Dusk Group Limited (DSK) Earnings Call Transcript & Summary

Good afternoon, everyone. My name is Peter King, CEO of Dusk Group. With me today is our CFO, Kate Sundquist, and we welcome you to Dusk's first half F '22 results briefing. We will take you through the highlights of the half, allowing ample time for questions at the finish. Given the circumstances faced during the half, there is much to be pleased about in the overall result delivered, especially having regard to the fact we were cycling exceptional like-for-like sales growth from the prior corresponding period. Total sales decreased 12% to $80 million after losing 24% of store trading days due to COVID-19-related store closures. Total like-for-like sales were down 10.1%, cycling plus 49.3% in the first half last year. Store like-for-like sales were down 11.5%, cycling plus 44% in the first half of last year. Our online sales grew 2.8%, but was cycling extraordinary plus 120% in the first half of last year. Our online sales now represent 9.7% of total sales. 6 new stores were opened, taking our store network, including online to 128 stores and Dusk Rewards active membership grew to more than 718,000 members.

Despite softer sales, the gross margin rate grew 27 basis points to 68%. This was mainly driven by price increases executed back in June last year, which more than offset the impact of rate increases. The cost of doing business was $0.5 million lower with disciplined cost management. Our pro forma EBIT for the half was $21.3 million versus $28 million. Pro forma EBIT for the last 12 months was $31.7 million. Net cash closed the half at $33.3 million with no bank debt and the Board has approved a fully franked interim dividend of $0.10 per share.

So let's now move back quickly to our digital channel. Sales grew 2.8% to $7.7 million. Penetration, as mentioned earlier, is now at 9.7% of the business and growing. Our new Magento 2.3 platform went live in August and is performing well, and we will be trialing click and dispatch in the fourth quarter of this financial year with a view to a rollout in the first half of F '23. Moving to Dusk Rewards. Dusk Rewards now in its fifth year of operation is the engine for our business. As a reminder for the audience, Dusk Rewards members pay $10 for a 2-year membership and in return receive a suite of benefits. Membership grew to more than 718,000 active members. Membership sales are now at 62% of total sales, up from 59% in the previous corresponding period. And I'm pleased to report that membership average transaction value continues to grow versus nonmembers. Dusk Rewards transactions deliver rich insights into purchasing patterns and behaviors and we continue to execute tailored offers against those learnings. Our new store rollout will serve to further boost membership sign-ups as we enter fresh catchments for the Dusk brand, further accelerating the program's success and strategic importance to our business, changing our focus from the first half to a trading update for the early weeks of the second half. In the first 8 weeks of the second half of F '22, consumer sentiment continued to be soft and shopping center foot traffic was sharply down. Pleasingly, our sales conversion rates and average transaction value remained up versus the previous corresponding period. Total sales were down 11.8% and total like-for-like sales down 14.8%. It should be noted we were cycling last year comps of plus 48%. Online sales were up a terrific 19.4% when considering that was cycling plus 50% versus the same period last year. Turning to our store network. In the second half of this year, 4 new stores in fresh catchments will be opened, and 5 more stores will be refurbished from our old legacy to our new Glow 2.0 fit out, incorporating our expanded health and well-being sections. These changes will ensure that Dusk is set for another strong Mother's Day right across Australia. Current stock is level with last year and sufficient to meet demand. We foresee no supply chain issues in the leading to Mother's Day peak trade with all orders placed well in advance of previous deadlines. Management remains focused on our customers and has made tangible progress on our growth strategies. Working with the latest New Zealand government dates for travel, plans are well advanced to open stores in that market ahead of Christmas trade. Given the uncertainty that persists due to COVID-19, the Board does not currently consider it appropriate to provide guidance for FY '22. That concludes our commentary. And we now throw the session open for questions.

[Operator Instructions] Your first question comes from Danny Younis with Shaw and Partners. We move to the next question, which is from the line of Aryan Norozi with Barrenjoey.

First one for me, please. Just around the inventory. So it's up a bit on last year, and obviously, your sales are down a bit. How comfortable are you in terms of not having too much inventory as there's a balance between timing [indiscernible] at the moment versus oversupply. Have you pulled forward orders? Or is it sort of basically where you want it for this, given the current level of demand place?

