Dusk Group Limited (DSK) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Dusk Group Limited FY '26 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Vlad Yakubson, CEO and Managing Director. Please go ahead.

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 FY '26 results. FY '26 was a milestone year for Dusk and a clear demonstration that the strategic changes implemented since FY '24 are delivering sustainable results. Over the past 2 years, we have transformed the business through product rejuvenation, brand elevation, operational discipline and stronger execution. The result is a more resilient, more productive and more predictable business with multiple growth avenues ahead. Importantly, this growth has not been driven by a single initiative or cyclical event. It has been broad-based across our stores, online, loyalty, category expansion and customer acquisition, providing us with confidence that the business is now positioned for sustainable long-term growth. I'll start with the highlights and what's driving them, then Gordon will take us through the financials in more detail. We'll finish with the trading update and our strategic priorities for the year ahead, and then we'll open up the lines for questions. Let me begin with the headline results on Slide 4. Total sales set a new record of $148.9 million, up 8.4% year-on-year on a stat basis as growth accelerated in the second half. Like-for-like sales increased 7.8% with store like-for-likes up 6.4%. Online sales of $12.7 million were also the highest in the company's history, up 16.9%, an impressive result given we're cycling 50% year-on-year growth in FY '25. Online penetration rose to 8.5% of sales, up from 7.9% in the prior year. Turning to profitability. Gross profit was $96.2 million, up 10.1% on a stack basis, and gross margins improved to 64.6%, up 100 basis points year-on-year on a stack basis. This outcome was pleasing in a highly competitive market with the impact of the Signature transition more than offset by targeted promotional activity, freight and logistics efficiencies and FX tailwinds in the second half of FY '26. Underlying EBIT, which is unaudited and excludes adjustments to Slide '20, was $8.9 million, up 15.6% year-on-year. Underlying net profit after tax was $6.6 million, an increase of 7.6%. Dusk ended the year with $18.3 million in cash and no debt. This was lower than the $20.2 million at 30th of June 2025, reflecting increased investment in inventory and other growth initiatives. While we remain debt-free, it's important to recognize that our cash balance supports working capital throughout the year to fund inventory, seasonal trading events and operational requirements. Underlying EPS was $0.106 per share, up from $0.099 per share. The Board has declared a final dividend of $0.016 per share fully franked, bringing total dividends for FY '26 to $0.056 per share. The final dividend reflects the Board's prudent approach to cash management given the current macro environment that ACCC federal court proceedings while maintaining flexibility for growth initiatives. The key drivers of our operational performance are shown on Slide 5. Turning to product rejuvenation. 2 years ago, a significant proportion of sales were concentrated in seasonal and fashion-led categories. Today, our mix is increasingly weighted towards replenishable core ranges that provide greater earnings visibility, stronger stock productivity and improved customer retention. This shift is a fundamental driver of improved quality and sustainability of our earnings profile. The refresh of our Signature collection, our largest core range and most significant product update in many years, was well received by new and existing customers, delivering double-digit sales growth. In the second half, we launched Essence, our first Australian-Made core offering alongside the extension of our Allstroke product collection. We continue to provide our customers with new and innovative product through impactful brand collaborations and category extensions that broaden the customer base and led to a record Christmas and Halloween trading. With the mix now weigh towards core product, our approach to fashion has also changed. Drops are bought to sell up more quickly, creating urgency through a limited purchase