Dusk Group Limited (DSK) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Dusk Group First Half FY '26 Results Call. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. I'd now like to welcome Vlad Yakubson, CEO, to begin the conference. Vlad, over to you.

Good morning, everyone, and thank you for joining us. My name is Vlad Yakubson, CEO of Dusk Group. I'm joined by our CFO, Gordon Squire. We appreciate your time today as we take you through our first half FY '26 results and the progress we're making on our strategic initiatives. The first half marked an important step in Dusk transformation. Over the past 2 years, we've refreshed our leadership, sharpened our product and price architecture and lifted execution across every channel. Those decisions are starting to realize in our current results. We delivered a record first half for total and online sales, and we did so with stronger operating execution and a cleaner, more resilient earnings profile. I'll start with the highlights and what's driving them. Then Gordon will take you through the financials in more detail. We'll finish with a trading update and our strategic priorities for the period ahead, and we'll then open it up for questions. Let me begin with the headline results on Slide 4. Total sales of $91.8 million is up 5.1% vs pcp as growth accelerated into November and December trade. Like-for-like sales increased 3.6% and online sales reached $8 million, up 16.5%, a particularly pleasing outcome giving recycling 68% growth in the first half of FY '25. Online penetration rose to 8.7% of sales, up from 7.9% vs pcp. Turning to profitability. Gross profit was $59.9 million, up 5.1% and gross margin improved to 65.2%, up 3 basis points on PCP. That result reflects both the strength of our assortment and price architecture in our product offering and a disciplined management of promotions as well as the execution of strategic gains, mainly in freight and logistics. We achieved this while transitioning Signature, which is our largest core product range. Underlying EBIT, which is unaudited pre-AASB 16 and excludes impairment, was $14.3 million, up 3.5%. CODB remained tightly controlled at 47.4% of sales, up 35 basis points higher vs pcp as we continue to channel investment into initiatives that meet our return thresholds. We ended the half with $35.8 million in cash and no debt. This was down from $38.5 million at the end of half, first half FY '25, mainly due to special dividend paid in the last 12 months. EPS was $0.161 per share, up from $0.153 per share. The Board has declared an interim dividend of $0.04 per share fully franked. Key drivers of our performance in the first half are shown on Slide 5. Firstly, we set a higher bar for sales capability with renewed training, a refined incentive structure and improved sales culture, and we saw the benefits in conversion, average transaction value and basket size. Second, product rejuvenation. Our Signature product range delivered double-digit growth since the refresh, and we continue to expand in our Bath & Body category, which is now 6.5% of our sales mix. Thirdly, the continued lift in customer base expansion, our investments in experience and CRM drove higher traffic, member conversion and repeat business. And lastly, the new, AfterGlow store format has proven to be successful with plans to further expand across the entire network. Turning to Slide 6. I'd like to spend a moment on, AfterGlow, our new store format. Since reopening West Lakes in July and Macarthur Square in September 2025, both locations have exceeded internal expectations. In the first half, these stores delivered like-for-like growth of 24% with ATV up 15% and units per transaction up 10%. In the peak trading period of November and December, our highest volume months, comparative sales averaged plus 19%. Equally important, the concept travels well across multiple formats. It's proven to be successful in a small format CBD site in Sydney's QVB, approximately 50 square meters in large formats at West Lakes in South Australia and Macarthur Square in New South Wales. And in December, we opened both medium and DFO store formats. The trial is now complete. We'll extend the AfterGlow store format across the portfolio and we'll undertake a series of mini refurbs to emulate the look and feel in suitable locations. That flexibility gives us more levers to enhance returns as we continue to optimize our store network. Turning to the sales composition on Slide 9. We saw broad-based momentum. Our Christmas and Halloween events benefit from stronger assortments and cleaner execution, both in-store and online. The refreshed Signature range rolled out across approximately 100 stores and delivered double-digit growth through peak. This was the most significant product update we've undertaken in many years. We reinforced Dusk's position as a gifting destination and Bath & Body continues to scale, now at 6.5% of sales versus 5% last year. We also ran 20 Pop Ups through peak trade, which lifted brand reach and performed in line with expectations. Turning to Slide 10. Online sales of $8 million set a new first half record, surpassing our previous peak of $7.7 million in the first half of FY '22. Online penetration of 8.7% is the second highest in our history. The key to the online performance was improved customer and checkout journeys, data-driven targeting and member-first content, which together lift to traffic, conversion and loyalty participation. That brings me to Dusk Rewards on Slide 11. At period end, we had 718,000 active members, a 9% increase vs pcp, effectively returning the program to growth. Member sales of $52 million, up 24% to represent 57% of the total sales mix, which is the highest result over the last 5 years. The progress here is the result of a consistent calendar of member-only events and exclusive offers, new product ranges designed to reach younger and male customers and a new CRM platform that is now personalizing experiences at a scale across our e-mail database. The impact is visible in our Average Transaction Value or ATV. Member ATV increased 9% to $61, our highest level since the first half of FY '22, as shown on Slide 12. Total ATV of $54 was up 8%, while non-member ATV rose 4% to $47, reflecting better store execution and improved product offering. We continue to strengthen our core product range, launching the Australian-Made Essence collection in February with further collections planned for the remaining second half of FY '26. The shift towards a deeper, more consistent core product architecture increases recurring sales and reduces our reliance on fashion-led volatility. At this point, I'll hand over to Gordon for the financial detail.