Ari, we're pretty comfortable with the quantum of inventory and the mix across all of the product groups. The stock is heavily weighted to core. There's less exposure to fashion. And given we're opening, we'll moving into peak Mother's Day with 10 more stores than we had at the same time last year. I'm pretty comfortable with our stock position, which is, as I report -- as we sit here today, which is level with last year, which reflects the shipping dates for Chinese New Year, year-on-year. So I'm -- I see no red flags at all with our stockholding.

Perfect. And then do you have -- the numbers currently reflect the Mother's day cycle inventory build throughout the rest of the half. How will the profile to look over the next few months, please?

No, we wouldn't have Mother's Day in here now way too early. So we'll be building Mother's Day into March, through March and into the first half of April to meet demand. Demand typically picks up from Mother's day. Early birds coming to our store for gifting sort of mid-April onwards, depending on the Easter date of the year. And so -- and that happens roughly the same period every year. So our bills will be in line with history and we expect their inventory to close at the end of this year at or a little less than it was this time last year, notwithstanding the extra stores that we've opened. The plan to open new stores in the first quarter and the shift into New Zealand.

Perfect. Second one, just around international expansion. Obviously, you announced New Zealand. And how is the Board and management feeling about international expansion sort of outside of New Zealand, maybe the U.K. or other countries potentially please?

Look, we're still reviewing all of our options. And we're careful not to buy it off more than we can chew. Ari, expansion in Australia, investing in digital with the new platform, moving into New Zealand, digital and stores, we think that's enough speeding place for the first half of o F '23, and we'll be looking more closely at those other markets as we turn the corner after Christmas of this year. But we're certainly not close to putting a date into committing capital and diverting management for those expansion points anytime soon.

Last one, just on a, I think guidance was out there for $7 million, $7.5 million of EBITDA. And obviously, given the fact that you've sort of taken ownership now or will do soon. What's the sort of -- is there any change to that sort of outlook or guidance? Is that business still tracking well?

So Ari, to point of clarity, we're scheduled to complete very soon on Aroma. And sitting here now, I have no fresh updates on the numbers that we've already supplied to the market.

Your next question comes from [indiscernible], Prive investor.

I've got 2 questions for you today. First one is have you and the board considered share buyback at these low prices as a way to return capital to shareholders? And if so, why wasn't that chosen? And the second question of mine is in regard to foot traffic. You mentioned that it's sharply lower this year. Have you noticed any change coming -- moving from January into February? Has it increased moving into February and the later parts of February?

First one first. I think the Board spends a lot of time looking at our balance sheet to utilize cash for the best way for our greatest return for our shareholders. At this point in time, we won't be participating in -- or planning to have a share buyback. We think it's a prudent position for the company to take to pay the dividend at $0.10, notwithstanding the fact we are planning to make that acquisition, as mentioned before, with Ari. But I'm certainly not ruling out anything like the option that you've mentioned previously, but it's not a short-term piece that we're giving active consideration to. I tend not to comment on the share price, the market decides what the share price is. And Kate and I and the management team focused on generating sales and earnings growth. For the second part, look, you're absolutely right. If you split the first period that we referred to into 2 pieces, the first 3 weeks of January were pretty quiet in retail land, and that actually began on Christmas Eve where people stayed away to avoid being a close contact, so they could visit friends relatives over Christmas in the holiday period. The further we trade away from the beginning of the calendar year, the footfall gets better and sales results improve. It hasn't been a snapback. If this is a slow burn, a slow improved but it's accurate to say that footfall and performance has increased the further we trade into the year and the further we get away from early January trading.

Your next question comes from Danny Younis with Shaw and Partners.

I've got 3 questions, if I can, please. The first one is around the mix of sales. So if I remember correctly, your Diffuses & Consumables segment was the highest margin performing division, and that was about 34%, 35% of your sales in the last 12 months. It appears to have come down to about 28%. Conversely, candles, which are expected to go down as a percentage of sales has gone up, which is lower margin. Can you maybe just provide a little bit more granularity around the moving parts within both those categories? Why the fuses is down as a percentage of sales given the high growth rates over the past 2, 3 years? And why candles is up, please?

