JB Hi-Fi Limited (JBH) Earnings Call Transcript & Summary

Thank you. Good morning, everyone. And as always, thanks for your interest in the business. And as per the standard format, we'll talk through the presentation, and then allow time for questions at the end. I'll start now by turning to Page 4, which is our Group Model. Many of you are going to be familiar with this slide. So just to highlight some of the components as I see. And we've got our 2 iconic brands with their distinct brand personalities, their different category leadership focus for JB. It's technology and consumer electronics. For The Good Guys, it's home appliances and consumer electronics. The brands have different target customer groups, which gives us and our suppliers access to and appeal to a wide and diverse customer mix. The JB Hi-Fi, it's a young tech-savvy consumer but also a broader appeal to those who are early adopters of new or evolving technology. Many of these tech and CE products are seen as staples in people's lives nowadays. For The Good Guys, it's family and homemakers, with significant appeal to the replacer customer and first-time homemaker. Both businesses have a common value proposition of big brands at low prices, combined with a customer-centric approach, which is provided by a passionate and knowledgeable staff. All of this combined highlights the strength and the benefits of the model, which are especially relevant in a more challenging retail environment that we are potentially facing into. All of this is supported through our combined group functions, helping us to leverage the scale of the brands and then further underpinned by our 4 key competitive advantages, which I will detail on the following page. So on to Page 5. We've summarized our key competitive advantages here. Firstly, scale. I guess, the key bit here is our ability to leverage our #1 market position and the scale that gives us to drive best value for our customers. We are the #1 player in the Australian consumer electronics and home appliance market with local and global relevance to suppliers. We have a strong and engaged relationship with these suppliers. Large and engaged -- a large, engaged and diversified customer base across 2 brands provide suppliers with the ability to execute promotions and new product launches at scale. Our younger customer base drives ongoing brand imports to suppliers to maximize new technology and innovation launches, and high-volume website traffic provides significant marketing opportunities and reach. Our second competitive advantage is our low-cost operating model. Key benefit here is keeping costs low, also assist us in driving even further value for our customers and constant focus on productivity and minimizing unnecessary expenditure, high productive floor space with high sales per square meter. And the efficiency of the model allows us to respond to market price activity and maintain focus on market share and also to compete effectively with traditional competitors and new market entrants. Third competitive advantage there is our multichannel capability. Now the key benefit here is we are accessible wherever or however a customer wants to shop with us, vastly expanding our reach, convenience and appeal to shoppers. Here, we focus on providing the customer with an integrated and frictionless shopping experience, regardless of their chosen sales channel. We give a customer choice in how they wish to shop in-store, online, over the phone, even live chat. We have fast fulfillment by in-store shopping, Click & Collect or delivery from our store network or HTCs. And the fourth one is our people and culture. And I guess the key benefit here is our team's ability to quickly and easily adapt to a changing retail environment as we have done many times before. We have knowledgeable and passionate team who put customers first and provide exceptional customer service. Dynamic and flexible environment allows us to pivot the business quickly and adapt to any changing market conditions and our unrelenting focus on health and safety. Over to Page 6. We remain focused on generating long-term sustainable growth for the business and having a positive impact on our people, community and environment. Some of our first half achievements are: for our people, continue to set of diversity and inclusion initiatives to improve diversity in leadership and inclusion; continued focus on safety with mental health and well-being training programs. For our communities, half '23 workplace giving donations totaling $2.1 million and $33.8 million since inception across the JB Hi-Fi Helping Hands and The Good Guys Doing Good Programs; released our 2022 Modern Slavery statement, outlining the progress we are making to assess and address the risk of Modern Slavery in our operations and supply chain. For our environment, solar panel generation installed in 7 stores in the first half of '23 and 6 stores scheduled in the second half, as the group works towards net-zero direct carbon emissions by 2030. We improved the management and recycling of waste generated by our operations and continued improvements in sustainable packaging across our own brands. Now turning to Page 7 and the group half year performance. Total sales up 8.6% to $5.28 billion. Demand continued to be elevated during the half, and the teams implemented a strong, well-executed Black Friday and Boxing Day promotions. EBIT was up 14% to $479.2 million, with strong sales growth and improved gross margins, partially offset by increasing cost of doing business as we cycled COVID-19-related store closures from the prior period. NPAT was up 14.6% to $329.9 million. Earnings per share was up 