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 first half of the 2026 financial year. Please note that today's call is being recorded. There will be a presentation followed by a question-and-answer session. 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 logged with the ASX and is also available from Shaver Shop's Investor Central website. I will now hand the call over to Cameron Fox. Please go ahead.

Yes. Good morning, everyone, and thank you for joining us today. Larry and I are pleased to present Shaver Shop's results for the first half of FY '26. As you'll see, this was a solid half delivered in a retail environment that remains highly competitive and value-driven, but one where our strategy and execution continue to deliver high-quality outcomes. I'll begin with a brief strategic overview and then walk through the key highlights from the half. Larry will then take you through the financials in more detail before I return to provide a trading update and outline our priorities for the remainder of FY '26. So we'll start with a snapshot of the business on Slide 4. Shaver Shop remains one of the leading specialty retailers in personal care and grooming across Australia and NZ with 126 corporate-owned stores and a well-established omni-channel platform. We operate a highly differentiated business model built around exceptional customer service, deep product knowledge and broad specialist ranges, many of which are exclusive to Shaver Shop. Brand awareness in Australia remains high at around 87%, and we continue to hold leadership positions across numerous personal care and grooming categories. Finally, financially, the business remains in a strong position with no debt, solid cash flow conversion and a consistent track record of paying fully franked dividends. Just as importantly, we have a highly experienced management team with an average executive tenure of over 12 years, which has been critical in navigating the current operating environment. So moving on to Slide 5. Our underlying business fundamentals remain strong. We operate in an attractive and growing market, particularly in Men's Grooming, supported by long-term behavioral trends towards DIY grooming and personal care. Our store network is well established and consistently profitable and our omni-channel capability continues to evolve. Overlaying these fundamentals are 3 key growth strategies: strategic category management including exclusives, private brand initiatives and securing exclusive distribution to innovative global brands wanting to enter the Australian and New Zealand market. Range expansion and category create opportunities into adjacencies with a particular focus on expanding our range of consumable products to increase purchase frequency. And lastly, store network optimization through refits, relocations and selected new stores. These initiatives continue to deliver broadly in line with expectations. Turning to our FY '26 priorities. During the first half, we continued to build momentum behind Transform-U, our first private brand, expanded our range through new brands and categories and progressed store network optimization initiatives. We also acknowledge that while we've added several strong exclusive brands, there remains further opportunity to fully unlock their potential through increased brand support and range development. Moving on to the highlights on Slide 8. Total sales for the half were $128.6 million, up 2.2% on the prior corresponding period, representing the second highest first half sales results in the group's history. Online sales grew 7.6% and now represent 24.6% of total sales, while in-store sales were also modestly higher year-on-year. The standout result was once again gross margin performance. We delivered a record gross margin of 46.5%, up 100 basis points, driven primarily by the continued success of Transform-U, and I'll speak about Transform-U more later in the presentation. Our net profit after tax increased 1.5% to $12.2 million. Operating cash flow was strong at $36.9 million and net cash as of 31st December stood at $25.1 million, noting this is a seasonal high for the business. The Board declared a fully franked interim dividend of $0.048 per share, reflecting confidence in the business and our balance sheet. Customer metrics remained exceptional with a Net Promoter Score of 88.9 reinforcing the strength of our service-led model. On Slide 13, we provide more detail around our sales performance. Importantly, we delivered 2 quarters of sales growth in the half, the first time this has occurred since FY '23. In addition, both the online and in-store sales channels posted strong results. Transactional volumes increased 3.8%, supported by improved conversion, although average transaction value declined modestly as consumers remain highly value conscious and promotional activity remain elevated around key events such as Black Friday and Boxing Day. Like-for-like sales were up 0.9%, which we view as a solid outcome given broader retail conditions. Our sales conversion metrics in store were also exceptional across the first half. Turning to category performance. As highlighted in previous investor presentations, Shaver Shop prides itself on having deep and broad brand representation in our core categories. This is accentuated by a highly proportion of exclusive products, something we take great pride and care of in curating with our suppliers. And pleasingly, 21 of our top 30 selling products in dollar value were exclusive to Shaver Shop in the first half. A number of these products were either from Transform-U or from exclusive distribution agreements like we have for Skull Shaver. We also extended our brand offering with Mangroomer and Piksters. All these initiatives are designed to provide customers with a unique offering and shopping experience that can only be experienced at Shaver Shop. Sales contribution by category remained relatively stable compared to first half FY '25. We did see growth in lower-margin categories such as Power Oral Care, Hair Styling and female categories. At the same time, we remain focused on retaining and growing our share in our core Men's Grooming categories through compelling value for money propositions and exclusive ranges. Slide 11 highlights the continued strength of our margin performance. Our gross profit increased 4.6% to $59.8 million, a new first half record for the business, while gross margin expanded to a record 46.5%. This was achieved despite stronger relative growth in lower-margin categories and reflects the incremental contribution from Transform-U as well as a disciplined strategic category management philosophy. While we're now cycling the initial launch of Transform-U, we continue to expect this to support strong gross profit outcomes over the medium term as the range expands and brand awareness also builds. Operationally, execution remained very strong, as you can see from Slide 12. In-store sales conversion increased to 47.8%, transactional volumes were up and units per transaction increased to 1.43. Average transaction value in store moderated, as I mentioned on the previous charts. Online traffic and transactional volumes also increased and was supported by higher transactional values in particular, due to category mix. These metrics reinforce a consistent message, where we control the levers, execution remains excellent. So let's now talk about Transform-U in a bit more detail on Slide 13. In short, the brand continues to exceed expectations. Since launching in October 2024, the range has grown to more than 100 SKUs with over 300,000 units sold to date. As a percentage of total sales, Transform-U delivered a mid- to high single-digit percentage in the first half of FY '26, remembering this share in FY, first half FY '25 was in single low digits. So, TU was the largest driver of gross margin expansion. Customer feedback on TU products remains best-in-class with average customer ratings of approximately 4.8 at a maximum of 5.0 and return rates below the company average. In the second half, our focus will be on building brand awareness with increased frequency of social media activity, launching a dedicated Transform-U website and selectively expanding the range while maintaining quality and value. I'll now hand over to Lawrence to take you through the financial results in a bit more detail.