No, it's an accurate observation, as always, Danny. We were a little late getting all of our diffuse -- our Christmas diffuser and our fashion ultrasonic diffuser products into stores for December. So we think we've had a slowdown in sales in that subgroup of that product group as a result. I have to say that the consumables section, which is the high margin. And again, the diffuser margins are in the early 70s and consumables are in the high 70s. That subgroup of product stayed pretty high, and we're very pleased with the result of that. We think that internally, we gave a lot more space to core gifting. We've expanded our core gifting pre gift box product covering candle and homewares and indeed gift box, gift packs with diffuses. So we think we've seen a bit of an internal cannibalization because we invested heavily in brand-new packaging right across core gifting. We gave core gifting more shelf space, floor space for peak Christmas trade from late November into December. So the early data read on that is we may have seen a shift in demand from one part of our business to another. There's no real deterioration in trading margin between those subgroups, I should add to the rest of the business. For Candle, again, an accurate observation, we took price increases in late June to start the new financial year across our core candle segment and indeed, across some of the consumables but specific to Candle, I think what we're seeing in the lifting mix is a reflection of the relatively inelastic response from our customers to those price increases back in July when compared to the corresponding period for December trade the previous year. So that's the shift in mix with diffuser, a strong and sharp lift in gifting and levels of demand remaining pretty steady for candle notwithstanding the fact that we lifted price points on our core offer.

That's great. Just as an adjunct to that. In terms of the users category, if I remember correctly, on the consumables side of things, the refill rates were moving rapidly. They're about 14%, 15% when you last reported them. What are they now in terms of the consumables?

Yes, it's marginally high, Danny. We've seen a continued increase. When we've sold hundreds of thousands of diffusers over the last couple of years. And given the increased usage, people spending more time at home, even with people are slowly, really slowly returning to work. They're still -- a large element of work from home. So those consumable, that consumable growth as a total part of our business and as a mix even at Christmas time continues to grow. I don't have the exact number in front of me, but I know that it's heading north.

Great. And on online, you've done a great job in online in the last couple of years. I'm just thinking of it not from a growth perspective, but from a penetration perspective, you're currently just under 10%. How should we look at that in the medium term as you add, I don't know, 3, 4, 5 stores in New Zealand perhaps by the end of this year and the other new store openings, how should we look at online as a percentage of penetration? Can you get it to 15% in the near to medium term? Or is that more of a longer-term goal?

Look, we'll be having a digital presence in New Zealand ahead of opening stores ahead of Christmas, Danny. So yes, we'll be there with an online presence as a narrow -- as a preceding leading to opening stores before Christmas. In terms of the overall reach, we've said before that we'll always be a laggard there, not deliberately, but fragrance is a tactile purchase it does lend itself to recurring and replacement of the fragrance that our customer has as a favorite. It's just very hard to get trial for a new fragrance or indeed a fragrance delivery system like a diffuse or an oil burner or an essential oral nebulizer online. The customer needs typically to come in, have it explained to them by the team, purchase, and then we can look at the repurchase of consumables, online versus store visit. That said, we continue to grow I'd like to think that we'll be heading into those early double digits in teens. Danny, as we move through F '23 and beyond, we've certainly invested in the new platform. We've invested in expertise in the business, so we'd be looking for a reasonable return for that CapEx and OpEx investment.

Great. Maybe one final one, just on the gross margins there are up, which was pretty good. And as Kate pointed out, it was largely due to price being -- price increases being the main factor there. I suppose the question going forward is if diffusers were stronger given the higher gross margin? Can you maybe just talk about what gross margins would have perhaps looked like if diffusers category had been stronger, whether or not there was any COGS inflation across the board during the half? And maybe just that mix shift and how it's going to play out in terms of the gross margins going forward. I mean is 68% sustainable in the short to medium term? Or will we see a reversion back to lower levels?

