Super Retail Group Limited (SUL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Super Retail Group's Full Year Results Presentation. Today's call will be hosted by Mr. Anthony Heraghty, Managing Director and CEO of Super Retail Group; and Mr. David Burns, Chief Financial Officer of Super Retail Group. Today's call is for investors and analysts only. Media seeking access to management should contact Kate Carini, whose details are on today's ASX announcement. I would now like to hand the conference over to Mr. Anthony Heraghty. Please go ahead.

Well, thank you very much, and welcome, everyone, to Super Retail Group's full year results presentation. In terms of the structure for today's presentation, I will talk to you about how the business has responded to the challenges of COVID-19, call out our financial and operating highlights for the year and also talk to our divisional performance. I'll then ask David, our Chief Financial Officer, to provide more detail on the full year financial results. And then finally, I'll provide you with a very brief overview of our corporate strategy and a trading update for the first 7 weeks of the year. Obviously, there will be an opportunity for you to ask questions at the end of the call. All right. So let's get to the pack. Starting on Page 5. Well, this has been a challenging year. Over Christmas, Australia experienced 1 of the most significant bushfires in our history, and then we followed that by a global pandemic. In many ways, it's been a lot of things, but specifically, we saw our Christmas into trading period, which are obviously our 2 key trading periods effectively disabled. We closed 45 Supercheap stores and 36 Macpac stores in New Zealand for over 7 weeks. Our major shopping centers, which are vital for brands like Rebel and Macpac in Australia, were virtually empty for almost 2 months. Organized sport was canceled. Domestic travel and leisure activity was heavily restricted. Over this period, to fortify the business, the group took a number of preemptive measures to protect our shareholder value, including the cancellation of the interim dividend and securing of an additional $100 million facility. The group access appropriate government support, including New Zealand wage subsidy for both Supercheap Auto and Macpac, and JobKeeper for Macpac. These payments were passed on to team members in full. In addition, the group was able to secure through agreement, the support of many of its trade partners through extended payment terms and our landlords through rent reliefs -- through rent relief measures to protect our liquidity in uncertain time. However, the heaviest burden really felt to our team, especially our frontline store and DC teams. I'm pleased to advise that we'll be making a thank you payment of up to each -- up to $1,000 each to each of our permanent frontline team members to recognize them for their dedication, to thank them for doing what was simply an outstanding job in the most difficult of circumstances. So against all this backdrop, business performed pretty well. Group sales growth of 4.2%, like-for-like sales growth of 3.6%. In earnings, we were able to maintain our EBIT margin steady at 8.4%. And online, where -- whilst we would acknowledge there's always work to be done and improvements to be made, our investment has really started to pay dividends. This year, our online sales increased by 44% to just over $290 million. We added over 100 -- we added over 1 million new online customers during the year, and online sales more than doubled in the fourth quarter. We are confident that the strength of our brands, the focus on customer service means that these online customers would continue to shop with us both in-store and online, indeed, perhaps we're even giving the pure plays a run for their money. In terms of balance sheet, as I mentioned earlier, we were able to successfully implement a number of short-term countermeasures in Q3 to protect the business. And given the environment, we made a decision to conduct a $200 million equity raising in June. Our balance sheet is now in a net cash position, which gives us flexibility to execute our strategy and pursue market growth in an opportunity where some of our competitors may feel more constrained. Turning to Slide 6. Operating highlights. Whilst we only added 7 new stores to our network, we're able to dynamically grow our active customer base, our club member base by over 500,000 to 6.6 million. Equally, there's no point adding them if they're unhappy. It was great to see our NPS finally start with 6 -- at 60.7%, up 1.8%. In short, we've got more customers than last year, and customers are happier than they were this time last year. A simple equation, but a pretty important one. Omnichannel, we've completed a number of important projects, including the implementation of our Phase 1 of our order management system. For those that have been on these calls for a while, we've often talked about our delivery and how we've often underwhelmed our customers in terms of our performance, and certainly, the costs associated with delivering items to customers. This is a big first step in improving that. We've also opened our Australian Macpac DC, and we've rolled out Click & Collect in New Zealand. Click & Collect sales actually increased by 41% year-on-year, which is slightly lower than our online growth per se, mainly impacted by the shutting and lockdown of stores. But Click & Collect still is showing signs of being a valuable tool in our online armory. Brand awareness is sustained across the business and continues to perform strongly. On the sustainability front, we've increased our recycling rate. We've reduced our carbon emissions, we're named as a sustainability leader in the retail sector. Terms of team, not only they have performed strongly through this period in very difficult times, we've also done it in a safe way, with a 25% reduction in our total recordable injury frequency rate. Going on to Slide 7. As we start to really think about the COVID event and how we are starting to see some of those trends emerge, we called out in June, and certainly, as we look at the performance rolling through into June and July, 3 key trends that were emerging. The first one is this accelerated shift to online. And I think that certainly has shown itself in every dimension. Customers gave online a go. They've enjoyed it, and they've continued. And whilst we've sort of seen the spike diminish, it has resettled in terms of online penetration at a higher rate than pre-COVID levels. We called out, and we've absolutely seen that trend between -- towards health and fitness continue, customers are focusing on home exercise, and they're increasingly turning to leisure wear not only for the weekend, but unfortunately, for their work at home attire as well. And then on the leisure front, with overseas travel off the agenda, customers effectively been stuck in their houses. That burst of energy to get outside, reconnect to nature, absolutely is starting to manifest itself, especially when we sort of look at the impact on BCF, and to a lesser extent, the Macpac business. With those trends in mind, with our investment in omni retail, combined with the fact that we've got attractive market positions, in fact, leading market positions in categories, lifestyle categories, our brands are really well positioned to benefit from these trends in spite of what may happen from a macro economic position. So let's have a look at how these trends started to play out in the -- in terms of sales performance for the period. So go to Slide 8. Obviously, a good year of sales, a record year of sales. So group sales grew at 4.2% and 3.6% like-for-like. It's obviously pleasing given everything that's gone on. But probably the standout here is that our largest brand, Supercheap Auto, representing more than half of group EBIT has actually delivered #1 in terms of organic growth, quite an achievement indeed. To sort of get into a bit more detail, if we turn to Slide 9, what we sought to do here is to update the disclosure that we provided in the equity raising presentation in June. And as per our recent trading update, it shows that following the very weak April due to the COVID lockdown, sales absolutely rebounded strongly in May and June as the restriction eased and customers got out and about and then reengaged in travel and exercise and so on and so forth. We saw an extraordinary surge in trading activity, particularly in Supercheap Auto and BCF in the last 2 months of the year. It's worth noting that the business throttled back on promotional activity over this period to preserve quality inventory. Rebel sales partially impact inventory constraints that the business we experienced, which was, in many respects, related to a cyber attack on one of our logistics provider. As well as the decision, given the fact that we're under that pressure to again throttle back promotional activity to preserve quality inventory. In the case of Macpac, we're pretty happy with how that business is performing. But we do acknowledge that travel restrictions, overseas travel restrictions is going to have an impact on this business, especially over the warmer period where folks normally hit to the Northern Hemisphere to see the ski fields and cooler climates. So that said, a