Universal Store Holdings Limited (UNI) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Universal Store Holdings Full Year FY '26 Results Call. My name is Sam Wells from NWR Communications, and joining me from the company today is outgoing Managing Director and Group Chief Executive Officer, Alice Barbery; Incoming Managing Director and Group Chief Executive Officer, George Do; and Chief Financial Officer, Ethan Orsini. Following a summary of the results released to the market this morning, investors and research analysts will have an opportunity to ask questions. [Operator Instructions] And thank you, and over to you, Alice.

Thank you very much, Sam, and thank you all for joining this year's results webinar. Ethan will follow my high-level results with some more detailed financials. George will then walk us through the divisional results and the trading update. So I know it's a busy day for everyone. We might just get stuck straight into the slides. Thank you. So very pleasing group sales, $376.1 million, up 12.9% on the prior corresponding period. Gross profit margin of 62.5%, up 140 basis points on last year. We look at underlying EBIT, $64 million, up 17.2%, representing 17% of sales and underlying NPAT of $40.5 million, up 16.3%. It's important to call out the $18.2 million statutory NPAT, down 21.6%. That includes the $23.8 million noncash impairment of CTC intangible assets. Earnings per share at $0.528, up 16.3% on the prior corresponding period and a strong net cash balance with new borrowings outside of leases of $23.3 million, up 35.5%. I'm also very pleased to announce a fully franked dividend of $0.17 per share for the half, bringing the fully franked dividend to $0.43 for FY '26, and that is up 11.7% on the prior period. Looking at group trends, a couple to highlight. Total sales of $376.1 million, as you said, up 12.9% on the prior corresponding period, bringing group 5-year sales CAGR of up 12.3% on the FY '21 through to FY '26, that 5-year period. U.S. 6-year like-for-like sales growth of 7.88%, and we have 13 new stores opened in FY '26, 5 Universal stores, 7 Perfect Stranger and 1 THRILLS store. As planned, 1 Universal Store temporary closed in FY '26 to reopen in half 1 FY '27 for center refurbishment. The group had 123 physical stores at June 30, excluding our web stores. The Perfect Stranger retail format continues to roll out nationally with 26 stores trading at June 30. Perfect Stranger contributed 9.4% of total group at FY '26, and that is up 7.6% on the period. Underlying FY '26 EBIT of $64 million, up 17.2% translates to a 5-year CAGR of a positive 7.3% from FY '21 to FY '26. And just a little strategy update, committed to our core strategy to scale and grow our premium fashion apparel brands and retail formats. It's important that we continue to deliver a compelling customer service experience while we drive sustainable growth. I'll just touch on each of the 3 banners. Starting with THRILLS. Our primary strategy is our retail strategy progressing with improvements in store function, product curation and much faster-to-market mindset and processes. Frequency of fashion drops is changing from November 26. And as a reminder, when it was a primarily wholesale business, we had quarterly drops. We have now been able to move those to monthly drops starting to be much more retail focused. THRILLS brand rejuvenation is definitely underway. Product design wants to celebrate the historic brand values while we continue to evolve with current trends that are exactly what our customers are voting for and getting excited about. We focus on stabilizing the current wholesale channel through really important partnerships and in the enduring retail relationships we have with those partners. That is not the part of the business we see expanding and growing. It is definitely a retail strategy. Perfect Stranger is driving sustained brand awareness and customer acquisition through targeted brand activations that our customers are really embracing and engaging with. We're deliverating -- sorry, we're deliverating -- we are delivering elevated curated product ranges that meet diverse customer occasion needs and staying close to customer and helping us know exactly what those occasions wear are has helped really drive this business forward. We continue to support growth within the brand with incremental dedicated capability and resources. The national retail rollout is well underway, and we see this as a 60-plus retail banner. Universal Store continues also to be customer-led based on our nimble and fast-to-market strategy. We identify and curate premium on-trend products that customers love. It's a slogan you hear repeated in our hallways. We remain service orientated. We remain close to customer, and we continue to invest in team and capability, and we still see this network with a potential of 100-plus stores. Underpinning and upholding this strategy is always our customer-led approach, guided not just by gut feeling, but data analytics, independent customer research, which we've undertaken for the first time across all 3 banners, and that helps drive our strategic priorities. I'm very, very proud of our proactive team and sustainability. We are well positioned for the new mandatory climate reporting, which applies from FY '27 to meet all of our governance requirements. We have a new point of sale that is rolled out just as of last week. So we've completely tidied that up and all stores are on the new POS system. Meanwhile, we are undertaking a new warehouse management system for implementation in FY '27. We continue to be a learning culture and investing in group technology in both depth and capabilities, controls and risk management. So we are embracing emerging technology with gusto and governance. It's a very balanced approach within the organization. So I'm now going to hand over to Ethan, who's going to go through the financials with a bit more detail.

