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

Ladies and gentlemen, welcome to Super Retail Group's FY '21 Full Year Results Presentation. Today's presentation will be hosted by CEO and Managing Director, Mr. Anthony Heraghty; and Chief Financial Officer, Mr. David Burns. [Operator Instructions] Today's call is for investors only. Media wishing to speak to management should contact Kate Carini, whose contact details appear at the bottom of today's ASX announcement. I would now like to hand over to Mr. Heraghty to begin today's presentation.

Thank you very much. Well, good morning, and welcome, everyone, to Super Retail Group's full year results presentation. In terms of structure, I'll begin by speaking to some of the financial, operating and ESG highlights for the period. And then I'll provide a brief overview of our corporate strategy with a particular focus on 3 of our strategic pillars. I'll also discuss our divisional performance before asking our Chief Financial Officer, David Burns, who's joining us on the call from lockdown in Sydney. Good morning, David.

Good morning, Anthony.

And he will provide more detail on the full year financial results. And finally, I'll provide you with some color on the FY '21 fourth quarter trading, together with a trading update for the first 7 weeks of FY '22. As always, there will be an opportunity for you to ask questions at the end of the call. All right. Let's get to it. So I'm pleased to report that the group has delivered a record full year result, underpinned by strong top line growth, higher gross margins and disciplined cost management. A very warm thank you to the broader Super Retail team, from our team members in stores to the DCs, management and leadership team. It's been a team effort and one that's generated a very pleasing result. Now clearly, our result was clearly driven by elevated customer demand in all of our categories. However, it was really the group's omni-retail business model that was critical in enabling the group to successfully capture demand that was there despite the ongoing challenges of COVID-19. The success of our model is evidenced by strong performance in our digital channel where group sales were achieved of over $400 million for the digital channel. As a result of this strong performance, the Board has declared a final and fully franked dividend of $0.55 per share. As we enter an issue-rich FY '22, the group has a conservative balance sheet with no bank debt. Further, with global manufacturing and supply chains that are clearly under stress, we have proactively responded by fortifying our inventory position, and we'll talk about that later -- we'll talk about that in more detail later in the call. In short, we are well prepared for what is to come. As previously flagged, our operating expenses has increased -- have increased in the second half, especially as we cycle acute cost control in the prior corresponding period, catch up on projects deferred due to COVID-19 and also as we reinvested in the core business, specifically the acceleration of our closeness to customer strategy. As we go to Slide 5, it really provides a high-level summary of the top line sales performance of the business in [ F '21 ] for both the group and on a brand basis. Our record sales result is driven by strong double-digit growth in each of the 4 core brands. As we go to financial highlights on Page 6, you can see that group sales increased by 22% to $3.45 billion. This top line growth delivered an 80% increase in EBIT to $477 million. Our statutory NPAT increased by 173%, while our underlying NPAT increased by 107%, reflecting a reduction in below-the-line adjustments. Online sales grew by 43% to over $416 million and represented 12% of group sales. Notably, despite the impact of F '19 on store foot traffic, Click & Collect sales outpaced online delivery. In response to an uncertain trading environment created by COVID-19, the group has adopted a conservative cash position with no bank debt, a strong cash balance and $600 million in undrawn committed bank facilities. On Page 7, we go to some operating highlights, and this year underscores how we've successfully executed our omni-retail strategy. A sharp focus on inventory management and supply chain have been key in managing unprecedented volumes of demand in both our store -- in-store and online channels. The group completed over 1.5 million home delivery orders this year, which contributed to a 34% increase in home delivery sales to $224 million. Click & Collect sales grew by 56% to $192 million. Our supply chain successfully absorbed a 54% uplift in shipping container volumes, and we delivered over 400,000 pallets from our distribution centers to our store network. Pleasingly, following our recent investment in order management technology, the number of split deliveries to our online customers decreased by 24%, which is a good result. We've also grown our number of active club members during the period by 22% to 8 million. These club members represent almost 2/3 of group sales, and I'll talk later today on how we think we can build an even stronger relationship with these customers through our closeness to customer strategy. On to Slide 8. Super Retail Group is committed to social, ethical and environmental initiatives that benefit our team, investors, customers, trade partners and the wider community in which we operate. During the period, we continue to make good progress towards our objective of adopting a sustainable and ethical approach to our business operations, and some of these key achievements are set out on Slide 7. Further details of our ESG performance are set out in the appendix to this presentation and in our Sustainability Report. There's always more work to do here, but our company is well on its way. For those who followed Super Retail Group during my tenure as CEO, Slide 10 and 11 should be quite familiar to you. Our corporate strategy, which we first released at our Investor Day in November 2019, has served us well over the last couple of years, which have been -- which have included a bushfire, a global pandemic and I think from last check, a mouse plague. But we're making good progress against our targets. Our focus remains on growing our core 4 