window. This change was reflected in our approach to brand collaborations with 5 launched in FY '26 compared to 2 the year before, contributing to our overall sales growth. We continue to invest in our team and technology to optimize the omnichannel experience and enhance execution in stores and online. Sales productivity gains were achieved across the portfolio as we exited underperforming stores, upgraded visual merchandising and reset the sales culture. The launch of our new store concept, AfterGlow, performed ahead of expectations. Online delivered another strong result as investment in site usability, digital marketing and curated content lifted brand awareness and drove growth in both traffic and conversion. We further enhanced our loyalty program, ending the year with a new record for rewards membership and our second highest results for member sales. This reflected the implementation of our new CRM capability and member exclusive engagement strategy. This remains a work in progress with the mechanics of the loyalty program set for a full revamp in the second half of FY '27. The strong growth in average transaction value or ATV to $52 overall and $60 for members was driven by a wider price architecture, broader assortment and improved in-store upselling capability. Finally, we completed a successful transition to a new warehouse, an important milestone for the business, which Gordon will cover in more detail. This will provide improved capacity, automation, accuracy and stronger inventory management. Turning to Slide 6. We continue to optimize our store network as we focus on improving the productivity and return profile of every location within the portfolio. At the end of FY '26, we had 144 stores, including 2 online stores as we exited 12 underperforming stores, rolled out the new AfterGlow concept and repositioned stores within centers in line with our evolution to a lifestyle brand. This delivered significant productivity gains with sales per store increasing by 8% year-on-year and gross margin return on meter for GMROM up 4%. GMROM is a critical measure of store and space productivity, driving the optimization of layouts and product ranges. These improvements contributed to underlying EBIT growth and will reduce operational costs moving forward. The new AfterGlow concept was rolled out to 7 stores in FY '26, delivering 22% growth in like-for-like sales at the Westlake and Macarthur stores. Our priorities for the year ahead include the rollout of 10 new or refurbished AfterGlow stores alongside trialing mini refurbishments. We expect to increase the pop-up footprint in the peak Christmas trading period. Turning to the sales composition on Slide 8. Total sales of $148.9 million were the highest result in the company's history. Sales momentum increased across the year with total sales up 14.3% in the second half on the prior corresponding period for PCP, driven by the successful launch of our first Valentine's Day product range, expansion of our core product offering and improved in-stock availability of our best-selling lines. We achieved our best Mother's Day trading result in 3 years and delivered innovative products across Bath & Body, packs, home decor and plain free categories. Bath & Body category grew to represent 6.4% of the sales mix, up from 5.3% in FY '25 and 1% in FY '24. This category attracts a younger customer cohort and offers an accessible entry to the brand. Importantly, it also drives repeat purchasing and recurring sales. We operated 24 pop-ups across the year, which lifted brand reach and performed above expectations. Turning to Slide 9. Over the past 2 years, online has been repositioned as a key growth channel with record sales delivered in FY '26. Online sales of $4.7 million was 76% higher than FY '24 as enhanced customer and checkout journeys, data-driven targeting and member-first content lead to traffic, conversion and loyalty participation. That brings me to Dusk Rewards on Slide 10. At the end of FY '26, Dusk Rewards had a record 768,000 members with member purchases accounting for 59% of total sales. Active members grew 18% year-on-year as the implementation of a new CRM platform in October 2025 enabled more personalized engagement with the customer base, supporting both acquisition and retention