20.4% to $3.018 per share. Interim dividend per share up $0.34 per share or 20.9% to $1.97 per share. I will now turn to Page 8 for the divisional performance. I'll take most of this page as read, as we'll be discussing in greater detail as we move through the presentation. However, it's pleasing to see sales across all divisions. Now on to JB Hi-Fi Australia on Page 10. This page shows the summary of JB Hi-Fi Australia performance. I will take it as read as we'll be coming in detail as we move through the following pages. On to Page 11. Sales for JB Hi-Fi Australia. Total sales increased 9.1% to $3.59 billion, with comparable sales up 8.5%. As compared to pre-COVID half '20, total sales were up 31.8%. Hardware and Services sales were up 9.2% with comparable sales up 8.6%. The key growth categories were Communications, with strong sales in the half across both Apple and Samsung, and it was pleasing to see both unit and ASP growth. Audio saw solid growth with growth across home theater and wireless headphones. Accessories, we saw sales. Sales were driven by good attached to the primary communications product. Computers, pleasing to see growth across all major product groups, driven by good stock availability. Again, it was very pleasing to see both ASP and unit growth from the category. And finally, Fitness, which continues to perform well with strong results from Apple Watch during the period. Software sales were up 5.7% with comparables up 5.4%. Software sales were 4.8% of total sales. Online sales declined by 34.8% to $537.3 million or 15% of sales, while down on the prior year as customers returned to stores. The context when compared to pre-COVID half '20, online sales were up to shy of 215%. Over the page to Page 12 and JB Hi-Fi earnings results. Gross profit increased by 14.5% to $820 million, with gross profit margin up 108 basis points to 22.8%, driven by improvements in the key product and services categories, combined with a positive sales mix. Cost of doing business was up 11.4%, up 58 basis point on the prior period. However, as compared to pre-COVID half '20, cost of doing business was down 51 basis points driven by continued disciplined cost control. Depreciation increased by 2.8% (sic) [ 2.6% ], with an increase in depreciation on right-of-use assets, partially offset by a decline in depreciation of fixed assets. EBIT was up 16.7% to $341.3 million, with EBIT margin up 62 basis points to 9.5%. I'll now turn to Page 14 for JB Hi-Fi New Zealand. Page 14 shows a summary, but as with Australia, I'll take most of this as read as we're covering greater detail as we move through. Over to Page 15. Our first half '23 sales for JB Hi-Fi New Zealand. Total sales increased by 16.1% to NZD 160.6 million with comparables up the same. As compared to pre-COVID, half '20 total sales were up 21%. Hardware and Services sales were up 15.7%. The key growth categories were Communication, with strong sales from Apple; audio, with solid growth in headphones and portable spares; computer and fitness, both with solid results driven by strong Apple sales; and Accessories, which benefited from The Good attached to the primary communication product. Software sales were up 21.2%. Software sales were 7.7% of total sales. Online sales declined 34.7% to NZD 19.3 million or 12% of total sales, as compared to pre-COVID covered half '20, online sales were up just over 100%. I'll now turn to 16 for earnings. Gross profit increased by 7% to NZD 25.9 million, with gross margin down 137 basis points to 16.1%, driven by price competitiveness in the key categories and the negative sales mix. Cost of doing business was 12.6%, up 40 basis points on the prior period. However, compared to pre-COVID half '20, cost of doing business were down 46 basis points, driven by continued disciplined cost control. EBITDA. EBITDA was NZD 5.7 million, down 22.5%. EBIT was down 26.5% to NZD 5.4 million, with EBIT margin down 194 basis points to 3.3%, with strong sales growth, offset by declines in gross margin and investment in strategic initiatives to drive growth. I'll now turn to The Good Guys on Page 18. Again, a page showing a summary, which I'll take as read as we'll cover on the following pages. So over to 19. The Good Guys' total sales increased 7.3% to $1.54 billion with comparable sales up 7.3% sale. As compared to pre-COVID half '20, total sales were up 34.6%. The key growth categories were Refrigeration, with solid growth in French store side-by-side and bottom-mount fridges; Laundry, with solid growth in larger capacity washes and heat pump drives; Floorcare, with solid growth across robot package and steam cleaners; Visual had a solid half with increased sales in larger panels; and Audio, with growth in home theater and also wireless headphones. Online sales were down 21.5% to $197.2 million or 12.8% of sales. At 12.8% of sales, as the customers return to stores compared to the prior period. However, as compared to pre-COVID half '20, online sales were up 148%. Over to Page 20. The Good Guys earnings for the period. Gross profit increased by 10.3% to $358.4 million, with gross sales up 64 basis points to 23.2%, driven by improvements in the key categories and a positive sales mix. Cost of doing business was 11.9%, up 45 basis points on the prior year. However, compared to pre-COVID half '20, cost to do business was down 106 basis points, driven by continued discipline cost control. Depreciation grew by 6.9% with an increase in both depreciation on right-of-use assets and depreciation of fixed assets. EBIT was up 9.8% to $133 million, with EBIT margin up 20 basis points to 8.6%. I'll now hand over to Nick to talk through balance sheet and cash flow.