brands, leveraging our closeness to customer, connecting our omni-retail supply chain, simplifying the business and most importantly, excelling in omni-retail. Slide 11 contains further detail on some of our execution progress to date. But with limited time today, I don't -- I won't talk to the detail on this slide. But what I want to do is focus on 3 of these strategic pillars in a little bit more detail. They're the omni-retail, closeness to customer and our investment in our core 4 brands. So let's start with omni-retail. So as we've spoken, 43% increase in sales to $416 million, all brands representing double-digit like-for-like sales growth on Slide 13, very credible result. Online sales represented 12% of total sales, and we expect that penetration to continue in the medium term to 20% -- 25% penetration levels that we do see in more mature offshore markets. That's our planning assumption. Whilst COVID-19 resulted in an acceleration of this online activity, chart 14 shows you there's a long-term trend here across all of our brands to online purchasing. And as we turn to Slide 15, what becomes clear is the operational leverage that our store and DC network provides the company as we execute our omni strategy. Put simply, as the pie chart -- or pie graph on the left-hand side of Slide 15 shows you, 94% of everything we sell requires a customer visiting one of our stores. And while the metrics differ across our brands, the chart on the right-hand side -- the table on the right-hand side shows you at group level that half of our online sales are via Click & Collect. That tells you that many of our customers value the convenience and certainty of being able to order products online and conveniently pick them up from their local stores. Further, 100% of our online deliveries are fulfilled from the existing store and DC network. The nature of our delivery profile, combined with our investment in order management tech, has ensured that our network can scale to meet what has become very dynamic demand associated with online delivery. So in short, stores are our linchpin to our omni-retail strategy. And as we will shortly discuss, the company intends to invest further in this asset. Go to Slide 17 and let's start talking about closeness to customer. So again, 17 is a familiar chart for those of you who've been in previous presentations. Look, in short, it shows over the past 4 years, we've been able to grow our active club members 4x faster than store members. This is important because as we organically scale our business by growing our customer [ member ] base independent of opening stores and the capital required, the company can create sustainable operating leverage. Slide 18 provides more detail on a brand-by-brand basis about our growth in customer numbers, customer satisfaction, club members as a percentage of sales. We are pleased to have grown our active club members, and remember, they are members who have purchased from us in the last 12 months, by more than 20% to 8 million club members. Now we're determined to hold on to those customers. Our aspiration over time is to grow this club member base to over 10 million club members. Currently, across the group, active club members represent more than 63% of total sales, and we think the stickiness of these loyal customers provides an additional level of resilience for the company. Perhaps just as pleasingly were the strong NPS scores which our brands delivered during the period despite the logistical challenges and general shenanigans associated with COVID-19. And so in short, more customers and more satisfied customers is a good place to start for F '22. When I last updated the market, as we turn to Slide 19, at our half year presentation, I indicated that we're really accelerating our investment and our ambition for our customer loyalty programs. Now with an additional 1.4 million club members in our system, there's a worthy price to pay for or even more worthy price to pay for. Now upon completing detailed customer research, we've gone through new segmentation, analytical modeling, we are now proceeding to further invest in the company's customer capability. This investment will enable the company to offer structured loyalty benefits that reward high-value customer profiles, and we'll be able to utilize that rich data through data analytics to hyper-personalized offers to one customer at a time, millions at a time. This program has already commenced in the '21 year and obviously requires upfront investment. In due course, our brands will be in a position to reduce churn, increase visitation and ultimately, improve annual customer value. With over 8 million customers in our system, it's an ambitious program, and we look forward to updating you on our progress as we move through the execution [ plans ]. Turning to Page 20 and 21. As I've indicated earlier in the presentation, our near-term focus continues to be on organic opportunities to grow our 4 core brands. Over the last 18 months, each of our brands have been shaping their network strategies, trialing new concepts -- store concepts, evolving our in-store experiences and the like. And with our homework complete, we are confident to commence the rollout of our renewed 5-year store network plan. Combined with our customer and omni-digital strategy, we see network optimization as a key opportunity to deliver value for our shareholders. In turn, the group now expects to spend $70 million of CapEx on the network in FY '22. Slide 22 talks the key network opportunities for each of our brands. In Supercheap, we're looking to add a substantial refurbishment across the fleet to upgrade our old format into next-generation stores and continue the rollout of dedicated service areas to provide more fitment options for the do-it-for-me customers. In Rebel, our stores have been -- well, they've been a spectacular success, and we intend to prioritize that rollout format -- so we intend to prioritize the rollout of that format across our 25 doors -- or top 25 doors. This will include the opening of our Rundle Street flagship store in Adelaide in the first half of FY '22. And we also intend to introduce our specialized in-store 'world of' format in must-win categories of basketball, football, running, kids and training more broadly across our network. In BCF, having successfully trialed our small format regional stores at Echuca and Victor Harbor, we will be targeting a rollout across smaller catchment regional areas. This compact, 600 square meter format is delivering sales intensity 30% above the fleet average. And given the less demanding regional rents and a modest CapEx requirement, we are achieving quite a bang for our buck. And finally, in Macpac, we'll continue to roll out stores in our colder climate states. So [indiscernible] for now in Australia to grow our market penetration. The introduction of Macpac sales in Rebel and BCF this winter had significantly boosted brand awareness and supported increased sales in Macpac stores. When combined with our fleet rollout strategy, we think there's a neat recipe for helping Macpac achieve improved brand recognition and critical scale benefits. 