available, would you still ultimately be transformational?

Look, some -- this is all very hypothetical, Sam, and something that's not necessarily going to come up in weeks. But my attitude is these businesses that would come up would not have a I can do that next year or the year after type of opportunity. And we would look at the -- what this would add to our strategic intent of plus digital and global customer acquisition. And if it really helps us lead a world of curves, I think it would be amiss not to look at it because we've tried to mitigate against the risk of inventory, not delivered due to supply chain issues would be my answer to that. I think as a part -- an interested party in the growth of the business, a very interested party, we need to be there when these discussions happen because you can't plan those things sometimes.

I think, Sam, another way of looking at it is also having the strength of the inventory would be an opportunity in acquisitions because we know that there are global disruptions to sourcing and logistics. So having a strength of inventory probably presents as an opportunity and not a restriction.

Your next question comes from James Casey with Ord Minnett.

I just had a couple of queries on the stores. There was a reference there, Phil, to the store size being at 150 square meters. Some of the new stores, I think previously you'd indicated some of the upsized stores were going to be 220-odd square meters, kind of double the previous size. Could you just make some comments around that? And then just as part of that, in the second half, you're doing another 10, just the split between new stores and relocations, that would be great.

Certainly, mate. Look, firstly, the 220 plus is what we're calling the larger or the flagship store. It's a Fountain Gate style or think of we're doing one in Penrith in this half, or hopefully it will be in this half if production -- if construction allows. We've done a deal there. So those bigger formats. I think at the time, we said there was about 20 of them, James, and I still believe that. So they are real -- they are your high, high volume, perfect demographic -- Penrith, Fountain Gates, Chermside in Queensland now that size, that kind of store. And then what we've really done, as I said, well, the 110 store is probably a little less. The -- I don't know the word, the normal store, James, I never thought about the language. But the nonflagship stores, we were moving up from 150 to 1 -- sorry, from 110 to about 150, and that's when all the new stores are coming from. What I believe is it allows us to create a better environment for the customer. I think the idea, as I've said to you guys before, of putting garments on the shelf and hoping without any sort of emotional connection and digital link, physical retail store in a small space has sort of gone past midnight, and we're trying to really make sure our store portfolio is following that trend and doing it. Of the 10, the only -- probably the hindrance of that will be construction because, as you know, there's a lot of steel and other supply chain issues in those. They should have bought the same inventory as we did. But yes, there's probably about half, half new. And what I'm finding leasing, James, is probably the next question on from that is that if you're prepared to move or take other space, the deals are a lot better. And for what we're paying for 110, we're paying less or the same at max for 150. And when you move, you get a fit out. So we're very rarely staying in the same spot.

Your next question comes from Sam Haddad with Bell Potter.

My question is just on the outlook. I think you mentioned it briefly. Just to reaffirm, are you still expecting the second-half skew, given you had lockdown impacts in the first half and you got the seasonal skew to the Northern Hemisphere and the ramp-up of marketplace partnerships? I didn't quite see that in print in your release.

Yes. Sam, we are.

Okay. So that implies $23.5 million pre-AASB 16 EBITDA, you should exceed that in the second half?

In the ordinary course of business and what we are looking at now, that is our expectation. I think the other thing is we understand the consensus numbers and understand our requirements with that.

Your next question comes from Shaun Cousins with UBS.

Great. Just going back to your comments on the moderation of sort of trading after the peak in the second quarter, can you just talk a little bit into the current trading? Can you talk a little bit about the reopening leverage the company should receive just upon as the consumer gets out and about and socializes more? You've indicated that 80% of the range is core. But should we see a boost in sales once the consumer is out there socializing again?

CC is definitely headed towards the dress business, Shaun. And as that need for dresses comes out, my sister in law is having a wedding in 2 weeks since the third run, and then my wife was out buying dresses last week. So I think if that happens a lot, CC's product offering, especially in stores, is very well set for that and ready. And we have the inventory to do it. In the U.S., look, the U.S. is such a crazy macroeconomic place at the moment. What I'm really happy with there is that we have learned a lot as the Avenue customer in the last 2 years. And I'm the most confident of the summer range I've been and what we've done from all the learnings we've taken. Regardless of COVID, she still bought a bit of stuff from us, and we've tried to refine our range and be ready for that. You had periods volume inflation, which for 2 days, materially impact our sales and then sort of stop. You had the 7.5% announcement -- which everyone, I think, freaked out and then it went away. So I'm really confident in what we've done at an inventory level from the learnings in America, and the positioning is a better interest business in Australia to be there and ready when she comes out.

