Lovisa Holdings Limited (LOV) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Lovisa Holdings Limited FY '25 half year results briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Victor Herrero, CEO. Please go ahead.

Good morning, everyone, and thank you for talking -- taking the time to dial in. On the call today, you have our CFO, Chris Lauder; and myself, Victor Herrero, CEO. As you are aware, this morning, we published our half year results to the ASX; and we would like to talk you through them. I will now do a page turn through the highlights of the presentation. And we are happy to take any questions at the end. If we turn to Page 4, we will talk through some of the highlights of the year. I am pleased today to present another solid result for the first half of fiscal year '25 which is again evidence of strength in the team, the product and the potential of the business. Our store rollout continue through the year. Though it was at a slower pace than we have previously achieved, we have opened 57 new stores in the period, taking the store network to 943 stores at half year-end. This allow us to deliver solid growth in total sales of 8.8%, which include comparable store sales up 0.1% on prior year. Gross margin was again a highlight, offsetting the impact of upward pressure on cost of doing business as we continue to make investment into growing the business. As a result, we delivered an EBIT of $90.2 million, up 10.7%; and NPAT of $56.9 million, up 6.5%, which has allowed the Board to announce an interim dividend of $0.50 to be paid in April. If we turn to Page 6, you can see the sales performance for the period that shows the benefit of our continued store network expansion. Looking to our region, growth was again strong in the European and Americas market, with those regions providing the majority of new store growth. The Asian region continue to be the most challenging market and opportunity for improvement. I will now hand over to Chris Lauder, our CFO, to talk through the -- our financials.

Thanks, Victor. Good morning, all. If we turn to Page 7. Gross profit was $334.7 million at an 82.4% gross margin, up on last year by 170 basis points, which was achieved on top of the 40 basis point increase achieved in the first half of FY '24 and 410 basis points higher than the first half of FY '22. This result has been delivered from tight management of pricing and promotion and our focus on keeping our inventory healthy, as well as improved performance in management of shrinkage across the business. We've continued to focus on the efficiency of our inventory position and are very pleased that we have been able to close the half year in a good state. Turning to Page 8, we'll talk to our profit. As you can see, we've again been able to deliver growth in both EBIT and NPAT despite the impact of flat comps for the half and inflationary pressures on our cost base. We've continued our ongoing investment into service and management structures, technology, supply chain and our digital marketing and events capability to support our constantly growing business. The upward pressure on our cost of doing business was offset by the reduction in the CEO LTI expense from $6 million in the prior period to $1.3 million in the current half, which when combined with the strong gross margin for the period resulted in an increase in EBIT margin for the period. NPAT was, however, impacted by a higher effective tax rate for the half, with the timing of recognition of tax losses in relation to emerging markets impacting the prior half year favorably and the current half year unfavorably, resulting in an increase in effective tax rate to just over 29% for the half year compared to 26.4% in the prior period. As a result of this, NPAT was up 6.5% compared to the first half of FY '24. Turning to Page 9. You will see that the cash generated by the business has again been solid with cash from operations, before interest and tax, of $141 million for the period, reflecting tight management of our working capital. Whilst this is lower than the same period in prior year, this was largely a result of the very strong performance in prior year driven by the renegotiation of supply terms and the impacts of the timing of payments relative to the half year-end date. Cash capital expenditure for the period was $17 million, predominantly for new store fit-outs. Cash interest and lease payments were also higher than prior year due to the growth in the store network. Turning to Page 10. You will see that the balance sheet remained strong with a clean inventory position and significant liquidity available to fund growth, with net cash at the end of the half of $6.7 million and total cash debt facilities of $120 million. Solid profit result for the period and continued strong cash flow and balance sheet position has allowed the Board to announce an unfranked interim dividend of $0.50 per share, representing the distribution of surplus cash currently in the business. As we have said previously, the Board will continue to assess dividend levels each period end and determine the appropriate level of dividend based on profitability, cash flows and future growth CapEx requirements in the context of prevailing economic conditions. The Board do not currently have a specific dividend payout ratio and will continue to base dividends on the cash flow needs of the company and the structure of the balance sheet. I'll now hand back to Victor.

