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

Thank you for standing by, and welcome to the City Chic Collective Limited Fiscal Year '22 Financial Results. [Operator Instructions] I would now like to turn the call over to Mr. Phil Ryan, Managing Director and CEO. Please go ahead.

Thank you, and morning, everyone, and thanks for joining us. I'm Phil Ryan, CEO of City Chic. I'm joined today by Peter McClelland, our CFO. This morning, I'm going to give the highlights around what was another great year for City Chic. Peter will then talk to the financials, and I'll come back to discuss the outlook and current trades of the business before we open up to questions. Now looking at Slide 4, this shows our vision to lead a world of curves, and this trend forward leaps and bounds in FY '22, and we are now a truly global plus-size apparel business. We've not looked to consolidate over the pandemic. We've continued to pursue our ambitious growth strategy with an amazing team that know what it takes to deliver an assortment a plus lady will love. We've entered new markets, struck many new partnerships and breaded new brands into the collective, all in the pursuit of our goal to provide the largest range of plus-size product to our ladies all around the world. The more markets and partners we get her our product, the more we learn about her, the more I believe that the range has world appeal. Moving to Slide 5. We've achieved this through remaining focused on our 3 strategic pillars of plus, digital and global customer acquisition. Since 2019, we've achieved a CAGR of 54% in customer numbers now with 1.4 million active customers. Our online revenue CAGR both organically and inorganically in that time was 65% and online sales penetration is now 81% with 78 million visits to our global websites on a yearly basis. We did this all through very volatile times, and what Slide 6 shows is that we translated this into sustained profitable growth with a revenue CAGR of 34% and 24% in profit. Slide 7 shows the investment that has occurred through our distribution and supply network to transform us from an Australian-based store retailer to a global omnichannel business with 6 distribution markets. The key here is the expansion of our factory base from 43 to 100 and production from 1 to 6 regions. This was all achieved with an exceptionally volatile supply chain and is part of the reason for our year-end inventory position. This was undertaken to drive cost benefits with regard to higher-volume factories and sourcing in regions that specialize in products such as Bangladesh and [ Dallas ] and also to diversify our sourcing risk given the times. This led to further need for buffers as we were forming new relationships. To achieve our initial orders and buffers were allowed were materially above what we can achieve now the relationships are established and order volumes have normalized with cost benefits achieved. We are also shipping to 7 destination ports globally and have a third-party warehouse plus partner warehouses in all regions. This has been a significant undertaking, especially given we could not travel for a large part of this, and I'm very pleased with the progress we have made. But more importantly, it sets us up for growth over the long term while derisking our supply chain. Moving to Slide 9. In FY '22, the business continued its history of profitable growth. Our revenue was $369 million, up 39% totally and 25.5% on a comp basis. The U.S.A. grew 54%, Australia grew 11% and EMEA is now a $45 million business in the first full year of Evans. All of these are very pleasing numbers in another uncertain year. The partner business globally showed its potential in H2. It achieved a full year sales of $30 million and $22 million of this or 74% was in the second half, and many of the key partners really only started in March. This growth again demonstrates that our product range and lifestyle mix across all of our assortment has global appeal across varying regions and channels and really supports our vision to lead the world of curves. Our EBITDA grew 11.3% to $47.1 million, a strong result and again, shows the profitable nature of our business model with the second half eclipsing the first half for the first time. The 2 years are not entirely comparable. In FY '21, there was a benefit of $10 million in austerity measures related to COVID-19. And in FY '22, we lost $4 million in EBITDA through the 13% of loss trading days due to mandated store closures in the first half. EMEA was profitable in the second half as we corrected logistic issues and grew revenue through all channels, including partners. Gross margin of 59.9% against 62.8% in FY '21 reflects our evolving geographic and channel mix and is in line with our strategy. Underlying cost of doing business of 47.2% is low and shows our lean operating model and outlines our ability to leverage our fixed cost base to grow. We invested in our store network in FY '22 and have now 12 premium flagships or around 220 to 250 square meters, and they're all trading very well. In addition to these, we have 36 new stores in what we're calling the Gold design or the same design as a premium flagship with a slightly larger footprint of the historical 110 and 150 meters. These are also showing strong performance. Turning to Slide 13. I wanted to talk a little bit more about the inventory build. I've talked about all of this before. However, given the inventory level, I thought it was important to reiterate our decisions and actions. I will start with the strategy and give a little more detail on what we actually did and how it ties into our investments in the global distribution network and how we will get to the target of $125 million to $135 million at the end of FY '23. Then I will talk to why [indiscernible] active seller and the risk involved in selecting is low, and I'll do that with pictures. In FY '20 and '21, we saw material delays in shipping and production for many reasons, as we all know. A strategic decision was made to change the way we source product to FY '22. We did this to achieve supply chain diversity, minimize disruption and avoid price rises caused by the geopolitical landscape and obviously, the pandemic. We were building the foundations of a global distribution