23 -- or Slide 23 provides a little bit more detail around these store network targets in both the short term and over the next 5 years. They paint an exciting story around the scale and breadth of the opportunity across our 4 core brands. Okay. So let's move to the brand-by-brand detail, starting on Page 27 for Supercheap Auto. Supercheap Auto delivered another very strong performance this year as it does every year. For the Supercheap Auto to deliver such strong growth in COVID-19 disrupted year is a pretty clear demonstration of just how strongly this brand resonates with its customer base. And thanks to a concerted focus from Benjamin Ward and his team on driving club membership, the customer base now includes 2.3 million club members, a remarkable 37% increase over the last 12 months. Like-for-like sales growth was achieved in all categories, with auto accessories and car care [indiscernible] strongest sales growth. Gross margin expansion was driven by lower promotional sales, reduced promotional and clearance depth and favorable recovery of supply cost inflation. Segment normalized PBT margin improved 320 bps to 14.7% due to improved gross margins and cost leverage. A great result. Rebel's performance this year, as we get to Page 28, was underpinned by a very strong online sales performance from Gary Williams and the Rebel leadership team and an increasingly strategic and accretive promotional program. Whilst promotion activity will, of course, normalize as we get into post-COVID environments, we continue to believe that through improved sourcing, leveraging the capability of our group pricing strategic team, Rebel can re-base its gross margin above pre-COVID levels. Like-for-like sales growth of 17.5% was driven by higher ATV due to increased items per transaction and higher average item value. Like-for-like sales growth was achieved in all categories with performance sports delivering the strongest growth. The difference between total sales growth and like-for-like sales growth reflects closures during the period as we continue to address the duplication of Amart and Rebel stores and the closure of Infinite Retail, which, of course, we indicated last year. Online sales grew by 36% to $193 million, represents 16% of sales. Gross margins increased due to lower promotional activity, sales mix to higher-margin products and a favorable net recovery of supply cost inflation. Segment normalized PBT margin improved by 470 bps to 13.9%. BCF was clearly the standout performer across the 4 core brands this year. And whilst clearly BCF was beneficiary of COVID-19 tailwinds, there have been a number of initiatives which Paul Bradshaw and his team have undertaken in BCF this year which really holds the business in good stead for a post-COVID world. These specifically are delivering very locally relevant ranges through locally tailored offers store-by-store, the successful introduction of Macpac winter range in BCF stores to start to mitigate seasonality and just general broadening of the apparel and footwear offer. So again, when trading conditions eventually normalize, we're optimistic about BCF to re-base revenue and earnings above those pre-COVID-19 levels. And in the meantime, if domestic lockdowns and travel restrictions ease, there is potential for a strong summer. So total sales increased by 49.1% to $797.7 million due to a 48% increase in like-for-like sales growth. Online sales grew 90% to $86 million, representing 11% of sales. Boating, camping and fishing categories all grew strongly, reflecting elevated levels of domestic tourism and leisure activities. Gross margins increased due to lower promotional sales, again, reduced promotional clearance depth and a favorable net recovery of supply cost inflation. Segment normalized PBT margin improved by 930 bps to 12.1% driven by significant cost leverage. And to Macpac, Slide 30. Now clearly, Macpac's had an interesting ride, a bumpy ride we've described, since we acquired the business in April 2018 for AUD 135 million. But nevertheless, we are really pleased with the trajectory of Macpac over the last 12 months. I think it's fair to say Macpac has exceeded our expectations. And to put that comment into context, Macpac was the most impacted by COVID-19 this year because of store closures in the key markets of Melbourne and Auckland. Also, given the lack of international travel, a disrupted ski season, it's been a very credible performance from the Macpac team, and they're be -- to be congratulated on their execution. Sales increased by 16.3% to $153.4 million as a result of a 14.2% increase in like-for-like sales. Online sales grew by 38% to $30 million, representing 21% of total sales. And Macpac stores benefited from an increased brand awareness associated with the successful launch of Macpac product in Rebel and BCF stores in the first quarter. It's a great initiative. It worked a treat. This activity delivered Macpac's second half like-for-like sales of 31.8%. Gross margins recovered to FY '19 levels due to increased average selling price, improvement in product sourcing costs and favorable foreign exchange movements. Segment normalized PBT margin increased by 660 bps to 11%. All in all, a good result. So with the segment -- or the brand updates complete, I'd now like to pass over to David Burns to talk through the financials in more detail. David?