Thanks, Vlad, and good morning. Unless I note otherwise, the P&L figures I'll reference are on an underlying basis, which are unaudited pre-AASB 16 and excludes impairment. Starting from Slide 13. Total revenue was $91.8 million, up 5.1%, with momentum building as the half progressed, seeing stronger online member conversion and excellent sell-through in both core and Christmas product ranges. Gross profit was $59.9 million, up 5.1%. The gross profit rate of 65.2% was slightly ahead of last year. Within the margin, mainly the efficiencies gained in freight and logistics offsetting the headwinds within a highly competitive promo environment and the effect of the clearance of the old Signature range. Although the recent more favorable FX rates have not had such a material effect in the first half, we're starting to see a more meaningful effect leading into the second half FY '26. CODB was $43.6 million, up 5.9% vs pcp and includes the costs associated with 3 new stores opened late in the first half, 10 additional Pop Ups and the refreshed Signature core range changeover. We remain disciplined. Every project must have clear strict ROI hurdles before we commence any capital. Turning to Slide 14. Employment expenses as a percentage of sales reduced by 10 basis points, reflecting productivity gains and wage discipline. Occupancy costs rose consistent with the annual lease renewals and the additional store and Pop Ups footprint. Marketing spend declined by 8.5%, while sales increased by 5.1%, highlighting the effectiveness and efficiencies gained within each campaign and ROI-based approach. These drivers combined to deliver underlying EBIT of $14.3 million, up 3.5%. Turning to the balance sheet on Slide 15. We closed with $35.8 million in cash and no debt. Cash was $2.7 million lower than the prior period, reflecting the payment of the additional special dividend in the last 12 months. Inventory closed on $18.9 million, up $4.5 million vs pcp, as we opened 3 stores late in December and elected to hold full in-stocks of core product to support a stronger start to the second half. The strong financial position provides flexibility to support future growth opportunities, which is illustrated on Slide 18 and 19. In calendar '25, we paid $7.5 million in dividends to shareholders versus $4 million in calendar '24. The Board has declared an interim dividend of $0.04 per share, fully franked. Vlad, back to you for the trading update and outlook. Thanks, Gordon.