Thank, Chris. If we turn to Page 11, a quick update on store numbers. The key driver of future growth for Lovisa continues to be our global store rollout. We finished the period with 943 stores trading in 49 markets, with 57 new stores opened for the half year. Although the pace of rollout was slower than previous year -- prior years, we remained focused on continuing the growth of store network globally. And we're pleased that we were able to deliver an acceleration in the pace of rolling through Q2 after a slow start of the financial year. The strong base we have built in the European market allowed that market to deliver the largest share of new store growth for the period with 25 new stores and provide us with a very strong base to continue to expand from. In the Americas region, we were able to make good progress in our Canadian store rollout, now trading from 23 stores in that market. We were also able to open a number of new franchisee stores in the period to continue our growth in the South American and African markets, with new franchisee markets opened in Ivory Coast, Republic of Congo and Panama. Turning to Page 12, you can see a recap of our -- of the business strategy, which set out the keys of our success to date and our focus for the future. Our strategy is unchanged. We continue to be focused on the global expansion of our physical and digital store network. And as you have already heard, we have made strong progress in delivering on this strategy during the current half year and have laid solid foundation for continued growth in the future. We have continue our focus on delivering an omnichannel experience to our consumers and have improved our e-commerce execution at the same time as expanding our customer reach by adding presence on a number of new online marketplaces during the period across multiple markets. We have also continue our ongoing investment in customer experience, support system and supply chain with the opening of our new 5,000 square meters U.S. warehouse in August 2024, which is now successfully serving -- servicing more than 250 stores in the American region. We have also invested during the period in enhancing our customer engagement through social media and events, with a number of influencer events and piercing parties held in key locations around the world during the period. We remain excited about the future and believe significant opportunity exists for continued future growth. On Page 13, I will talk to the trading update for the second half to date. Trading for the first 7 weeks of fiscal year '25 saw comparable store sales for this period up 3.7%. Total sales for this period are up 12.9% on the same period of fiscal year '24. Since the end of the half, we have opened 16 new stores, with 2 closures and 1 relocation, with a total store count of 956 stores; and expect this store rollout momentum to continue. We also expect to open our 50th market globally in the coming week, with our first company-owned store in Zambia, Africa set to open. We continue to focus on opportunities for expanding both our physical and digital store network. And our balance sheet remains strong with available cash and debt facilities supporting continued investment in growth. To summarize the half year on Slide 14. Our sales performance was solid for the period, with growth primarily from network expansion, with comp sales flat, to deliver overall sales growth of 8.8%. Our global expansion delivered 57 new stores opened in the period, finishing the period with a total network of 943 stores. Gross margin were again outstanding at 82.4%, an improvement of 170 basis points on prior half year, which was achieved along with a clean inventory position. This combined to deliver good profit growth with EBIT of $90.2 million, up 10.7% on the prior half year; and NPAT of $56.9 million, up 6.5%, with our strong cash flow and balance sheet position allowing the Board to announce an interim dividend of $0.50 per share to be paid in April. I want to thank the entire global Lovisa team for the outstanding work they are doing to deliver these results. And with that, I want to thank you for the time today. And we are happy to take any questions.

[Operator Instructions] Your first questions come from Shaun Cousins from UBS.

Victor and Chris, maybe just on gross margins; obviously a very strong result, in the half up 170 basis points and 410 since the first half '22. Could you just amplify a little bit around the ongoing management of pricing structures? Is that just raising prices where you think you can? And the supplier cost inflation are just -- are you able to get better terms out of suppliers? And within those answers, do you think these tailwinds can continue? And have you seen the benefit of higher prices come into like-for-like sales growth, say -- was higher price a big driver of the comp growth that you reported, say, for the first 7 weeks, please?

Thank you for your questions, Shaun. It's an outcome that has been -- I think, for the last 4 fiscal years, we've been concentrating as well on margin. And I think that's the -- it's a reflection of consistent work over the last 4 years. It's not only price increases. It's basically also negotiating margins with our suppliers and all the other things that are helping us, being very careful on any promotion, so it's kind of -- it's several actions that are summarizing the gross margin. And we expect always to try to find excellence on the gross margin, and we will continue trying to improve our gross margin in the future.

And was price a big driver of like-for-like sales?

Obviously it's part of the mix, Shaun, but we don't try and break it out into those different components. But...

[indiscernible] certainly. And maybe my second sort of question is just really around cost of doing business. Could you just discuss the higher-cost markets? And I assume that's only the corporate-operated markets, but maybe which ones are there -- sorry, are they? And this investment in team structures, technology, supply chain: Is the supply chain investment the Columbus DC? And maybe just how you've had to invest in and what you've done in terms of team structures and technology. Kind of what does that mean? And will this increase in CODB? Is that just a first half '25 issue; or will that be something that sort of annualizes, this step-up annualized, in the second half '25, please?

I guess it's a continuation of the same storyline we've been talking about for a couple of years now, Shaun, that as we've rolled out a lot of new markets, that we get a different mix of cost base of different markets. And as we -- the mix shifts towards some of those more expensive markets to operate. Whether that's in store operating costs or the costs of CapEx to build the stores or the impacts on depreciation or the amount of support structure you need to put behind it to make it run, all those things combine to make it a more expensive business to run as you grow and increase that scale. And we've got, well, as of this week, 50 countries that we operate in. And we've got a lot of countries there that we don't have scale in yet, so that also puts pressure on costs of doing business because we've got to have all the back end set up to do that for again 1 or 2 stores. So we're not going to sort of go through market by market and call out which ones are the most expensive and what impact each of those have on the business. I guess it's more just a fact of the mix shift towards the newer markets is more expensive than the more established ones, but the bigger challenge from a cost of doing business perspective is we did 0.1% comps in the first half. So naturally our cost of doing business as a percentage of sales is not where we want it to be, based on that, so our objective is to continue to grow off that base that we've built and use that to grow the business. In terms of supply chain, yes, definitely we're referencing the warehouse in the U.S. So obviously that cost money to set up, but it's up and running and it's doing a great job there servicing that market. And we continue to invest in people and making sure that we've got the right level of people and the right quantity of people to run the business and deliver the next stage of growth, so like I said, it's the same message we've been giving for a while that we'll continue to invest in the business. And if that means that we have a period where CODB percentage goes up, then that's okay.