very good performance over the period from Macpac. Gross margin in the fourth quarter was actually down on PCP because we drove hard on slow-moving lines in both BCF and Supercheap Auto. And we did so as part of our management of liquidity early in the COVID period. Now obviously, this was more than offset by cost mitigation measures and the operational leverage. So as a result, the fourth quarter EBIT margins, they actually improved. Over to Slide 10. Online sales, growth of 44%. I think -- we'd like to think this year has really demonstrated that our omni retail capability gave us the ability to flexibly adapt very fast to changing consumer preferences or government lockdowns, what have you. So we were able to effectively change our mode to go after whatever demand was available. I think a great example of that is our ability to turn on contact -- contactless Click & Collect very quickly across the network within days. Over the past 4 years, online sales have grown at a CAGR of 66%. So I said, just over $290 million, and more than 10% of total sales. The group investment in digital and omni has benefited all brands, and it's reflected in their online sales, which is shown on the right-hand side. If we go to Slide 11, you can see how that -- this online sales growth actually transfers itself into -- or transition -- translate, I should say, in terms of sales by channel. And we are seeing home delivery grow over this period to 57% of online sales. Now that's higher than its historical levels, which is around that 54%. But when you take into account that a lot of the store network was either in lockdown or significantly impacted by just low levels of mall traffic, we think that's a pretty appropriate result. And we are now sort of seeing that Click & Collect penetration start to rebound and would expect that to normalize over time. Going to Slide 12. We wanted to just include this as a bit of a one-off insight into sort of the dynamics of the online penetration over this COVID period. And like many retailers, following that acceleration. You can see that on the right-hand side of that chart, during the middle of COVID, we have -- we expected and we have seen that online penetration as a percentage of sales rebased to that pre-COVID-level period. The chart on the left shows that we've achieved a 47% CAGR in terms of online customers across our 3 brands over the past 4 years. We now have over 1.6 million online customers and obviously optimistic we can grow that number. The chart on the right just illustrates that surge of demand over that period, and how quickly it came on. These are, in many respects, a Black Friday-style numbers, but foisted on the business when we were, frankly, not set up or ready to handle that kind of volume. And the fact that the business was able to manage, at one point, up to 40% sales penetration and remain operational, remain available for the sale is a real testament to the investment we've made. Now it's worth noting it all didn't go completely smoothly. A number of delivery issues were hit and certainly, customer sentiments, specifically in Rebel, was adversely impacted over this time. And it only goes to show we've got more work to do to get it right. But from a standing start to hit 40% penetration with no notice is not a bad job, and I think the team has executed admirably. Now we talked about online customers. Let's talk about club members. As I said earlier, on the chart, as we go to Slide 13, shows over the last 4 years, we've grown our active club member base at a 10% CAGR, while new store openings are only growing at 2%. This is important because what this demonstrates is we're able to grow our customer base independently of our store network. And obviously, getting that right creates operational leverage for our shareholders. Obviously, as I've said before, no point growing customer numbers if you can't give them a positive experience. So to sort of see the climbing active club members along with the improvement of our Net Promoter Score, which is a measure of customer satisfaction, is pleading. More customers, happier customers, pretty simple equation. That data has been broken on Slide 14 into granular detail by brand. And I think 2 call-outs, you'll note that Rebel has seen a slight shift down in NPS and that's specifically related to that online delivery period over April. And so the customer has effectively scored us down and reasonably so we intend to get that right. What's pleasing about this club member base is as we entered the COVID period, we effectively turned off paper catalogs and switched to exclusive digital communication. That has not only meant we were able to keep communication with these customers, but we've also been able to appropriately promote and drive the business through an exclusively digital means, something that a traditional retailer is not always able to do. Okay. That said, let's go to the segment results. We might start at Slide 18 with Supercheap Auto. As I said, representing -- just representing 53% of group EBIT, the Supercheap team delivered a very good year of performance. Sales increased by 7.6% to $1.12 billion, supported by like-for-like growth of 6.3%, driven by both transactional growth and increased units per sale. During the COVID period, the Auto business benefited from a category shift towards essential and DIY projects as people started to tinker with their cars and getting their projects done. While auto maintenance and accessories is the strongest categories, we were delighted to see the tools category return to growth. Overall segment EBIT margin improved by 40 basis points to 12%. And it's worth noting, in line with our strategy of simplifying the business and focusing on the core four, the Autocrew business was permanently discontinued. Slide 19, Rebel. Rebel, which represent just under 40% of group EBIT, also performed well. Sales increased by 3.3% to just over $1 billion. Like-for-like sales growth of 2.7% was driven by higher average transaction value. Fitness and hardgoods were the best-performing category as COVID lockdown led to strong demand for home fitness products, weights, yes, weights, yoga mats, boxing gloves, skipping ropes as well as hardgoods, dartboards were -- made a big comeback, including our friends at the table tennis game. Apparel and footwear sales recovered during the fourth quarter as the COVID-19 restriction eased and consumers started to get outside. Gross margins increased during lower -- sorry, gross margins increased due to that lower promotional activity as we sought to preserve our inventory position. Operating expenses increased in Rebel, mostly due to an increased share of gross -- group infrastructure. This because as the business is fully migrated into our -- or start to be fully migrated into our group distribution centers and expanded online. The operating expense increase partially offset gross margin expansion. In line with the group's simplification strategy, the Infinite retail business, which sold licensed merchandise at sporting and other events, has also been permanently discontinued. This business contributed a loss in 2019 and '20. On to BCF. So despite the bushfires and a pandemic materially impacting sales in those Christmas and Easter trading periods, which is for BCF effectively ballgame, to deliver a positive sales growth of 4% is quite an achievement. However, the half 1 tells the story for BCF, and with a 0 Christmas effectively it disabled its performance. It's also worth noting that as a part of managing liquidity in our Q3 countermeasures for COVID, BCF actively started clearing poor performing inventory for cash, and that impacted gross margin. This clearance started to moderate late, very late into the fourth quarter as base sales rebounded strongly due to that significant uplift in the fishing, camping categories as that COVID lockdown restriction eased. This resulted in a 21% like-for-like sales growth in the fourth quarter. This strong baseline, i.e., not clearance, baseline sales momentum in the BCF business has continued in the new financial year. With offshore travel restrictions in place, I think the business is well positioned to benefit from any uplift in domestic tourism and outdoor activity. Page 21, Macpac. Arguably Macpac, or not arguably, it was. Macpac was the business most impacted by COVID-19, which resulted in a 7-week government shutdown -- mandated shutdown of 36 New Zealand stores. Macpac Australian stores were also impacted by a decline in foot traffic in shopping centers during the peak COVID-19 lockdown and the slower activity around the Easter trading period. Against this backdrop, it's pleasing to note that the business delivered a second half EBIT of $4.9 million versus $5.5 million in the prior corresponding period. Taking everything that took into account, not a bad result. And the 7.8% like-for-like sales growth in May and June is also is an encouraging result. As I've said, it's important to recognize that whilst we might receive a benefit from domestic travel, the offshore travel will possibly impact the business in the summer months as people are no longer able to travel north. So that closes out the segment detail. I'd now like to pass over to David Burns to talk through the financial in more detail. David, I hope you're on the line.