Turning to Slide 17. We've had a pleasing start to the second half. Over the first 6 weeks, total sales are up 17.8% vs pcp, mainly driven by improved stock availability across our core product range. We continue to innovate and revitalize our product range. Our refreshed Signature core range continues to deliver double-digit growth vs pcp and the recent launch of our first Australian-Made core collection has been well received by our customers. Our product mix will be increasingly weighted towards core ranges, reducing the reliance on fashion-led items and improving sales predictability. On the network, we closed 4 underperforming stores in the first 6 weeks and expect to close a further 3 in the second half. We also expect to open 2 new stores in the second half. These changes will likely lift overall productivity. On profitability, we expect gross margin to be in line with the prior period of the second half of FY '26. Momentum continues to build, supported by enhanced product, the performance of the new AfterGlow store format, improved marketing and in-store service. These improvements strengthen our position as a year-round gifting destination. Slide 18 and 19 shows our growth agenda across the Australian market and international. First, Customer And Brand Led growth. Broadening our core product offer and driving category extensions such as Bath & Body, complemented by best-in-class seasonal licensed collections and the relaunch of our loyalty program to deepen engagement late in calendar year of 2026. This will enhance Dusk brand relevance, expand our customer reach, drive higher repeat purchasing. Secondly, Productivity And Network Optimization will be key growth drivers, focusing on main areas of operational excellence with continued investment in training and development of our retail store teams, combined with logistics and supply chain initiatives that deliver sustainable efficiency gains. Property optimization includes the deployment of the, AfterGlow store format in commercially viable locations, closing underperforming sites and opening high-return sites. We're also piloting mini refurbs to efficiently scale the new, AfterGlow design as we move through the calendar year of 2026. These initiatives are expected to increase sales productivity per square meter, expand margins and improve return on invested capital. Within this context, we're scaling back our New Zealand operations, ensuring our resources are directed to areas delivering strongest returns. Finally, over the past 24 months, we have materially strengthened the foundations of the business across our leadership, product, store design, marketing, systems and operations. We're now seeing improvement momentum in trading performance, providing greater confidence in the sustainability of the reset. International expansion is an opportunity enabled by the successful rejuvenation of the Australian business. Our priority remains delivering consistent domestic earnings momentum and return improvement before testing the appeal of our retail offering in the selected international markets. Due diligence is underway. Before we move to questions, I want to recognize the support of our Board, our teams across stores, distribution and the support office. These results you've seen today are the result of sustained effort and disciplined execution. Operator, let's open the lines.

[Operator Instructions] And your first question comes from the line of Garth Francis of MST Marquee.

Could you just give some more color around the trading update, the positive 17.8%? Is there any callout in terms of categories, any products, any promotions in the period that are helping? And perhaps if you could just talk to state-by-state performance, that would also be helpful.

Yes, I'll take that question. Look, we're very pleased with the 17.8% sales growth we've seen in the first 6 weeks of the second half. I'll answer in a couple of parts. The promotional calendar is largely in line with the prior year in those first 6 weeks. What we've said is we've seen, last year, the biggest lesson was that we had a very successful Christmas trading period, and we felt our stock levels didn't recover almost till March by the time we got back into core product levels. We've taken that lesson on and we've executed well this time around with much better availability across our entire core range, not just the Signature range headed into January and February trade. I think that's been a really significant driver of those results. Secondly, there's continued demand, even some of our Christmas range that we've had. And that talks to the product strategy because a lot of our Christmas product wasn't designed with Christmas per se in mind. It was more a gifting item that could be used all year around, and that's translated to really positive sales in those first 6 weeks as well. To answer your question about what states, it's quite an even spread across states. I'd like to think we've, we've seen some momentum definitely around WA in Perth market that's been really strong for us. New South Wales continues to perform really well. But across the, call it, 17.8%, it's largely even across the states.

Okay. Terrific. And then if we can just turn to gross margins quickly. Obviously, a strong performance holding gross margins on last year, whilst clearing the old Signature range, a couple of tailwinds called out by Gordon. Can you just, the guidance then is a flat gross margin on the pcp. Is that because you've still got some product that clear and you're not seeing as much benefit from some of the other initiatives?