Shaun, in the next few months, as you know, we'll achieve the milestone of having 1,000 stores. And I think it's very important that we dimension ourselves in order to continue growing significantly without any type of struggles in terms of how we distribute our product, how we buy our product, how we -- so we opened over the last couple of years one DC in Poland, as you may know. That is serving all our European markets. And right now we are opening -- or we opened the warehouse in Columbus, Ohio, where it's serving at least 250 stores, but I think we are expecting to continue growing in the Americas, so I think this is setting up for the future of the organization, which are, of course, incurring our costs but at the same time helping us to continue doing rollout of stores and rollout of e-commerce platforms.

Next question comes from the line of Benjamin Jones from JPMorgan.

Victor, Chris, just one question on the U.S. You've obviously added those net 2 stores for the half. Can you just talk us through what you're sort of experiencing from landlords in the U.S.? And is that pace of growth at the site, availability issue? Or are lease costs sort of not just -- not meeting your internal return hurdles?

Thanks, Benjamin. I think the U.S. is a market we've talked about a bit in the last year in response to this sort of question. And we've said that we deliberately slowed down the rollout there for a while just to make sure that we were operationally executing in that market given we've grown so quickly and spread out across the whole country at a pretty rapid rate. So the tail end of that is what you're seeing in the first half. We're looking to grow that market again. It would be a second half story, and that's pretty much where we're at. And so a lot of the growth in that Americas region was focused on Canada in the first half. We did get a couple of U.S. stores open there already and there's more to come, but yes, I mean, landlords, just like anywhere in the world, it's -- it depends on the site as to what sort of deal you're getting and whether they're better deals or whether they'll work for us. But the one thing that we've always said is that we're not just going to do deals to get store numbers, so we're making sure we do it properly. And we'll get that rollout going again soon.

Yes. Very helpful. And then just a question on the gross margin. It's a fantastic outcome. I appreciate your stock turn is fairly low. I mean, how much of an impact have seen from FX on that gross margin line? And how are you thinking about sort of timing and sensitivity to your USD purchases? And how do you think about sort of hedging profile into '26?

Yes. Gross margin impact of FX is a pretty complicated [ base ], a lot more than it used to be when it was pretty much just AUD to USD that was driving that. So we did call out what that impact is, and it was a pretty clear storyline. As of now we've got so much of our business either denominated in U.S. dollars. So we're paying U.S. dollars for USD stock. Or we're converting euros or pounds or whatever the case may be, so it's actually -- there's a bit of natural hedging in there. And it's not as big an impact on gross margin as what it used to be in percentage terms, so we generally don't talk to it, to be honest.

Okay, makes sense. And then just one final one is on that comp sales growth for the 7-week update. Any there any comments that you can make in terms of sort of consistency across regions? And do you think you'll be able to maintain that rate of growth through to the end of the year?

Yes. I think just one callout on that growth rate, I think, the 0.1% comp in the first half. Probably a bit -- a little bit better than that -- just probably heard other retailers call this out [ but ] impacted on us as well, that last week of December, just the timing of where Christmas fell. And so that week was a little bit softer. And the first week of January was a little bit stronger, but -- we get a little bit of a boost in that week, but we've been pretty happy with how it's continued on for the other 6 weeks of that 7-week period. So we're hoping we can continue that on, but the comps in the second half are obviously last year that we're cycling a -- stronger than the first half. But we've been, we're pretty happy with where they're at. It's obviously a lot better than 0.1%, but yes, in terms of calling out individual markets, we try not to do that.

Yes, makes sense. And I might just squeeze one final one in, just on the pace of the rollout. You mentioned it on the call just now, that you expect that rollout pace to continue. I mean, how much visibility do you have into the store openings through the half? I mean, what sort of lead time do we work to? And is that lead time short enough that you can accelerate store additions as those opportunities arise that you don't necessarily have visibility into as of right now?

Yes. Obviously you get to a point during the financial year where you're not going to be able to get many new stores that you haven't already got signed up. Sometimes you get lucky in the sites that are available pretty quickly and you can get them opened straight away, but we've got a pretty good pipeline of stores coming that we're confident we can continue the momentum that we've had in the first half. Particularly, since AGM, the pace accelerated from there, so you guys can do the math and work out what that looks like for the full year number, but yes, we're happy with -- or happier with the pace that things have gone out since that point.