network through increasing our factory bases as well as mitigating these risks. What we were trying to achieve is to move to factories that made bigger volumes and had more economic production capabilities, and we've achieved these. The key actions I want to point out from the strategy are firstly, we accelerated inbound. And what we did is we bought our classic shapes, seasonless product and core ranges through FY '22 for 2 seasons rather than 1 to get the volumes up to drive the relationships in factories to get product quality and price we needed and also have the stock in the warehouse to mitigate the supply chains. We increased our factory numbers, as I've outlined earlier and origins, and we added 2 month buffers. And largely, given the expansion of origins we source from and what we ship to, we took control of our shipping where historically, partner factories we have strong relationship with -- had controlled this part of the supply chain. This is just a timing issue and added around $20 million in FY '22. Given that 80% of the range you see the less core or no shapes, which I'll talk to in a minute, I was confident to do this and to hold the inventory for future periods through accelerating inbound. Through the pandemic and in the last 2 or 3 years, we've moved inventory between seasons as we adapted to all the kind of risks and volatility that has shown up. And in doing this, we put a CAGR of 35% revenue. So through doing this in the last 3 years, we've driven revenue, and I'm very confident to work. Slide 14 shows the areas of growth we invested in for inventory. Firstly and obviously, our strong organic growth in the U.S. and Australia. We then had to set up a base of inventory in EMEA for the Evans and Navabi acquisitions that have both been depleted materially. We've built a partner business from a standing staff of 30 million globally, and we have concession stock in new partners that we had to invest in ahead of time. We also created stock buffers in new markets like Canada. It's important to note that our closing inventory had some early receipts of $28 million that we had planned for FY '23. In May and June, some of our factories had inventory ready that we expected to receive in Q1 of '23 to maintain the customer relationship strong with regards to [ ship early ] and [indiscernible]. This is only a timing issue, not an overstock issue. There was also an FX revaluation impact given the lower than anticipated U.S. dollar at year-end. We hold our U.S. stock in U.S. dollars in our books and have to reevaluate it to Australian dollars at year-end. The lower U.S. dollar and a higher paper Australia dollar or AUD value. Our inventory levels through sourcing initiatives give us confidence we can manage further supply chain disruptions, and we can now start to unwind the accelerated value. The key message out of Slide 15 is that inventory is now peaked and will start to unwind. This will be achieved through the reduction of our future period inventory to a normal level. The conclusion of the accelerated inventory purchases, as you can see on the graph, that relate to around $64 million in FY '22, and that will be sold down in '23 and not replaced with the applied buffers. We will also sell through core and seamless ranges that were boarded in FY '22 for 2 seasons. And from all this, we will reduce our forward orders in FY '22. We will remain agile and only fight forward when demand dictates, allowing us to move the inventory levels in multiple demand scenarios. We can also move inventory between regions as season and demand dictates. There's a lot of moving parts in this, and we will remain adaptive and review our order book in line with the market sales in FY '23. This leads us to a target of $125 million to $135 million of that FY '23 year-end. And with the release, we expect a strong cash position as at year-end. All of these actions really drove our 39% growth in FY '22. Now if I look at Slide 16, it wouldn't be a CC presentation without some garments, and Slide 16 shows an example of our core product, this time, I gave a little more color than just black because it doesn't have to be black to be gold. These styles we can run all year or from season to season, and this shows the volume of categories we have in Cobra, including bras, denim, boots. There was a lot more I can put on this slide, just spinning 8,000 styles on a few slides is very challenging. And I think these really drive home why I feel like it is. If I move to -- sorry, this is where we invest a lot when we accelerated inbound 2 or 3 seasons. We now have relationships with new factories in this space and can purchase closer to demand. If sales slowdown, the life of this company extends and we do not buffer a replenishment later on. Slide 17 in here, this really shows how I'm making our ladies and how when we find the shape, it sells through season in both brands and both prints and plains and how the majority of our product is seasonal. I'll talk through the top right corner. This CC dress shows we can sell known shapes in different prints through seasons for multiple years all around the world. What we've done to increase volumes and move to bigger factories is by 12 months of styles like this in various prints in 1 run to increase volumes and establish relationships and set new price levels. We can now buy more in line with demand as relationships cemented, and this is why I'm very confident the obsolescence risk is low. We talk to our shareholders and analysts regularly, and we know that we're operating in an environment where competitive in some of our new markets we're growing and have elevated levels of inventory and are more aggressive in their promotional activity. However, this retail environment does not mean we should not be investing in inventory to support our entry and expansion in these markets, and holding on to additional stock in our fulfillment centers does not mean we need to discount more heavily than normal. I've talked through the highlights of the channel and regional overview. However, what Slides 20 to 23 do outline is the many growth drivers that we have in all of our key markets. And on top of this, we have the trial markets of Canada and Middle East. I'll now pass to Peter to talk through the financials.

