Universal Store Holdings Limited (UNI) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Universal Store Holdings Half Year FY '25 Results Call. My name is Sam Wells, and I'm from NWR. And joining me from the company today is Managing Director and CEO, Alice Barbery; as well as CFO, Ethan Orsini. Following a summary of the results released to the market this morning, investors and research analysts will have an opportunity to ask questions. There will be a choice of 2 options. First, analysts and investors can either raise their hand should they wish to ask a verbal question of the management team or you can also submit a written question via Q&A function at the bottom of your screen. We will endeavor to get to the majority of all questions asked, in some cases combining submitted questions on the same or similar topic. And for those analysts asking verbal questions, we kindly ask that you please limit yourself to no more than 2 live questions on today's group call. Thank you, and over to you, Alice.

Hello, and thank you very much for joining us for the half 1 FY '25 results for Uni Group. The group delivered a pleasing half 1 result with strong sales growth in both top line and like-for-like sales, while maintaining robust gross margins. This result reflects our team's continued commitment to connecting our customers with on-trend products targeted for their lifestyle and many events' needs. We continue to remain close to customer and strive to communicate with them in fun, influential, engaging and meaningful ways and of course, following through with strong operational execution. Our youth fashion customer continues to be discerning and has demonstrated that they will spend their hard-earned dollars on on-trend quality brands and styles that meet their needs. We continue to focus on cost discipline as we invest in our team and systems capability to support future growth. We will now go ahead and move directly to Slide 4. Thank you. This slide calls out a few highlights and performance and give some context to each of the 3 retail businesses, which we will look at in a bit more depth later in the presentation. Group sales up 16.1% at $183.5 million and underlying EBIT of $35.4 million, which is up $4.6 million, or 14.9% over the prior corresponding period. Group gross margin expanded 90 basis points despite the discounting from peers and cost of doing business increased 170 basis points to 30.9% due to investment in team capability and cost inflation and half 1 bonus expenses reflecting stronger trading results. Some high-level callouts of the divisional results are Universal Store sales up 14.4%, which is cycling a negative 5.4% on the prior corresponding period and 4 new stores opened in the half. We were able to maintain our premium pricing strategy based on product exclusivity and differentiation. This strategy is supported with value-added bundles and a disciplined approach to aged inventory and markdowns. This allowed us to abstain from the deep protracted markdown activity widely seen across the market in the half. Perfect Stranger expanded to 16 stores with like-for-like sales up 25.3%, cycling marginal growth in the prior corresponding period of 1.6%. We continue to attract new customers and pursue a robust and disciplined store rollout strategy. This growth for me is a testament to taking disciplined approach in the testing phase as we refine all elements of the brand from product to shop fit, marketing and customer experience. We are focused on our forward rollout strategy and have 3 stores confirmed for quarter 4 FY '25, with many negotiations and additional sites progressing. Investment in team capability and operating model continues to support future growth. CTC wholesale sales were impacted negatively, down 16.4% due to the subdued market conditions. However, direct-to-consumer channels are up 3.2%, cycling a positive 3.6% in the prior year. We've opened 1 new store with the second store for the year to open in half 2. Further adverse changes in some of CTC's wholesale accounts crystallized over the last 12 months. The underlying market shifts in the wholesale channel are expected to persist. As a result, we have booked a $13.6 million impairment charge against the carrying value of CTC goodwill. The importance and scope for accelerated expansion of the DTC channel for CTC's 2 brands has increased. The group remains confident in the long-term potential of the CTC business and new leadership was onboarded, a new point-of-sale system has been implemented and a new store opened all in quarter 2 of FY '25. An additional new store has been confirmed for Q4 '25. Together with new leadership, we are developing and executing our strategies for growth focused on retail execution, improved systems to support growth and enhanced marketing and product capability. Due to the overall health of the business and the outstanding group results, I'm pleased to share that we have a strong balance sheet with an impressive closing cash balance of $37.7 million and no borrowings, allowing us to announce a half 1 fully franked dividend of $0.22, representing a 68% payout ratio on underlying profit, which is a 33% increase on half 1 of the prior corresponding period. Slide 5 is probably a little easier and more digestible for the eye, but not to repeat too many of the results. Key financial headlines as stated, group sales up 16.1% to $183.5 million. Pleasingly, we were able to maintain our disciplined price strategy, lifting GM 90 basis points to 60.6% underlying EBIT up 14.9% to $35.4 million. Online sales up 12.6% and represents 13.7% of total sales of $25.2 million. Underlying NPAT, up 16% to $23.2 million and statutory NPAT result of $11.3 million, the delta attributed to the impact of the CTC write-down. Underlying earnings per share of $0.303 and a strong net cash position of $37.7 million. So this slide presents an overview of some pleasing trends. Record half 1 total sales delivering group 5-year sales CAGR up 13.9%. That's from FY '20 to half 1 FY '25. Universal Store 6-year average like-for-like growth up 8.5% and we opened 7 new stores across the group, which were 4 Universal Stores, 2 Perfect Stranger and 1 THRILLS store, totaling 109 bricks-and-mortar stores as at December 31. The 16 Perfect Stranger stores trading at December 31 contributed 6.9% of total sales versus 4.1% in the prior corresponding period. Next slide. Universal Store. So this is a high-level update on strategic focus for the 3 brands. Universal Store remains vigilant on being nimble, responsive and quick to market in order to meet the needs of our customers, grow our participation and relevance in the youth casual apparel market. We continue to curate and architect the range to include brands, both third-party and private label, to ensure that we have the trend-led products customers want and love. Our focus on expanding our footprint remains high to meet our aspirational target of 100-plus stores. And I'll add that we continue to remain passionate and vigilant about writing good leasing deals that meet our internal hurdles and ensure sustainable health of the brand. Perfect Stranger rollout continues with our goal of 60-plus stores as we continue to build brand awareness across the country. The range continues to be refined and elevated as we listen to our customers, stay close to their occasions for wear. In order to support growth and a strong future for the brand, we continue to invest in dedicated resources to ensure the longevity of this wonderful new brand. And CTC and Worship brands, we continue to refine the retail concept with new leadership in place, bringing a customer-first approach to design and service. Investing in skills in product curation, design focus in line with retail cadence is key, as we develop a retail concept that supports a national rollout. Enhancing product curation skills, retail reporting and embedding a speed-to-market mindset is paramount. We are also working on stabilizing the wholesale market position to ensure our customers, both in the wholesale and DTC channels are getting the best THRILLS and Worship experience. And we can share a few underpinning group update on some capabilities. We continue to expand influencer marketing programs. TikTok is absolutely becoming incredibly important and the customer data -- looking at our customer data analytics to ensure meaningful customer connection in order to both retain and win new customers. We also need to ensure all brands have alignment in our sustainability strategy. With increased reporting requirements, we are taking proactive measures to meet our responsibilities. And while this is only one line in our presentation, I want to highlight how seriously whole of business is taking these responsibilities and getting behind the sustainability team and embedding these values throughout the whole business. In terms of systems, we continue to drive value from our new human capital management system and the successful implementation of new pause into CTC in quarter 2 has been really helpful in aligning the rollout for U.S. and Perfect Stranger stores, which we believe will commence in early FY '26. And I'll now hand over to Ethan to walk you through some of the financials in more detail.