Yes. Thanks, Scott. So I think, I mean, just to call out again, I think freight and logistics was certainly one of the key drivers just to normalizing the margin vs pcp in the first half. Those, there's still a lot of efficiencies to come. We're still at the early stages. So in terms of Signature, a lot of the newness and fashion, we're hopeful that we can get to a good sell-through by the end of June. Those efficiency gains will largely offset anything we need to.

Okay. Terrific. And then just in terms of the member sales, that was a big uplift as a percentage of total sales. Can you just talk to the margin on those products and whether the loyalty program has been as part of the CRM update, changed somewhat in terms of how that promotional sale to the members works and whether or not that you're seeing an uplift in margin from that?

Yes. It's still in the early days, Garth. We replatformed sort of September, launched October, we're starting to see some really good gains coming from that, but it's still early days.

I'd also like to add that our members and the exclusive promotions that we tail to them are being really well received, and that's certainly driving a lot of interest and repeat purchases for our members to come back. What that new CRM platform is doing is just allowing us to target people in a more efficient manner, one, so it doesn't cost as much money to reach the right customer. But also it's, we're sending customers the information that they want to see. And again, we are at early stages of that. I actually think it will ramp up as we get into calendar year 2026.

And your next question comes from the line of Allan Franklin of Canaccord Genuity.

Good to see the numbers coming through and much improved December, January. Just intrigued, I guess, some of the December anecdotes. I know you've sort of talked through some of the sort of elements there, but maybe just reframe how you went with the Pop Ups stores, realistically, you're seeing a big shift to some of the sort of gifting elements. Any sort of negatives you can draw on or sort of improvements for next period around?

There's always improvements. We're pretty hard on ourselves despite no matter what the result is. Look, we've had a very good December, November, December trade, which we call peak trade. Pop Ups continue to be an opportunity for us just to broaden our width and making sure that the customers see the Dusk product, whether they're next to our store or on the opposite side of the center. So it's a really good opportunity for us to expose Dusk to capture a new customer and to showcase the range. We know the more people that purchased things in December, there is a greater opportunity for them to come back to us in the second half. So I think that's really important. But the success of December is really driven by a number of things. And one, you've got to call out the product. The way we've started to target different customer cohorts with different ranges of our Christmas range has been really successful over the last 2 years. We're doing things that we've never done before. We're doing advent calendars. We're testing price points of $129.99 to sell out, yet we're also doing novelty items of bag chimes that we're targeting the more younger cohort of a customer. So, I think that's really resonated really well. And most importantly, our product is fashionable and on trend. Secondly, to that, our store execution, our visual merchandising is vastly improved over the last 12 months from the prior Christmas period and will continue to improve as we head into Christmas of 2026. And we've called out in our report that we've really made a big laser focus on our sales team, making sure that the team not only executes well, but put customer first always, and we're really a customer-centric business. And I think what we've seen in the lift in the ATV and the basket size and the ability to communicate with the customer well has translated in these numbers.

And the only thing I'd add is the location is key in these Pop Ups. I think some of the learnings we've had 10 additional Pop Ups vs pcp, but it's 13 new locations. So we have trialed quite a few new locations, and we've had a lot of learnings from those. And I think this is the second consecutive year we were opening up quite a significant amount of Pop Ups, but there's really good learnings and really good growth levers there for next year. Would we do more? Sure. But I think the learnings are more find the right location and less cannibalization or minimal cannibalization with our current stores.

Just with, AfterGlow, which is obviously going well and related somewhat into the international expansion discussion. Is there a point in this year when you're contemplating to perhaps give us more sort of detail around that and potentially sort of a target for the number of stores to be rolled out with, AfterGlow over the period of time? Or do you think it will be more sort of fluid by way of as you execute through as you sort of step out some of these stores, you'll sort of report them in as and when required?