Thanks, Cameron. As Cameron mentioned, sales increased 2.2% to $128.6 million, with growth across both in-store and the online channels. Like-for-like sales were up 0.9%. Gross profit increased 4.6%, reflecting the sales growth and margin expansion Cameron's already covered. Cost of doing business increased 5.5%, largely driven by wage inflation, including the minimum wage and superannuation guarantee increases, as well as the absence of the same level of prior year long-term incentive in expense reversals. Earnings before interest and tax increased 2.5% to $18.1 million, with EBIT margin flat at 14.1% with net interest expense increasing slightly, this led to NPAT or net profit after tax of $12.2 million, up 1.5% and delivering an NPAT margin of 9.5%. Basic and diluted EPS was $0.093 per share and marginally higher than last year. Turning to the balance sheet, which remains very healthy. Net cash at 31 December was $25.1 million with no debt and $30 million of undrawn debt facilities. Inventory increased by $3.4 million compared to the prior corresponding period, reflecting improved stock availability, increased Transform-U inventory, new exclusive brands as well as an additional store. We continue to hold no material concerns about the level or the quality of the inventory we hold. Net assets increased to $94.3 million, and the balance sheet remains, as I said before, in a very strong position. Moving on to our cash flow statement on Slide 17. Operating cash flow was $36.9 million, up $8.9 million on the prior corresponding period. After adjusting for a deferred supplier payment, which moved into early January 2026, normalized operating cash flow was still up approximately $4 million to $32 million. CapEx was modest at $1.2 million, reflecting new stores, refits and relocations. We expect CapEx to increase somewhat in the second half as we have more store refits and relocations planned in this half. Overall, net cash flow generation for the half was $21.2 million, reflecting the seasonally stronger nature of the business in the first half as well as the normalization of the supplier payment that I mentioned earlier. Now on to dividends and capital management. The Board has once again declared a fully franked interim dividend of $0.048 per share, 100% franked, consistent with the prior year. Our approach to dividends and capital management remains unchanged, which is to balance paying a healthy, sustainable dividend while continuing to invest in value-accretive opportunities such as Transform-U and exclusive distribution brands. With that, I'll now hand you back to Cameron to briefly discuss our trading results in the first half second half so far.