So Dave, just a gentle pushback, our diffuser margins, 70% to 75%, we view them as pretty high. We don't have many products in our homeware section that get close to 70%. So having a decline or a mix shift in that period to gift didn't automatically lift our margin because, as I mentioned before, the gift margins and the diffuser margins are broadly in line with each other for that given the activity that we have. So there isn't data -- there's no -- there might be a correlation, but there's not a causation in terms of margin. And if we sold more diffusers, if I was selling more $100 transactions than $60 or $70 transactions, we'd have even better numbers for December. But look, your point is made that, that segment of product didn't post the same growth as it has in previous years, and I've offered a couple of explanation points to it. In terms of what the margin would be or is 68% sustainable. Yes. Look, let's remind ourselves that when most of our Christmas product arrived, that chunk that arrived towards the end we were paying 2 to 2.5x for a container for what we were paying the previous Christmas. So we think that the increased prices for core, washed the hand of the freight costs and we've promoted more lightly and for shorter periods of time to protect our margins. So you put all of those pieces together with some -- we've avoided any sharp COGS increases from our suppliers gives me -- gives Kate and I confidence that we'll be in the high 67% to 68%, we think it's sustainable. If we keep developing great products and we keep promoting it and positioning it well in Glow and explaining it to our Dusk Rewards members, we think we can hold those margins.

That's great. And is there a propensity to increase prices again this year?

I would like not to have to do that. Given our positioning in the market, it's pretty clear that we offer superior value to our customers. Dusk rewards members get 5% off when they buy full price or 10% off of their buying something on a promotion. I'm pretty comfortable where our margins are, Danny. Especially with the dollar now hovering above $70, all of that helps.

Your next question comes from [indiscernible], Private Investor.

Peter and Kate, congratulations on what was a commendable result in difficult circumstances. Clearly, it's been a difficult start to the second half with those 8 weeks. Now that 8 weeks represents about 30% of the time of the second half. But what percentage of the revenue, given that Mother's Day is in there, how significant is that 8 weeks in the overall half?

Peter, that's a data point that I don't carry around with me, but I would say if you were going to have a bad 6 or 7 or 8 weeks in the second half of the year. You pick the first 6, 7 or 8 weeks every year in and out. We have a pretty aggressive program, short but sharp aggressive program for Easter and Mother's Day to our second Christmas. We will do on Mother's Day, Saturday what we will do in 1.5 weeks of Jan and Feb. Yes, your observation -- I think where you're heading with your data points is absolutely correct. The biggest part of our business is by far kicking in, in April and May.

Great. Okay. I'm following up something I asked before, when the lockdowns happen, you actually let most of your staff go? And I'm curious now as to what proportion of those staff that you lost have actually returned to Dusk?

Okay. So I don't -- it's not entirely accurate to say we let them go. They were stood down.

Stood down. Yes, okay.

Yes. Yes. We had regular contact -- look, by the way, I've been sending a weekly Zoom out since 2014, which sounds terribly modern now, but it's something we've been doing here for 7 or 8 years, and we've ramped that up across the Eastern Seaboard and also into other states that continue to trade Queensland, WA as well. I'm delighted to report that we did not suffer any real losses of long-term team at all. The retail teams in Victoria the state manager area managers remain intact. In fact, we've just promoted another store manager up into the team. In New South Wales, we've promoted -- we've retained as well, and in the ACT, the same. Yes, there were team that left. But in terms of long-term pig-performing store managers or the retail leadership team in the S&C board. I think of the 15 or 16 in that team, 1 has left, and that was replaced pretty rapidly by an internal promotion. So all of the effort and the interest -- the effort culturally to stay in contact, not just e-mails, but phones and zooms, competitions, keeping the team engaged for that prolonged period of time, especially for the people in Victoria for whom this was a long journey for them over 2 years, which we did happily to stay in contact. I think it's paid off and we've got high retention across both of those markets.

Yes, it was Victoria, I was mainly concerned about. So that's great news if you've managed to retain all those key people.

Yes, we have.

Your next question comes from [indiscernible], Private Investor.

Peter, congratulations on the great results. I had just 2 questions. The result mentions that the ATB did increase, and it was discussed by the caller. How much of it was due to price increase? And the second question was regarding the membership program. So I see that you [ netted ] about 62% of total sales. How many of the Dusk Reward members are ordering online?