strategies. Member sales of $88 million were up 13% on PCP, driven by exclusive offers and member-only events. We plan to go live with a refreshed loyalty program in the second half of FY '27, positioning us for further sustainable member growth. The impact of strategic initiatives undertaken since FY '24 were also visible in ATV. Member ATV increased 9% to $60, the highest level since FY '22, as shown on Slide 11. Total ATV of $52 increased by 8% with basket size growth more than offsetting the shift into lower-priced categories such as Bath & Body and personal care. Our disciplined price architecture also provides lower entry points price points alongside premium lines, underpinned by ongoing product innovation. Non-member ATV rose by 5% to $44, reflecting better store execution and improved product offering. At this point, I'll hand over to Gordon to cover 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 and exclude the adjustments per Slide 20 as part of the appendix. Starting from Slide 12. Total revenue was $148.9 million, up 8.4% on a stack basis, a company record, seeing stronger in-store and online conversion with excellent sell-through in both core and seasonal event ranges. Gross profit was $96.2 million, up 10.1% on a stack basis. Gross profit rate of 64.6% was 100 basis points ahead of last year on a stack basis. This reflected ongoing freight and logistics efficiencies. FX tailwinds in the second half largely offset the impact of the Signature range transition. CODB was $83.2 million, up 9.3% versus PCP. This included costs associated with 5 new stores, 24 pop-ups throughout the period, 12 store closures, including 2 in New Zealand and a signature range changeover. During FY '26, we successfully completed a major end-to-end transformation of our logistics network, including the transition to a new international freight forwarding partner, new warehousing providers and an optimized domestic transport network. The transition was executed without material disruption to customers or stores and has strengthened the scalability, visibility and resilience of our supply chain. The new model positions the business to support future growth through improved service levels, enhanced operational capability and a more efficient logistics platform. We accrued an additional $0.9 million in bonus expense in line with the stronger underlying results per the rem report in the same accounts. We reinvested in team in order to upskill and fill key strategic gaps needed for future growth. We moved our head office to a new location in order to further enhance our capabilities, improve high skilled recruitment all with minimal cost to our P&L and cash flow. Our approach to capital allocation remains highly disciplined. Every investment is assessed against strict return thresholds and must demonstrate a clear path to shareholder value creation. This methodology will underpin all future store openings, technology investments and any international expansion opportunities. Underlying EBIT of $8.9 million was up 15.6% versus PCP and has grown at a CAGR of 20% over the last 2 years. Slide 13 shows the increase in CODB of $7.1 million, including $3.1 million of strategic reinvestment back into the business to drive long-term shareholder value. Excluding these, ongoing inflationary operating cost growth for the period was 5.2%, which is largely driven by mandatory wage and lease cost increases. Turning to the balance sheet on Slide 14. We closed on $18.3 million in cash and no debt. Cash was $1.9 million low versus the end of FY '25, mainly due to the deliberate investment in inventory. Inventory closed on $21.2 million, up $3.9 million versus PCP, reflecting the decision to hold higher stock levels aligned to our growth and brand rejuvenation strategy. This supports an increased cadence of newness and broader core range availability to drive customer acquisition and strengthen sales performance across both channels. The company continued its disciplined approach to capital management during FY '26 with the Board declaring a final dividend of $0.016 per share fully franked. This strong financial position provides flexibility to support future growth opportunities, which are outlined later in the presentation. Vlad, back to you for the trading update and outlook.

