Shaver Shop Group Limited (SSG) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Shaver Shop's Results Presentation and Investor Conference Call for the Half Year Ended 31st December 2022. Please note that today's call is being recorded. [Operator Instructions] Presenting today will be Cameron Fox, Shaver Shop's CEO and Managing Director; and Larry Hamson, Shaver Shop's CFO and Company Secretary. If you wish to follow along with the slides, Shaver Shop's presentation has been launched with the ASX and is also available from Shaver Shop's Investor Center website. I will now hand you over to Cameron Fox. Please go ahead.

Good morning, ladies and gentlemen, and thanks for joining us today. It's a pleasure to once again be here to update you on our financial results this time for the first half of the 2023 financial year. Our agenda is very consistent with previous presentations. I'll hit the highlights from the first half before handing over to Larry, who will take you through the financial results in more detail. We'll then move on to our trading update and outlook before opening up for a Q&A session at the end. As always, please note the disclaimer around forward-looking statements in the appendix to the presentation. Okay. So let's move on to our financial highlights on Slide 4. Total sales were up 3.8% to $131.9 million. This is a new record high for the business and was driven largely by customers switching back to in-store shopping habits with our store sales up 33.5% to $100.8 million. In-store sales represented roughly 3/4 of total sales for the first half with online now representing approximately 1/4 of total sales. This percentage was relatively consistent throughout the first half, giving us confidence that some of the unusual shopping patterns we saw through the pandemic have now normalized. Importantly, though, online sales stayed well above pre-pandemic levels and was a key contributor to total sales being up almost 23% versus the first half of 2020. One of the key highlights of the first half was our gross profit margin, which was up 50 basis points to 44.3%, one of the highest levels ever recorded by the business. We're able to maintain the gross profit margin strength that we highlighted at the time of our AGM throughout the remainder of the first half. It ended up mitigating a significant proportion of the sales softness that we experienced in both November and December. This is an exceptional result because our performance in these 2 months has such a material impact on our half yearly and full year profitability. Operating expenses were also well controlled, leading to net profit after tax of $13.7 million, which is up 4.5% on last year's results. This translates to basic earnings per share or EPS of $0.108 and cash EPS of $0.111. If you're not familiar with our definition of cash EPS, Larry will take you through this a little bit later. Our balance sheet remains very strong with $34.1 million of net cash at 31st of December after having generated $39.0 million in operating cash flow for the first half. As many of you know, this is a seasonal result with the cash balance reducing significantly in January and February when we pay our suppliers for Christmas stock purchases. So overall, a really solid set of numbers once again, with our average return on capital employed, standing at 31.2% over the calendar year. The strong financial position, performance and future prospects of Shaver Shop have also justified the Board in announcing an increase in the interim dividend to $0.047 per share fully franked, up 4.4% on last year's $0.045 interim dividend. Now moving on to operational highlights. Customer service excellence is a most important metrics, and I'm pleased to say we have held our NPS score, consistent with last financial year at 88.4 out of 100. This strong service score was helped by our ability to return to in-person training in the first half of 2023, where we held 2 sessions in each state to ensure our teams were prepared for our peak sales events over both November and December. We believe this in-person training was at least part of the reasons we are able to partially offset declines in shopping center footfall across the last 2 months of the half with increased sales conversion. Our sales conversion is being the proportion of people who purchased something in our store compared to the total number of people that entered our stores over that period of time. As stores became the preferred channel for customers, we adapted our marketing approach by taking steps to reduce the level of digital spend in some of the areas where we didn't think they were delivering adequate returns. At the same time, we ramped up our social media activity on Instagram and Facebook with a 79% increase in post over the first half versus the prior comparative period. We also continue to significantly increase our reach on these platforms with our post targeting 1.5 million Instagram accounts in the last 6 months. As previously mentioned, we increased the online shipping alternatives for customers in February 2022. And I'm pleased to see these new shipping options have been readily taken up. Probably most pleasing is the fact that our click & collect sales represented 14% of total online fulfillment in the half. Now this is an important metric because the click & collect option enables our store teams to connect with and delight these customers when they come in to pick up their purchases. We are still working on translating our amazing in-store experience into the online channel, something that is challenging to do, but we remain very focused on. Lastly, our teams. Our store teams continue to exemplify our customer focus ethos. However, there is always room to improve further, and that's what we challenge ourselves to do day in and day out with every single customer. So let's now move on to Slide 6. This provides a bit more context about what we saw in each quarter from a trading perspective. We have shown our quarterly growth rates compared to both the last 2 COVID impacted years as well as to pre-COVID being FY '20. As expected, quarter 1 was very strong this year given we were cycling the store closures during the COVID lockdowns of the prior year. Online sales declined sharply, but this was more than made up by customers once again shopping in our stores. Total sales were up 17.5% on quarter 1 FY '22 and up 33.5% versus the pre-COVID levels of FY '20. Quarter 2 started similar to quarter 1, but coming to the end of October, sales growth rates slowed and then declined as we began to cycle the elevated lockdown reopening sales from the prior year. What was surprising to us is that center footfall actually declined in November and December. And of course, was even further down compared to pre-COVID levels. This was unexpected. However, we were able to largely offset the foot traffic decline with higher sales conversion. So ultimately, this led to sales being down 4.1% in the second quarter versus the same quarter in FY '20. But importantly, we're still up 16.1% versus quarter 2 FY '20. So when combined, that led to first half sales growing 3.8% to $131.9 million. And as you can see in the bottom right of the slide, it continues the pleasing run of consecutive years of first half growth. Compared to the first half of FY '20, our sales were up 22.7%. Slide 7 shows a split between online and in-store sales contribution. And as you can see, in-store is once again our dominant channel. This time last year due to the lockdowns in quarter 1 and early quarter 2. Online sales were highly elevated, representing 41.6% (sic) [ 21.6% ] of total sales. We believe our most recent half is much closer to the norm and what we'll likely see moving forward. We still expect online sales share of revenue to increase to between 25% and 30% over the next 2 to 3 years. But given the nature of the categories we sell and customers wanting to look and feel and ask questions about these products before they buy, we do expect this may be the ceiling for online sales under the current business model. As I've mentioned in previous presentations, this doesn't disappoint us because of several reasons. Our stores are where the magic happens, we Shaver Shop, and where our differentiation as a business is most evident. We are a able to create a stronger connection with customers in store that will help drive increased loyalty and repeat purchase. And from a pure operating contribution perspective, incremental in-store sales tend to generate higher contribution margins as we don't incur postage and other incidental fees for completing the sale. To be clear, this certainly doesn't mean that we'll stop investing in our digital offering far from it, but we will continue to look to optimize our investments in this area to maximize returns and meet customer needs. As I mentioned earlier, one of the standout features of this result was our gross profit margin of 44.3%. This strong result was no fluke. Throughout the half, we maintained our pricing discipline and applied the learnings that we gained throughout the pandemic. We focused on driving profitable sales and not just top line results. Category mix was a minor factor impacting gross margin, but what's really pleasing is that our overall approach led to improved margins across almost all product categories. What this means in practice is that our strategy is working. We continue to train our store teams to be product experts. We've curated a differentiated and highly exclusive product range. And our offer is compelling and offers value for money to our customers across all price segments and all product categories. And this result is less focused on focusing on price discounting and heavy promotional activity. And in doing so, our gross profit margins are increasing. In the categories where our range isn't as differentiated such as hair styling and female beauty, we also chose not to chase top line sales if it wasn't going to increase our bottom line profits. Now this was a distinct change in approach compared to prior years. So part of the reason our sales declined in the second quarter was because we deliberately chose to not be as aggressive on hypercompetitive trade-wide models over the Black Friday, Christmas and Boxing Day promotional periods. Ultimately, this new approach was a key contributor to Shaver Shop delivering a strong net profit result for the first half and delivering an improvement in operating margins. And as you can see from the chart in the bottom left of the slide, gross profit margins have remained significantly above pre-COVID levels over the last 3 halves. Lastly, from a share perspective, haircutting remains our largest contributor in sales, only down marginally from first half FY '23. The men's shaver category has rebounded to represent 20% of total revenue, up 3% of total sales, reflecting the propensity for men to revert to a clean shaver look as they go back to the office. Power oral care has also been very strong with a broadening of Oral-B's iO range. DIY massage has always been a category that's been driven to a large extent by new product innovation. This category softened this year after having experienced a massive growth in handheld messages -- handheld massage guns over the pandemic period. Lastly, before I hand to Larry, our range of exclusive or "only at Shaver Shop" products continues to deliver an exceptional contribution to both sales and gross profits for our business. Many of these exclusive lines tend to be in our core hair removal categories such as men's shavers, trimmers, clippers and body groomers, but we have also expanded the range of private label products that we source from third-party distributors in Australia. We pride ourselves on having the deepest and broadest range of personal care appliance for men and women. And with our exclusive lines, we continue to be the destination of choice for many consumers across our core categories. It also puts Shaver Shop in a highly defensible and differentiated market position and other factors that makes Shaver Shop's business model so attractive and so resilient. With that, I'll now hand over to Larry to review our financial results in more detail.