Okay. So first 1 first. I'd say the lifting transaction value from '20 to '21 was all driven by mix. The lift from 50% to 54% from -- the lift from 54% to 57%, '21 first half '22 would be a mix of the price increase and mentions the answers previous of having lighter and shorter promotional periods. So if we're offering more shallow offers for less periods of time, combined with some price increases in core product. Those will combine to generate that second lift. So that's what a -- from '20 to '22, it's a 14% lift in transaction value. first part mix, second part, mainly driven by promotional and price. And I think the second question about the proportion of Dusk Rewards members shopping online. It's underrepresented. Dusk Reward members overwhelmingly shop in store. I don't have that data point in front of me for the first half. I know it has grown, but I apologize, I don't have that data point in front of me now.

Your next question comes from Amy Wong, Private Investor.

Can you hear me all right?

Particularly well, Amy. Thank you.

Right. Great. Just 2 questions, please. Firstly, was New Zealand expansion. Previously, when we explored this, you did not find the market condition attractive enough. So what has changed on that front? Is the landlord becoming more friendly, the consumer interest increased in our category?

I mean I'd never characterize a relationship with the landlord as friendly, I wish. I think what's changed is the rentals. It's a combination of the sites we've been offered this time around, the rentals we've been offered this time around and the level of contribution for store fit-out. So you combine those 3 variables, with the fact that -- there's a well-known fact that we want to go to that market. We're a committed brand to head to that market. And also to clarity we were ready to go before on it at a couple of sites. But when the lockdown happened in New Zealand, it was a prudent decision by us not to proceed. Otherwise, we would have, quite frankly, we would have been caught by not being able to be in that market to operate with having signed leases. So it's more to do with better negotiations and quite frankly, a more open attitude from the New Zealand landlords, many of whom we deal with [indiscernible], but nowhere serious at now that we want to open up, which has allowed us to start signing leases for store openings before Christmas this year.

Great. That's clear. The second question is looking at the like-for-like comparison for half year 1 to financial year '20 and in the first 8 weeks. It comes to a CAGR on a like-for-like basis in the 12% to 14%. Should I understand this as if we keep the store numbers flat just based on superior offering of the product range, you can expect a similar level of year-on-year growth going forward?

It gets a bit tricky from here when we're looking at comp growth against Q3 last year, which was really the last of those really high comps risk could go up against Q3 last year was our 17th consecutive quarter of comp store growth and comp store gross margin dollar growth and it was the peak. So when we're looking at performances now, it's kind of deceptive because we're up against the absolute high -- the last of the inflated comps. As we move ahead, will be up against store closures. So comps will be meaningless and then we'll be looking at top line year-on-year. So our -- we look at a result of total like-for-likes in that period as being a pretty good result given the footfall, the sharp declines in footfall and the fact that we're trading with pretty healthy margins. So I think that underpins our strategy of rolling out new sites and Kate runs the property portfolio with our property manager. And we only do those deals, Amy, when they've got superior rentals contributions, which means our -- the return on the capital employed is generated well under 12 months. So I note that these are unusual numbers for us to be talking about negative comps. And we need to see them in the context of the comps we're up against. I mean online, for example, growing 2.8% doesn't sound that great, but when you realize it's 2.8% on 120, it kind of makes sense. So I hope that answers your question.

Just to clarify, like-for-like, that's taken out the store closure, isn't it?. So if I take a pre-COVID 2019 at a like-for-like previous comparable period compared to future period on that baseline, I should expect higher than what's shown in this half year and this first 8 weeks, isn't it?

If we're looking -- I may have misunderstood the question. If you're looking -- if you're asking whether it's sort of double-digit comps are sustainable. It would depend on the comp set it's up against in the previous year. And I'm not trying to evade the answer. I'd say the double-digit comps consistently would be a stretch to be candid against the history that we're up against now. Conversely, when we get into the first half of next year, when we did have store closures, but we did have a lot of stores open for call and collect and stores would do like a high point or a Penrith or an Eastland would do $500 or $800 a day when they normally do $3,000 or $4,000. Then the comps will be way ahead of 12%, but it's not a meaningful comparison even though it will be comp for comp. So hence, I'm setting the scene for the reporting of this business in all retail in the period ahead to be perfectly transparent with our investors. So would 12% be sustainable? Boy, I hope so, and we'll do everything we can to get there. But I think we need to keep coming back to the comp against what it was for the previous year, the trading pattern, and it's going to get choppy in the next 6 to 9 months as we come up against store closures, burst of activity before closures, burst of activity after and then the long sustained shutdowns in the first half of this financial year.