Thank you, Anthony. I'll turn to Page 31. This segment includes our corporate costs and costs not allocated to the segments. This year, it also holds an additional $5.4 million of intangible write-offs and amortization associated with the new guidance update from IFRIC on the treatment of Software as a Service expenditure for our IT platform. You'll note, [ this is across ] most corporates this reporting season. The change in this guidance has the potential to impact future project costs being treated as OpEx rather than CapEx. The increase in corporate costs is linked to investment in corporate compliance areas and higher cost for insurance and also performance rights expenses. On Page 32, I'll take you through the group balance sheet. Inventory increased $194 million. This was associated with -- which represents a 39% increase on the June 2020 figure, though this should be compared to the June '19 year of $560 million and representing just an increase of 24%, which is in line with sales. The inventory increase is really due to purchase lead times increasing, supply chain costs uncertainly requiring higher levels of stock reserves, elevated levels of demand and increased land and cost of products due to the elevated shipping costs. Net inventory investment has increased to $247 million, though this is still lower than compared to June '19 balance date of [ $295 million ]. The elevated stock turn is, at the moment, is supporting an improvement in the net inventory position. And I would note that all temporary extended payment terms that occurred in last June balance date were normalized by December. Net cash at $242 million is $185 million improvement on the prior year. Turning to Page 33. Normalized EPS at $1.36 has increased 81%, which is moderating slightly compared to underlying profit during the capital raising. The fully franked dividend of $0.55 represents a full year payout at the top end of the dividend payout ratio of 65% of underlying net profit after tax. Our fixed charge cover ratio at 3.1x will moderate in future years. Committed debt -- undrawn debt facilities total in excess of $600 million. And combined with our net cash position, the group has a conservative balance sheet to support a more uncertain trading environment. Turning to Page 34, [ group ] cash flow. Operating cash flow of $600 million, whilst comparable year-on-year, is a lower cash conversion. We noted last year that the increase in net inventory -- sorry, I noted earlier that the increase in net inventory of $80 million year-on-year is contributing to the lower operating cash flow, and this is a consequence of the extended payment terms that we experienced in June 2020 unwinding during the financial year. Capital expenditure of $85 million has benefited in a cash flow context from some delays in payments which will occur in the new financial year. Our underlying capital expenditure is $97 million. The finalization of the retail component of the capital raising occurred in early July, and all outstanding debt was repaid in early July of 2020. I now will hand back to Anthony to take us through the fourth quarter sales and the performance of our FY '22 trading.