Thanks, Cameron, and appreciate everyone for joining the call today. As Cameron mentioned at the start, we posted another really solid set of financial results for the first half of 2023. Sales growth was delivered across almost all Australian states and territories, breaching the $130 million sales level, representing another new milestone for the business. Also pleasing was that sales contribution remains very broad, with no single product generating more than 2.3% of total sales. And further to Cameron's points on the last slide, 23 of the top-selling 30 lines were exclusive to Shaver Shop. This ratio has stayed relatively consistent since our IPO in 2016, and is another key reason why we've been able to deliver a very strong gross profit margin result this time at 44.3%. As Cameron mentioned, this is up 50 basis points on the first half of 2022 and is well above our long-term historical average of between 42% and 43%, leading to gross profit dollars being up 4.9% to $58.5 million, also a new Shaver Shop record. With cost of doing business well controlled, once again, our EBIT margins increased 30 basis points to 15.7%, and we delivered a 4.5% increase in net profit to $13.7 million. Our second highest first half net profit result in the company's history. Slide 12 speaks to our cost of doing business and how we have continuously adapted our cost base to suit our changing business needs and environmental conditions. Employment costs as a percentage of sales increased materially in the first half of 2023 versus the prior comparative period. Because in contrast to last year, the store network was fully operational for all of the first half. As you may recall, last year, during the lockdowns, we took the difficult decision to stand down some of our store teams, and in some cases, we closed our stores entirely during the lockdown period. This reduced our employment expenses, but as our sales transitioned to online, our postage costs soared. So while employment costs have increased 210 basis points as a percentage of sales in the first half of 2023 compared to the prior comparative period, operational cost savings have almost offset this entire amount decreasing 160 basis points from 5.3% of sales in the first half of last year to 3.7% of sales this half. As Cameron mentioned earlier, we also reduced our digital marketing expenditure when sales were clearly transitioning back to store to ensure we maximize our return on this investment. Marketing investment is never an exact science, and we'll continue to test, monitor and adapt different techniques to drive sales, brand awareness and brand loyalty. Marketing investment as a percentage of sales decreased 40 basis points to 3.3% in the first half. So at the end of the day, despite the inflationary environment we currently live in, we've been able to navigate through this quite successfully so far, with no impact to the operating margins of the business. Slide 13 illustrates the historical trend in net profit after tax and earnings per share over the last 5 first halves. As you can see, after the significant growth experienced at the start of the pandemic in the first half of 2021, we've been able to sustain these profitability levels since that time. This has been really pleasing as there were understandable concerns about sales and profits being pulled forward at the start of the pandemic that is ultimately not materialized. We delivered NPAT of $13.7 million in the half first half of 2023 and cash NPAT of $14.1 million. Now cash NPAT is our reported NPAT, which is then adjusted for the tax benefit that we received on the franchise license termination portion of the franchise buybacks that we've done to date. While this value is treated as goodwill for accounting purposes, we have a private ruling from the ATO that allows us to deduct the value of the franchise license termination from our taxable earnings on a straight-line basis over 5 years. In 2023, this will lead to around a $1 million reduction in income tax payable that we would otherwise have to pay to the tax office. Details of the remaining available deductions from our franchise buybacks that were completed is also available in the appendix of the presentation. From an EPS perspective, basic EPS was up $0.02 to $0.108 per share with cash EPS coming in at $0.111, consistent with the prior corresponding results. Now having regard to the softer sales results that we experienced in Q2 and particularly in November and December, this being -- Q2 being our most important quarter for the business, given the significant operating leverage we generate from a relatively fixed cost base, delivering growth in net profit as well as earnings per share for the half is a really pleasing result and is evidence that our value-focused pricing and promotional strategies are delivering. Moving on to our balance sheet on Slide 14. Our financial position remains rock solid. We had $34.1 million in net cash and no debt at the end of the half. For those of you that have tracked our story over the last few years, you appreciate that our cash balance rises significantly coming into Christmas because our suppliers give us extended payment terms for those Christmas stock purchases. This is a fantastic aspect of the business because it generally means we sell through the stock before we need to pay for it in January and February, thereby significantly reducing our business risk. It also means our cash balance is quite seasonal, though, with significant cash inflows coming in across November and December, leading to significant cash outflows in the first few months of the second half. Stock was $24.4 million at the end of the half. Our stock position remains very clean in November. And in November and December, we chose to align our stock purchases to the slower sales trajectory we were experiencing. This has allowed us to maintain very sharp inventory levels and strong stock turns, but we probably ended the half around $1 million to $2 million below optimal inventory levels. Stock levels have been a bit of a hot topic for retailers of late. Pleasingly, since the start of COVID, 3 years ago, we've reduced our half year stock balance by around $8.7 million from $33.1 million at the 31st of December 2019. So that's going from $33.1 million down to $24.4 million this year, which is an $8.7 million reduction. This is despite having 6 more stores in our corporate store network and obviously increasing our sales as well. So all up, it's roughly a $10 million release of working capital, which has significantly strengthened our balance sheet. Even so, when you think about the nature of the products that we sell, they don't really have a shelf life and are not really prone to rapid technical obsolescence to any great degree. So overall, the stock we have is good quality stock that we expect to turn into cash relatively quickly. PP&E has remained relatively flat over the last couple of years as the number of store rollouts has reduced and the major investments in our technology transformation program were completed. We continue to focus on refitting and relocating some of our stores as part of our ongoing network optimization program to ensure we are maximizing their potential. And lastly, on this slide, net assets closed the half at $86.7 million, up approximately $8 million in the last 6 months. However, this is before our half year dividend that was announced today, so that will lead to a $6 million to $7 million distribution to shareholders in March and a reduction in that balance. Moving on to our cash flow statement on Slide 15. Operating cash flow under AASB 16 remained very strong at $39 million. While this is down $3.7 million on the result from last year. Last year's result was a bit anomalous. The primary reason for this is just the timing of stock purchase being earlier this year and more in line with our normal operating rhythm. Last year to mitigate the risk of holding excess stock we waited until the lockdowns ended before placing our large Christmas orders. This meant that last year, we had a higher proportion of purchases end up with extended terms into January and February. You'll see this reflected in the higher trade payables balance last year as well. This year's purchasing patterns were more typical and place less stress on our store network in the lead of the critical Black Friday sales event. Strong cash flow conversion has always been an asset of the business and something management continues to focus on. In financing activities, you'll note that $6.8 million was returned to shareholders by way of the $0.055 fully franked final dividend for FY '22 as well as $800,000 was received in proceeds from the sale of compulsorily divested LTI shares that did not meet the required performance or tenure conditions for executives. Overall, our net cash position increased $24.7 million in the half, but as previously mentioned, a significant portion of this balance will be paid to suppliers across January and February. So finally, before I hand back to Cameron, Slide 16 shows the continued increase in our dividend payment, up 4.4% to $0.047 per share. The Board believes that it's prudent to preserve the strength of our balance sheet at present provide there is no better use of the capital and intends to continue to increase the dividend. Our dividend policy remains to pay out approximately 60% to 80% of cash net profit after tax, with roughly a 50-50 split between the interim and final dividends. Our return on capital employed over the last 12 months also remains very strong at 31.2% and reflects the Board's commitment to delivering attractive returns to shareholders. That concludes my part of the presentation. I'll now hand you back to Cameron to discuss our trading update and outlook.