Thank you, Anthony. Can you hear me?

Perfectly.

Excellent. We're in 2 locations. So my apologies. I'm pleased to advise that our group and unallocated costs have been held at $18.3 million for the year, an improvement on last year. Turning to the balance sheet, Slide 23. The balance sheet for the group has been strengthened by the June capital raising, of which only the institutional component was received and reflected in the financial statements at June, representing $157 million. The balance of the retail offer was settled in early July. We're delighted with the level of support for the $203 million entry from our investors and recognize that this places the business in a strong position to trade through a very uncertain and volatile period we are now in. The inventory balance of $502 million is $58 million lower than last year, which is consistent with what we disclosed to you in mid-June. The actions we undertook in April -- March and April, as Anthony has outlined earlier, to preserve liquidity position of the business is compounded by the very strong bounce back in sales once restriction eased, has impacted our in-stock position. This has been most sharply felt by Rebel, and we're working with our major trade partners to get across the additional -- getting access to additional stock. The lower stock position is complemented by stronger payables position, which has the benefits of extended payment terms with our major trade partners. And the net working capital position is favorable $140.5 million to the 2019 result. I would call out the net debt positions now net cash position and all debt has been repaid in July. Finally, we have implemented the AASB 16 list standard, which has resulted in major changes to the balance sheet, which we've shown in detail in the OFR under Section 3.2b. The net impact of this is an increase in assets of $828 million. Liabilities have increased by $868 million, and an adjustment to retained earnings has been taken on implementation of $40 million. Turning to returns and capital ratios on Slide 24. We're pleased to be able to announce an 18 -- sorry, $0.195 final dividend fully franked, representing a 55% payout of underlying second half net profit after tax. Our financial ratios are all in a strong position at balance date. ROC has increased due to the strong working capital position. FCCR remains flat due to the consistent earnings result, and net debt-to-EBITDA is now negative. Average net debt has also improved. Turning to cash flow. The strong cash flow result has been impacted, obviously, by the implementation of AASB 16. And having adjusted to that, the operating cash flow was $405 million, an improvement of $164 million on the 2019 result. This has benefited from an improvement in the working capital position I called out earlier, also benefits of tax payments. The result is, therefore, being affected by those issues and it is gain -- will unwind that position in FY '21 of circa $160 million as we see a normalization of working capital and other provisions. Capital expenditure of $68 million was lower-than-planned due to projects that were put on hold during Q4. And our capital program is expected to return to normal -- normal levels in FY '21. I'll now hand back to Anthony to talk -- take you through corporate strategy.