[Operator Instructions] Your next question comes from Glenn Wallace, Private Investor.

Hello, can you hear me?

Yes, Glenn. Loud and clear.

Yes. Peter. Look, acquisition, your acquisition strategy. It's -- you have 1 company. Are you looking at buying others, given the margins the [indiscernible]? And secondly, looking at the company you are buying, it is a wax and supplier to a lot of your competitors, how will you deal with that? And lastly, they saw lots of candle kits and lots of perfume and fragrance. Will you be using that on the previous call, [indiscernible] was asking about margins on diffusers?

Right. First things first, we'd always be looking -- always looking for the best way to utilize the balance sheet. And if there was an acquisition, we give it serious consideration. But at the moment, with the decision we've made and the acquisition, we continue to work through at the moment, we think that the best use of management's focus would be store rollout, store refurbishment, roll out into New Zealand of digital and our stores and the integration of that business into Dusk. We're a lean business. We're a flat business, costs are the enemy, costs lag revenue. So we'll be prudent before we go out and look at any other acquisitions that may divert management attention from the core business or from integrating the business that we've already spoken about. In terms of the -- of Aroma selling product to our competitors, they've been doing that for years. That's their business model. And they're -- when we say they're selling to competitors, they're selling to people who typically sell at markets, independent retail in very small regional shopping centers. There are some people that operate in the malls that we're in, but this is a smallish part of their business. So again, we'll be looking to leverage the success that they've had selling to as many customers as they can, and we'll be looking to help them do that into the future, but as well. And the third question. We think in terms of improved margin, look, we -- let me make the point again. We've not done full-volume trials. We've not done real life product development and running it through the -- any facility that business yet. It's our intention to do so and do it as quickly as is possible. But I can't sit here today and say that we've done it with the acquisition is not done, it's scheduled to complete and that's something that we'll be working on subject to the transaction occurring as scheduled.

Your next question comes from [indiscernible], Private Investor.

Congratulations on the result. My question relates to the store network. The 2 new stores scheduled for New South Wales this half seems to be into regional talents and 1 in the outer area Sydney and the tends to be a focus for the company. There are a couple of areas in the Sydney in our middle ring both South and North of the harbor, which Dusk had stores in the past that are now currently unrepresented. Do you feel that these areas are well represented online? Or do you feel that the population demographics along with higher store costs, not just to fly going back into these areas?

Look, they're not mutually exclusive. It's a really good question. The reasons we've liked Foster, and we like Richmond, northwestern Sydney, and we really like Dubbo, given the success we've had in Bathurst and Orange is that they're just great deals. Kate's done great deals. And we've been wanting to get into Dubbo and we knocked back an opportunity there about a year ago, but the numbers weren't right and the numbers are right now. So it's not that we've picked those regions over Metropolitan, it's just that they're better deals. In terms of Sydney Metro, we're in most of the centers we'd like to be in. We're not in, for example, if you're referring to Hirstfield, we're not in Chatswood because they are bad deals. It's not the demographic they're just bad deals. And if we did a deal there at what they want, you should be ringing me saying what the hell you're doing. So when it adds up, Kate will do it in a New York minute. When they don't, we'll walk away having done our best for the business. You mentioned Bankstown. Look, we're not in Bankstown or Roseland. And that's not by choice of demography or psychographics. It's just deals. If they add up, we'll do it. That's why we're going into it Gardens in Melbourne. Now we haven't been there, but that's a good deal. That's a great deal in a great center. That's why we've done Corio and while we've done Traralgon in regional Vic. And we're looking at other places. So again, just to summarize, your observation is correct, absolutely correct about where we're going. It's not that we prefer that over Metro. We're doing metros. It's just that the better deal gets done first.