Thank you, Larry. The trends that we experienced over November and December have largely continued into January and February. While sales were softer than the prior year, they're still well above pre-COVID levels, having increased 16.7% versus FY '20. We have been able to offset the recent sales softness and grow our gross profit that is gross profit dollars over the first 7 weeks of the second half. We have achieved this through continuing to apply a disciplined promotional and sales strategy focused around our differentiated product range and giving customers compelling value for money. Ultimately, this is leading to higher gross profit margins. This is a continuation of the strategy that has worked so well for us over the last 12 to 24 months. Shaver Shop is one of, if not the market leader in our core hair removal categories with a highly differentiated range, strong brand awareness and very strong customer loyalty. This means we are a destination store for shoppers who want to come to Shaver Shop because they know we'll have the widest and best range of products and provide value for money offers regardless of price point. While we have seen sales moderating since late October, we have been able to offset this with gross profit margin and operating expense improvements. We are, of course, conscious the consumer sentiment may soften further and we'll continue to adapt our offer to suit the changing retail environment over the coming months. The products we sell are for budget-conscious alternatives to going to the barber or beauty salon which is particularly relevant as consumers deal with higher cost of living. This is a message we intend to continue articulating to both existing and new customers in the coming months. So in summary, the business remains extremely well positioned in the market. We have an enviable financial position with net cash and no debt. We have a unique business model generating strong cash flows, and we are increasing our dividend payments to shareholders. Lastly, our focus on playing to our strength has driven profitable sales and successfully increased our bottom line profitability despite a softer top line sales result. So while the remainder of the financial year is difficult to predict, Shaver Shop is an exceptionally strong business that's executing well in an attractive segment, and we are cautiously confident that we will end the year with another pleasing profit result. Having regard to the continuing uncertain macroeconomic environment and the potential impact on demand from cost of living and interest rate rises, it is not appropriate for Shaver Shop to provide FY '23 sales or profit guidance at this point in time. That concludes the formal part of the presentation. Larry and I would be pleased to answer any questions that you may have.