Yes. Thank you, David. Just turning to Slide 28. For those who follow the company will be familiar with this slide, which obviously outlines our 5 key pillars of our business strategy we first outlined at our Strategy Day last November. And obviously, that outlines the progress we've been made to date. I won't go through this in detail, but I did want to call out 2 developments. The first relates to how Rebel has continued to serve one of our relationships with our global trade partners. I'm pleased to announce that Rebel has extended our exclusive partnership with Under Armour for another 5 years to 2025. This contract extension comes off the back of a successful partnership that has been in place since Under Armour launched in the Australian market in 2014. This agreement will see Rebel, and actually BCF as well, continue as one of Under Armour's largest wholesale partners in the Australia Pacific region. We're obviously delighted to extend this relationship with our third biggest sports brand partner given the benefit it brings to our customers in terms of access to latest innovation in footwear and fitness apparel. The other one I want to call out was that the fact that Rebel entered into a 10-year exclusive arrangement and strategic partnership with the Fanatics, a global leader in licensed sports merchandise. This partnership will provide Rebel access to a materially expanded range of the Fanatics' U.S. and Euro sports license merchandise. Those U.S. sports include the NFL, Major League Baseball, National Hockey League and the NBA. And the Euro sports comprise materially expanded ranges from key football teams such as Real Madrid, Manchester United, Liverpool and Aston Villa. Syndication will be via a customer-led -- a consumer-led drop ship model. Rebel will take the first customer orders -- will take the customer order, I should say, and the Fanatics will fulfill via its existing international warehouse and logistics. This is exciting venture, and we expect this venture to commence operation in the first half of calendar 2021. Whilst I must be honest, it's embryonic at this point, the Fanatics deal is an example of how NFL, which how we could leverage NFL, which provide our customers with access to a significantly expanded range of licensed sporting merchandise. Given the growth in popularity of international sports in Australia and the increased exposure being provided through pay television and the like, we think it's an exciting opportunity to grow the Rebel business in a considered and very capital-light way. All right. Let's go to the trading update and outlook on Slide 31. Obviously, pleased to report that momentum in the business has continued in the -- from the fourth quarter into the first 7 weeks of the new financial year. The group has achieved like-for-like sales growth of 32% in this period despite the impact of the closure of 94 stores in Melbourne and -- from week 6, and 21 stores in Auckland from week 7. And gross margin during the first 7 weeks of this period has been favorable to the prior corresponding period. All of our brands have delivered very strong like-for-like growth, and that's obviously worth calling out standout performance of BCF at 72%. It is need to be said though that investors needs to be cautious in extrapolating these levels of growth, given the extraordinary and volatile environment we are now operating in, and the impact of pent-up demands -- levels of demand and government stimulus measures. Having said, our brands have leading market positions in attractive categories that we do believe consumer trends towards health and wellness, DIY projects, domestic tourism and travel, will continue to represent a tailwind for the business. Having a strengthened balance sheet via our equity raise in June, we have -- the group is targeting a capital expenditure of around $90 million this financial year, broadly in line with our D&A expense. And finally, I should point out, as Dave has previously mentioned, there'll be a true-up in the FY '21 for some cash flow benefits we received in FY '20 in terms of subsidies, deferral rent, extension to supplier term and the like. I will now pass back to the operator and open the line for a Q&A session.

[Operator Instructions] The first question comes from Shaun Cousins with JPMorgan.

Just a question regarding the trading for the first 7 weeks. Was the like-for-like sales growth trend fairly consistent across that 7-week period? Or did it sort of reduce in August? And if so, was that a national sort of moderation in August or was it just the areas of Melbourne and Auckland that have been impacted by lockdowns, please?

Yes, Shaun, I think we did see some moderation in the last 2 weeks as we saw the lockdown come online, especially within Auckland and Melbourne. And obviously, Macpac, obviously most adversely impacted by that because your Melbourne and Auckland is arguably the most important cities for that particular brand. But that would be, I would say, the only sort of other -- that's the only moderation that we would call out.

And so it was fairly sort of even otherwise in terms of it wasn't much stronger, I'd say. At the start of July, I recognize we don't often ask around week-to-week performance, but volatility is quite high. So just curious around how did it sort of perform ex those knockdown periods. Was that even?

Yes. Look, Sean, it's week-to-week is tough, and I don't think we want to get into that level of dissection. I think fair to say outside of the lockdown impact, it was relatively stable. But -- when you say week-to-week, stability is its own definition.