Thanks, Gordon. Turning to Slide 16. The business enters FY '27 with positive momentum. Core product sales continue to strengthen. Inventory is well positioned to capitalize on a repeat customer. Customer engagement remains high and the strategic investments made over the past 2 years are beginning to deliver increasing operating leverage across the business. We've had a pleasing start to Q1 FY '27 trade with comparable sales growth of 5.4%, supported by improved stock availability across key core ranges versus PCP. Our Signature collection continues to resonate strongly with customers as sales are increasingly weighted towards core product offerings. This shift supports improved sales predictability, reduces reliance on fashion-led categories and enhances operational efficiency. We're also seeing improvement in trading margin and the sale of new innovating fashion product at full price. Gross margin dollars were up 8.7% for the first 7 weeks of FY '27. In 1H FY '27, we expect to open 2 new stores and close 3 stores as part of our ongoing network optimization strategy with continued focus on improving store productivity and portfolio returns. We expect in the first half of FY '27 gross margin to be above PCP, reflecting improved inventory management, a greater mix of core products and ongoing sourcing benefits. Product innovation remains a key focus with strong pipeline planned for FY '27. We're excited about the upcoming brand collaborations and expanded Halloween collection, continued investment in our core fragrance, home decor and gifting ranges, all designed to deepen customer engagement and support long-term growth. Preparations for the important Halloween and Christmas trading periods are well advanced with inventory, marketing and operational plans in place across the business. Slide 17 and 18 shows the growth agenda for the Australian market and international. Turning to Slide 17. Dusk is well positioned with clear operational priorities. Firstly, we will continue to drive customer and brand-led growth, expanding our customer cohort by brand collaborations, a new youth brand and a core Unisex range to be launched in the second quarter of FY '27. We will further broaden our core product offer and drive category extensions such as Bath & Body, which we expect to represent 10% of sales within 2 years. This will be accompanied by the revitalization of our loyalty program in the second half of FY '27, increasing purchase frequency, basket size and customer lifetime value. Second, productivity and network optimization will be an ongoing focus, driving higher sales productivity per square meter, expanding margins and improving the return on invested capital. Operational excellence with continued investment in training capability, combined with enhanced visual merchandising, point of sale and store navigation. Property optimization will include the deployment of the AfterGlow store format and reallocating capital to high-return opportunities. Turning to Slide 18. The FY '26 result demonstrates that over the past 2 years, we have materially strengthened the foundations of the business. We have refreshed the product proposition, modernized the brand, upgraded our store format, invested in our people, enhanced our operational capability and improved financial performance. Having rebuilt these foundations, we're now in a position to explore the next phase of growth through a disciplined international expansion strategy. Over the past 12 months, we have assessed a number of potential markets and entry models. Following extensive research and due diligence, South Africa has emerged as the most compelling opportunity. We believe South Africa offers a unique combination of attractive retail fundamentals, strong shopping center infrastructure, favorable demographics and a proven track record of success for Australian specialty retail brands. Importantly, the economics of entry are significantly more attractive than many traditional international expansion markets. Establishment costs are lower, occupancy economics are more favorable and the potential returns on invested capital are attractive. Our approach will be disciplined and consistent with how we manage the Australian business. We are not pursuing a large-scale rollout. Instead, we intend to undertake a structured test and learn program comprising approximately 3 to 5 AfterGlow stores. This approach allows us to validate product market fit, customer acceptance, operational capability, supply chain requirements and store economics while limiting capital exposure and execution risk. We view this as an attractive option for future growth. It allows us to leverage the work already completed in Australia, including our proprietary product development, sourcing capability, loyalty expertise and our AfterGlow store format into a larger addressable market opportunity. International expansion will not come at the expense of the Australian business. Our domestic business remains our priority and our international plans are designed to complement not distract from ongoing growth opportunities in our core market. Before we move to questions, I'd like to briefly address the ACCC proceedings. On 22nd of July 2026, Dusk notified the ASX that the ACCC has commenced proceeding in the federal court in relation to alleged contraventions concerning products sold between calendar 2023 and 2024 containing batteries. Dusk takes product safety very seriously and is committed to maintaining the highest standards of regulatory compliance. As the matter is now before the Federal Court, I'm sure you'll all appreciate that I'm unable to respond to any questions on this matter at this time. Thank you. If you wish to ask a question, please.