Thanks, Terry. So starting on Slide 22, the balance sheet. Inventory was $1.21 billion, up 13.8% year-on-year as inventory availability did improve following the COVID-related supply shortages in the second half -- half year '22. As compared to pre-COVID half year '20, inventory was up 7% versus sales growth and 32% over the same period. Inventory turnover was down 63 basis points to 6.9x, but up 73 basis points on half year '20. As we have always done, we continue to manage inventory to sales and are very happy with both the quantity and the quality of inventory on hand. Payables, which would ordinarily move in line with inventory, were down 15% year-on-year due to cycling and abnormally high payables position in the prior year when COVID-related shortages drove increased purchasing late in half year '22. Moving on to Slide 23 and on the cash flow statement. Operating cash flow and operating cash conversion, again were down on the pcp due to change in the working capital, which is primarily a payables, continue to be very strong. CapEx remained in line with our expectations as we continue to invest in the store portfolio, our online offerings and other strategic initiatives, and we closed with net cash of $391.2 million at December 31. On Slide 24, capital management. We have today declared an interim dividend of $1.97 per share fully franked, up $0.34 per share or 20.9% and representing 65% of NPAT. It is pleasing to see the accretion benefit for ongoing shareholders from the buyback completed in April last year, with net profit after tax up 14.6% and EPS and dividend per share both up over 20% due to the reduced number of shares on issue. The record date for the interim dividend is the 24th of Feb 2023, with payment to be made on the 10th of March 2023. We continue to maintain a strong balance sheet with closing net cash of $391 million at 31 December. The Board will continue to review the group's capital structure with a focus on maximizing returns to shareholders and maintaining our balance sheet strength and flexibility. I'll hand back to Terry.