The next question comes from the line of Julian Mulcahy from E&P.

Second -- first of all, a question on just the store rollout again. Can you kind of sort of talk through which of the markets you still see a lot of room for upside and also make a comment on where China is at, at the moment?

Well, thank you, Julian, for the question. All the markets, they have potential. I think we did -- we accelerated the rollout in Canada, for example, but at the same time, we will continue with the rollout in the U.S., European markets and in some extent also African market and Asian market. And regarding the rollout for this year, as -- if you do the calculations, we will open more stores than -- in fiscal '25, we will open more new stores than last year in fiscal year '24.

Right, but like some of the -- like Spain seems really low numbers. Italy is low numbers. Do you have big plans for those markets, or are they -- [ is that where you ] reckon they'll get to?

Yes, we don't go into specific markets, but I think clearly -- I think a main driver of our rollout for the first semester was Europe with 25 new stores. So you can see that, I think, we opened some stores in Spain. We opened some stores in Italy. We opened some stores in France, actually everywhere; and also in the U.K. So I think U.K. as well is an important market for us; and Ireland, as you saw. I think we have several stores at this moment in Ireland. And we will continue finding opportunities. Also, Eastern European markets will be important for us as well, so there are plenty; and also new markets in the future, maybe all the European currency markets, like Greece, Portugal and all the others. So I think plenty of room or white space still in Europe; and also plenty of white space in Americas, the -- in the 3 main markets that we have. That's Canada, U.S. and Mexico.

Any comment on China?

China, we will continue analyzing. And of course, I think the potential of China is tremendous, and we will continue working on China. One thing that is important to let you know is that we are fully omnichannel in China. And basically we will continue analyzing opportunities in terms of store rollout.

And just one other question, just on the gross profit margin. What was the inventory write-off in the period, Chris?

Not a number that we've called out specifically, I don't think, so -- but nothing...

[indiscernible] [ last year ]...

Nothing of any concern there. I mean we've been pretty clean with the inventory. And yes, there's no big upside in, on that line at all, to be honest.

The next question comes from the line of Aryan Norozi from Barrenjoey.

For the first 16 weeks, you opened 16 new stores -- sorry. For the first 7 weeks, you opened 16 new stores, so like, for the second half, you're on track for 55 new stores, which is 26 weeks contribution. Is that a reasonable number you're looking to? Or is the commentary that your rollout, maybe per week, will accelerate on what you just did in the first 7 weeks? Can you just give us some color on that, please?

Yes, but we haven't given any guidance on what we think is going to happen in terms of acceleration. I guess we've said we expect the momentum that we've got to continue. I think you've got a few data points there as to what that could look like based on that momentum as to -- based on the number of stores we've opened since the AGM, over that period; and the run rate in the first 8 weeks of January, February. So yes, you can come up with a number there, Ary...

Is the message that looking at the rollout between the AGM, end of the AGM, and today? And maybe that's a more reflective number. Because you guys always call out that the rollout is lumpy. And I'm just conscious of annualizing a 7-week period, so are you saying that sort of 14-week period since...

[indiscernible] that's what I'm saying, Ary, is that -- because you take a short period of time, obviously a...

Yes.

Lumpier outcome. So [indiscernible] longer period to look at, but obviously that will depend on how good we are getting leases signed and the stores actually opened, based on what we've got in the pipeline. So that's why we don't give you guidance.

I'm sorry. Victor, did you say -- can I clarify? I'm not trying to put words in your mouth. Did you say you expect to open more stores in fiscal '25 than fiscal '24 for the group?

Yes, correct. It's what I said.

And then historically, GMs in the second half are 1 percentage points lower than the first half. That's just typical seasonality business mix. Is there anything that would explain why that won't happen this year? Is there like any net headwinds or tailwinds that you can call out? Or is that a pretty good way of thinking about the business?

Yes, not specifically, [ nothing to ] call out from that perspective, Ary.

All right. And then like-for-like from November, December was down 2% year-on-year. If you can just back that out from the result -- and then you're now up 4%. Like, is it just the timing of that weekend, that Christmas weekend, that explains that drop? Was it wildfires in California? I don't know if that's material. But like what explains that deterioration; and then the pretty material step-up into Jan, Feb? Because I don't think you put through that much price increases in that month, anyway.

All of the above, Ary. I mean there's so much noise in the comps, just it's timing of different events year-on-year over that period -- at the start of the period, around November -- I can't remember off the top of my head, but around AGM time, there was some noise around the timing there as well that was impacting our November month, so it's just -- yes, it's a bit up and down from 1 week to the next, but overall we're happier with the trajectory of comps. But still a lot of work to do.

The next question comes from the line of Wei-Weng Chen from RBC Capital Markets.

So can you maybe speak to your exposure to a U.S.-China trade war; and I guess, what can be done, if anything, to mitigate the impact?