Thanks, Phil. Before diving into the details, there are a few important matters to highlight when interpreting the results. Firstly, FY '22 was a 53-week trading year. The revenue and results that have been shown in this presentation reflect the group's statutory reporting, i.e., inclusive of the week 53. Management's estimate of the effective week of the 53rd week is about $5.4 million of revenue which accounts for less than 2% of the total revenue growth for the year and between $1 million to $1.2 million in EBITDA. Also, delivery fees that are charged to customers were previously treated as an offset to fulfillment costs. These have been reclassified to revenue. This has no impact on the group's EBITDA. However, it does impact on the various ratios that measure against revenue. This reclassification has been reflected in the comparative revenue and financial information that's provided. For consistency with historical reporting, we have also continued to present underlying EBITDA on a pre-AASB16 basis. In the future, we will report post-AASB16 in line with more recent market practice. More detail of these items have been included in the appendix. Phil has taken us through the details and drivers of the strong revenue growth, which is both organic and inorganic as we build a global business and continue to put in place building blocks for future growth. Pleasingly, as well as growing top line, we have continued to deliver profitable growth with an EBITDA of 12.8% of revenue. Our financial results are influenced by both channel growth and COVID. The strong growth of our online business has contributed strong profit dollar growth, however, operates with lower operating margins. The business expansion with EMEA acquisitions of Evans and Navabi, both trading for a full year this year, and I highlight trading profitably in the second half. However, these businesses are still building towards maturity, and as such, with higher logistics and operating costs, and we would anticipate once revenue maturity is achieved. We also saw strong growth in our partnership revenue, particularly in the second half. In respect to COVID, FY '21 benefited from the $10 million posterity measures relating to employment, advertising and landlord relief that in FY '22 have returned to more sustainable levels. And also in FY '22, government-directed store closures are estimated to have impacted EBITDA by about $4 million. Gross margin grew with revenue to $221 million, a growth of $54 million or 32%. However, the gross margin rate of 60% was strong in itself declined by 3% compared to the prior year. This was primarily driven by channel and product lifestyle mix changes. We also saw the improved product costs achieved from the group inventory initiatives, offset by global logistic cost increases. While we see the global costs stabilizing and expect them to normalize in time, it is not clear when these costs will materially decrease. Fulfillment costs have a large variable component and therefore, has increased with the growth of online revenue, and also due to the geographic expansion into EMEA where while we've made a significant improvement to product availability to customers and has been reflected in our growth in revenue, we still operate with a higher cost warehouse network. We have also experienced warehouse and distribution cost inflation in all regions. To address this, we continue to work closely with our 3PL warehouse providers to improve operational efficiencies and plan for future growth in the business, and we regularly review our delivery structures to optimize service and cost. Our underlying cost of doing business, as Phil mentioned before, has been maintained at 47% despite the fact we've had the growth in fulfillment costs, a more normalized EMEA cost structure and the 10-year austerity -- sorry, the $10 million of austerity measures in the prior year. The additional cost of doing business from the full year impact of EMEA alone accounts to 40% of the total increase in our cost of doing business, meaning that the other costs have grown but have grown much less than rate of revenue, demonstrating our ability to leverage our cost structure. In summary, CCX has delivered both top line and profitable growth with an EBITDA of $47.1 million or 12.8% of revenue. On top of this, the business, we've continued to deliver a business structure to support our future growth and deliver better operating leverage as the business scales. In respect to our balance sheet, we've provided an overview of the balance sheet. However, I believe that the balance sheet flows are best explained by turning our attention to the cash flow on Page 27. The business has invested available cash in working capital to support the strategic investment in inventory and ended the year with a $4 million net debt position. Pleasingly, you can see that the business has continued to deliver strong cash generation of $37 million from trade being EBITDA, net of taxes and interest expenses. The $90.3 million working capital movement is driven by the $129 million investment in inventory has been discussed earlier, offset by other favorable working capital movements predominantly in payables which have increased with inventory and also increase as the business has grown. The investment of CapEx of $15.8 million is higher than previous years but included the acquisition of Navabi and co-addition, store-related investments of about $7 million and head office refurbishment and further development of our core operating systems. In respect to our debt facilities, we have entered into a new 3-year $60 million multicurrency facility. The facility has working capital and acquisition tranches and has financial covenants typical of this type of facility being a net leverage ratio and fixed cover charge, both of which we are well in compliance with. Handing back to Phil.