Yes. Thank you, David. All right. So let's turn to Slide 36, which just provides just a little bit more detail on our fourth quarter trading. And look, given the significant COVID-19 trading disruptions which impacted our stores from really late June, this slide is important because it shows a strong trading momentum in the business as we exited the fourth quarter. Fourth quarter sales were 15% higher than the prior corresponding period. And you can see by reference to the bar chart on the left-hand side that the monthly trading reflected a strong run rate consistent with the full year [ like ] number of 23%. So then as we turn to the trading update on Slide 37. I think probably the first thing I should note before we get into the detail is that these like-for-like sales numbers on 37 provide -- or contain no adjustment for store closures or anything else. They're clean numbers, as are all our like-for-like numbers presented today and indeed, in other forums. The second point I'd like to make is that the July and August trading has obviously been significantly disrupted by lockdowns and store trading restrictions. It's worth noting that today, it's only in WA, Queensland and South Australia that our customers can shop without restriction, and I'm sure it will be different tomorrow. Finally, it is worth noting the group is cycling a 32% like-for-like in the prior corresponding period, all right? So with all that said, for the first 7 weeks of FY '21 -- '22, group like-for-like sales were 14% below the comparative period in F '21. But arguably, and more relevantly, they were 12% above the comparative period in FY '20, about half that FY '21 run rate, which, frankly, we're pleased by. The lockdown impact we've seen in stores -- the decline in store sales being partially offset by a significant uplift in digital channels, which result in record levels of online sales in July and August. Indeed, in FY '22 year-to-date, online sales have grown 62% with Click & Collect sales growing by 137%, off an inflated base in the prior corresponding period. As a result, the total group sales in the first 7 weeks of FY '22 are 15% higher than the equivalent period in FY '20. Given the environment we're in, again, we're quite pleased with that. Look, we've got a stretched global manufacturing and supply chain that's creating delays. There are longer lead times, higher freight costs and shipping delays. This is nothing new and it's certainly not improving, but the group has fortified its inventory position. We're well positioned for the coming peak. And indeed, evidence would suggest that underlying customer demand in auto, sports, leisure and outdoor remains strong. And should lockdown subside, the group is very well positioned to maximize post-lockdown sales opportunities. Entering F '22, the group has a cash balance of $240 million, no bank debt, $600 million of undrawn committed debt facilities. So we're ready. We're targeting CapEx in F '22 of circa $125 million to fund the expanded store development program and continue our investment in our omni-retail transformation. So look, in summary, it's been a strong result driven by unprecedented customer demand, but more importantly, the continued successful execution of the group's omni-retail strategy. Looking forward, while COVID-19 lockdowns and global supply chain issues are creating some unique [ challenging ] for us, the group has a conservative capital structure and more importantly, a fortified inventory position. The strength of our brands, our large active customer base of 8 million loyal club members and the long-term health, wellness and fitness trends supporting growing participation in our categories mean the group is well positioned for the future. I would now like to hand back to the operator for questions.