Yes. I guess our exposure to a U.S.-China trade war as it currently stands is whatever the tariffs are in place at any point in time. We don't know what else may or may not happen from that perspective, but you add 10% on top of the cost of our product going into the U.S. from China. And that's where majority of it comes from. Obviously that adds 10% to the cost of what's going through our P&L. And we obviously then need to look at what's the market doing with price to offset that because it's not just an us issue. That's an everyone issue, so you can probably expect that, in response, there would be price adjustments market-wide. And we would be part of that, but yes, we've obviously got to play it by ear and monitor it closely because there's a lot of news coming out of the U.S. on a daily basis. And yes, we've obviously just got to pay attention to what's happening there and act accordingly.

Yes. And just confirming: There's no view to sort of move production -- or supply, rather, out of China.

No, for the time being. I think we are happy with our suppliers. They know us. Basically, our suppliers as well, they are starting to open new factories in Vietnam, in Cambodia in -- and in other places around Southeast Asia, so -- which also will help this kind of raise of tariffs in -- from the U.S. or trying to minimize some of them. So at the same time, we work with the suppliers and trying to understand what's going on. The whole point is that we have 50 markets and there is 1 market that is raising the duties. So, so far, we're still comfortable to cope with any type of increases. And basically -- is not so impactful of a company where -- who is a global company and with so many markets and so many stores in different markets.

Yes. Okay, cool. And then competition. I was wondering if you could speak to whether you've seen an or noticed an impact from increased competition in Australia. And how is Lovisa responding to new entrants in the market? Or does it not necessitate a response?

We treat competition very seriously. And I think what we are trying to do is always trying to beat the competition by having better product, more trendy product and a much better offering than our competitors. And competitors are all over the world, not only in Australia, so we have competitors or new competitors coming into the equation on a -- let's say, on a weekly basis. We analyze whatever they're offering. And also we analyze basically that we will continue being as trendy as possible in order to have a good offering for our customers and potential customers.

Okay, cool. And then just last question. You guys have quite an interesting footprint globally. I guess, from a value proposition and product market fit perspective, can you maybe compare and contrast, I guess, your stores in your wealthy regions like, say, Australia or America versus developing regions like Africa? In Australia, we -- I guess we all understand how you're positioned. Is that positioning different when we think about lower-wealth regions?

We don't position ourselves. It's the customer who is positioning ourselves. So for example, in the case of South Africa, I think that we are a much more aspirational brand that we are -- in the perception of the customer, we are a more aspirational brand than what we are in Australia, but at the same time, you know every customers -- I think the important thing to position yourself is to have the right product at any given time. And I think that this is what we are trying to achieve by having [ units ] on a weekly basis, understanding the rationale of each -- of the countries where we are doing, repeat only bestsellers and these kind of things. The system is very dynamic in terms of what type of product we are putting in every single market.

The next question comes from the line of Alexander Mees from Morgans.

Victor and Chris, just firstly, you mentioned that the Asian market is subdued at the moment. I just wonder what the issue is in Asia and what you think is likely to happen next.

Well, the whole point with the Asian market is we were saying that we are not doing the rollout the same way as we are doing in Europe or in America, but still there is plenty of potential in the Asian market and we're still considering opportunities. And also at the same time is the Asian market, as you may know, is -- at this moment, from a retail perspective is challenging, but at the same time, I think we will continue expanding, finding opportunities. We can find opportunities in order to have better rental deals with our partners in Asia. So it's more an opportunity. We are seeing this as an opportunity, more than a disadvantage. And I think we are taking several actions in order to try to understand how to continue winning in those Asian markets.

That's great. And maybe just a technical one for Chris: Obviously the effective tax rate has been buffered around by various write-offs and the like. I'm just wondering if you can quantify what we should expect as a reasonable range for the effective tax rate going forward.

Yes, yes. So it's not write-offs that have buffered it around. It's basically, when we start up in a new market, you incur losses at the start, for the first year or so, from a tax perspective. And our approach is not to recognize those losses as an asset until such time as the market is up and running and we're happy that it's in a sustainable tax payable position. So what happens on one end is, when we recognize or utilize those losses that we hadn't previously recognized, you get a benefit to the effective tax rate, which is what happened last year. And then in the current year, we've got some markets where we're still not recognizing the tax loss position, so that means that it pushes the effective tax rate up. So when you look at the overall rates that apply to the different countries that we operate in and average it out, it comes somewhere in that sort of 28% to 29% range. So historically we've been a bit lower than that, which was benefiting from the U.K. tax rate which was quite low, but it's now up to 25%. So it kind of depends on where the mix of the profit is coming from, but what we're seeing is that that's naturally getting back to its normal level. The tax loss recognition buffers it around a little bit. And it's also -- it depends on the timing of when we're bringing dividends back from some of these markets and whether there's withholding tax on those dividends, some markets. That can also impact on the effective tax rate. So there's a few things in there, but I guess what I'm saying is the 26% last year was probably an outlier, that it's a bit lower in the long term. Where we're at now may be a little bit higher than what it will be. Longer term, it will be somewhere in the middle.