[Operator Instructions] Your first question comes from Garth Francis with MST Marquee.

Congratulations on the results. I just wanted to delve into the second half like-for-likes. It looks like those were double digit across both stores and the company. You called out a couple of sales events that helped that and the new Signature range. Could you maybe go into a little bit more detail as to what are the factors have been a driver behind that?

Sure. Thank you. It is a very pleasing result, up over 14% in sales in the second half. We've always said outside of making sure that we are made for moments and we make the big seasonal events, the anchor of this business, we aim to improve the second half. and the overall fluctuations of the business and sales by the month, there is no doubt that a product-led -- the Signature relaunch has supported that sales growth, as we said, in a more consistent customer basis throughout the 6 months period. The first trial of a Valentine's Day collection continued that momentum between January and February and staying in stock of those core lines, which we've invested in. We've strategically invested in stock to make sure we can fulfill a sale, both omnichannel, both digitally and in stores has supported that. When you take all that into account with our balanced view on promotional activity and exclusive member offers that we continue to operate under, that's really been able to not only excite our members and our current customers, but attract new customers to the business.

And then just in the trading update, just given your -- as you said, the benefit in the second half was partially because there were a new seasonal campaign. Is that a decent run rate for us to then think of for FY '27 in your view?

Look, without commenting on the future run rate, all I can say is we're very pleased with the start, and it's certainly continued all the way from 2H into the first 7 weeks of FY '27. What we're seeing is actually our strategic initiatives with property optimization and what we're doing with our store teams and investments into that really come to life. The trading update clearly shows with less stores, we're delivering much better gross margin dollars. So the productivity per store in sales and EBIT down the track is lucrative and certainly started in a positive way.

And then just on gross margin, probably one for Gordon. The increase in the second half of more than 200 basis points in gross margin, you've called out FX being a tailwind. And how much you have the drag from the clearing of the old Signature range, the new product coming in at a higher gross margin. Was that flat or neutral against one another and then all the benefit is gross margin? Or are there other aspects there that we need to consider, and I guess that shapes your commentary around a positive 1H '27. I assume then just do we then assume a similar SKU historically for first half '27 and second half '27 as we look into the full year?

Thanks for the question. Yes, I think probably the first thing I'd like to say is the tactical promotions is still, by and large, the biggest effect on our gross margin and gross profit rates. I think the team did an amazing job with the execution with the member-only offers and has actually reduced the depth of the promotions across the half, which is really positive. And that's also flowed through into the trading update. As you said, I mean, FX tailwinds, we can't shy away from the last 6 to 9 months has been really positive in terms of hedging, and that's certainly flowing through. Bookings at the high 60s, low 70s is really strong for a business like us that mostly imports from Southeast Asia. And I think the Signature range is an interesting one. I think we -- with the success of the range, we actually accelerated it to source quicker. We started the half with 30 to 40 stores without the new range, but we accelerated that really quickly. So the changeover happened probably sooner than we initially thought, which is a really positive thing. And that obviously just drives stronger margins throughout the business, new range, full price, less promotions on a big range like that. So I think -- and then the last part is obviously the logistical piece. We can't shy away from -- we had a really, really successful transition to a new distribution network. Our local transport carrier is far more efficient. We spoke about it at the half, and it's really flowed through nicely for us in the second half. So I think that's -- ultimately that's evident in the current gross margin trading, which is higher than comps.

[Operator Instructions] Your next question comes from the line of Garth Francis with MST Marquee.

Just in terms of the international expansion, you mentioned just the lower operating costs. How are you planning on testing those 3 to 5 stores? Is that going to be a geographically centered rollout? Or are you going to do a national rollout and test different regions? And then you mentioned that the test and learn part, you will be seeing how the supply chain aspect of that rollout works. When do you commit to a DC or a 3PL system in South Africa? And when should we expect to see those costs start to roll through?

Yes. I'll answer the first part, and I'll hand over to Gordon. Strategically, we're -- the lessons learned not only out of New Zealand, but our experience in the new leadership team is we want to concentrate most likely around 1 city, at most 2 cities with a test pilot of 3 to 5 stores. On top of that, we've absolutely done due diligence with local expertise across both retail, across operations, across freight, logistics and so forth, which I'll let Gordon talk in more detail. But we think this is a highly lucrative market for us. And with everything that we've seen we believe our product fit our unique proposition being the leader in home fragrance would really position us well in that market. I'll let Gordon talk to operationally and the logistics part of it as well.

Yes, I think just on your first question in terms of operational cost and flow through, I mean we've done thorough due diligence with -- and of course, that's why we have Board support and evident in the strategy that we're talking through today. I think the timing is obviously we intend to enter in FY -- sorry, in calendar '27. The timing of those costs, we don't know at the moment. If you would imagine in terms of operationally, we're not going to be setting out buying warehouse at this stage. We certainly will work with a partner to support us in calendar '27. There are -- there's no material costs that have come through as of yet, of course. I would believe in the next trading up -- sorry, in the Feb announcements, would probably provide more color. And in terms of the -- I think the cost of entry is really enticing. I think I touched on it in his speech. Entering South Africa is at a far reduced cost versus entering other Western markets and also operational costs. The leverage you get with your CODB is quite superior in the Western world. So taking all that into account, we don't really have further color on the timing.