[Operator Instructions] Your first question comes from Danny Younis from Shawn and Partners.

I've got 3 questions, if I can. The first one is around the trading in the first 6, 7 of the weeks for January, February. Can you maybe just give us a week-by-week analysis? Are you seeing consumer sentiment softening on a week -- consecutive week basis? Or are you seeing any sort of trends in those first 7 weeks?

There's nothing really to pull out. I think the first couple of weeks in January were a bit softer than what we've seen of late, but not materially so this is comparing to the prior year is the number. But it's not enough to say there's a trend one way or the other, Danny. It's been around the same level and fairly consistent.

Okay. And the second quarter sales, they were down 4%. I think, Cameron, you touched on the hyperactivity around the promo activity in November, December. Can you maybe just provide a little bit more granularity around how October and November looked in that minus 4%? I mean particularly with regards to the November month and how compared to December?

Well, I think we sort of called out that October was pretty strong in terms of the in-store sales growth we were getting was significant, and that was making us feel pretty confident going into the big events associated with Black Friday, Cyber Week, Click Frenzy, Christmas, Boxing Day. But then as we called out, foot traffic really started to slow over the big events leading into Black Friday. I mean that was a trend that continued really through up to Boxing Day. But fortunately, the -- what the guys did in store, I think, was very impressive, and we managed to convert a higher ratio of people than what we've had historically. And I think that offsets some of the real softness we saw, Danny, in overall customer foot traffic within the shopping centers. And just to be clear, that's outside foot traffic and inside foot traffic across the average or typical shopping center in Australia and New Zealand.

Okay. No, that's great. Cost of doing business. So this has been one of the high points over the last few years. And I think if you go back a few years ago, it was running at about 30% of revenues. You've got it down now to the low 20s, 23%. 2 parts to this. Is this as good as it gets? Can you actually eke out some more gains on the cost of doing of business? And can you maybe just talk to the marketing and advertising portion of that? Because that decreased -- I'm presuming that decreased in the second quarter, in line with the sales coming off?

Yes, that's right. I think in terms of overall -- the first part of your question, Danny, overall cost of business, yes, very pleased with the way the result came out this year. The 30% level that you're referring to previously, I think that might have been under pre-AASB 16 numbers, but -- so just double check the numbers there. But yes, we're very pleased. Obviously, we've been able to keep our costs relatively flat and grow our sales level, which has driven a really good cost of doing business result again this year. In terms of the marketing side of things, where we really started to switch the marketing activity was coming into Q2, particularly on the digital side, where in prior years, we've done a bit more affiliated marketing and other digital marketing spend that we felt was not going to give us the same returns as some of our more traditional digital marketing. And so we actually increased some of our traditional digital marketing spend, say, around Google AdWords and Facebook advertising and those types of things, but took it away from some of the other areas that we're not delivering as good returns. And ultimately, that led to a net reduction in digital spend. Across the other parts of our advertising spend, the catalogs as well as TV that was pretty constant year-over-year.

Right. And the digital spend, that net reduction is that continued in the first 6, 7 weeks or you're still at a simpler level?

Yes. I mean the bulk of our marketing and advertising spend gets done in the first 6 months of the year anyways. So we're still looking at optimizing it, and we're not doing as much activity in some of those areas that I highlighted in the second half. So it's come down a bit, but it's not material, if you like, compared to what we spent in the first half, Danny.

Okay. And just a final one, if I can. Gross margins, again, you've done a great job on that. You're well above your historical averages again. How long can you sustain 44%-plus GMs?

I think that's ultimately what we're looking at in terms of the different -- the pricing strategy and the overall sales strategy that we have -- actually training our store teams, trusting them to sell models that are at the right price points, driving the right margins and really supporting that with a promotional campaign to drive those sales. That's what we've been focused on over the last 2 or 3 years and really trusting with our exclusive ranges that we don't have to discount as much to drive the volumes. So we're obviously very pleased with the 44.3%. We're going to try and retain as high a margin as possible going forward, while still retaining market share. And I think that's the key thing, particularly in our core categories, where we have high proportions of exclusive product ranges. If we start seeing market share erode for whatever reason in some of those core categories, we may choose to be a bit more aggressive on pricing because we do not want to lose share in any of those core categories. So unless there's a significant change in product mix or supplier mix that might result in a change in gross margins. We're going to try and keep maintaining them around the same levels. But certainly, we feel with our new process that we've been working through over the last 2 or 3 years that we should be staying above that long-term average of 42% to 43%. That's certainly our objective going forward.

Your next question comes from James Casey from Ord Minnett.

Just one question for me, just with regards to online sales. How are you thinking about that over the next 6 months to 12 months, where do you see that kind of stabilizing? How should we think about consumers going back to store and how that impacts the online sales piece?