[Operator Instructions] As a reminder today's call is for investors only. Your first question comes from Keegan Booysen with Jarden Group.

First one for me. I'm just interested in any color you guys can give me on the state-based performance. So just comparing New South Wales, Victoria to WA and Queensland. Trying to get a bit of understanding on how much weakness is coming from the lockdowns. And I guess our margins are tracking in the first 7 weeks as well, given there might be a bit of greater clearing activity with seasonal lines with the lockdowns.

Yes, Keegan, thanks for the question. Look, honestly, we've always been very cautious around 7 weeks' worth of data. It is microscopic as a point of comparison. And so to then start to further carve it out, we're always reticent to do it. The other comment I'd make is I don't think there is really a clean cohort of stores that hasn't had some sort of lockdown effect over the period. So when you start dividing up by state, then trying to make sense of a non-COVID impact you get to a very, very minor -- small sample amount. So look, my strong encouragement is that 7 weeks of data, it's clean. Nearly everything has been impacted at some point by a lockdown or some restriction of trade. It's very difficult to sort of draw a true underlying number over a small segment of data as we get closer to the AGM and we further update, we might be able to get the strongest sense of trends. I think the last one I sort of say is that's why that run rate out of the fourth quarter chart we put in there just to give you a sense of what was happening just prior to lockdown.

No, sure. I mean is there anything else you can probably add just in terms of the lockdown states compared to -- I appreciate what you're saying with all states being impacted. But just if New South Wales and Victoria are a meaningful drag or if the trading conditions are relatively similar, given online uplift?

You can't compare. It's a -- the nature of a lockdown is also different because you've got some stores that are in lockdown, some are lockout and the timing is different. The Queensland lockdown over school holidays, that will have a very different impact to what's happening in Victoria. I just -- I hear where you're going. I'm just not sure I can give you the answer that you're looking for because it is a very incomplete data set [ this is ] over 7 weeks and everything is impacted at some point.

Sure. Maybe a second one for me as well. Just on the competitive backdrop into the fourth quarter and the first quarter as well. Are you seeing any change in sort of promotional activity or competitive dynamics?

If we have noted that across a couple of categories, there's either a continuation of promotional activity, which has been sustained through the year or an acceleration of clearance activity, which is probably a bit more pronounced than we would normally imagine, which is curious considering some of the supply chain constraints inbound. So I think as lockdowns impact different retailers in different ways, there's obviously management of inbound inventory and the like. So I would characterize, in some segments, there's been an uptick late in the fourth quarter and certainly in the first 7 weeks, although in the situation we're in now, it's very difficult to tell what is what. But broadly speaking, I would say it's been an increase in promotional activity within -- to achieve a clearance of inventory as opposed to drive top line would be my observation.

Your next question comes from Aryan Norozi with Barrenjoey.

First one for me, just an accounting one. Just in terms of the depreciation rates, I think the rates you're assuming for PP&E has fallen quite a bit this year, and that sort of explained a step-up in your D&A what's the new base for depreciation moving forward? Because I think it was accelerated D&A in the first half of '21 and then that's continued into the second half. So how do we think about that in [indiscernible]?

Yes. Look, on a sort of a pre-AA, if you exclude the leases, which you can look through and you can see those, our D&A is going to be in that sort of circa $100 million sort of level, D&A and amortization. So before you apply the leasing standard D&A in there as well. So hopefully, that's helpful.

So circa $100 million, is that right? $100 million?

Circa $100 million for the year. Yes.

Yes. Cool. And just higher level, I mean, if you -- there's a lot of moving parts over the last sort of 12 to 18 months and will be moving forward. If you just take a step back and look at your business in a normal setting, can you just give us an idea around some of the key buckets on the cost and gross margin line. And which ones do you think are sustainably better post COVID and/or need more reinvestment? Just maybe 2 or 3 other things. I think you've touched on a few in the call around level gross margins. But just a few areas where you think you're sustainably better post COVID and maybe you need more reinvestment as well.

Yes. When I start thematically and, David, perhaps anything that I missed thereafter. Look, I think probably the greatest driver or one of the biggest benefits has been our gross margin improvement. Now that's been obviously partially driven by a reduction in promotional frequency as demand has been buoyant and we've sought to preserve inventory through the year. Now we do think that there is a sustained gain there, gross margin, because at the same time, we've made significant investment in our pricing promotion or analytical capability. So we think there's a good bit of leverage there. Now in terms of the operating leverage delivered by the enhanced revenue, that obviously is going to unwind over time. But as we've been able to grow our online sales specifically Click & Collect driving harder than delivery, that also provides us a fair bit of -- or continued operating leverage. Where I think the previous assumption was store sales have decline, online sales would increase, variable costs would increase, you'd end up with margin compression. That doesn't look like that's holding. It looks like we're getting good online growth, strong Click & Collect growth which, of course, is -- it has negligible impact or negligible negative impact on operating leverage. So that provides, I think, some good confidence. And then just from a pure revenue perspective, walk out of the COVID period with 8 million active club members that you don't have to reacquire that you're therefore, able to use data and insights to mine and to appropriately target really does give you a big base to work from in terms of almost a rebasing of revenue brought on by that significant increase of just active customers that are in your system. So I think those 3 drivers that then gives you a bit of insight. And then probably the only additional or if you look at the 3 things we called out omni-retail, we talked about closeness to customer, and we also talked about the step-up in our in-store investment, that also provides some operational leverage as well.