Fair point. And more secondly on BCF. I think there was a commentary in the smaller release around competitive intensity in BCF weighing on gross margins in the second half. Could you just talk a little bit about that competitive intensity and whether or not you saw any sort of aggression in market or we've moved in terms of the start of first half '21 more -- or has the competitive environment improved for BCF, please?

Yes. So in the first half of '21, we note that BCF's relative price position is probably where we would want it to be. The competitive intensity continues, which I find curious given the inventory constraints within the broader category. But certainly, I would sort of say that particular segment has benefited from sort of a dynamic uplift across the board. And so the need to sort of promote for incremental sales may have diminished, and that seems to be consistent with what we're seeing.

Okay. And then just finally, you highlighted something in your presentation where the equity raising around was framed as a further simplification of the business, which I believe is around a broader cost reductions. Can you just talk a little bit about what the company may have done on a cost reduction sort of plan in recent months, please?

Yes. So we've undertook quite a wide-ranging restructure of our support office group across all parts of the business, including our sourcing office, offshore, New Zealand, Rebel, Macpac -- Rebel, SCA and BCF. At the same time, we've not only sought to reduce those costs, but we've also redeployed some of those savings into digital capabilities. So in the process of outfitting ourselves with better cloud skills and better omni retail skills at the same time. So that's probably the most significant call out in terms of cost reduction. It's also worth noting that we've, in the period, announced the discontinuation of the Infinite Retail and Autocrew, which in of itself, is a cost reduction by proxy.

The next question comes from Aryan Norozi with UBS.

Just a few for me, please. First one is around, there is a $10 million inventory write-down in FY '20, and I think is taken by the line. What is the normal level of inventory we should think about into fiscal '21 in terms of the write-down piece?

Yes. I'll take that one. So we had some, obviously, substantial trading that we have been through over the last period. We've gone and looked at our inventory position in Supercheap and looked at some of the categories that we're in and decided that we would be reducing some of our investment, or our focus, I should say, in spare parts and took some reductions of provisions against some spare part inventory in Supercheap. And additionally, we also then, as part of what Anthony called out earlier was the clearance activities that we've been undertaking in BCF, we also then determined to take some provisioning that would support the exiting of some parts of the BCF inventory. Those were called out. You can see that the prior year was only $1 million in the notes of the accounts. So you're -- deep in the financial statements, we have found that $10 million. And so we would normally see specific inventory provisioning other than just sort of normal issues of stock take and the like, of around that circa $1 million to $3 million per annum. That would not be significant. So this year, we're a bit -- slightly higher.

That's helpful. Second one, the COVID thanks you payments, I appreciate if you don't want to give an exact number, but any indication of how much that could have been and how we should think about that? And was it in second half '20 or first half '20 -- or was it in first half '21?

Yes. I don't think we'd be keen to disclose the amount, being a gift [Audio Gap]. David, I'll let you answer the second part.

Yes. So it was accrued for the proportion of the payment that relates to '20. So yes, the 3 quarters of -- 3/5's of it is in FY '20's results.

And just in terms of the like-for-like growth contribution, can you give us an idea around the split between transactions and price growth? And have you seen any shift to larger transaction items in any of your businesses, please?

So what -- it was specific to what period?

All right. During the second half of the year, and maybe July and August as well, if that's all right, please?

Yes. We are seeing -- sorry, do you want to go, Anthony?

No, you go. We're in different places. So that knowing look has been lost. So just you go this time.

I can't keep you under the table. So the -- we're seeing an increase, yes, in average unit price over this COVID period that has been a feature. Obviously, we've seen transaction growth, but we're also seeing increase in our average unit price growth. And that's been in most of the businesses actually.

Perfect. And just very quickly, last one for me. In terms of online profitability, I think, Anthony, you mentioned before that, obviously, the delivery side is something you need to work on in terms of getting that margin back up. How have you progressed during the period in terms of online delivery profitability, please?

Yes. In terms of the posted results, no material improvement, but the key to it is the deployment of our order management system, which we've obviously hit go in the period on its first phase. So that's yet to play out. So embedded in this result is probably a dilutive delivery cost for those sales. And we would like to sort of see some improvement kick into this financial year as we start deploying that capability.

The next question comes from Bryan Raymond with Citi.

My first one is just on this $1 million -- sorry, this 1 million customer addition that you've had through your online channel. Just trying to get a feel for your potential to retain some of those. First of all, so how you measure them opposed to them being sort of existing customers. And then of the 500,000 increase in club members and most of them explained by this, can you just talk about your ability to retain those customers and keep online growth running at pretty healthy levels, please?

Yes. There's always a risk with these 2 numbers to be potentially confusing. So the club members, getting out to that, that 6.6 million, they're obviously omnichannel by their very nature. And then that growth in terms of customer numbers for online was just an attempt to demonstrate that, that looks to be new customers emerging to the channel. They're giving it a go for the first time. And there obviously could be a crossover between the two. So to answer your question around your ability to retain those customers over time, you go to the club member data, Bryan, which sort of has shown time and -- year after year a net underlying growth of that customer base with either new customers coming on board being greater than those that are obviously churning out. So that looks to be quite sustained in terms of maintaining that customer connection.