Your next question comes from Wassim Kisirwani with Jarden.

Phil, can I clarify your earlier response regarding Evans over the second half? Did you say that Evans is approaching or already at pre-acquisition levels over the second half?

Yes, I said materially closer. It -- what -- if I look through the flow that we've talked about with the market before, July and August as we had appropriate summer product was very strong, and you guys picked it up in traffic numbers and all the things that we talked about there. Really, through winter as we didn't deliver a product, we didn't chase marketing and we tailed off on both traffic and sales. We're a way away from the pre-acquisition levels. And through January and February, as we've got a little bit of right product, we are much closer. I didn't say we are there, I said we are approaching.

And so as you get into summer, you think with the full product range in place, you'd expect reasonably to get there and sort of exceed those acquisition levels, pre-acquisition level?

Look, you're asking the trader me or asking the CEO me? My answer to that is, look, the customers responded very well to our product so far and that we are ready in micromanaging our logistics situation with our best people in Europe to make sure we get that product up to her. She is responding in all other markets in all other channels very well to the small levels of product we've given her, and that gives me great confidence that we will be able to get to those levels at least through the summer. However, that will play out over the next 4 weeks. And the factory that moves closer towards it with a small improvement in range in the first 6 weeks or 8 weeks have long -- does further give that confidence.

Your next question comes from Sam Teeger with Citi.

Just while we're on the subject of Evans, appreciate it didn't contribute much profit in the first half. But now that things are improving, should we expect it starts to contribute profit? Or are you just spending what you're making in marketing to kind of reactivate those customers who haven't shopped with Evans in a while?

Look, I think in the first half, I would hope that we would at least be breakeven to a little bit, Sam, of really -- we're really watching it very close, but we are going to make sure that we -- my primary aim is to drive market share. I think as you get these distressed businesses and where I probably have learned a lot in the last 12 months, you've got to look at expectations around what they can do when they're in that state. The strong thing is she's responded well. In the midterm, I've said it before, we would see that Evans would be EBITDA -- in line with our group's EBITDA in time. I would be hoping that would be inside the next sort of 12, 18 months. But really, right now, we've got to go and engage that customer. That is my primary aim. We've put a lot of money into our customer service after the Trustpilot thing, right? Because we were on it. But really, what was great is how quickly she responded. While we went from 1.3 million to 4 million inside a month or 2 because what she --- all she wanted was the returns fixed, and we were able to fix that very, very quickly. So I'm really confident of our product mix there, Sam. And I do believe in time, it will revert to standard margins.

I understand. And then just following on from that, given you will be investing market share initially and not profit and have a bit of a slower start in the second half than we would have thought, can you talk to how much better you expect the second half to be than the first half?

Look, I'm not -- we're not going to -- what we've said is we got closer to acquisition, Sam. There's so much volatility around. I think the first 8 weeks have been more positive than what we saw through the second half of the first half, if that makes sense, quarter 2. And yes, we're confident of the reading in the first week, and the main focus is getting the product in front of her. I've got to not -- we've got to make sure that summer doesn't happen and the labor impact on the warehouse capabilities are not their top of mind again this year. There are many, many things outside of our control that are in that in both third-party labor, the British market, access to the required resource to get it done, all of which we have our best people in the U.K. So we want to see that happen, and we don't really give guidance on what -- as you say, what I've said.

I understand. I guess just from more growth perspective, can you help us get a sense for how much the second half will be than the first half?

Look, I'll stay with the same comment and say that we see the second half for the first time being bigger than the first half? Is that the right -- yes, I'm not going to sort of drive any more than that, except to say we understand our obligations, Sam, and we understand where consensus is. I think just to do that a step further, there is still a lot of demand volatility, especially in Australian stores. I think it's probably the key area. Australian stores are very profitable. The Australian business, as has been outlined through time, is a very profitable thing. And there is still a lot of volatility, and it does materially impact what our profit levels are, and we're monitoring that every day and hour.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Ryan for closing remarks.

I just want to say thanks to all the shareholder base for your support through this time. It's been a crazy 2 years culminating in another good period of growth for us, and I really see that continuing into the second half of this year. We are looking to drive -- our product range has had such a great response over the last sort of 2 years around the world, but I think we are just starting on that journey, and I really look forward to it. Thanks, everyone, and enjoy the rest of your day.

Thanks, everybody.

Thank you. That does conclude our conference call for today. Thank you for participating. You may now disconnect.