Your next question comes from [indiscernible] with [indiscernible]

Congratulations on the results. I just have 2 questions. One is about the shares issued. The only, I think, mainly 60 million to 65 million, do you think that could be deterred from some of the larger fund management investing in the company being so illiquid? And yes, I'll get you there to that one first, if you could.

I don't -- I have to say I don't think so. I think it may -- I think what may be a holdback is that there's maybe 20 -- a bit over 20% around the board table and no one's keen on selling as we see the business as a really long-term investments. So that's probably not helping the liquidity or the amount of shares on offer in the market. But I do not want to be seen as drawing a causation between share price and the availability of shares. So I think there's just a whole lot of reasons at the moment that experts on the call who have been asking me questions will be better placed to comment. But no, I don't know whether there is a link between having 62 million shares on the market on any institutions being hesitant to buy in. I haven't had that raised with me in other forums.

Okay. Have you given any thought to doing a resource consolidation?

Well, it has not -- it is not in any sort of short-term plans given consideration for that I've been involved in. So no, I don't think that's something on the list in the short term.

Okay. Fair enough. Just one more question. I'm in Canberra, you have 3 stores in Canberra. I take it Canberra is a fairly good market?

Yes, high income, high disposable income. We're in 3 good centers in Canberra. Absolutely correct.

Have you given any thought to a store in the city?

Yes, I wouldn't rule out [indiscernible]. I wouldn't rule out [indiscernible] which is a little outside. Yes. We're active and it's without -- at the risk of repeating myself, if the deals make sense, we'll do it. And if they don't, we'll play a medium- to long-term game with the landlord.

Your next question comes from Jay Newman, Private Investor.

So looking at the revenue growth over the past couple of years, the sales and everything have been going quite well. In terms of when you're looking to expand into New Zealand and stuff, how reliance would you say those sort of expansions beyond Australia is to maintain that sort of level of growth? Or do you think there's still plenty of growth to be had within Australia without relying on those expansions into other areas?

Good question. We like to look at New Zealand. Hence, why we're looking to invest some capital and divert some management attention into launching there before, Christmas, notwithstanding the difficulties of not being able to get there until July, and we're opening stores nearly 8 weeks later. And we'll be doing that well while we open up another half dozen in the coming 6 to 9 months here in Australia. If a couple of years ago, someone had said we'd be sitting at 128 stores coming -- 132 stores coming into Mother's Day in 2022. I probably would have looked at them sideways. But the economics are changing, and it's more favorable for us. So I think rather than have a limit or a number target, we'll keep applying the research to catchments that are successful we're in now and look for mirror catchments in other places. So Bathurst is a recent opening. It's a pretty small catchment, but the store is performing very strongly because there are -- there's a small independent and 1 major when it comes to gifting when it comes to home fragrance. So that sort of market analysis and demography, combined with more realistic rentals and landlords keen to have us in the center give us a small scope to have a rollout of similar velocity of stores that we've had in the last -- in the recent past into the near to medium term in Australia that we can execute at the same time as New Zealand without diverting management attention away from execution.

Your next question comes from Aryan Norozi with Barrenjoey.

Sorry, just a quick follow-up, please. The -- obviously, right now, I mean, if you look at the consumer environment, sales per store is quite elevated on international travel, which is being diverted into the Australian economy. Consumers feel wealthy. When you're sort of placing -- doing decisions around new stores, what level of demand are you basing that on? Are you basing -- are you extrapolating current trends and sort of basing your store decisions on that? Or are you looking at sort of a more conservative sales per meter square of that store and opening [indiscernible] numbers? Just conscious of what the risk is in 12, 18 months time if demand normalizes. Do those stores that once were economically attractive become unviable?