I mean I can probably talk about international and Gordon can talk about AfterGlow a bit. Look, I think we're, what we've basically said is we've looked at due diligence in the past. We're really with fresh eyes and fresh strategy and knowing that we've been able to underpin the business with good successful couple of years behind us. We're now really serious about doing due diligence, and it's in progress as we speak. It's early days to highlight any, which markets or which stores we're going to do. But certainly, we're looking at that as a growth lever, pending all the momentum and all the tactical and strategic initiatives that we have in the local market continues to be strong, but we're certainly making progress.

Just on the AfterGlow, Allan, I mean, there's clear results that this is a successful proven concept or store format, and we're certainly looking to roll them out further throughout the calendar year. I think we've noted approximately 7 that we can do, but we're also conscious of just sustainable profit growth. When you close these big doors, you're losing 4 to 5 weeks of sales and earnings and big earnings in terms of top doors. So I think it's a measured approach in the short term is probably what we're looking at.

Got you. And maybe any reflection on the change in mix and any sort of updates on that sort of category expansion? I know historically, you sort of touched on something to the extent of Bath & Body was 1% of sales and moved to something like 5% of sales. Is there any sort of meaningful conversation to have around some of that category stepping through? Or there has not been too much of a material change since that point?

Look, the material change, obviously, Bath & Body category continues to drive. And I think what's really important is 2 years ago, strategically, we said the business needed newness. And by way of bringing newness fashionability, it was the first and most obvious thing to do. We were behind in trend and our product design and aesthetic, both in fragrance and quality needed a rejuvenation. So we've done that. Make no mistake when we say we're going to improve the core mix and sway a little bit more towards core versus fashion. The fashionability and the frequency of drops in fashionability will continue, if not accelerate as we get into calendar year 2026 and 2027. What will happen though is we're buying that a lot more tied to now, and we're buying that to sell out more quicker. So what the customer will know that is you've got a limited amount of time to come to our stores and purchase the fashion. The other part that all these tests and learns that we've done over the last couple of years, it's really allowed us to understand what the customer wants to see from us every single day. And within that in mind, we've designed core ranges to be able to tailor into that. So it gives the customer the opportunity to buy their favorite fragrance or their favorite product all year round. Now a big part of that, again, is Bath & Body. The minute you have a wonderful cream that you like, you want to keep coming back on a monthly basis. The reason why we've got refills now is exactly that. So you don't have to come and buy the actual reed diffuser. You have to come and buy the refill pack every single month. And we'll do that with all different parts of the business, really thinking about frequency of purchase and how quickly we can get the customer back in.

And your next question comes from analyst, Mark Wade.

Just starting, looking at the big uplift you've got in the member sales, which was touched on by a prior question. You've seen a huge uplift in sales at the, AfterGlow couple of stores. Why isn't this having a bigger impact on the overall portfolio?

Yes. It's a good question. I mean, Mark, we've only obviously got a few after those stores. So that's not materially enough to have impact on the overall portfolio. As that expands over the next 12 months, 24 months, 36 months, we expect that will have a bigger influence, but we only opened 2 in the calendar. We've opened 5 in total, but 2 that are like-for-like. So you won't see that come through in the numbers in any material way.

So just give it time just to drive that awareness of the brand.

It's opening more AfterGlow stores, refurbishing when the lease renewal allows for that to happen. And we've also highlighted that we're looking at options to expedite that with the mini refurbs. And I think we're planning to test that in next, by the end of this half. And if that is commercially viable, we've got another avenue to roll, what we call 150-odd store fleet and to get it a lot more closer to the AfterGlow look and feel a lot more quicker. So that will also provide an accelerated sales growth.

Okay. And on the member side of things, how do you interpret that? So, like member sales up 24%, implied nonmember sales down 12% to get 5% overall sales growth. Is that just because the girls are doing a great job in store of just signing people up? Is that what that reflects? Or are you gaining some cohorts?