Thanks, Nick. Moving to Page 26, the trading update. January sales update for the period 1st of January to the 31st of January 2023. Total sales growth for JB Hi-Fi Australia was 2.5%, with comparable sales growth of 1.5%. Total sales growth for JB Hi-Fi New Zealand was 20% with comparable sales growth being the same. Total sales growth for The Good Guys was flat to last year or 0% with comparables being the same. While pleased with the January trading result, with sales continuing to be well above pre-COVID January 2020, we have seen sales growth start to moderate from the elevated sales seen in the first half of FY '23. As we enter an uncertain period, our business remains well placed with a proven ability to adapt to any changes in the retail environment and our highly trusted value-based offerings that will continue to resonate with our customers and grow our market share. I'll now turn to Page 28, an update on the group focus areas. The group focus areas, I've done -- we've done a summary here to show group focus and some of our achievements in the first half. So with multichannel -- and this is about ensuring we maximize our reach to grow our customer base and remain top of mind and relevant to our existing customers, a few of the key achievements. 4 stores opened in half '23, including a smaller curated range JB Hi-Fi stores in Parkmore, Victoria and the Gold Coast International Airport; upgraded The Good Guys website to improve customer experience; national launch of JB Perks, membership program for JB Hi-Fi Australia, with 405 (sic) [ 405,000 ] customers joining the program since launch in November; and strong growth in additional sales channels such as phone and online chat. With the supply chain focus, this is about meeting and most importantly, exceeding our customers' expectations with product delivery and product availability. Some of our achievements. We remain highly focused on customer delivery solutions; launched an on-demand delivery service in partnership with Uber and JB Hi-Fi Australia in September with a strong take-up and a 39-minute average delivery time; launched improved delivery options for The Good guys; customers' focused on increasing certainty, transparency and choice. Commercial focus. This is about growing our share of the significant sales channel. We are investment in our sales team and expansion of our inside sales channel. We drove solid growth in eCommerce via our new JB business website, attracting new SMB customers. And we developed a development of a new tech on-demand service for enterprise customers. Over the page to Page 29 with New Zealand. This is about growing our share and reach of the brand to store roll out and improved execution. Some of the achievement. Successful transition to new MD and investment in key hires to strengthen local capability. Increased focus on retail -- the increased focus on retail execution is delivering strong market share gains. We improved customer shopping experience and engagement with 6 existing store relays completed and actively identifying potential new stores and relocation opportunities to expand our reach. And finally, retail execution. This is about staying focused on the retail basics and doing what we do best. That's leveraging our scale to drive great value for our customers. And we've delivered a strong promotional program, and particularly the key point Friday and Boxing Day promotional periods. We stay highly focused on actively promoting proving great value offerings to our customers and greatly improved our in-stock position while stringently managing the overall position. We'll now turn to 31, our investment checklist. So look, in closing the presentation, we have our investment checklist. I'm sure most of you know this by now, so I won't cover it off. However, just a few points to finish off. As a group, we never take our current market leadership position for granted, and our experienced teams work hard every day to enable us to remain the #1 destination for technology, CE and home appliances. For JB, technology and consumer electronics is at its core and front-of-mind purchase for our customers. Today, many of these tech products are not viewed as luxury but as necessity as they are integrated into our customers' everyday lives. For The Good Guys, they have a market leadership in home appliance categories but also cater for family consumer electronics names. They are a trusted value destination for replacement products, and this trust in our value become more important, should pressure on household budgets continue to build. Our focus on our multichannel capabilities has now been proven, especially during the challenging times of the COVID lockdowns. The combined power of our physical locations is well integrated online offering online chat, phone sales, and commercial teams ensures we can continue to grow our reach and remain connected and ready to assist shoppers, however or however they need to deal with this. We are focused on maintaining a resilient and highly relevant retail model. Also having a business that is a desired place to work for our team members and ensures. We will continue to attract high-quality staff into the future. We will continue to deliver on our commitment to our customers of big brands at low prices, while continuing to invest for the future and ensuring we do so in a sustainable and ethical way. We will now move to questions.

Your first question comes from Michael Simotas with Jefferies.

The first question for me is on your January sales. If we look at sales relative to pre-COVID levels, there seems to have been quite a sharp step change, especially in the good guys. I mean it was running at sort of 30% to 40% above pre-COVID levels. It was only 17% in January, and JB was sort of around 30% or a bit above, and it's 25% in January. Is there anything sort of peculiar in the month that you saw, whether it be competitor activity or something in the promotional cycle? Or is this more around consumers starting to pare back a little bit?

Yes. I think the challenge, even we have with -- especially -- well, Jan and Feb is -- when we're comparing it, there's a lot of challenges related to stock cycling in the period. And I understand you're talking about pre-COVID. So I get that, but it sort of makes it hard for us when we're looking through the figures. What we are seeing though is in tunable we're starting to see customers really drift back to, I guess, those retailers that they have that enormous trust in. And when that comes to categories like consumer electronics or tech in The Good Guys, you really see that JB picked a lot of that up. However, we saw good solid growth continue in the good guys in the home appliance categories. So that's what it just feels like as customers are really focusing on value and really that trust on that value.

Okay. And then the second question for me is around March. So you've had another very good half of gross margin across both JB Australia and The Good Guys, but your CODB margins picked up a bit even though you've had pretty good year-on-year sales growth. How should we think about that going forward? Do you think you'll need to start to fund some discounting potentially taking a little bit away from gross margin going forward? And is there any fat in the cost of doing business lines? I mean, JB has historically run on a very lean cost base. Has there been some investment put into the business that you can potentially pay back if sales start to come off a little bit more sharply?

Yes. I think if I just address the gross margin piece, look, we anticipate as the stock is starting to return to more normalized levels in the industry, and we will see some of that on floor discounting start to build or continue to build. And so therefore, we could see that some of that elevated margins will start to return, especially in JB, perhaps to some more historical levels, The Good Guys, we've always said we expect it to -- there has been some structural changes in The Good Guys and their buying terms. However, we do expect to get a little bit of that back as we see this on floor discounting continue to grow. I guess the big unknown is if we see it continue to be fairly tight out there as far as retail is concerned, who knows how competitors may react. And one thing we'll always do will be competitive. So -- but we do expect we'll give some of those back -- some of that back. When it comes to cost of doing business, what I guess we've always been so lead in this business, it's always hard for us to give some of that back to cut that. We do have flexibility with since pre-COVID. We've seen our casuals percentage increase of casual staff. So there is a little bit of flex on that. So we do have some ability to flex with the rosters. However, I will say that depending, we will always stay focused on the customer. So I'd rather be having a conversation about slightly higher cost of doing business than cutting our service levels too much. But we're not in that stage yet, but we do have a little bit of flex there.