Great. Thank you, Alice, and good morning, everyone. We'll start by looking at the group profit and loss statement. Group sales were $183.5 million for the half, which was up 16.1% over prior corresponding period. Breaking it down by business unit, we can see Universal Store sales were $156.1 million, up 17.2%. This growth was driven by robust like-for-like sales of plus 14.4%, the opening of 4 new stores in the half and the annualization of 2 stores opened in FY '24. Perfect Stranger contributed $12.6 million of sales, up 92.3% on prior corresponding period. Again, this increase was driven by positive like-for-like growth of 25.3%, the opening of 2 new stores in the half and the annualization of 6 new stores opened in FY '24. CTC sales of $22.2 million were down 12.4% on prior period. Pleasingly, retail showed positive like-for-like of 3.2%, but that was offset by a decline in the wholesale channel. Gross margin was 60.6% of sales for the half, which represents a robust increase of 90 basis points. This increase was driven by higher private brand sales mix and the team's continued disciplined approach to pricing. Cost of doing business for the half was $56.7 million, or 30.9% of sales. This represents a 170 basis point increase on prior corresponding period due to 3 factors: cost inflation, investment in team capability for future growth, and a higher half 1 bonus expense in line with better trading results. This takes us to a group underlying EBIT of $35.4 million, which is up 14.9% on prior corresponding period. This translates to an EPS of $0.303 for the half. We'll now move on to group sales. The graph on the left shows the 5-year sales trend performance of the group. And from this, we can see a compound annual growth rate or CAGR of 13.9%. This long-term growth has been driven by the continued performance of Universal Store through like-for-like growth and store expansion, the creation of the Perfect Stranger retail format and the 2022 acquisition of CTC. Looking into like-for-like half 1 results, we're pleased to see that both transactions and average transaction value has increased on prior period. As mentioned, CTC sales were down 12.4% on prior corresponding period. And at a channel level, we saw retail sales up plus 1.1%. This was despite the closure of 3 stores in FY '24, while wholesale was down 16.4%, driven by a small number of key retail accounts. Looking at group gross margin. The graph on the left -- so the graph on the right shows a 5-year trend of gross margin. And from this, we can see a record result in the first half in FY '25. This result was driven by higher private brand penetration driven by the continued growth of Neovision and Perfect Strangers retail format rollout. Private brand penetration in the U.S. increased from 43% in half 1 '24 to 52% in half 1 FY '25. This was based on Neovision continuing to perform strongly with its sales rising to 17% of U.S. total. This compares to 9% in half 1 '24. And this increase reflects this brand extending into the women's and unisex categories. The group continues to benefit from the cost -- gross margin synergies recognized through the THRILLS and Worship brands. Within Universal Store, these brands grew to $7.4 million of sales, or 11% of total U.S. sales in line with prior period. We'll now have a look at group costs of doing business. The graph on the left compares the current year result of 30.9% to prior year comparative of 29.2%. And from this, we can see 3 main callouts. The first one is the impact of wage inflation and investment in team capability. Wage inflation relates to the 4.25% retail award increase experienced earlier in the year and the annual salary increases. Team investment really comes down to a couple of things. One is the investment in strategic projects, preparing the business for future growth and replacing FY '24 vacancies. If we move along the graph, we can now see the impact of like-for-like sales growth in new stores on cost. This added $4.9 million of cost to the group, but we can see from a percent of sales, we had a rationalization benefit of 140 basis points. And finally, we can see the half 1 bonus expense was $900,000 higher than prior period, which is in line with the better trading result. We'll now have a look at the group balance sheet, and there's really 2 items I want to touch on this slide. The first being the strong cash result of $37.7 million, which allowed us to repay in full our net bank borrowings of $15 million. Secondly, we'll have a look at the inventory balance, which finished the half at $28.5 million. This is higher than the prior corresponding period of 24.6% due to the group having more stores and supporting a higher level of sales. Inventory is in a healthy position moving into the second half. And finally, looking at group cash flow. You'll notice that our group operating cash flows has increased to $70 million for the half. This was underpinned by strong trading results and favorable timing of working capital. From an investing perspective, the group spent $5.1 million on CapEx, which is primarily driven by new store expansion. And in our financing cash flows, you can see the repayment of our debt and also a $2.6 million payment of the deferred variable consideration related to the CTC acquisition in 2022. Finally, really pleasing to see the strong cash conversion of profit as evidenced in our cash to EBITDA percent of 125%. I'll now hand back to Alice, who will provide some business and trading updates.