Okay. And then just on -- just sticking with online at the moment. So obviously, Melbourne stores and Auckland stores closed at the moment. Can you give us a feel for what the sales transfer to online has been while they're closed? Obviously, you've had great online growth. But are you still seeing, like I assume sales are down in those markets at the moment for good reason, but are they -- are you seeing quite a healthy transfer to online from shoppers that would have been in-store that have now transitioned to a new channel?

Yes. So I don't think we would disclose the particulars there. But broadly speaking, you do see a very dynamic change in online growth when you shut the stores. We saw that in -- we saw that in March, April, during the kind of lockdown 1.0, and that's absolutely playing out in the second. What's interesting, though, when a market goes into lockdown, we do see those contactless, Click & Collect worked very well for SCA, BCF and Rebel stores, which are stand-alone. So the combination of the contactless Click & Collect with online works quite well. So certainly, do you get it all back? No. Nor do we expect. But we're performing quite reasonably, all things considered.

Okay. And then just my last question is just on Rebel. On the trading update, I would be interested, given that's been the real accelerator, I think, from what you saw in May and June has been that Rebel number. How much of that could be explained by kids and school sport being pushed out? And there's been a lot of -- maybe -- it's really just timing but purchase that would have normally been made in Feb, March for the winter season actually getting made in June, July and potentially August. Has that been a big driver? Or is there something else that's really driven that uplift in Rebel?

I think it's broadly across the board, Bryan. So that -- to be honest, every time we put a set of weights into a store, effectively it vaporizes within seconds. So there's quite significant health and broad health and well-being demand out there. There arguably is a blip associated with a delay to the start of community sport. But when we look at the numbers, that doesn't explain it. It's across the board. I'd probably argue the better way to look for it is, if folks came back, came out of lockdown and started thinking about apparel and footwear, there might have been a bit of pent-up demand there. But it's not limited to one merch category in Rebel, it does feel to be across the board dynamic.

Okay, great. And then my follow-on, just on the store network for Rebel. So you were a net 1 down in the first half, none in the second half and then you're expecting to close a net 5 in FY '21. Is this -- like can you talk to why these stores are closing? Is this sort of a bit of a one-off cleaning out of some of the network? Or is there going to be rolling closures across Rebel for a few more years?

Yes. So we've always said that when we converted the Amart stores, we had a bit of a double up in some areas. I think the good people of Penrith have got more Rebels than anyone else in Australia. So whilst independent, individually, those stores are positively contributing, so we haven't got profit leakage, it's just not efficient. So where we've got those double ups in the network, as they come up for lease, we'll just appropriately roll them off. So the impact on sales will be marginal. And obviously, taking out the store, expense would be accretive. So it's just slow pruning of the network, just removing those duplications where appropriate.

So after the 5 -- net 5 in '21, that's sort of -- that cleans that up.

No, no. There'll be more to come as well.

More to go as well.

Yes. But again, they come to the end of the lease, the actual impact is arguably accretive and it's slow and steady. So as we just see -- as we -- as the duplicates come up, we'll just remove them as they come.

The next question comes from Grant Saligari with Crédit Suisse.

Could you comment, please, on your inventory, your ability to recover your inventory position over the coming months, and particularly, I guess, as we come up to Black Friday sales events?

Yes, Grant, very good question. It's certainly, in some parts of the business, more challenging than others. So I would say where we're drawing inventory from a private label China perspective, we are feeling confident about that position. In some of the national brands, we have seen -- because you have seen in some categories, some fairly toppy demand curves, you -- we are seeing some of those inventories being diminished quite significantly. So the way I sort of would think about it is Rebel might find themselves as we get into Christmas, if this demand trend was to continue, it would be not materially impacted, but it would be checked by inventory availability, would probably the way I would think about it. And possibly within BCF, some of the national brands might be in the same position. So because we've had -- we haven't really disrupted our open-to-buy process, meaning we've made capital available for the businesses to buy inventory, I think we're in a better position than most. But certainly, some of the national brand S&OP process, sales and operation processes are under significant pressure.

Okay. That makes sense. That's helpful. Just on Macpac, a couple of quick questions. The Australian warehouse, will that be a net cost or an efficiency as we go through FY '21?

Efficiency, it's gone into one of our existing sheds.

Fantastic. And could you comment on the Macpac mega performance? Because, I guess, part of the strategy there is to provide and expand the range and boost the online sales of that expanded range. Could you comment on the Megastore performance?

Yes. It'd be good to get a clean environment to sort of ascertain its effectiveness. So obviously, we were keen to see how it's going to perform at Christmas and was impacted by COVID, which is obviously one of the -- sorry, not COVID, by bushfires. And then as we get into Easter, which is the other kind of more significant event for that type of option, impacted by COVID. So it leads us to -- in a position where we hold, we continue to review and again take our temperature over Christmas and see how it performs. What we have found from Macpac, though, is the ability to have a out of high velocity shopping center distribution network has been a blessing through the COVID period. The stores over winter have performed very strongly. But that feels like an independent variable from their original strategic intent. So I think we're keen to let it play out, have some clean air to see how it actually really performs in as normal an environment as one can generate, and then we'll make a call from there.

Okay. That's helpful. And on the small store development for Macpac, given we will be going through a more challenging period, as you said, for that market segment, given some dependence on the international traveler, how will you actually approach small store development? Will you continue at a similar rate? Or if you could just give us some update there?