Great. Thanks, Alice, and good morning, everyone. I'll start off by going through the group P&L. FY '26 sales were $376.1 million, which is up 12.9% on prior period. And pleasingly, all 3 retail banners are growing. Universal Store sales grew to $313 million, up 11.5%. Perfect Stranger sales grew to $35.9 million, which is up 40.8%. And the CTC retail format sales grew to $12.7 million, which is up 16.9%. CTC wholesale sales were down 18.9% for the year due to reduced U.S.A. exports, the closure of a small number of key retail accounts and lower intercompany sales to Universal Store. Gross profit grew 140 basis points to 62.5% for the year. This growth was driven by strong product assortments, increased Perfect Stranger sales mix and the lower warehouse channel mix. Good inventory management has supported our disciplined pricing strategy and good full price sell-through. Cost of doing business increased 100 basis points to 34.1% as we continue to invest in team and capability from a system perspective to support future growth. A higher LTI and bonus expense was recognized in the year in line with stronger trading results. On a total basis, underlying EBIT was $64 million, which was up 17.2% on prior year and represents a robust 17% of sales. We'll now move on to the long-term sales trend. The graph on this slide shows the 6-year sales trend by retail banner. From this, we can see the steady growth of Universal store, which has seen average like-for-like growth of 8.3% over the 6-year period. We can also see the benefit of Perfect Stranger going from an organic concept to a store network of 26. Perfect Stranger now represents 9.4% of the group total sales. CTC sales were flat on prior period as increased retail sales offset the reduction in the wholesale channel. We'll now take a deeper look at gross profit. The graph on the right shows the 6-year trend of the group gross profit. And we can see that the group gross profit has increased to 62.5% this year, up 140 basis points from prior year. And this increase was really driven by 4 factors. Firstly, the continued growth of the Perfect Stranger and THRILLS retail formats has driven a favorable GP mix to the group. Strong assortment ranging has supported disciplined pricing and full price sell-through. We've also seen a reduced clearance sales mix due to that inventory management. And we also had a benefit in the year due to a stronger AUD-USD exchange rate, which contributed about 15 basis points to the gross profit result. We'll now move on to cost of doing business. The graph on the left shows the cost of doing business movement from prior year. And from this, we see 4 main impacts. Firstly, wage inflation and investment in team capability has added $6.3 million of costs. New roles were added to support our future growth and strategic projects. Secondly, new stores and like-for-like growth resulted in an additional $9.2 million of expense related to incremental store wages, rent and other variable costs. However, from the bottom of this graph, we can see that like-for-like sales growth has rationalized cost of doing business by 170 basis points. We also had an increased LTI and bonus expense in the period, which is consistent with the stronger trading results. And finally, the other cost of the business of $800,000 primarily relates to costs relating to our new point of sale, which, as Alice mentioned, has been fully implemented and costs relating to our new warehouse management system, which will be implemented in FY '27. We currently have 8 leases in holdover and on average, our cash rental costs have increased 5% on prior year. Moving on to the balance sheet. As Alice mentioned, the group continues to have a strong net cash position of $23.3 million with no external borrowings as at 30th of June. It was pleasing to see inventory decrease to $32.6 million, which was down $700,000 from prior period. And this was due to improved CTC stock turns and reduction in the wholesale channel. The final point I'll make on this slide is that the decrease in other current liabilities reflects timing of corporate income tax payments. Now move on to cash flow. Really there's 2 points to cover on this slide. Firstly, our cash flow from operations of $111 million represents a robust results and reflects a strong EBITDA conversion of 104%. Our FY '26 CapEx relates to the opening of 13 new stores, store refurbishments, some relocations and technology hardware and system capability investments. I'll now hand over to George, who will provide our business and trading updates.