Thank you, Ethan. I'll take a moment to call out a few key updates per brand, starting with Universal Store, and I'll try not to repeat too many of the same bits of information. But clearly, half 1 revenue was very pleasing, record half 1 sales and really solid like-for-likes. So these sales were achieved through great product selection and service execution, delivering a gross profit margin that was up 80 basis points on prior corresponding period despite the fact that the market around us was really waiting quite deeply into markdowns. And we held our position that if we got great product in, customers will reward us and they did. So some key drivers to achieve that included excellent execution of private brands, carefully curated product mix, both third-party and private brand, ensuring our selection is meeting our customers' expectations. And that allowed us to keep our stock levels clean, avoid heavy discounting by selling more stock at full price, which is the aim of the game and allowing us to maintain a very healthy inventory position. Online sales are up 10.3% on the prior corresponding period, and we opened 4 new stores in half 1 with 1 new store confirmed for quarter 4, totaling 84 plus the online store with several negotiations on the table. Plus, we are also taking advantage of some improved location opportunities and have 5 store relocations and 2 refurbishments scheduled for the second half of the year. Looking at Perfect Stranger, a call out just to add some new information, online sales up 111.3% versus the prior corresponding period, with the focus remaining on scaling and getting better customer reach through increased brand awareness. We continue to invest in our team capabilities to support growth and still experience little to no cannibalization in shared centers and remain focused on store expansion. The team have a clear plan and are executing well. In the store rollout, we've refined and settled on a new store design and have 3 new stores confirmed for quarter 4 FY '25 and several negotiations ongoing. The store network is comprised of 16 bricks-and-mortar stores and 1 webstore. Now the CTC update is a story of restructure and focus on execution. Wholesale sales have been challenged by market conditions and are down for the first half 16.4%, with decreases experienced in a small number of significant retail accounts. Wholesale sales to third parties decreased $3.5 million, down 28.2%. In contrast, THRILLS and Worship brand sales to U.S. grew to $7.4 million and represented about 11% of Universal Store sales, in line with prior corresponding period. Looking at half 1 FY '25 GP of 45.3% is down 210 basis points on the prior corresponding period and underlying EBIT was $1.8 million, down 57.4% on PCP due to the decline in wholesale. Direct-to-consumer sales are up 1.1% on prior corresponding period with like-for-like growth up 3.2%, offsetting 3 store closures in FY '24. When we look at the store network, 1 new store opened in quarter 2, totaling 9 stores and 1 additional store is confirmed for quarter 4. We have confirmed one closure in Q3 at end of lease. And just to remind you, the stores that have been closed were just not fit for purpose. For example, they were either too small sub-80 square meters or poorly selected locations as we ran out lease terms. The new leadership team's primary focus is centered on driving business improvement through 2 key objectives: enhancing retail execution and stabilizing wholesale operations. By refining retail execution, they aim to optimize customer experience, streamline store operations, increase sales through more effective merchandising, staffing and inventory management. This would involve ensuring that retail teams are equipped with the right tools, training and insights to deliver consistent outstanding service. In parallel, the team is dedicated to stabilizing the wholesale side of the business. This includes refining supply chain processes and ensuring product design and availability meets demand. The overall goal is to create a seamless synergy between retail and wholesale that drives optimal efficiency, increases profitability and strengthens the company's competitive edge. To that end, I am very confident that we have the right leadership team in place. Now the trading update. As we look into -- we have a very strong set of numbers to share. Sales performance for the first 7 weeks of trade for half 2 FY '25 broken down thusly. Direct-to-consumer sales up 31.8% for the group, broken down by U.S., up 27.6% like-for-likes up 22.5%, cycling a 1% up on PCP. Perfect Stranger up 90.1% like-for-likes up 38.8%, cycling a positive 10.3% on the prior corresponding year period, I should say. And CTC up 40.1% like-for-likes up 37.8%, cycling a positive 1.2% last year. CTC wholesale is measured monthly, so the results are too small to be meaningful at this stage, and management does expect wholesale to continue to be challenging in half 2 FY '25. The wholesale channel represents less than 5% of total group sales. Now these comps are great numbers to kick off the half. And as we enter what we