And then just finally, Victor, I'm just wondering to the point which is possible to generalize for the whole world, but are you seeing any changes in customer behavior? Is there any particular product that's resonating well now with the consumer?

Not really, is basically all -- it's quite stable in terms of the products that we are seeing that is resonated to our consumer. And also, as I mentioned before, our business model is basically always trying to have the newness in order to be appealing to the customer. So I think clearly we will continue thinking about this and also trying to always capture the latest trends in order to become the reference in terms of affordable jewelry. And so there is no kind of a particular thing in one particular market that is really basically affecting our sales significantly. It's the other way around. I think, more or less, we have a very comprehensive collection, where we allocate on every single market the right product and the appealing-ness of the product in each market is quite high.

The next question comes from the line of Chami Ratnapala from Bell Potter Securities.

Just 2 questions from me. I think one is a bit of a follow-up on the regional performance. To me, the U.S. market looks pretty good. I mean, would you call the U.S. and probably South Africa as the top-performing markets at the moment, more thinking about the overall consumer and your business as well?

I mean we don't -- we try not to call the top-performing markets, but you can see from the numbers that's published that the U.S. in particular or the Americas market as a whole had some pretty strong growth in the half. And obviously part of that is store rollout, which was from Canada primarily, but [indiscernible] higher than that. So we're obviously happy with the numbers coming out of that. And the rest of the world has largely been driven by store rollout. Because the comps haven't really contributed much, but that's probably about all we're going to talk to today.

Perfect. And then secondly, with the U.S., I think there are now quite a few stores which have been operating for more than 3 years. Do you feel like these stores or that part of the network is now to scale? Or are they -- I mean, anything that you can talk to sort of on the return metrics, how they're performing?

Yes. I think it's such a big market and so much complexity to it with so many states and the complexities that come with that, but I don't -- my view -- Victor may have a different view, but my view is that we're not at scale there yet. There's a lot more efficiency we can get from a bigger footprint in the U.S. market, but we're a lot better operationally than we were probably this time last year, with plenty of work to do.

Yes. It's a very good question. The 212 stores that we have in the U.S. and also plus 26 stores -- or 23 stores that we have in Canada -- I think -- is starting to -- we are starting to become a little bit relevant in those markets, but I think -- in terms of scaling, I think that we have plenty of opportunities in both markets to continue. Also in Mexico, we have plenty of opportunities to continue performing better and also to have a significant rollout in both markets.

Perfect. And Victor, you said 212. Just thinking about the January and second half, I suppose, I believe that the [ new ] sort of store pipeline has picked up for the market. Is that a fair observation? And how -- I mean, what do you expect at a high level for the U.S. market for the second half?

Yes. We were saying in the last call that, I think, we will have a slow rollout the first -- H1, but I think we will start picking up in H2. And we will open several stores in the U.S. this H2.

Perfect. And lastly, just on comp sales: I think comp sales into November, December, just as a follow-up to one of the previous questions, did get tougher, looking at last year. Was that majority of the reason to -- for comps to sort of track where they were after, post AGM? Or there was more playing out, with Asia and some of the other markets impacting.

Yes. I mean there's plenty of different things impacting on that number; and like I said before, noise in terms of timing of events year-on-year and all that sort of thing. So honestly, it's a really hard number to pin down and give you any color on that other than just through the whole period. And that's about where we're at. We've obviously seen an improvement in first 7 weeks. We've just got to maintain that.

Next question is from the line of Joseph Michael from Morgan Stanley.

Just the first question I had, just around the franchise stores. It's 4% of the total network, less than 1% of sales, but it seems to get outsized attention from the investment community given some of the markets are viewed as lower quality, so my question is how should we think about franchise stores in terms of strategic priorities. Is it a priority for you guys internally, or do we spend too much time talking about those markets?

It's a complement from our stores. It means that, I think, if we want to be a global company, we need to be everywhere where there is a customer of Lovisa. And it's not really a distraction. It's basically kind of a complement, is -- for example, whenever we opened in Ivory Coast, we were not really sure if it's going to be resonated to our customer, but basically we were very surprised and -- during few months, it was top 50 performing stores. So at the end of the day is -- I think it's important to be in other countries, where for example, in Africa, we have 4 countries that is our own. And later on, we have several countries that are franchisees; the same in South America. In South America, we have, I think, 4 markets with franchisees. And basically it's finding the right partner to develop stores. That's the only distraction from our business which is our own stores, but in some countries where we don't see the potential of opening a few stores, I think we partner with some franchisees. And also, our partners is multi market. So the South American partner is the one who is developing both the 4 markets. The African partner is the one who is developing of all Africa and some other regions. And therefore, I think we will continue working this way, not one franchisee per market, more multi-market franchisees.