Thanks, Ethan. Good morning, everyone. So now to our FY '26 updates by banner. Universal Store delivered full year sales of $313.3 million, up 11.5% on PCP. Like-for-like sales grew 8.1%, and we're pleased to see the team continue their track record of consistency and resilience by providing customers with an on-trend differentiated product assortment. Gross profit percentage was up 150 basis points, driven by disciplined price management. Private brand made up 51% of sales as the team continued to deliver an evolving customer-led mix of premium private and third-party brands in each category. Online sales grew to $39.6 million, up 9.4% on the prior year. 5 new stores opened during the year and that temporary closure, bringing the total to 88 stores at 30 June. 9 new stores are confirmed to open throughout FY '27 with 7 in the first half. There are also 4 to 5 refurbishments and 3 relocations planned for FY '27. Universal Store has a target of 100-plus stores. That's perfect, straight. Perfect Stranger sales grew to $35.9 million in FY '26. That's up 14.8% on the prior year and up 13% like-for-like. The dedicated team executed the brand strategy, delivering elevated product ranges that meet diverse customer needs, increasing average unit price and driving brand awareness and community engagement. Online sales grew 49.5% on the prior year to $4.9 million. 7 new stores opened and 1 relocated in FY '26. There were a total of 26 stores at 30 June. 6 new stores are confirmed to open in FY '27 with further opportunities being explored. Perfect Stranger has a target of 60-plus stores. Now to D2C. Our strategic focus, as Alice mentioned, is retail execution and speed to market product ranging to support store rollout. The retail strategy is progressing with robust FY '26 like-for-like sales growth in the retail stores of 17.8%. Online sales were down 10.5% on PCP, reflecting lower promotional and clearance sales. FY '26 gross margin grew 240 basis points to 45.3%, driven by higher retail sales mix and improved price management. Total CTC sales were $36.4 million in FY '26, 9.2% below prior year due to wholesale. One new THRILLS store opened in FY '26, taking the total number of stores to the land at 30 June. 1 new store is confirmed for half 1 FY '27. Now to our trading update for the first 7 weeks of FY '27. Group direct-to-consumer sales for FY '27 to date were up 9.1% on PCP. Universal Store total sales were up 5.5% and up 2.9% like-for-like, cycling 10.7%. Perfect Stranger total sales were up 45.8% and up 17.6% like-for-like, cycling plus 19.3%. CTC direct-to-consumer sales were up 10.1% and up 3.8% like-for-like, cycling plus 4%. We intend to open 16 to 20 stores across the group in FY '27, 9 to 10 new Universal stores, 6 to 8 new Perfect Stranger stores and 1 to 2 new THRILLS stores. In addition, that Universal Store will reopen after the completion of the center development. Our customer continues to value quality on-trend product from brands they love, and we continue to have a customer-led approach to private and third-party brand mix. Gross profit percentage continues to benefit from growth of Perfect Stranger and THRILLS direct-to-consumer, while higher freight and energy costs are expected to be offset by a favorable AUD/USD rate. As we expect an inflationary cost environment to persist, including rate increases, we remain focused on balancing wage optimization and customer experience. We continue to invest in team capability and depth to deliver strategic priorities and support future growth. I'll now hand back to Alice to close.

I think we are ready to open for questions.

[Operator Instructions] First of all, we've just got a couple of questions on the CTC impairments. Now that there's a write-off of brand names and not only goodwill, is this confirmation that the THRILLS brands are not as jury as first outlined by management as per the presentation at acquisition date?

I don't know that I agree with that impression. I think you have to remind everyone, this was a wholesale business primarily that we were excited about looking to find ways to grow the retail side of the business. However, we didn't anticipate at the time that the wholesale landscape would change so dramatically that the biggest partners would go under, that people would have complete strategy shifts due to their own balance sheet to go completely vertical. And we are continuing to see the retail partnership landscape erode. So we had to make a very big shift in the way that we've matched the team. We've had to get much more hands on. But clearly, we believe in the brand. We're still seeing a lot of customers still loving the brand, but it is moving now to a retail play while we manage through the wholesale partners that we have.

Maybe just 2 follow-ups there as well. Given the success of the company's private labels, does this alter the Board's view for any future acquisitions of brands? And have there been any lessons learned from the THRILLS acquisition?

I'll start at the end of the sentence. Yes, there's been lots of lessons learned. If I had my time over. Of course, I had no idea that the wholesale landscape was going to change so dramatically. And it was a bit of a pain by 1,000 cuts as opposed to overnight. So it was a slow drift. However, what would I do differently definitely take a more hands-on approach straight away. I think we would have gotten involved in the day-to-day machinations of how our retail business has run much more quickly. So that would definitely be something that we applied in a future acquisition. And no, we're not afraid of future acquisitions. There are -- there's so many ways to continue to grow this great business. But would I have done things differently? Yes, absolutely. We've learned some and embedded some good learnings as we always do from every experience we have, even our successes -- big successes give us a lot of learnings to take away. And so we are a company that has always been pleased but never satisfied, no matter whether the result was a bit painful or whether it was what appears to everyone else to be a huge success.

Okay. Next question comes from James Wilson at Macquarie. Okay, I will pass the next question is from Sam Teeger at Citi.