Yes. I think we'll exercise appropriate caution. Our -- if we were to consider new stores, we would be looking in the deep south of Australia, Tasmania, Victoria, South Australia. I don't think we'll be operating north of Coffs Harbour for climatic reasons. And then given the volatility in shopping malls, clearly, the commercial deal on the table will be a driver of whether we go or no go. So those 2 factors will be the gates as we consider that rollout. And I think we'd be pretty confident that, that kind of commercial opportunity would be available. And certainly, if we look at the network performance outside of the lockdown, we're pretty happy with what we see with the small formats.

Okay. And just finally, just a reporting detail. You've currently provided segment EBITDA pre and post AASB 16 this time for the full year. Going forward, what's your intention? Will it be a segment EBITDA inclusive of AASB 16? Or an underlying number? Or both?

Grant, we'll be making that determination during the course of this year. We're still obviously operating at a management level on a pre basis. As we've gone and embedded the lease accounting, we'll be looking at it to determine what we present. So we have not still concluded our position for the year ahead.

The next question comes from Mark Wade with CLSA.

My question is on how are you positioning the business? I can imagine the last few months, I mean, the brands have -- they've come through a period where they've been -- become something a lot more relevant to the consumer, and you can see that in online customer numbers. As I'm just trying to really think about that, I mean, it's either how much they bought, how often they've bought and then you've got those new customers. So how do you make the most of this unique situation you're into really kind of embed and extend that shopping behavior so it last?

Yes. Thanks, Mark. I think two ways we're thinking about this. One of the benefits of the capital raise is it gave us the opportunity to extend our inventory position or certainly being a little bit brave with our inventory position than we otherwise would normally be. So to go after the demand that's there. And obviously, the thing that's in the back of our mind is whilst we've got this nice tailwind from a trend perspective, the macroeconomic environment starts to deteriorate, that will emerge as a block headwind. Now you'd hope you'd net out positive, but it's obviously highly -- it's an unknown that we're dealing with. So being in a position to sort of extend our position on inventory is one. And the second is driving hard at where we're seeing channel differences. So reinvesting into our digital capability, constantly upgrading our ability to deliver more effectively, that -- the combination of those two is really where we think there's an opportunity, all the while mindful that we're in a position where a significant catchment for us could be a lockdown anytime within the next arguably 18 to 24 months. So we're conscious of the fact that we're dealing in a pretty binary volatile macro environment.

Fair enough. And in your comment earlier, was it around the frontline staff have really bore the brunt of it and I can appreciate that. And I'm just trying to think, given the opportunities there around staff training and trying to keep those guys motivated and really enhance their selling skills, where do you see that? As well as, then looking at your executive leadership team and the dynamic there, given it's really their first 12 months together and how that's played out. So just thinking about the staff and engagement levels and training and your approach to dealing with them?

Yes. So team members are -- we've always said that team members are a differentiator for the group. And when we were in the middle of lockdown 1 and lockdown 2, I mean, even as we speak now, all our stores in Victoria or in Greater Melbourne are open and available for contactless Click & Collect with our permanent team members manning those stores, operating those stores. Now if I was completely economically rational, I wouldn't do that because, of course, those stores are effectively operating at a loss. But it's so important to maintain that connection with those team members and to give them a reassurance of ongoing engagement and employment that we've made the decision to keep those stores open as we did in March, April. Now the dividend we get from that is that, ultimately, when customers come back, which they do, team members are ready to go, the store is ready to go and they feel engaged as well as the team member feels supported. So that's -- we've really pushed hard on making sure that our team members are safe and as stable and confident as we can give them environment of stability and confidence as best we can. So certainly, we've worked very hard to make sure of that connection because we believe it to be a key differentiator in our business model. And you're right in terms of the executive side of things, a relatively new team. We see a lot of each other digitally. I don't think we're any different to any other business in that regard. And I think we're making very good progress in terms of just continuing to keep the show rolling. And at the same time, making some relatively big calls, whether it be pushing out on the inventory front or pushing hard on the digital front and try to push out or press hard on a sustainable advantage in a very volatile environment.

The next question comes from Callum Sinclair with Macquarie.

Quite a few of them had already been answered, but I just have 2 quick ones, if I might. I think you briefly touched on it earlier, but can you just confirm what's driving the difference between Macpac and BCF trading in the first 7 weeks? And maybe just how we think about the sustained impact of destination versus shopping center stores or is it just a weighting towards Auckland and Melbourne, as mentioned?

Yes. Thanks, Callum. It's a bit of all of that. So you've definitely got an Auckland, Melbourne impact on Macpac as a differentiator. You've also got a shopping center impact. So the -- if we look at Rebel, for instance, the stand-alone stores come out of the blocks much harder than the shopping center stores, which is logical when you think about your own experience. People feel more safe, comfortable going to a drive up stand-alone center than a shopping center, although that changes very quickly, I can tell you from my experience in the Southeast Queensland market. And the lockdown is in play. The only other thing I'd mention, though, is the BCF customer or even it's more than the BCF customer, with these kind of numbers, just that macro desire to get out to sort of basics, boating, camping, per say, that sort of Middle Australia leisure activity has really, I think, been amplified in the period, which obviously, Macpac runs a slightly different tune than that one.

Right. And just 1 last one. Just on the JobKeeper and the wage subsidies, they're disclosing accounts. But can you just clarify how much is a net subsidy to Super Retail Group once stores are opened? Or just a pass-through to those employees when those stores were closed?