Okay, got it. And then I guess, next question I have, just around new country expansion. You're sort of -- you're on the cusp of 50 markets. My question is kind of what is the strategy for opening new markets. Do you kind of look at each market as option value? There's not a lot of upfront costs if it works. You might find a country where you can find, open 50 or 100 stores. And if it doesn't work, you might look to shut that country down at some point. Is that kind of the strategy? Are you looking at all these markets as option value? If they work, great. If not, you kind of move on.

Yes. This is one of the strategy, but the second strategy is -- for example, we are opening in Zambia. Zambia, we are going to open this week. And is kind of an extension of our great business that we have in South Africa, where we have 80 stores. And I think we just opened -- we opened Namibia. We opened Botswana and we opened Zambia, so -- and is -- they are own store by ourselves. I don't think in Zambia we will have more than 10 stores, but at the same time, it's part of the organization of South Africa. So it's kind of a natural extension. And then, for example, in -- the same in Eastern European countries. We have 20 stores in Poland, but we have only 1 in -- 2 in Hungary and 1 in Romania. So we can extend that. And I think basically we can extend to other countries as well in the future. So we have already the platform to develop all these markets, but we will treat it as a whole market, as Eastern European markets. But I think there are more than 50 markets inside the Eastern European block, so that's why it's important to develop a platform. We have it in Poland. And from there, we can open all other stores, so probably, in the future, I think you will see that we will open stores, more stores, in Hungary, more stores in Romania. And then definitely -- for example, we opened China. And in China, definitely there is so much potential in order to open multiple stores in the future as well. So it's a kind of a strategy by region, more than by market. Also as I mentioned in the call, for example, Portugal or Greece is a European country, euro currency, so it's kind of an easy -- it's an easy call for developing those markets because it's part of the European Union. We have the platform in the European Union where we can develop many other -- I think we [ have ] 25 stores in European countries, and I think we will continue doing that. Are they going to -- Portugal is -- going to be a 100-store market? No but probably can be at one point of time a 30- or 40-store market.

Okay, great. And then just one last question, just around distribution costs down 11% year-on-year. Is that the new warehouse in the U.S. that's driving that? And is that a sort of sustainable base for distribution expenses?

There's a couple of things in there, Joe. So obviously we've done a lot of work in -- on the freight side of things and renegotiating terms and all that sort of stuff, which has given us some savings, but probably the bigger impact in there or equal issue in there or impact is with the warehouse coming in-house. That was previously a 3PL from a third party out of China, so all that volume was out of China. So now that -- some of that cost has moved from that line up to wages and salaries and rents and all the different things you have that come with running your own facility. So it's that reduction in that line is a little bit misleading. It's not quite as good as what it looks like.

Next question comes from the line of Sam Teeger from Citi.

I'm sure it differs by market, but in some of the older markets such as Australia, what's the average age of the fit-out across the network? And how many years do you think they'll last before they need a refurbishment?

Yes. Sam, obviously, more mature markets have been around for a while and more likely to have had obviously a store fit-out put in place. And then as at lease renewal, which in Australia might be 5 years or 7 years or somewhere around that mark, we might do a full refit and renew the whole thing. Or we might do a cut-down version, depending on the quality of the store or how good a shape the fit-out is in, so it doesn't just vary between markets. It varies between -- within markets and quality of store and that sort of thing. So yes, there will be some stores around the network that are probably in older series in terms of the fit-out than others, but generally we will try and do some sort of works on a store when the lease is up for renewal. This is generally around that -- I mean, anywhere between 5 and 7 years in -- on average.

And where you are investing capital in refurbs, can you talk a bit about the uplifts you achieve post a refurb and on what type of capital base?

We consider it more as a stay-in-business CapEx then rather than trying to work out what the uplift is from spending on capital. Because it's more a case of, if you don't spend it, then you'll probably start to deteriorate because you'll start to look average compared to the competition. So we don't -- honestly, we don't even look at that when we're considering a refurbishment. It's more about what does the store need and how much money do we need to spend to do it.

Okay, cool. And then just last one really quickly. Just how much of a benefit was Taylor Swift's last year? And cycling that, do you think that will be a noticeable headwind to the folks on our side?

It's not one that we're probably even going to spend any time talking about. Then, it was some good headlines back when it was happening and gave us a bit of a boost, but it was generally in one specific geographic area at any point in time, spread over...

It was 2 weeks, so at the end of the day, the impact is quite limited. It was very -- we were very happy last year because we sold a lot of bracelets, but I think, this year, we are selling a little bit less. And it's true that we are anniversarying that, but it's not significant because it's only in one particular state. Last week was in Victoria and now it's in New South Wales. And -- but is -- as I mentioned, all the other states are coping with whatever we have, the impact, in that particular state.

[ Got it ], all right.

Actually it was not even a state. It was either Melbourne or Sydney, so...

Your next question comes from the line of Ed Woodgate from Jarden.

So just following on from your comments on the 3.7% like-for-likes benefiting from the timing of Christmas. If you exclude that first week in Jan, are you still comping like plus 3% for the remainder of the trading update? Is that a reasonable way of thinking about it?