Yes, James. Look, I think we called out in the presentation. We probably think the level it stabilizes that is around 25% to 30% of total revenue. So a little bit more indicative of what we saw over the quarter 2 financial period. I think the real advantage for Shaver Shop and not being flippant about it is we really in favor about where the consumer spends their money, whether it's in-store or online. Obviously, our margins are a little bit better in store. So the trend we're seeing over the last 3 to 4 months and see this from our -- from an earnings point of view. But I still feel strongly and passionately that there's a real importance to get our online offering right. And we have mentioned a previously opportunity to leverage some of our in-store talent, our expert product advice and make that a little bit more front and center from an online communication strategy. So opportunities to really drive Instagram, Facebook and TikTok as well. They're part of our online strategy over the next 6 to 12 months. And if nothing else, I think that drives also organic traffic to the website as well and creates a bit of a high-level impact across the brand, across both channels. So just reinforcing 25% to 30% broadly, we sort of see the sweet spot online sales and really just continuing to execute what we've hopefully done over the last 12 to 18 months.

Right. Okay. So given online sales are currently over the 25% or 24.9% in the second quarter, that probably should stabilize now in the back half?

Yes, we think so, James. Yes, correct.

Your next question comes from Tony Mitchell from Shaw and Partners.

Well done, Cameron. Very good results. What I'd like to ask you is how many new products are coming through major products, particularly exclusives?

Yes. Look, I'd probably say -- excuse me, I've got a bit of a bug in my throat. Probably say in the last 12 months, innovation has been relatively modest. And I think you probably see that in our spread of sales. So it's not necessarily a bad thing because sometimes the downside of really big innovation is it creates a bit of a wonder so it can be -- it creates a massive spike in sales on one product or category, and then you've got to obviously comp that the following year. What we are starting to see that now come through is a solid amount of product innovation across both hair removal and non-hair removal products, particularly at the premium end. You would have seen potentially ghd have just launched the DUET. That's been in our store for about the last 9 to 10 days. Obviously, that's a trade-wide model. But a great example, I think, where suppliers are trying to really drive a higher ATV or category spend. Taking the point, actually, ghd Duet is $595 product. So we are seeing a lot of innovation by starting to come through more at the higher end of the category.

Right. Okay. And what about number of new store openings? What are you planning to do there?

I think very similar to probably past communication, maybe 1 to 2 greenfield sites each year or probably 1 to 2 net gains because we'll have potentially 2 to 3 greenfields, let's say. Obviously, New Zealand is something we're still focused upon. But we also can't rule out -- where it makes sense, we also look at store closures. For example, the Melbourne CBD, I think structurally, that area has changed since the pandemic and we have 4 stores in the Melbourne CBD area. So there is an option potentially of closing stores where we feel. Obviously, our online sales will still be held, and we potentially can increase earnings from actually closing a store that may not necessarily be needed in the CBD corridor.

So maybe -- that's very smart. What about the Auckland flags? I mean, what impact do you think those flags will have on demand for your products? And how many stores you got in Auckland?

We got 7 stores in New Zealand, I have 4 I'd sort of classify as Auckland zone. And look, I think what you would expect to see is some softness in the shopping center traffic, but that's probably temporary, obviously, a bit of an opportunity to potentially switch to online. But I do think that's a short-term sort of impact. And obviously, in terms of online customer experience, I think there has been a 2- to 3-day delay in processing online orders. But again, that's obviously not Shaver Shop related. That's across the industry. But bottom line, I think it will be a short term -- a pretty short-term impact. And then hopefully, things normalize pretty quickly.

And just while you're there, is it unlikely that you'd ever make an acquisition into a -- like a product-related thing with another company or you don't need to do that.

Look, I think we remain open. I mean, obviously, if the -- if we get -- it's going to deliver a strategic benefit and give us a good return, you have to look at it. If you're talking about something like an exclusive product distribution agreement. Yes, we do remain open to those type of things. The biggest challenge is always getting it for the right price, making sure it's brand adjacent, and it's going to deliver you incremental returns because not so much a problem, but we're obviously so dominant in our core categories that we're already making pretty good returns on these products overseas.

And would you ever consider going into any Asian country?

Well, we actually looked at that last year, Tony. So we looked at the Singapore market as the first potential way up into Asia. Unfortunately, with that market, in particular, it was just too small to make the economics work. We'd have to launch 3 or 4 stores right away, and that sort of investment and the returns that we get out of the market size were not justifying the risk that we'd have to take. So we chose not to proceed that. So it's not on the table at the moment. It's something we may look at going forward in terms of another market internationally, but it's certainly not something we're looking at currently.

And just -- okay. And what about -- what's your level of franking credits at the moment after the payment of this dividend?

Yes. So we basically have, I think, at 30 June, I can't remember what it is right now, unfortunately, Tony, but we had to think about $1 million to $1.5 million in franking credits, and that's stayed relatively constant over the last few years as we come through 30 June. So effectively, the amount of tax that we're paying at the moment is allowing us to pay fully franked dividends of around or slightly above this level.

Right. And just getting back to Danny's question in the first place, do you expect this downturn or it's a small reduction? Do you see that turning around? Or do you think it's going to hang around for a while?

Sorry, can you repeat that? You just cut off a little bit.

Sorry With the reduction in demand that you've experienced in the first couple of months of the year, do you think that -- do you think that's a temporary trend? Or do you think it's just a manifestation of just cost of living pressures, et cetera?

I think a long-term tailwinds that we've got in the segments that we operate in and in the business itself, my view is it's a temporary trend, how long that temporary trend ends up being, I'm not sure. But when you look at the long-term historical growth rates of men's and women's personal care and grooming it's certainly in an uptrend. And with men's grooming in particular, where we dominate, men are choosing to be more like women and using more tools and that supports more rapid growth in the overall industry averages in those segments. So -- while it's temporary and down because -- and we believe it's interest rate rises and cost-of-living pressures impacted, we still think the long-term and medium to long-term tailwinds behind this industry and our business are very strong.