Could we please flesh out the moderation in Universal comps to start '27? Just wondering how August compares to July? Is it driven by transactions or basket size? And have you seen promotional intensity increase from the competitors' [ thrill ]?

Yes. So I think we have seen transactions in the first part of this FY '27 be quite strong. So it is more basket. I'm talking macro for the group now, different by banner. I wouldn't say promotional intensity has really changed from what we saw in FY '26. Multi-payday cycle at the same time last year. So I'd say the competitive intensity is quite consistent. Yes. I think just to add to the trading update there, obviously, Universal saw July, August. Remember last year, that was quite an elevated comp. So 2.9% is lower than we used to, and we're comfortable in this environment given those elevated costs. And there's nothing in the trade that suggests that I mean we know that our customer is discerning. That's something that we traded through periods where customers are more or less discerning. That's something that we're used to and what we try to do in these environments is just growing market share. We're happy with our traded. We didn't not ne seeing anything in the transactions, which that customers are sort of really going for promotion more than doing the full price stuff that they value. It's still a customer that is voting for the best product at premium price points and other price points, what they see as high value.

Sure. And then second question, just on CDB. Of the 100 basis point increase, how much is one-off versus recurring? And I guess at what point will shareholders see margin expansion from the current spending?

Yes, there's probably 2 parts to that question. Firstly, when we look at some of the investments we made, say, new point of sale, for instance, FY '26 have the implementation costs, but we'll have the maintenance fees or the license fees continuing on going forward. So that won't necessarily taper off. But what it does do is it just gives us a better platform to sell to our customers than what we had previously. And then we obviously have the impact of things like rent, which is pretty consistent with prior years. And probably the second part of the question would be some of the -- some of the capability we added in, in FY '25 and '26 has really allowed us to grow the Perfect Stranger as an example. So that business is doing tremendously well. And it's really that dedicated resource, which has proven our account. So as we've kind of consistently flagged, we continue to invest in that capability, both in team and system to grow. So you'll see that investment continue, but it will taper off as a percent of sales. So in FY '25, we grew 130 basis points. In FY '26 was 100 basis points. So I think you expect that to moderate, but still -- we're still in that investment stage to set us up for the future aspirations of the group.

Next question comes from Aryan Norozi at Jarden.

First one, just on the gross margin. So your gross margins in the first half of '26 was about 62% as it increased to 63.5% in the second half. This is the Universal Store business. And that's despite your private label mix falling from 55% in the first half to 46%. I mean, Perfect Stranger mix obviously helps, but it's still a very strong result given that sort of drag on gross margins from private label. Can you just run through what explained that increase half-on-half in addition to Perfect Stranger and whether that second half '26 base of 63.5% is the sort of run rate moving forward, please?

Yes. So I might [indiscernible]. But the currency was certainly stronger in the second half than the first half. So that's some of the -- as we noted in the presentation, we had a 15 basis point lift of the year. That was slightly negative in the first half. So that was improved in the second half. And then I also called out in the presentation, I just think the rate assortment and the mix of what we were selling was quite strong, coupled with good full price sell-through and inventory management. I know I'm repeating what we said in the presentation, but it really is a combination of probably 3 or 4 factors, not just one thing. I'm not sure if [indiscernible] anything to add to it.

Yes. I mean it's worth because that's exactly right. So despite, I guess, the stabilization of private brand mix at Universal store, the team managed pricing very, very well across private brand and third-party brand. And even third-party brands really led by delivering what customers want, like very loved on-trend third-party brands. And despite the promotional environment, making sure that the assortment is differentiated with those third-party brands actually meant there was a lesser rate of market.

Yes. So it sounds like it's within your control so that second half '26 run rate, assuming you continue to execute. It's not like it reverses or unwinds into '27, assuming you still execute well?

Yes. I think I...

Great. And then a second one, just on the stores. Obviously, you're rolling out a lot more Universal Store banners. Just for us in terms of understanding the contribution of those stores, is it fair to say that the sort of unit economics or box economics targeted are pretty similar to what you've historically done? Just conscious, are you opening more stores, for example, in subregional shopping centers or further away from the sort of metro areas where it's good sort of payback period, but lower contribution from a profitability perspective?

Yes, a bit of both. So we're definitely opening a blend of geographic regions. I think we're also opening a good spread of A-grade centers, regional centers, maybe A B+ centers. And I think we really looked at the combination of return on investment and your EBIT percent payback. So I think on an average basis, A, you say it probably averages out. But I think we kind of want our thinking on what kind of stores we would make sense to open.