That's perfect. And those 8 million club members, there's a lot of retailers that sort of quite maybe customers or metrics, for example, have a transaction value for a member versus nonmember. Do you guys -- have you guys provided that detail before? And how does that look?

No, I don't think we have, no. And I think one of the things with members the way we measure it, which is important is it's not everyone that's in the base. That number is far bigger than 8 million. This is the number that's actually shopped with us in the last 12 months. So in order for it to grow, there is an acquisition of a customer, but more importantly, there's a retention and activation of that customer to drive purchase. So it's actually -- it's a harder measure, and that's why we keep a very close eye on it.

Your next question comes from Mark Wade with CLSA.

Look, I'm just trying to understand on the sustainability of these sales, I mean, it's been a cracking past 12 months for the business. even compared with pre-COVID, your sales were well ahead. So what's in there to lead us to believe, and I think there is, right? What's in there so that we can think that it sustainably can be held up then those sales? I mean, is it the number of unique customers you've got in the business now that's different? Is it shopper behavior, I mean people are more participating in those outdoor activities that you guys play into. What is there about the business, that means you can actually hold these sales for longer?

Yes. Look, I think in the short term, if we declare the obvious, I think the fact that the customer base is effectively [indiscernible] Australia for the -- and New Zealand for the foreseeable future in terms of international travel. So that leisure dollar, that discretionary dollar is concentrated here. So whilst I think that is in play, we feel quite confident around that underlying run rate continuing all things being equal, and clearly, they're not, but just all things being equal. So I think it's important to make it clear that there is that COVID macro factor that's driving it to that first and foremost. But you're quite right, beyond that, we've always said that health and well-being is a driver -- it's a macro trend. And if anything, COVID has accelerated people's commitment to health and well-being. We're seeing that in terms of the transformation of the Rebel business from sports, apparel, footwear. Structured sports is important, but personal fitness is really strong. So we're sort of seeing good, good solid trends there that gives us some confidence. We've always said within the leisure category that reconnecting with nature, getting outside was key with frankly, half the population seemingly in lockdown at any one time, the notion of getting out and getting back to nature it's only going to become more attractive. So we've got good tailwinds there. And then -- I mean, this is the reason why we're really pushing hard on this investment in our customer capability. With your 8 million active club members, a movement in ATV, a movement in visitation, a minor movement, just the true sheer weight of numbers, provides enormous leverage. And I think that's how we feel confident around sustaining business, which is why we've increased our CapEx and why we've continued to push hard on stores. So I think it's a combination of all that, but certainly in the short term, those closed borders will continue to be a strong tailwind for the business. And in the meantime, we'll maximize that opportunity, invest in the business to build out those other capabilities.

I think it's a crucial point. I mean, there's a view from some investors that we've gone back to FY '19 levels in sales and profitability. But as you rightly point out, it's -- that's not going to happen, it's going to stay stronger for longer it seems to me. And just maybe for David...

[indiscernible]

Go on then.

No, you go ahead actually.

I was going to change my second question, but is it any other remarks you want to add to that first point?

No, no. I think you're on the right track.

Okay. Cool. Maybe one for David, I'm just quite confused on these comments on the intention to increase the net debt ratio to earnings, reduce the fixed cover charge, is this just a normalization of earnings that reflects? Or is it some kind of crazy step-up in CapEx in outer years? Or given that really we're running on an organic growth strategy for the business, why should debt blow out and fixed cover charge come down in the future.