Yes. So you think about all -- I think we've sort of $6.5 million between the two is the number we've sort of identified, all of that went to team members. Now where there's arguably a smaller amount that subsidized wages in the period, but recall, even when you think about those wages and because we're really talking about Macpac in Australia because New Zealand was in deep shutdown, if you think about those wage subsidies for Macpac in Australia, they're really running stores that were effectively loss-making in the period. So I'd say the best way to think about the $6.5 million all went to team members in terms of it showing up as any kind of material impact on the underlying profitability of the business, that would be a 0 number.

[Operator Instructions] The next question comes from Andrew McLennan with Goldman Sachs.

I just had a question around the, I guess, the dividend payout ratio and your comments around sort of the caution on extrapolating the current growth, et cetera, and your comments around cash flow needing to come back a touch. So I was just sort of wondering what decision process went through there. It's obviously pretty low, surprised us, the downside. But just how you're thinking about that, given you've got a good net debt position at the moment, net cash position?

Yes. Thanks, Andrew. I think there were two considerations. Obviously, we did the capital raise in June. And to do a capital raise and then fund it back in the form of a dividend is not -- probably, not totally rational on a pure economic basis. So that was sort of a case to arguably have a low dividend or indeed extreme no dividend for the full year. But in recognizing that the performance of the business exceeded expectations, arguably, or now -- certainly did exceed our expectations into June, it was appropriate to pay a dividend. And we thought the appropriate middle ground between those two positions was to be at the bottom end of the range. And obviously, you're right. We're in a good cash position and in a volatile market, let's see how the year plays out, but we'd like to see ourselves maintaining that course of speed over the period, all things being equal.

Sorry, when you say maintain that course of speed, just...

Stay within that...

In comparison to? Around about the 55%.

I can just start there. And look, I think we still need to get into sort of forecasting an outcome, just given the fact that the macro volatility is so great. I mean, we -- I think what we'd be prepared to say is we're absolutely within that range. We're starting at the bottom. Let's see how it comes out, how events materialize throughout the period.

Sure. Okay. Now with respect to online, just a couple sort of embedded questions here. When you look at some of the scan data -- sorry, not scan data, the online search data, the brands have -- your bands have performed reasonably well, but maybe not as well as some your peers. I'm just wondering if you could just talk about how you -- I mean, the numbers are great, there's no doubt about it, but I'm just wondering how you felt about the performance versus your competition. Also if you could provide any color around the online profitability, if you could, given the magnitude that's coming through there? And then finally, what's the -- what can you discuss about the Fanatics arrangement, what kind of margin impact is that likely to have? And also we've got no doubt, the product range is going to be greatly anticipated by customers. But I'm just wondering how does that product come into the Australian market currently? What's the competitive positioning like?

Okay. You've got a few there. So let's go through them one at a time. So in terms of our relative position versus the competitors, when we sort of look at market share data, it looks like we're broadly keeping up with the market. So we're at or above-market growth and therefore, arguably holding or, in some cases, growing share, depending on brand by brand. And I think considering the competitive intensity of online, for a traditional retailer to do that within the online channel is , I think, a good result. So we're relatively pleased with our market position, noting that unlike a pure play, we -- our capability is still emerging, so we've got lots to improve in our online execution. In every dimension, we've got a lot to improve. And the fact we're writing these kind of numbers with the capability we've got now which I wouldn't describe as poor, it's good, but it's not great. So with more operating leverage in terms of improvement, I feel good about that. From a profitability perspective, we've always said that Clink & Collect is good business for us. We like it, performs very strongly. Delivery is more challenging, and so we'd sort of say delivery will be a drag. In terms of mix, we haven't and won't quantify that. But again, huge opportunity to improve that. I don't think we could do delivery worse from a profitability and cost perspective. So again, big scope for improvement, improvement there. To your question on the Fanatics, look, I think the thing that's attractive around that arrangement is twofold. One, we're accessing a world-class global players inventory. So we won't hold the inventory per se for that extended range, which means that we're able to offer a customer, frankly, almost anything, any peculiarity that they would go after in those American sports and European sports. And it's effective the carbon copy arrangement that Fanatics have with Walmart in the U.S. So when you're going to Walmart store, you're able to access anything in their back order catalog. That range extension, we know gives us a real competitive advantage. And from a customer perspective, they would be either sourcing that product -- we'll be sourcing internationally for them and would come in on an overnight bag, which is not unusual, and then that will be complemented by our traditional wholesale business that we would have with the Fanatics, which we have an offering of that range, but we can obviously expand it accordingly and in line with what we see in U.S. and European trends.

Okay. So you'd be competitive against the likes of that product availability on Amazon, for instance?

Yes. Well, in every way, actually. You look at the Fanatics, their coverage is as good, if not better. So it's quite a big step forward for the group. And we would like to see in terms of our protecting our range proposition, arrangements like this could -- arguably will form a significant part of maintaining that customer relationship by making sure we've got them covered. The beauty of this deal is that we're doing so without actually committing working capital.

There are no further questions at this time. I'll now hand back to Mr. Heraghty for closing remarks.

Well, thank you, all, and thank you for joining the call. That brings the call to a conclusion. I look forward to seeing some, if not most of you, virtually in the coming days, and I wish you all a very good morning. Thank you.

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