No, I think we're gaining cohorts, and we're cycling through different cohorts of members. I actually think our, it's, the sign-ups is not just because of the sales team. That's a multitude of things that goes into our brand. First and foremost, the product innovation has to appeal to a certain customer to be able to sign up. So I think that's really critical to that. Yes, there's a store execution and the wonderful VM and obviously, the wonderful team that we have in stores has to be able to explain the benefits of our membership program for them to sign up. But most importantly, the other lesson is sometimes it takes customers 2 to 3 times to get into our business, whether it's online, whether it's in stores, to test the product, to enjoy the product before they see value in signing up. But I actually think the fact that we've been able to grow memberships is again reassuring us that our customer believes in us long term. It's not a short-term purchase because they need the gift whether it be Halloween or Christmas. It's "hey, I'm actually going to use this membership over the next coming years", because our membership program is over 2 years. So I think it actually provides us good confidence that we're building something special.

Yes, I'm going to lead. Okay. Great. And just turning the international ambitions, how do I marry that up? You're talking about divisional expansion international calendar '27. How do I marry that up against what's happening in New Zealand where it looks like it's going to be killed?

Yes. Look, New Zealand for us is a really, really great lesson. As we said, we're planning to scale our operation there. For us, we continuously learn lessons. I think between Gordon and myself, we've brought a lot of experience into this business where we've been in a position to take the business internationally. But most importantly, the due diligence and everything that we've learned in New Zealand, that actually makes us sharper and makes us test things a lot more thoroughly. And we've proven over the last 2 years that we take a measured approach to everything. So I think if and when that time comes in calendar year 2027, we'll take a measured approach to that. I don't think it will be material in the beginning, but if it proves to be successful, it will become material in years to come. And I think that's really important for our business.

Okay. Okay. And last one, can the business be profitable materially in the second half of the fiscal year? Or is that just a little bit too hard?

Look, it's a great question. We're certainly between not only myself and Gordon, but the executive team and the wider team, we're actively focused on minimizing our losses in the second half. We know that historical the business has been around for 25 years, and that's the way we've sort of run the business. Now smoothing the curve is still one of our key strategic initiatives, but that takes years and years and years to, A, attract a new customer cohort, which is what we're trying to do, build a product range that the customer has to come back for in the second half and give them a reason to continue to build brand awareness through marketing, online and other social media platforms to be able to get the customer to come back and trust us for all gifting occasions, not just the big ones, but the sub events and even birthdays in the second half. But that's a work in progress. I don't expect that to happen this year. But do we see continuous improvement? Answer is yes.

Yes. It looks like you've got a great runway. And look, it was a super impressive result and $35 million of cash, obviously inflated a bit coming out of Christmas I mean it looks like the market cap is still very undermining. So good luck a little, especially if you can kind of minimize that loss in the second half and you're still making $10-plus millions of profit.

Your next question comes from the line of shareholder, Peter [Indiscernible]

The first one relates to the Cost Of Doing Business. The Cost Of Doing Business has actually gone up 5.9%, which is higher than the sales increase and the percentage has gone up about 30 bps. Where do you see that going in the second half of '26 and FY '27? Because I'd really like to see revenue growing faster than Cost Of Doing Business.

Peter, Gordon here. Yes, it's a good question. I think there were a lot of initiatives that we obviously undertook in the first half, doing a full tech stack. It wasn't just CRM; we did a full tech stack revamp. So, loyalty platform, CRM, customer CDP, et cetera. There was a lot of work in that and investment. And of course, the Signature changeover opening 10 Pop Ups stores and 3 new stores late in the year. I mean those are all accretive costs to the business and, of course, not growing the same percent as sales. But I think in terms of does that lead into the second half, we, our biggest productivity measure is just rationalizing these stores. We've alluded to closing 7 underperforming stores and opening 2 new stores. That's actually going to be earnings accretive. So there's certainly levers that's going to flow through to the second half that's going to improve productivity, not just across the store, but across the whole business.