Your next question comes from David Errington with Bank of America.

Terry, Nick, can I just go a bit further on your gross margin comments? When we look at your gross margin, say, in first half '19, which I suppose is as clean as what we can get pretty pre-COVID compared to where they are today, I mean JB, your pre-COVID GM was 22.1%. Today, it's 22.85%, but The Good Guys' is 20.6% and this half was 23.21%. Now I get the fact that you're saying that when things do get a bit competitive, when stock does normalize a little bit, things could get a bit competitive. But are you prepared to come out and say, look, how much structural improvement there has been in the business because -- yes, and how much? Because I would have thought that first half, things were getting pretty -- like I heard that there was a fair bit of excess inventory in the industry coming into Christmas there. I mean I heard one of your major competitors were sitting on a fair bit of excess stock. So can you come out and say how much you'd reckon that was structural improvement? Are you prepared to do that? And I suppose the second part, the 1 thing that did give me the spooks a little bit was the drop in gross margin in New Zealand. Now I know it's a completely different market, and New Zealand is a very immaterial market to JB, but there was such a dramatic drop in gross margin. Can we just rule that off as it's just separate conditions there? So hopefully, you understand where I'm going with that question. I'm trying to delve a bit more into how much structural improvement there has been in the GM with both your Australian businesses.

Yes. And when we talk about that structural improvement, just to be clear, that was in The Good Guys. We're talking about that. In JB in the half, we did see some positive sales mix come through. And of course, there's just that little bit of less discounting on the floor wide stock but still a little bit tight. So JB, just to be really clear, we're not talking about structural improvement. We're just talking about it probably returning to more historic levels as the industry and the discounting returns to more normal levels. With The Good Guys, we've always spoken about previous meetings -- previous releases from that early 20% that it was stopping to the 21%, but we felt it finished somewhere in between. And what's that mean? At the moment, it feels like it's going to settle around where JB Hi-Fi traditionally would be sitting. And that structural change that's happening in there is really -- it's a reflection of now how the suppliers are viewing The Good Guys and the importance that The Good Guys is bringing to the suppliers. And I want to talk about how I'm talking about the way we can launch products now, the way we advertise the products, the way we represent their brands in-store, the way we execute our promotions and the way we collaborate with the suppliers is very different to what was pre JB owning it. So there is some structural changes in there. They are viewing the business differently, and they are supporting it differently. So while it's high at the moment because they are benefiting from less discount and they also in that half benefit from mix because of -- I mentioned before, CE was a little bit lower in The Good Guys -- or sorry, tech was a little bit lower in The Good Guys, but they still had a solid result. That's been positive for the margin. Hopefully, it gives you a little bit of color on that. As far as New Zealand is concerned, I guess the challenge with -- the New Zealand business is we're low margin to start with. And so you don't have a lot of opportunity to -- a little bit of a hit there is significant in the sense of the percentage that it comes down. And really, what we've seen in New Zealand play out is a few things. Two of the major competitors there or -- to be honest, all the major competitors there, but mainly Harvey Norman and PV Tech went really hardy in computers. We can only assume overstocked. That's the feedback and have gone super aggressive in computers. The difference with New Zealand is we're the #4 player. We're going to improve that, but we're #4 player. So getting support from suppliers is a lot harder in Australia. We're a #1 player. If somebody really goes hard on compute, generally, we can work with the supplier to get some support to really to match and be as aggressive. We don't have that ability as yet in New Zealand. That's one thing that's happening. The other thing is we -- the changes we've made in New Zealand. And you can see the market share growth we're getting in New Zealand. The competitors are reacting to that. They're reacting to the management we've got there, Jim. They're -- so there's a little bit of reaction going on as far as that is concerned. And obviously, they're pulling the discount lever fairly hard part over there. And again, not having that support that we enjoy in Australia, it's a little bit harder for us to recover that margin. However, we'll absolutely go in and compete, and that's delivering in the sales. And if you haven't got sales, you haven't got anything to work with. So we'll tell them to take it and get it.