And's just while you're there, is one state showing a greater sales reduction in recent times and in other words are pretty constant across?

It varies a bit state to state. So one of the pleasing things is we're seeing still really good growth, say, in the likes of WA, which was not impacted by COVID like New South Wales and Victoria were. But it really varies state to state. There's not a trend that I can point to at all in terms of the sales growth rates across the states.

Your next question comes from Andrew Johnston from MST.

Larry, congratulations on a great gross margin. A couple of questions. So maybe I'm trying to extract too much information from some of the data. But if we have a look at what was implied by November, December growth numbers, it looks like your growth numbers now are higher level. So I'm comparing -- I'm doing the 3-year CAGR numbers. And that was in November, December, that was at 2.7%, and that compares to about 5% now. So it sort of implies like it implies that your growth has recovered a bit, growth rates recovered a bit from November, December. Or am I just trying to extract too much information from that data?

No, you're correct. Your calculations are correct. And I think we highlighted in one of the releases that the declines have improved from what we saw in November and December. So the -- it was more than 2% down in November and December.

Yes. So what are you putting that down to? And you mentioned foot traffic. Can you -- are you able to compare what you think foot traffic is doing versus what your sales are doing? And does that explain what's going on between November, December and now?

Yes, I think to some degree, what we saw in November and December, particularly leading into these big events at Black Friday, which I mentioned was the actual customer traffic within the shopping centers was significantly down. And that's obviously what we don't anticipate, in-store traffic and outside footfall was consistently down in November and December. As we pointed to, unfortunately, it was just our conversion share was higher, which obviously helped us now from a total revenue point in view and our gross profit margins were very healthy.

Right. Okay. And again, I mean in your discussion, you outlined your strategy around controlling gross margins, and that looks like that's coming through really well. I can move across to your comments about optimizing online investment and impressive improvement in a couple of levels there. And I think the Instagram -- Instagram numbers were outstanding. What do you mean by optimizing your online investment? And just in the context of some of the other comments about where you're putting that money, that advertising money.

Yes. I think it's take a simple part of marketing spend, which is paid search. There's a sweet spot with paid search. I mean your [ role is you want to be a grower ], but you may be a [ grower ] of 600%, but it's actually what's your return on investment after you take out postage costs. If you're giving coupon codes away, what's your true net profit margin. So I think Larry articulated it really well, is we want to hold market share. We don't want to lose share in our core hair removal business under any circumstances. So what we're trying to do is protect our market share, particularly in our core hair removal business, but make sure we're driving profitable incremental sales. One of the examples Larry called out was our affiliate marketing spend, which typically, and our affiliate markets spend is where you give away an additional discount, a $10 coupon code or a $15 coupon code. In the past, that's been a key area that we've invested in over the Black Friday events, Boxing Day, et cetera. We pulled back heavily on that area. Because, again, logically and we had to test and trial it, but if we own so many exclusive product lines and categories, particularly within the hair removal business. There is a question of, well, why are we giving away another coupon code to actually generate a conversion on an exclusively ranged product line? So these are the type of things that we're just constantly trialing and trying to get the sweet spot, whether it's postage free, affiliate spend, paid search, investing more in terms of trying to drive organic growth through blog content and also then TikTok as well because obviously, TikTok is pretty much a new area for us. We know it's increasingly costly, but the reach across TikTok is phenomenal, and that's largely an untapped area for us. So hopefully, we have a long-winded question, but hopefully I answered it in terms of we still want to invest in the areas that are driving a lot of eyes on our brand and also driving conversion, but we just want to make absolutely certain that we're doing it in a fiscally responsible manner.

I think it's pretty clear. You've got a very clear strategy around both -- measuring your return on your investment in that space. And I'm guessing that's actually not that simple to measure to do a really quantitative analysis of what the returns you're getting on that. But clearly, that's the right sort of strategy and part of the reason why U.S. margins are starting to -- are holding up so well. Just a final question around private label. You sort of mentioned private label without putting -- talking too much about it. Can you talk about where you see private label going over the next couple of years?

Well, I think our first priority is just doing what we do really well, which is working with the big brands, making sure they're exclusive where we can, particularly in our core hair removal business. And where we have the best-selling products is making sure that we get that price point right, to offer the customer value for money. It make absolutely certain that we're driving gross profit margin as well. So that's still the primary focus of our business. That doesn't change. Separate to that is if there's an own brand opportunity within a segment or area, even the suppliers are actually, for whatever reason, not driving or not focused upon or just don't want to beat it. Absolutely, that's where we can leverage our brand equity, our customer loyalty and growing that business. We know that's still a pretty immaterial part of our business, at 2% or 3% of total revenue. Obviously, it delivers very high gross profit margins. But we more see that area is something that we will continue to drive, but only really where it's basically a gap in the market that our suppliers are currently fulfilling.

Right. So more opportunistic rather than strategic to increase your level of [ drivers ] to a certain level over the next few years?

Yes, correct. The real KPI goal is focusing on that exclusive product lines and the ratio that accounts for in terms of sales and our total gross profit. Whether it's through Philips, Braun, Panasonic is making sure that we're focused on leveraging and increasing exclusive pipelines and making absolutely certain that's where we put out our inventory behind, our promotional activity behind, our staff training behind because that's what's going to give us the opportunity to drive gross profit margins even further.

Your next question comes from [ Rodney Van Royden, a private investor ].

I think everyone else has covered a lot of this, and you've discussed it, but perhaps if you'd be so kind to elaborate on the inside traffic versus, yes, so footfall I'm assuming that's into the retail centers versus into the stores, have you -- your sales conversions are increasing. So have you noticed? I guess, it's a distinction between who's coming to Shaver Shop store versus who's coming to the retail centers. Or is it very similar?