Thanks, Peter. Moving to Slide 29 on current trade. Trading in the first 7 weeks of FY '23 has been broadly in line with the prior corresponding period with a return to positive momentum through August. Our Australian stores are trading above expectations, which is ahead of last year, of course, given the impact of store closures in FY '22. I will not talk both here as I do not think it's right to given the closures last year and the impacts. AV Online was below last year in the first couple of weeks of July. It has performed well since and is now trading above last year and has grown strongly into August. Our U.S. market has been volatile. The City Chic website and brand has been trading above last year as better dressing demand and workwear demand has remained strong in the market. The more casual and Avenue business is trading below last year, but is showing week-on-week improvement to last year through the August period. We did have a strong July last year in Avenue, and I'm looking to see improvements into the second half. The U.K. has continued to show growth and our partner business has continued to perform well across multiple geographies and is expected to drive incremental revenue growth through FY '23. The hedge has now anticipated promotional activity that I spoke about earlier, City Chic is leveraging its unique market position to implement where appropriate retail price increases to help mitigate the risk of margin compression and continue to grow market share. Moving to our outlook on 30. In FY '23, we expect to deliver another year of profitable growth, notwithstanding the ongoing global economic and geopolitical uncertainty. This is underpinned by our expanded market penetration, category leadership globally and investment in distribution infrastructure. There are some key building blocks to achieve this result that are above the normal organic growth rate. In FY '22, the partner business globally achieved $30 million as I said, and 75% of that was in the second half, starting late in the half. This will annualize in FY '23, delivering incremental revenue. We've moved to a concession model with key partners, Zalando and Walmart, leveraging our available inventory, and this is just starting in the first half. And Amazon in the U.S. is now operating wholesale that is initially showing great promise and started just a few weeks ago. Our Australian stores were closed in the first half of FY '22 to 13 days and we're not expecting this to happen again, and this is just driving incremental revenue. Evans didn't trade well in the first half of last year, given all the logistical issues that are well documented and we didn't have the inventory we had in market available for sale. This inventory is available this year in the first half, and we're ready for a big winter. Before we could implement the supplier process changes in early FY '22, deliveries were delayed and the range was not as strong as I would have liked, especially in the U.S. We now have the inventory there and are ready for this period, and I believe it will drive sales even in a volatile environment. As mentioned, we are targeting closing inventory of $125 million to $135 million at 30th of June as the 2023 supply normalizes. This will allow us strong free cash flow as is inventory unwind, and we'll be in a net cash position in the second half of '23. Thank you. I'll now open up to questions.