Yes. I agree the mix of stores that we're opening for FY '27, there's a really good mix of stores in there. And I think it speaks to how well the brand resonates in a wide range of areas, whether they're regional, suburban or metro. I'm sure a lot of you have been driving by the whopping Junction hoarding. So there are stores like that in the mix as well, which is quite exciting.

Going back to James Wilson at Macquarie.

Just firstly on Universal Store guys. I mean, so the trading update, it looked a little bit like momentum had maybe fallen away there in terms of the levels of growth you were doing relative to FY '26 in the first few weeks of this year. Can you just talk to me about sort of what you've been seeing in that brand, particularly over the past couple of weeks?

Yes. I mean, again, I think we've got to acknowledge that Universal Store cycling very strong comps from last year through July and August. I think that's one thing to remember. And the team -- I think we've got to be comfortable with that comp, but the team are definitely not satisfied. So we're looking to improve that. And I guess we're not necessarily seeing this commentary out in the market that winter is doing badly, like consistently good, sort of a mixed story between regions and categories. But I think -- the customer continues to for great products. So when the team is executing well, which they are, that will deliver good freshness and customers will respond to that. There is some good energy into sort of our promotions that you'll recall we do. So -- and that's not just on the base of a trade down because we still see premium price point tops from perfect be the best sellers in Universal Store. And there's actually some good trend ability going into those promotions from open archive and L&T, which are actually just exciting and value driven.

All right, guys. And maybe just to expand then, George, on what you were just saying sort of around value proposition. We do start to see younger consumers maybe face greater headwinds this year, particularly in terms of, say, their cash flows. How do you think, I guess, your different brands are positioned to offer a more value product? Like is that primarily Universal store? Or do you think Perfect Stranger has enough value product as well if that begins to occur?

Yes. I think this is actually a good question because I think it's relative positioning in market. So if you look at the -- perfect Exchange brand positioning, we've increased unit prices as you would have seen considerably year-on-year, which find in the white space we want to be in. Now that's more expensive than it was before and more expensive relative to a lot of the price points in Universal store. But for that customer, it's actually quite accessible for what is effectively designer-led fashion. So we think that, that is the value proposition rather than trying to go entry because Perfect Stranger is not trying to compete at sort of the entry level of the market. In Universal Store, again, we traded through different macro conditions, making sure that there is good full price offering. And so what we know is our customer will vote for the premium product that they have to have it, but then they'll also vote for great price point product as well. So it's not about promotion and clearance. It's really about creating a great architecture and the price assortment. So in FY '23, when we had rents rising as an example, we made sure that there was good energy going into our promo offers and that also there were good entry-level price points within each category.

Yes. Maybe if I can -- I think key is the team trade. So the team are excellent at trading and being close to the customer. And because we have that fast to market inventory procurement, we like other retailers who buy 3 months to 6 months to stock at once and see how the kind of goes. So I think that kind of operating model, I think, is really quite agile in this environment as well.

Provides flexibility required to respond. And I think we've done a really great job demonstrating how well this business performs in tougher macroeconomic environments and in softer macroeconomic environment. So we're not afraid of responding to the market as required, and we've got plenty of skills and tools and talent to do that.

Our next question comes from Chami Ratnapala at Bell Potter.

Maybe 2 questions from me. Just the first one, maybe as there has been a bit of consolidation in the streetwear market and a few others have come out and reported declines as well. How significant have your market share gains been to the extent you can speak to? Is that a tough question or...

I think they've been happening incrementally for a very long period of time as those brands have declined slowly. So we -- when they would undertake really heavy markdown activity, we didn't notice an impact because of the differentiation strategy and close to market and the curation of the collection and the customer service we provide. So I mean it's kind of been an ongoing experience for us, and I don't think we're going to see a big shift to...

Yes. I think we've incrementally and consistently chipped away market share. Universal Store is the leader in this category and a best-in-class retailer. So I think as Al said, it is more of a long grind. I think the store opening rollout for FY '27 does speak to consistently chip away and grow market share and the opportunities come. And that I think is in line with a more difficult trading environment for your competitors, they fall away that you tend to capitalize on that market.

And we continue to learn a lot more about particularly the Perfect Stranger customer. So now we have much clearer view on size of store location where we want to be, and we'll continue to learn from this rollout as well.

Perfect. And maybe as a second one, just on the strong store number or so target for FY '27 for Universal Store. Where does that leave you with that 100 store target? And does that now become a different number? And probably if I can have 2 parts to that Perfect Stranger retail stores you've been rolling out for 5 years now, a bit of a revisitation and just that 60-plus number, what's the perspective on that as well?