Yes. Not really, Rodney, what we have seen is in terms of the outside traffic and the inside traffic is there relatively the declines are relatively similar. The only thing I would call out, Rodney, is what we have seen in January and February, is the -- our conversion ratios seem to be normalizing to some degree or coming up a little bit, what we experienced in November and December where the foot traffic was significantly down. What we're seeing in January and February is actually the foot traffic has largely stabilized versus prior year, and in fact, it's slightly up over the last 7 weeks from what we can see and our conversion ratio has come off a little bit. Still well and truly within the higher industry standard, but it has come off versus what we saw prior year to some degree.

Great. And could that be delayed in terms of -- I know your results are usually heavily geared to what -- of that financial sites geared to the first half? Could it simply be that people have delayed do you think? Or do you think there's a fundamental shift?

Yes, it's a very good question. And we sort of debate this ourselves. There's an element of me, Rodney, where I think perhaps with the higher cost of living and all the speculation of the interest rate rises, which we're seeing and the continuation that may occur into the short- to medium-term future is perhaps the customer is becoming a little bit -- the propensity to spend has just tightened a little bit. But again, that's based on what was observed over the last 6 to 7 weeks, and we really probably need to observe that over the remainder of the financial year. But I do think that's obviously having some impact, and that seems broadly consistent with what I'm seeing across other industries as well.

Great. And last question, just as a final point, if you want to call out any other positives because obviously, you've got the staff back, you've got more in-store sales. Have you found -- are there any good news stories you want to share or anything you further call out?

I think it's -- in terms of trying to think it through. Hopefully, it's broadly covered. I mean I think our store teams just continue to be the DNA of the business. I think we've been really honest and transparent, and our online is a work in progress. I think we've made vast improvements in that area, but we still have a long way to go, in my humble opinion. But the store teams have just been exceptional really over the last couple of years. And regardless of the conditions, have continued to shine. So we really need to be grateful for their performance, and we are. And we thank them for all their efforts. It's been terrific.

Your next question comes from [ Dale Wang, a private investor ].

Firstly, following up on the cost of doing business as a percentage of sales, it sounds like Q2 is lower than Q1 in your very sensible management. Do we expect that Q2 percentage going for H2 as a guideline? I think H2 cost of doing business as a percentage should be lower than H1.

There's a couple of things that -- and thanks for your question, it's a good question. There's a couple of things that influence cost of doing business. One is the actual dollar spend that we have and the first half tends to be higher because we have more marketing spend. We employ more people in our stores. So we have a large casual staff base that comes in to work in our stores over November and December. And those increased the dollar spend, but we have a disproportionate increase in sales from those key sales events of Black Friday, Christmas, Boxing Day in November and December. What that ultimately means is our cost of doing business tend to be lower as a percentage of sales in the first half than they are in the second half because we have quite a -- outside of those 2 areas that I mentioned are -- we have quite a high fixed cost base. And that's why you see in the second half of the financial year, generally, our profitability is quite a bit lower than the first half. So as a result, we're a seasonal business, cost of doing business as a percentage of sales is always higher -- sorry, is always lower in the first half and is always higher in the second half. I hope that answers your question.

Yes, it does and really good insights, but can we expect this percentage to be at least lower than last financial year's second half?

I don't think we've given any. It's difficult to call that one out. It really depends on the sales result for the second half to a large degree. We're not expecting any material changes in operating expenses. But obviously, it's the top line that will heavily influence that cost of doing business percentage.

Okay. Second, I've got another 2 questions quickly. As cost of living bites consumers even more, like this calendar year, do you expect any of your subcategories to benefit from people doing more self-maintenance than going to salons and stuff? If so, have you seen any such trend so far?

No, I think that's a really good question you've raised. And I think one of the resilience -- what demonstrates resilience of this business is regardless of the economic climate, we've tended to adapt very well. And I think that goes down to consumer behavior. So let's take the current example. Things become a little bit tighter. There may be some switching of customers from one category to another, subcategory as you called it. So it's not possible -- it's possible, for example, let's take IPL treatments for ladies. You go to a salon or a laser clinic, you're probably looking at around, what, $1,500 to $2,000, for a 6-week treatment cycle. And Shaver Shop sells a DIY home device that basically does the same technology or same thing. That's about, let's say, $400 to $500. So I think there's going to be significant opportunity for Shaver Shop to really focus on that value for money proposition if things do continue to get tighter. And absolutely, we can benefit because there will be some switching, hopefully, from professional salons and channels to DIY products, which we obviously also saw through the pandemic with the lockdowns.

Have you seen any clear trends along those lines? Like any categories you think were benefiting already from people trying to save money? Or is it too hard to pin down?

No, not really. We haven't seen anything material. So at this point in time, product mix, spread of products is pretty consistent. And no anomalies that would have been seen at this point in time.

Okay. Just lastly, a broader question. Do you see any key brands investing more in the direct? For example, Amazon corporate store direct sales channel, do you see that as a risk to your exclusivity arrangement?

Not really. I mean, obviously, Amazon has been around now for a number of years in Australia, Catch, Kogan. We've been operating for 30-odd years. There's always been a new emerging threat. And I think we've done a pretty good job of adapting and holding our ground. That's not to say we don't view Amazon as a obviously, a very strong retailer. We respect what they do. But we also do sell through a lot of these marketplaces, but we sell to them a product range, a curated product range that we put forward. And that's no different to Amazon, if you look at it. We have a curated range for Amazon, which we sell through Amazon Marketplace. We're happy on how that's ticking along, but our primary focus will always be on driving customers and web traffic to Shaver Shop stores and website. Thanks.

Your next question is a follow-up question from Tony Mitchell from Shawn and Partners.