[Operator Instructions] The first question today comes from Marni Lysaght with Macquarie.

Just looking at Slide 19, and you've given us the growth since the trading update. So you've kind of given us the geographies and -- I'm sorry, the April trading update, you've got the geographies there in the channel. Just to kind of understand like I remember this -- the back end of the second half of '22 was cycling reopening in the U.S. and also cycling some delta volatility in ANZ. So kind of what's kind of grown that 40% sales growth? Is it the new marketplace partners coming online? Did you see some sort of normalization in Avenue and City Chic USA?

Look, I think a few things, Marni. You're right. I'm actually very pleased with the numbers here. Look, I will say the number of 37 does come down to the 53rd week, but it's still a very pleasing number in 27. I'm sure you all calculate that. I think it's really range, Marni, having the available product to sell. We were seeing a lot of supply issues and deliveries around this time. Also the U.S. was a little challenging for us in June last year, and we cycled that well. So I'm -- I think the key thing I would say is range, Marni. Obviously, stores didn't really start in June. June was okay in Australia last year, delta beneath until end of June, July. So it's not as bigger impact. Does that answer the question?

Yes, that's all clear. And it's fair to say also, just the uptake in this new channel marketplace building momentum and is that...

Yes, it should about that. The momentum that's run into is very strong. Look, I think the momentum into the end of the half what was pleasing and the partners were a part of that and they showed the opportunity that we have globally to get our range across, not just on -- but there's a lot of people selling plus sized products that are very keen on inventory around the world, and we are finding a lot of people to do it and gives us that omnichannel reach, Marni. It gets our product out to so many more people, and it's accretive at an EBITDA level, but challenging at a GM level.

And just a follow up on that kind of -- with Evans, could Evans track along nicely at the back end of June 2021 and then you started -- so did that also have a very good positive momentum in May, June?

Yes. Evans, as I said, is probably the 1 area. Look, I think, Marni, you're correct in saying June, July was a strong month for us last year in '21 and into '22 because we did have product and then we just -- we fell into the logistic challenges after that. But we were able to cycle and bake those years because the assortment has increased. And it shows to me that we're just starting in that market, and our range has appeal and that when we do it well, we can grow in what are volatile times.

And what's the consumer like with Evans? Just because every headline you see for the U.K. and the average consumer there, there's a lot of macro headwinds facing that. So what do you think is driving the resilience? Is it range and pricing? Positioning in the region?