So we're very comfortable JB to that New Zealand margin is an indication of anything that might happen in Australia. I think it's very, very different. And we're very comfortable with how we're trading in New Zealand, particularly the share we're gaining in the period.

Excellent. Just a quick second one, Nick, and just a quick one to you. One thing that's really pleasing, as you said, you're up 34% sales with only a 7% increase in inventory, that's all pre-COVID. So your stock turns are amazing. You commented that you're very happy with the quality and the quantity and quality. What does that mean? And you've loaded that with Apple and Samsung? Or what do you mean by happy with your quality? Can you give a bit of sugar on that?

A little bit of color. If you there's going be a bit of COVID is basically any stock, any old stock we sold over the last 2 years. So the stock that we have today is all new good quality stock. So I think we just look at it and go, we've bought well. We're happy with what we're holding each new current stock and for that reason, we think it's probably helping us maintain that sales growth at the moment because of the quality of stocks good and it's fresh and that's resonating well with customers.

Yes. You're running beautifully, James. Good work.

Your next question comes from Adrian Lemme with Citi.

Just look at the current performance a little bit more closely, are able to sort of strip out like look at states that aren't cycling the lockdowns from last year? Are you seeing sort of underlying declines in those states where you've got maybe a clean look at it? So what categories are you seeing that, please?

So there is no lockdown -- like no formal lockdowns in January last year. It's, what, everyone is cycling in sort of a higher level of COVID in the community. And therefore, people probably self-isolating to some extent last year and then higher absentee and stuff in stores. So it's not -- what we can see -- absolutely you can see in our numbers, differences between shopping centers and homemakers and all those things that we've talked about previously in terms of customer preference in the prior year. We just look at the January here, 1 year, and it is difficult to look -- Terry mentioned earlier, the 1 year is difficult to review. We keep anchoring to the 3-year internally. And I know I've seen some commentary that we've obviously said the 3 years moderated, but we're still doing 25% sales growth in JB in January over 3 years and 17% in The Good Guys, still pretty solid numbers. And we're pretty comfortable with how we're trading, but relative to those pre-COVID numbers.

Thanks, I was getting at, I guess, the first half was impacted by cycling the lockdown [indiscernible].

Yes, you're right. They're probably Q1, predominantly Q1. Q2 is reasonably clean a little bit at the start of October.

Yes. Okay. And can I just ask -- a great commentary on all the sort of individual drivers. I guess, the GP margin, can we confirm that like given that it is such a big jump this half compared to the levels of the last few years? And I appreciate your comment that there's been net benefit and likes going. But I would have thought that there would have been a lack of forward accounting in the prior period as well. Can you just confirm there's no like no special supply of rebates or stock deals that maybe have also driven it up this half.

No, this half is -- there's nothing driving it up in isolation in this half. Like if you compare JB Australia to half year '22, and I think you're right, we said this is tight, half year '22, when the stores were closed, we were doing free freight online. So that was weighing on the margin in half year '22. We weren't doing out a significant as services attached when the stores are closed. We really struggled to do telco connections as an example. So the 1-year comparison, that prior year is low. If you go back, and again, we try to anchor to the pre-COVID half year '20 comparison. We think that's a pretty clean comparison. The benefit there is sales mix. One of the material suppliers had some stock challenges, for example, in December. And then sales mix, Terry talked about, still seeing a little bit less of that discounting, albeit we are seeing that starting to return.

Your next question comes from Tom Kierath from Barrenjoey.

Just asked on stock profits and where that's at and if that is normalizing now? And then secondly, just how you're seeing price rises playing out through '23 for the business?

Yes. Look, good question. We're not seeing the feedback from suppliers is we're not going to be seeing any price rises. I think for a few reasons, all the main reason, I should say, is stock is returning to normal and suppliers are going to be fighting amongst themselves per share as much as retailers. So yes, we're not anticipating any price increases coming through and no feedback that there will be any.

Yes, okay. And sorry, in stock profits, was that driver of the first half gross margin, just given the price rises that you've seen?

Look, the price rises we saw, if you go back, were prominently [indiscernible]. So that benefit was principally Good Guys. If you track it for all, if you look at Good Guys' gross margin, the second half last year actually, kind of higher than what we've reported. First half this year, that's -- I'd say more of the stock profits are in second half of last year. We wouldn't say there's a lot of stock profit in first half of this year.

Our next question comes from Shaun Cousins with UBS.