Thank you, Lawrence. We've had a pleasing start to the second half. Sales were up 3.8% so far with like-for-like sales being up 1.9% through the 22nd of February. While both in-store and online channels have continued to grow, online has been the stronger performer relatively speaking. Shoppers remain focused on finding outstanding value for money. That said, we have proven over time that our ongoing success is tied to what we control, outstanding customer service, a differentiated range with a high proportion of exclusive products and compelling value for money offers. So far in the second half, gross margins are flat compared to the prior corresponding period now that we are cycling the period after Transform-U was launched. And like we saw in the first half; we are seeing higher proportion of sales growth coming from some of our lower-margin categories. Looking forward, we will continue expanding the Transform-U range, and we are well progressed with plans to launch a dedicated website by the end of March. From there, we'll be building the brand with increased marketing activity, support and investment. As a result, we expect Transform-U to deliver both sales growth and margin enhancement over time. Lastly, a new store at Eastern Creek Quarter in New South Wales is scheduled to open in March, and we have several refits and relocations planned for the second half. So to conclude, Shaver Shop remains a highly differentiated specialty retailer, delivering resilient earnings, record margins and strong cash generation in a reasonably unsettled retail environment. Our strategy is working, execution remains strong, and we continue to invest carefully to support long-term value creation while returning capital to our shareholders. Thank you for your time today. We're now happy to take questions.

[Operator Instructions] Our first question is from Andrew Johnston with MST.

Another great result guys and particularly around that gross margin that continues to move up with Transform-U. So looking back to the investment you made in Transform-U, it looked like it's really starting to contribute and perform well. Just on if I can just focus on that for a minute, we saw some pretty impressive contributions up from low single digit to high single digit, correct me if I'm wrong on those numbers. And you're putting additional investment into its own website, et cetera. As we look over the next couple of, say, next 12 months, maybe 2 years, do we do you expect to see most of the further uplift in Transform-U coming from your existing product range and just selling more of that through better marketing? Or do you expect to be rolling out additional products additional Transform-U products?

I think we've certainly got some new products already in the pipeline for Transform-U. So, we expect an element of incremental SKUs. But the key thing, I think, Andrew, we've always stressed is it's really based on filling gaps in the categories. So if we see an opportunity within the category, which an existing supplier isn't capitalizing on and the customer wants it is that's a real big opportunity for Transform-U. So in terms of the I guess, the opportunity for Transform-U, there's 2 things still. Obviously, yes, it's obviously taking single mid- to high digits of that total revenue at the moment. But the key with the marketing support, Andrew, is also to build brand awareness. And hopefully, that also stimulates category growth. At the moment, what we're seeing in general is Transform-U taking share from other suppliers where there's a gap or an opportunity in the category. The real opportunity we see is to put some investment behind the marketing, get the social activity right, put some influence behind the brand and hopefully, that actually stimulates further category growth.

And we're seeing continued strength in margin coming from your exclusive product range. It was a great deal you did with Skull Shaver last year, or perhaps the year before. Do you see any other opportunities to do similar sorts of exclusive deals like you did with Skull Shaver?

Well, I think we mentioned we've actually bought in Mangroomer as well prior to Christmas. So, Mangroomer is another exclusive arrangement we have, and we see a significant opportunity for that brand as well. And I think what we're just demonstrating, Andrew, is we're starting to get a track record of taking these brands, which are particularly strong overseas, but just don't have the resources or the focus, the time and effort to really focus on Australia and New Zealand. And I think that's really where the opportunity is for Shaver Shop to come along. And obviously, we know the market pretty well, and we've demonstrated that through Skull Shaver. And we've got some promising thoughts behind the Mangroomer range, which, as I said, we really haven't activated our marketing strategy yet on that brand. But it's obviously something that we're focusing on for the next 2 to 3 months.

And then just finishing off on the products. Are you seeing any change in the competitive environment? And I can't recall how long JB Hi-Fi had been stocking grooming products, but I walked through their store the other day, and I saw them stocking of product. Do you see them providing a similar sort of competition that the big department stores provided? And just going back to the broader question, any change in the competitive environment in the Australian market?