I think the easiest way to explain that is look at what we did with Avenue and how we grew it very fast and very quickly because we brought to it the assortment that the collective adds. I think we're doing that, and I think we will drive growth because of that. But the question of the headwinds you're talking about is really for us, market penetration. We're very low there, Marni. So how big could the growth have been, perhaps rather than, will it grow. As I said in the speech, we don't -- I don't miss the world, Marni. We see all these things. What we've got to do is put our best foot forward in all of our markets ready to sell product where we can. And U.K., given the environment has been pleasing.

Okay. And just 2 more for me. With the reclassification of this delivery fee income from being an OpEx side and putting those revenues, are you able to kind of give us an idea of what the first half did in '22 and first half of '21? Like just so we can start to, as analysts, kind of match our modeling to your report -- updated reporting.

Yes, it's a good question, Marni. If you -- in the appendix, we provided the full year impact, which is $9.5 million in '22 and $7.7 million in '21. That is in direct proportion to revenue. So you can calculate it out, but it's -- in FY '22, it's roughly $5 million in -- sorry, just over $5 million in H2 or just under $5 million in H1 and proportionately the same mix for the prior year. Does that help?

That's clear. And then a final 1 for me, and I'll jump back in the queue. Just I guess on inventory, it's very topical for you guys. Normalizing to invest $130-ish million is kind of what's the new normal? And walk us through, I guess, the unwind over the December half because you've got market in there, you've got stock in there for Black Friday.

Yes. That's more, Marni. I think, firstly, it might be worth briefly explaining a few of the trading other purchasing patterns. You saw in January into March, your big months for summer and then in July, August are normally your big months for winter. Second half and first half through the seasonal change around the world. So you do have -- given the way we've had, the way we buy, we are very heavy in these months. And that, hence, the timing issue that led to the 28 when the factory had it because we had built-in buffers that really show that the factories are now actually performing better than we think, which is a positive from my view. What we'll do is the seasons we bought -- the products we bought through seasons like the dress I outlined, Marni, we had 4 or 5 of them ready, probably more than that. We have product portfolio almost through the season, and we'll put that live over time, so that it sells down, we're able to buy more into the market rather than the full year that we have so far.

And it's still of the view that the stock that you've been procuring is that core range, your bestsellers, wrap dresses, trench coats, et cetera, et cetera?

Yes. I'm very confident of the inventory profile. I'm confident of the obsolescence risk and I've learned this over time through to the way we traded in the last few years, even this week as we start to see things starting to go live in the winter, Northern Hemisphere, the performance of it has been very strong. As I said, having a warehouse or a fulfillment center doesn't mean it's any more or less risk than any other product. And really, our clearance is very low. It's sort of single digits. It's not a material part of it.

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

Just talk a little bit about your commentary regarding the U.S. into highlighted the websites being volatile City Chic and Avenue below. Are you in gross in the U.S., particularly, I guess, the key basis for this question is the U.S. is a key market in which you will sell this inventory. So are you currently in growth at the moment, please.

We -- last week, we -- through August, we've started to show positive total growth over the full period, and Avenue is such a large part of the business were slightly down, but we are seeing that momentum turn around as the partner business annualized on top of it, Shaun, as City Chic continues to perform. And even on the Avenue website, the better dressing workwear product that we are offering to this customer is getting traction in the market. So does that answer your question?

Yes, it does.

The next question comes from Sam Teeger with Citi.

Throughout FY '23, should sales start to be weaker than expected due to macro increasing cost of living pressures? Are you more likely to discount to reach your $125 million to $135 million target by year-end? Or are you more likely to retain margin even if it means having a high inventory at the end of the year?