Excellent. I mean this is obviously a very positive report and a positive outlook, which leaves me a little bit boozzled with a strong cash position and earnings per share of $0.16 in this half. Why the dividend has been cut. That to me is a, is not a signal of a company that's confident in the future. Normally, dividends are maintained. Is there some reason that dividend has been cut? And I'm talking from 5% to 4%, I'm not talking about the special dividend, which was very welcome last year.

Yes. That's a good question. There's 2 points to this. I'll start with the first point, just hand it over to Vlad. I think just going back the last 5 years in terms of the prospectus, the guidance on policy is payout ratio of 60% to 80% as well as almost evenly splitting the interim and final 50-50. So I think 4% is not $0.04, I should say, is not necessarily cut. It's just aligning to policy.

Yes. And I'd just like to add a little bit to the contrary. I think not only is $0.04 a strong dividend, but I also think what that signals and certainly from our end, we've really got a runway for growth levers. And what we're really starting to see with not only, AfterGlow stores, but the opportunities we highlighted on Page 18 and on Slide 18 and 19, with all the investment that we've got into the business, not only to continue to build the foundation, but to actually really think growth in not only 12 months, but 3 years for this business. I think it actually signals that we've got a growth runway and a really strong one ahead. So I think it's an opportunity for us to manage cash well.

Yes. That's fair enough. It's just for someone who doesn't know the company, it just doesn't look that good that the dividend has been cut. And just finally, as a shareholder since various companies since 1994, the international expansion side, I know you said you're going to do the great due diligence and everything. It scares me. New Zealand being a good example. I mean, I think the focus on trying to get that second half into profit, which is what you've been talking about, and I know it will take a while to do that. But for me as a shareholder, that's really, just a comment really. That's what I'd really like to see the focus on is, all of these things you're doing now and no distractions of overseas expansion.

I appreciate that. I think that's not only good feedback. But rest assured, as we said on actually Slide 18, a lot of our focus is on based on the Australian business model. That's where the growth has to continue to be material, the test and learn in an international market, if and when this is an option to us. But again, what you've seen from our new management team is that I don't want to say we're at risk averse, but we're certainly measured in our approach. So whatever we do, A, won't be a distraction and B, won't be a material impact on our bottom line in the short term. So I don't expect that to be a reason for concern because majority of the time, we are absolutely focused on getting the health and the commercial aspect of our Australian business being really successful.

And you have some follow-up questions from Garth Francis at MST Marquee.

Just a quick follow-up on the, AfterGlow. With the success of that and your comments on just some store closures, I'm assuming those would be the underperforming stores that will be the focus of that. But with, AfterGlow, does that potentially open up an opportunity to look into centers where a Dusk store may previously not have been opened? And does that provide you with some potential runway into the future?

Absolutely, Garth. There's, I think we've mentioned on a couple of times now, there's a huge opportunity in DFOs and CBD locations. We've opened up one city CBD store, QVB, and we've opened up, we actually opened up 2 DFOs in the first half, all 3 performing above internal expectations. So there's still, and they're all, AfterGlow concepts, by the way. So there's still significant opportunity in opening stores with the, AfterGlow concept. The, AfterGlow DFO in South Australia, Harbour Town that we opened is performing exceptionally well. It's actually, in fact, it's being Harbour Town in Queensland. And the, AfterGlow concept is a big part of that. So yes, there is significant runway for us.

Terrific. And then if I might, one more. Just on, you recently launched an Australian-Made product. Obviously, that has some implications on margin. Do you feel like that product will be margin accretive? And maybe, if you could just talk to your exposure to foreign sourcing as a percentage of your COGS?