Just a question I think around how you look around generating sales as you're cycling tough comps on this multiyear basis and particularly around 2 areas. One, what are the big sort of category opportunities? Is it telco? But are there others that you could talk about? And then the way we see your trading in the market, it looks like you've been more aggressive and the feedback we get from the industry is you've been more aggressive to chase promotions harder such as when Hardy Norman went 250 -- 25% off the turnoff if you spend more than 250 at [indiscernible] Day, you guys matched at $300. So I'm just curious around your intensity around promotions and how aggressively you looking to be to moderate the slowdown in sales that is likely, please?

Yes. I mean good question. In that respect, I think we are doing what we would normally do. every week, every year, we will be -- when it's a little bit tougher if we're looking at -- looking forward at sales, we will look at the individual categories and then devise promotional activity. No doubt, we have seen promotional activity intensified. And that is as much around the fact that there is good stock availability as much as it is that it might be tighter in the market or et cetera. So we will continue to push hard. We'll continue to drive categories. We've got some -- we did suffer some challenge within -- with phones in December. They will come back in the stock. So you'll see us continue to push hard into phone and TV. That's some categories we stay very focused on. And suppliers are willing to support all of that at this point as well. Our stock is returning to normal, it might feel like it's getting a bit tougher in that 1-year stack when you look at -- compared to 1 year suppliers themselves are really looking to push stock out and to drive bad market share. So we're seeing a lot of activity coming from suppliers. In other words, supply-funded promotions coming.

Okay. And then secondly, just regarding New Zealand. It's a group focus area. How are you thinking about the pipeline of timing of new stores? You did 6 relays in the first half. And specifically, what will be the, I guess, the cost impact on this? Will you get, revert back to EBIT losses in the second half? And will your CapEx, which has generally been around $57 million on a full year basis for the last 2 years, will that have to step up some? So I'm just curious around how you're going to look at driving that New Zealand growth, please?

Yes. So we will -- which we are trying to access new sites. That is actually a bit harder than we had hoped in the short term. So in the second half, Shaun, we will do -- we will relocate 2 stores in the second half. So that CapEx will come through in the second half. We won't have any new stores in the second half. That will be more in FY '24 pace. In terms of CapEx, yes, we will -- we haven't spent a lot of money in New Zealand for a number of years. I think we've been spending roughly $1 million a year in New Zealand. You will see that elevate as we get access to new sites. We ordinarily spent about $1.5 million in CapEx on a new location. So assuming we'd like to see 4 or 5 new stores a year, you're going to see an uplift in CapEx on New Zealand.

And EBIT losses in the second half, Nick, is that?

Yes, we lose money in the second half. Yes. There's no change. While, historically, New Zealand for us has been a profit-making business in the first half and more challenging in the second half, we expect that to continue this year. Obviously, we have planned in place that in the future, we wouldn't expect that to get.

Your next question comes from Ben Gilbert with Jarden.

Wondering if you could talk about the Perks program and where you're expecting the investment and, I suppose, to trying to drive some returns out of that, because it seems to a key opportunity for you guys is loyalty and so getting a better feel and deeper the customer.

Yes. The Perks program is designed as part of moving from what we say multichannel, we want to be omnichannel. So it's about really understanding the customer and joining the dots between the customer that's purchasing online and the customers purchasing in-store. So the Perks program is a way that will encourage you to identify yourself in store so that we can understand those transactions and connect them with any of your online purchases. It also enables us then to be a lot more tailored with the sales process in store, because we will then be able to understand that you may be an Apple users versus an Android user, for example, we may know that you bought a lot of Samsung product versus buying Sony products. So it helps us to be a little bit more tailored in that sales process. Now that's the outcome of it. That's what we're gathering that information at the moment. Today, you join, you will get over and above rewards and offers as our Perks member being said to you. So it's not necessarily that we're investing any great deal more money into that program. We do e-mail database regularly. These will just be over and above programs. And what's really important with this program is you really get interest from suppliers. And suppliers are really keen to fund promotions because you can be so much more laser-like in what you're offering. So we will find that suppliers will really step up to support this program as it continues to roll out and continues to grow in numbers.

Do you think you need to put a lot of money into CHERRY because just in terms of understanding your capabilities, if you wanted to look to go in the sort of media, et cetera the Best Buy is doing, is it project you need to see sort of high depending maximum OpEx over the next few years? Or is it just going to be sort of steady and sort of incremental investments here and there?