Ari, when we're doing the pro formas on stores, we'll typically do them on a very conservative sales number to begin with. And if it passes our internal rates of return on those depressed sales numbers were now we're on a pretty good thing. The second part of the answer would be -- we don't just look at the last 12 or 18 months. We look at the average over the last several years of similar catchments. So we've opened stores like Nowra, Orange Bundaberg well before COVID-19 hit. So we've got a run rate in those regionals that we apply to the current and the future ones we're analyzing. That said, we're looking to execute in those stores to hang on to that level of demand that we're enjoying now, which is, again, 62% of our sales come from our loyalty program. It was early 50s a year ago -- sorry, early 50s 2 years ago, and now it's early 60s. So that competitive advantage of having Dusk rewards that -- because we're up against brands that are wholesale into Myer or David James or another retailer, they don't own that last yard. So the premise of your question is correct, but we take a prudent approach when we do the pro formas, we take an extended period back when we look at level of demand, but we're pretty clear right about what management's role here is, is to not pretend that the last 18 months where a blip in the tide is going to go out. It's what can we do to hang on to those gains in the medium to long term and use tools like Dusk Rewards and the fact that we're vertical and that we develop all of our own products to help us hang on to and grow those stores and get us back to comfortable growth.

Your next question comes from Tom Cameron, private investor.

Peter, can you hear me?

Yes, Tom. Loud and clear.

Very good. Just with the remaining 32 legacy stores yet to be converted to the new low 2 format. How quickly are they going to be converted? And what sort of performance we experienced from the stores that have had that conversion?

So we have, as Pete mentioned at the intro, we have 5 refurbs, which will all be done by the end of FY '22. So we typically see an elevation of sales of around 8% to 10% over that first year and that kind of continues on into year 2 and beyond.

Okay. So how quickly to the remaining stores?

It's -- I wish it were more straightforward that the honest -- the direct answer is we tend not to negotiate for refurbishments middle lease with the landlord that can sometimes place us at a disadvantage. And with the shutdowns, some of the rental abatements that was secured by Kate and our property manager came at an extension -- a short extension of existing leases. So we typically move with the landlord for refurbishments at the end of that cycle. So if we've got 25 legacy stores, and we're talking about getting 5 done in the second half. It's not a case of us saying, well, let's just do 10 a year and get them done. So with that said, to try and give you a target number, it's probably going to be over the next 2 to 3 years that we'd be looking to punch a really big hole in that legacy format. And I have to say that there could be some stores that will go past that if they're privately held and the landlord is simply not willing to pay for the refurb or to give a material contribution to the refurbishment into the Glow. I don't agree in to name specifics, but to give you a tangible example, Wagga, great regional store, but it's one of our 2 stores on the street. And we've been trying to get that store into the center now for a while, deal wasn't right, we didn't do it, deal done while it goes from not only being an old legacy format to a Glow store, but it gets put in the center right next to the entrance of BIG W right next to the major. So there's a reward for patients and diligence in negotiations. So that's the trade-off. It's -- we know that we do better with the Glow store, but that negotiation is critical to make sure we get the best return on shareholder capital. So there's a mixture of get it done fast but get it done at the right negotiation for medium- to long-term shareholder value creation, and that's where we're looking at.

Okay. And just one before I go is what you feel about how the category is growing overall and your market share?

I think the category is growing and -- I'm looking around the centers where we go in and the independent or the pharmacy or the beautician or the florist in those regional centers that sold diffusers or candles, doesn't do it anymore. So when you look in the centers with our comps, I think the category is growing. I think more people spending more time at home spending more money on their homes as a result and our store expansion. I think we're taking share, but I'm unable to give any exact number for you this afternoon, but I spent a lot of time in shopping centers, and I'm pretty comfortable where we're growing our share in a growing market.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. King for closing remarks.

Look, I'd like to thank everyone for getting on the call this afternoon. I'd like to thank everyone for their support in our business and assure all on the call that management's focus is grow sales, grow earnings and do so as rapidly as possible, notwithstanding some of the difficult conditions that we've been trading in. And I'd like to, at the close of the meeting, just publicly acknowledge the great work done by the Dusk team at the customer support office in Sydney, but especially in all of our stores across the country in some really difficult circumstances. They've done an exceptional job delivering first-class service and has been a big contributor to what we see as being a pretty strong result in the first half of '22, given the conditions that they were trading in. I'm immensely proud of each and every one of them. I think they're the best in the business. So thank you again for your support, and we look forward to presenting again to you at the end of F '22. Thank you very much.

Thank you.