Yes. Thanks. Well, we don't normally provide our exposure. We certainly do a lot of, we've got a lot of supply partners that are overseas. What we've tried to do by bringing Australian core range together is, one, mitigate a little bit of risk, but two, offer a product that we know our customers and our competitors have in the market, which is all Australian-Made range. In terms of margin, by the time we realize trading much, it will be largely in line with the rest of the business. And that being, we don't pay the freight to get it over here. So whatever we pay additional in making the product in the Australian market. We're probably saving efficiencies between the supply chain. So in terms of actual trading margin, it will be very, very similar to what we see with the rest of the range. And we're very pleased. It's very early on. It's been live for about just shy of 2 weeks. And we're very pleased with the results and how the customers resonated with it.

[Operator Instructions] And your next question comes from the line of Francis Brown of MST Financial.

Congratulations on a strong result. I just have one question. With online sales growing at 16.5% and recent 8.7% penetration, very impressive numbers. Could you just talk to the margin profile of those online sales compared to in-store?

Yes. So I mean online sales traditionally does trade at a low margin. It's not significantly lower than stores, but it certainly is lower. I think one of the key drivers there is just the actual offering online. You can carry double the width and the depth in SKUs online versus a store. So the customer has a wide variety between sale and full price product. And that's, as I said, there's not a significant delta between the 2.

And your next question comes from the line of Aaron Edwards of Alta Investment Management.

I've just jumped on, so sorry if this has already been covered. Just on Slide 5, you were mentioning a renewed or refined incentive scheme. I was just wondering what that encompasses and if there's any sort of incentive scheme for staff in the shops themselves.

Yes. Largely, actually, thanks for joining. Largely, it's relating to the store teams. And we've been trialing over the last 12 months, and we're still fine-tuning it and almost a commission-based sales program, and that goes right from our casualty members all the way through the retail chain, including some of our senior state managers in the business. On top of that, we did a really big incentive scheme for the entire business retail teams in December trade with specific targets about certain KPI measurables. So not only are we making a sales culture almost a mandatory for us where customers are absolutely top priority. You've got to stop, drop and serve a customer, but we're incentivizing that behavior, and we're seeing really promising results over the last, particularly over the last 6 months and certainly over the peak period of trade.

And your next question is a follow-up from shareholder, Peter [Indiscernible]

How much does the stronger Australian dollar help or into the business?

I mean, if you're talking about compared to the USD, of course, the stronger the Aussie dollar, the better for us. Look, as I noted in the script, the, in the first half, I mean, our hedging policy, the outlook is 12 months or so. So, we saw sort of some sort of gains in the first half, but quite minimal. But we're certainly seeing gains flowing through to the second half.

Right. Okay. And on the consumers, clearly, we've had this fantastic start to the second half. Has there been any change since the interest rate was announced that the interest rates going up? Have you noticed any drop off immediately after that?

Look, our first 6 weeks has obviously been very promising and although the interest come at the back end of that. We certainly talk about what we can control in this business. That's not something we can control. We're really focused on our price architecture, having the value proposition right all year round. And we do control that with the tactical promotional activity that we have. And most importantly, we've got entry price points now that allow us to be an affordable luxury all year round. So, I think we're doing everything we can to make sure that our customers see value all year long, not just when interest rates are higher or lower or everything we can do. But of course, we're a discretionary spend, and we know that. So, but we'll continue to stay close to the ground, listen to what our customers are telling us every single week with what they purchase and how they purchase, and we'll react accordingly.

And this does conclude our Q&A session for today. I will turn the call back over to Vlad for closing remarks.

Thank you for your time today. We'd like to thank all of our customers for their ongoing support. First half FY '26 demonstrates that Dusk is a more customer-centric and more scalable business model. We're innovative on trend and affordable products through a stronger omnichannel experience, and we're doing it with great discipline. We're confident in the opportunities ahead and our path to building Dusk as the leading destination for home fragrance. Thank you.

This concludes today's conference call. Thank you all for joining us. You may now disconnect.