We're not calling out the specifics, Ed...

Fair enough [indiscernible] and -- okay, well, then just if we talk to the price increases you put through. So just based on your commentary around the drivers of gross profit margin expansion, it seems to imply that price is the greater driver of the expansion versus, say, supplier negotiations. Is that a fair inference?

I think you've got to look at the whole picture together. I mean there's obviously price that push the sales dollars up if you get the same volumes or you've got the same promotional activity or whatever, but we've been able to obviously manage our cost prices well with suppliers but also manage our promotional activity well as well. So that combination of all those things has contributed there. So when you manage promotional, that obviously can impact on your comps as well. We do the analysis and work out what we think the best thing for the business is, and that's what we do.

Sure. And noting that Victor says that you expect to get further [ GPM margin ] expansion going forward. And then just, sorry, a follow-on from the store rollout. I know it's been talked about a lot, but just I wanted to clarify some of your comments. So when you say you're happy with the pace of the rollout reaccelerating, are you saying -- is it due to the pace of you securing agreements and building up the pipeline? Or are you talking about you're happy with the pace of openings since the AGM? And then can you also clarify whether Jan and February is a seasonally weaker period for rollouts?

Yes. I wouldn't say we're happy with -- well, I think we'd like it to be faster than that because we've gone faster than that previously and we should be able to do that again. I guess we're happy with the fact that it's improved the momentum in that period. In terms of the January, February period, January is generally a slower month. Not a lot happens in January, from a store opening perspective, in each year. It tends to be one of the slower months, but then you get a backlog that hits in February, so -- which is what we've just seen. So I guess it averages out to probably what the current trajectory is. So I don't know. Does that help?

Yes, but just to clarify: It does, but can you -- just to clarify your comments in relation to securing the pipeline versus openings. It seems to be suggesting that the pipeline is greater than the rate in which you're opening over the last, say, few weeks or, say, [ obviously the ] few months.

I guess -- so what we're saying is that we're happy with the trajectory in terms of as a directional way of looking at where we could end up for the financial year. And we've got a pipeline that supports that. And we're not giving any further clarity on how many is in the pipeline or whether that's an acceleration or not, for the reason that we still have to sign leases and get access to the sites and build the stores and all that stuff that we always talk about. That means it's not a straight line.

Okay. And then last question -- sorry [indiscernible]. Asia: So you gave some color there that the retail environment is particularly challenging. Just [ I guess it would ] be helpful, but is there any particular countries that you're seeing that in particular?

No, it's general, but I think, as I mentioned before, it's maybe it's a specific moment of time that we believe or we take it as an opportunity in order to improve the situation and trying to perform better. Because I think sometimes it's a macro environmental conditions of the retail picture in Asia, but I think -- clearly, I think, for us is we take it as an opportunity in order to improve our numbers over there.

Next question is from the line of Grant Francis (sic) [ Garth Francis ] from MST Marquee.

Could you just give us -- I think you mentioned just the store weighting -- store openings for the first half were weighted to the second quarter. Can you just give us a sense, is that earlier on in that quarter? Or do you have the same impact of like January where store openings are slimmer during November, December [ that have been ] front weighted for that quarter?

I guess all we're referencing is just what you already know. So at AGM -- I think we had opened 40 new stores, I think, up until we -- whatever the AGM was, which was towards the end of November. And then we -- I think we're up to 73 year-to-date now, so -- which is in the last 13 or so weeks. So that's all what we're saying, but we didn't open as many through that first quarter as we did even also in the month of December. It was heavily weighted towards December than anything.

Yes, okay, perfect. And then has the U.S. DC had an impact on the gross margin and achieving that better gross margin?

Not noticeably. I mean it -- that's more an exercise in efficiency and making sure that we've got product closer to the store and the replacement [ purposes ]. And we felt that the demand is big enough to support that and warrant having that facility in place. So it's not necessarily a major cost-saving initiative because obviously we're moving it out of China, [ which is ] a much lower-cost location than the U.S., but net-net, we've come out around the same.

Okay, perfect. And then just on lease amortization. A couple of analysts have obviously pointed out that it's been a tricky one to tackle with the AASB changes, but with the lease amortization for this period, it increased at a slower rate than store growth. That's just a timing factor. And is that sort of a -- would you expect that to increase at sort of the rate of store growth for the second half?

Yes, probably. That's the way we're trying to look at it, that it would increase at a similar rate to the store growth, but it's -- as you know, it's a complicated standard. And it depends on timing of renewals or how many stores are in holdover and stuff, so yes. Unfortunately, it's not a simple one to look at and analyze, but [ if you ] take that approach, then you're probably [ on the right track ].

Sure, great. And then just can you give us any details on the CEO transition timing?

Yes. No change.

No change, exactly.

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

Thank you very much, all, for your time. And we'll see you in the next press release. Thank you. Bye.

Thank you very much. That does conclude our conference today. Thank you for participating. You may now disconnect. Thank you.