I know I'm pushing my luck. But last year had a retail award increase of 4.6% from the 1st of July. Is that a 1-year deal or is it longer than that?

No, it's just 1 year. We're expecting Fair Work to come out again in May or June with their view again on what the rate increases will be for the coming year.

Right. The way it's going at the moment, it's going to be similar, isn't it?

Yes. I mean I don't -- it's hard to tell, but you obviously hear about the necessity of not having wage growth spiraling that then causes inflation growth to continue longer. So ultimately, that's going to be a government call on -- and Fair Work call on what ultimately happens. But I guess that's a risk because wage inflation continues to rise significantly than inflation and higher interest rates are probably going to stay higher for longer.

Okay. And the trend that you've mentioned over the years about women buying products for their men. Is that continuing?

Yes, absolutely. Yes, absolutely. Based on the latest data we have, it's still around 50% of the customers that shop in our stores are women and obviously buying for men. Obviously, we're trying to expand the range of female products that we have, the female beauty, adding CLOUD NINE, Foreo again into our product mix. So that there is increasing relevance for women as well in our stores, and we continue to try and create gender-neutral approaches to marketing and promotions and that sort of thing. So that we're attracting women as well as men into [ our stores ].

Your next question comes from [ David Megan, private investor ].

Great results once again for the half year. And I'm mindful of time, so I'm trying to keep it short as possible. I've got 2 questions. The first one is just around new stores and store opening. I know that in the past couple of years, you guys have really monitored the amount of stores that you have opened. And I think this result in particular highlights, the resilience of Shaver Shop sales in respect to in-store sales. And I was just wondering, how do you guys go about finding where to work in new stores? What to close down? And I'm just also looking to the current economic climate, if interest rates do keep going then, wouldn't that mean that there would be potential new areas that you could expand to perhaps that they're on sales as just distressed assets?

Yes. I mean, look, hopefully, I answered your question here. But I mean, in terms of how broadly we stay across is property managers extremely strong, I've been with the business 14 to 15 years. I wouldn't have thought there's a center or movement in property that securing the seasonal not across. And that's absolutely there, opportunity always coming up in terms of greenfield sites, which we do look closely at. That's almost -- I guess it's BAU-type exercise. The part we just challenge ourselves as a business is, does your brand really need to be there? At the end of the day, resources are unlimited. And my personal belief is if you're going to do a greenfield site, make it count. You don't want to be doing a greenfield site if it delivers a [ 40,000 to 50,000 ] EBITDA incrementally. Because by the time you're resourcing people, training people, and particularly in today's market where talented people is actually tough to find. The last thing you want to be doing is creating an opportunity cost by resourcing a greenfield site that's going to make very little incremental EBITDA and creating an opportunity case in one of your cash cow stores. So we absolutely look at it. But if you look at the top 50 centers in Australia, for example, we are in every single one of them. There's only a couple of centers where we're really not located that are, I'd call A-grade, DFO Homebush in Sydney would be one of them. So absolutely, they're on our radar still. But I would have to say, you just have to be very conscious about greenfield stores making that -- making sure that investment is going to deliver a genuine incremental earnings and a material one to make it a worthwhile.

Right. I agree with that as well, Cameron. But on that note, I think this might go hand in glove on my second question. You mentioned to 50 regions, A-grade and you guys are over there. The type of consumer that shops at Shaver Shop, I was wondering or think about this quite deeply recently, but I want your thoughts on it, the customer that shops at Shaver Shop, given that's coming into recessionary type of environment where, as you mentioned, propensity spend might be trimming, would you consider the products as a bit less of a discretion product, a bit more of a must-need? Because I was thinking haircuts these days are very expensive as well. And given that cost, I mean, people might opt to Shaver Shop products. And I was thinking along those lines, but do you see a similar trend to, I guess, 50 regions that you mentioned earlier in terms of the type of consumer that shops at Shaver Shop?

Yes. I think you've raised a good point. I think it is an opportunity for Shaver Shop in terms of when you think about our demographic. I've always described Shaver Shop as we're not business class. We don't want to be business class. It's too niche. You don't walk in our stores and get intimated because we only got 10 products on show or it's an intimidating store to walk into. I view it as we're premium economy. And that's a sweet spot. We appealed the masses, which is what you want to do, but we offer great service. And if you do want the absolute best product in any category or price point, we have it. But we're not intimidating to shop at, whether a woman or a man, very accessible. And I think that's really important and particularly when things get tougher because, obviously, the propensity to spend may tighten a little bit. And I think that accessibility will become, hopefully, more and more relevant.

No further questions at this time. I will now hand back to Mr. Fox for closing remarks.

Thank you. I'll just wrap up now very quickly, everyone. Just to close with a few key bullet points on Shaver Shop. We are a segment leader, both online and offline. We do operate in a large and growing market, driven by changing consumer preferences and new product innovation. Our product range is applicable to almost all demographics, which is what we just touched upon just entered the Q&A. COVID-19 has accelerated DIY personal care adoption and introduced new customers to Shaver Shop. Most importantly, we are a differentiated and resilient specialty retail business model. We offer service excellence and unparalleled product knowledge as evidenced through our NPS scores. We have a significant range of product exclusivity, which we're looking to leverage more and more, and we offer a competitive value-based pricing across all segments and all products. We have significant potential to further increase market share. We have very strong brand awareness in Australia, albeit New Zealand is still very low. We have proven and highly profitable omni-retail model. And importantly, we have a very clean balance sheet with no debt and very strong cash conversion. We have an experienced management and Board team, strong focus on investing for growth and improving total shareholder returns, and hopefully everyone agrees, a strong dividend payout. With that, I'd like to thank everybody for joining us on today's call, and we look forward to seeing you in the future.

That does conclude our conference for today. Thank you for participating. You may all disconnect.