Look, Sam, there's so many parts in that question. I think the first part I'll say is that, we still have an order book. We still need to order products, and I can let that up and down as demand does around the world. I can remove -- certain products are demanding in certain regions, we can move them to meet demand. So it's not as linear as you're making it. I think the message I want to get across is our story is about revenue, Sam, and we want to make sure we're getting our product across eyes because I know that when she gets our products, she's voted for it through all our channels, including partners. But we're not going to go and clear as you would or overly promote just want to clear the stock and to drive the stock number down. I have many other levers than that to get to the number. Otherwise, I wouldn't be so confident to put it out there, Sam. It's not like a store in the old days where the back racks going to go to fit the new stock in, so I've got to sell it's at $5. It's in a warehouse and fulfillment center, if I can push it through seasons or run it well, as I have for the last 2 or 3 years and trade the inventory as is my job, and we've done it pretty well so far, I think I've got to remain flexible and agile. And what the base of inventory gives me the ability to do that was last year, we didn't have a lot of that, especially early in the first half of FY '22, that wasn't that hard to say. But yes, I've just got to keep a -- there's so many moving parts. It's not as linear as lots of stock discount get number if don't get sales. That isn't how my thinking is. It's essentially what I do, and I've got to keep on top of it. And the good thing is, Sam, I'm confident of the makeup and the value of stock. You look at that dress I've shown you [ shaping ]. We've got 10 prints and 3 plains in that over the season and demand wanes, I put 2 more of them into the next season and want the plains and then don't buy them into the next season, and that's why I'm trying to give the item level detail. I know it's going to be a big topic over the next few days. So I wanted to try and help you guys understand what I do a little bit more. I think in previous -- we've taken a very sort of clinical approach to it. I'm trying to bring in how and what I would do through that, so you don't sort of get that impression because I can do what I just said and phase that through seasons.

Yes. That's really helpful. Do you mind also just talking a bit more about what you attribute the divergence in performance between City Chic U.S. and Avenue? And to what extent is Avenue being impacted by competitive discounting?

Well, another good one, Sam. We definitely are talking and thinking about this. It feels like that we get that sort of -- I'm not going to say more affluent customer, but there is a real need for better dressing and workwear and it's a reason to buy. I think when inflation hits, the net top can be pushed out and you can wear the one that you bought last year, but you go into an event, you want to wear something else. So I think that's why City Chic calling up. We're also very underpenetrated in the U.S., Sam. We are a little bit of a big market. We grew 54% there last year in good, bad, good/bad times. So my answer is, I think Avenue had that more casual purchase that even as rewarding emotionally to someone. So when the money is a little tight, that can go, but that comes back very quickly. Even in last year, we saw true -- early in the first second -- early in the second half, there was a bit of a feeling of delta of things were a little challenging in the U.S. and then through March, April came right back up. So to me, the first question, the second question, that's combined because I've got to watch what happened there to manage how the inventory goes through and what I use at an item level. And I have a wonderful team of people that do that for me that I've worked with for years and years that we make sure we manage and maximize the asset as best we can.

Got it. That's clear. And just last question. Can you just help us understand first half versus second half phasing of profit growth for the full year?

In last year, Sam?

No, no, no. In terms of FY '23, just what we should be expecting? How are you guiding to profit growth for the full year, but just how we should think about the phasing between first and second half?

I think, Sam, there's a lot of moving parts and we -- there's a lot -- you mentioned macroeconomic environments as partners annualizing. There's a lot of fees that are moving in that. We're not providing guidance at that level. But what we're doing is we're never -- wherever it is as best we can because we've got it there. It's a lot easier to sell a dress you have than a dress you didn't have. So for me, I've got to just make sure it's in the right place wherever possible and that we don't have to -- the same applies for an Avenue and Top, I should have said. If I've got 10 new tops that I bought in the shape and there is demand slows down for them, I would just push 3 of those into the next season and then not buy them in the next half. So I really have that flexibility, Sam.

The next question comes from Craig Woolford with MST Marquee.

I might try the old analyst trick of a 2-part question, so I can sneak into like a stand in. Can I just understand how you came up with the $125 million to $130 million as the target? Are you looking at a particular inventory days of stock turn on a fundamental basis? That was the first part of my question. The second part was just the commentary made about the gross margin impact as related to product lifestyle changes within the mix effect. I'd like to understand that as well.