Not really. I mean, obviously, JB has probably gained some traction in this area over the past few years, but I'd be speculating, and it is probably more share of the traditional department stores. The Myer and David Jones, who used to be reasonably solid in this category, but it seems to have lost significant focus in small electrical personal care over the last 5 to 6 years. So, from our point of view, I'd be confident, Andrew, that we're still the dominant market leader in the categories that we compete in and really haven't seen a material change over a number of years now in terms of competition or environment.

Dominant market player and the fact that you're able to sign deals like Skull Shaver and Mangroomer, I think, is a reflection of what suppliers are seeing. Just going on to the online, pretty strong online growth. And I think about the last result, and since then, we've had discussions around the social media presence and the work you put into improving that social media presence. Do you think that's what's driving your online growth? Or are there some other dynamics at play there?

It's a combination. I think our organic traffic is up. So, there's definitely some of the social activity that we're doing, and the influencer activity is generating some incremental sales online. But I also think it comes down to our promotional program execution, Andrew. I think we've had a particularly strong promotional program over the last 6 or 7 months, and we're still seeing a lot of traffic generated through paid search. And obviously, that's still a primary channel for our traffic. And obviously, then that's the balance of getting that conversion correct because you're obviously trying to generate the traffic through paid search but still make sure it's a profitable sale.

[Operator Instructions] Our next question is from Bruce McLeary with Burrell Stockbroking and Wealth Management.

Cameron, Larry, congrats on the results. Just on the trading update, Slide 20, the final point, 3 full store refits, 2 relocations planned for the second half. Can you just walk us through what sort of uplift in earnings and sales you expect once those have gone through? And also, can you also sort of describe how you handle the transition when you're doing a refit so your customers aren't disrupted, or when you're relocating? And are they to the bigger stores? Or what's the reason for those refits and relocations?

Thanks, Bruce. Generally speaking, I'll answer your first question. So, in terms of the sales uplift that we tend to see after doing a refit, it generally results in around a 10% increase in the first year in sales, which flows through to profitability, obviously. Most of the refits that we do, and that's why we're sort of classifying them between refits and relocations, the refits are where we update the look and feel of the store to the latest brand standards that we have. And relocations are where we're choosing to move the store within a center because it's either too small store, and we think the opportunity to actually increase the size of the store is going to lead to increased profitability, or we're in a location within the center that we just don't think is the right fit for our brand. And so, in both those scenarios, we're looking for sort of similar types of returns. And certainly, if we're increasing the size of the store, we take some pretty prudent estimates on what we think the sales uplift is going to be before we make any of those decisions to move the store. So, the stores that we are doing are probably 15, maybe 10 to 15 years since the last refit. They're reflecting some of the old brand standards that we had back in the mid- to late 2000s decade or early 2010s. And so now that we've moved on to a much more contemporary look and feel with some of the colors that we're using, still using the oranges to accent and make sure that our brand is recognized, but reducing the influence of the amount of orange that's actually in the storefront and across the store itself. Does that answer your question, Bruce?

Yes, pretty much so. And secondly, the exclusive brands, 21 out of 30, are your top sellers. And there's a particular focus, you talk about the ones that you sign on, Skull Shaver, and the others. And there seems to be less of a focus or no mention of is there any exclusive brands that over the period or over the last year or 2 that you've decided not to continue, whether or not they've decided not to supply, or the margins aren't there, we're not going to stock your product any further?

Yes, there wouldn't be necessarily, I mean, certainly, at a product level, it wouldn't be significant, but there would be a few out there where we just sort of thought this now crosses over with Transform-U or we don't want to be held to a minimum purchase quantity per annum because we actually feel that, that's a greater risk than actually the exclusive opportunity provides. So, I think there would be some examples of that, but certainly nothing material at this stage. It's kind of more of BAU. That kind of stuff happens pretty frequently, although, obviously, we are seeing now that Transform-U is where it fills the gap. If the supplier then has a product in that space, and we've already filled the gap and we're making great margins and the customer is happy, well, obviously, that sort of spot is taken.

[Operator Instructions] With no further questions, this will conclude today's conference. Thank you for participating. You may now disconnect.