And just in terms of the cost to set up, should we expect to see some significant items? Or how are you planning on just or that you call those out as one-offs? Or how is the accounting going to work with?

Yes. I think -- I mean, the way to frame it is with the entry to New Zealand, there were setup costs that were add backs. So if you roll back 3, 4 years and then the that account, you could expect a similar treatment for South Africa. But I would imagine, as I said, the cost of entry is far lower per capita versus the Western world. So at this stage, it would be safe to say not to assume any material costs.

And then maybe just one on loyalty. I appreciate that you're about to second half of the year, restructured the loyalty program, but the member numbers were up quite double digit, but the loyalty revenue was flat. Was that -- just that change in terms of pricing for the membership base? Or is that just a result of the timing of when those members joined?

No. I'll answer that one. The joining fee has not changed in the current program. Obviously, depending on what promotions we operate. And as we continue to test and learn for the second half on ensuring our promotions are member exclusive, that has some influence on the overall sales. But -- and that's been a key driver and a key lever for us, making sure that the members do feel valued and that they do get a special offer every time and normally ahead of a new customer walking in, so there will get a lot of -- whether it's 24 hours, 48 hours before that they will get the offer exclusively to them. And as part of the CRM launch, not everyone gets the same e-mail anymore. So a certain member might get an e-mail to do with one category or a product and someone else will get another also at different times of the day. That's the capability we've got now. That heavily influences the result and ensuring we not only motivate the current members to stay with us longer, but attract new members to the program. So I think that's been the success of our second half and overall FY '26 to get the member numbers to a record high, eclipsing even the COVID highs of FY '21 and FY '22 numbers. That's been really positively received. In 2H FY '27, we're talking about a revamp of the mechanics of the program. So whether it stays member exclusive, that's most likely going to continue, but it's the mechanics that we're playing with to make sure that we've got a sustainable model that really focuses on the lifetime value of our customer and retention, most importantly, long term.

And sorry, just to touch on the loyalty revenue. So if you're referring to the stat loyalty. Yes, it is flat, just in line with a 2-year deferral, right? So under IFRS 15, the revenue is recognized over 2 years and not initially. So there would be -- there is a bit of a lag. But if you look at the sign-ups, the immense sign-ups that have occurred, I mean, members from 653 in FY '25 to 768 in FY '26 imagine there would be a flow-through in the next 12 to 24 months of that royalty revenue.

It's a timing issue. And then just on the CapEx, your CapEx spend was tightly managed given the store fit-outs and new stores. How should we think about that looking forward given you've now got an international expansion and you're talking about doing a few more stores and ramping up the math?

Yes, it's circa 10% up year-on-year. I think it depends on the timing of Ag. We -- there was a bit of test and learn in 1H. We had West Lakes and Macarthur and then we had 2 late in December. So again, a bit of a timing delay, but we certainly ramped that up in the second half. So if we -- it's all tied to Ag. So we're thinking 10-plus stores each financial year. The CapEx investment will start ramping up. But again, I don't think it would be to a material nature.

Your next question comes from the line of [indiscernible] with Cowen Consulting.

Can you hear me?

Yes.

Yes. We've been investors for a while. Look, we've followed you since you're in Perth a long time ago and you used to make all your products in Australia and then you move to China. Is that correct?

We certainly have not moved all our products to China, and we've -- over the last 2 years, started manufacturing even including our core ranges in Australia.

Yes. My question is should we be looking at more Australian content given we're now moving into South Africa?

It's a good question.

Brand Australia, Australian pure products.