know will be a more competitive comps for the remainder of Q3 and Q4, we're glad to kick off with a very strong start. New store rollout is on track with previously shared market guidance of 9 to 15 new stores, 7 stores opened in half 1 FY '25, 5 new stores are confirmed for half 2. They will comprise of 3 Perfect Stranger stores, 1 Universal Store and 1 THRILLS store. While we continue to pursue new opportunities, we also continue to be prudent about site selection to ensure long-term profitability. Gross margin is always a hedging question, so we might call out that we continue to monitor AUD-USD exchange rate. We continue to review pricing and cost opportunities of doing business, we've maintained our FY '24 gains from right team, right time and warehouse cost improvements, and we continue to make targeted incremental investment in our people and in our team. And to that end, I am very pleased to share an update on our organizational structure and our leadership team. I'm going to use my notes for this one because it's really important that I touch all the points that I want to share with you. We have decided to promote George Do to the role of Universal Store's CEO, taking direct responsibility for leading the Perfect Stranger and Universal Store businesses within our group. George has been with us for over 18 years and is well known to many of our shareholders and the analyst community. Most importantly, George is a respected, skillful and engaging leader in our team. I'm continuing as Group CEO with oversight across each of the brands and group functions. George will transition from his current role as Head of Product at Universal Store to take on the wider responsibilities of this new role beginning 1st of March. Key members of our product team are stepping up to support this change. The backfill of this role will be taken on by 3 key positions, which are filled by individuals who are all well established and high-performing leaders in our business. These 3 team members will each continue to report to George in his new role, and I'm confident that the product area is in excellent hands. The combined experience at Universal Store of these 3 individuals is over 25 years, and each of these 3 individuals has earned these opportunities. The strength of our performance over the last few years is a testament to the capability and effectiveness of this team, and we are very, very excited about this change. I'm pleased that this change can be made with a promotion of internal team members. This is a testament to George's leadership skills, people development focus and our proactive succession planning over many years. George has been the driving force behind our customer-focused product development strategy and processes within the product team. His experience and influence across many facets of the business, coupled with his strong leadership and unwavering commitment to our values and goals has earned him the respect of the entire leadership team and the full support of our Board. This promotion also creates exciting opportunities for me to focus more directly on long-term strategy and exploring new avenues for team and business development and help realize the strategic potential for CTC. George steps into this new role with my full support and continued guidance, and we're confident that this move positions our entire business to achieve greater success and demonstrates our commitment to supporting both our people and our company. Thanks, Sam. I'll hand over to you.

Great. Thank you very much, Alice and thanks, Ethan. [Operator Instructions] The first question comes from UBS analyst, Shaun. Just on private brand, what's the path to further increase private brand share of sales and the proportion of those sales that are directly sourced? And how do you balance gross margin optimization versus meeting customer need?

Shaun loves to give me 3 questions at once. So I'll -- remind me of anything I don't answer. Private brand is -- was originally a call to fulfilling customer needs and with 100% of customer-led decision, wasn't a margin brand. We are thrilled that the private brand strategy has been so welcomed by our customer, and we continue to expand that. So for instance, Neovision has expanded quite fully. We put our big tower in the water for womenswear, and we've expanded more fulsomely into ladies wear. And we'll continue to do that as long as the customer is really loving it. And of course, we look at -- are there any other gaps in the market? Is there a third-party brand that could fill that? Do we need to fill that ourselves? Should we fill that ourselves? And those questions continue. We are still looking for great third-party brands to add to our business and continue to onboard new third-party brands on a regular basis. When a trend comes along that is a third-party brand, for instance, Stanley Cups, Birkenstock, you name it, we're going to back those trends. So it's a very tough question to answer because our decisions are always customer-led, not just private brand led. I will add, the other thing that private brands give us is that differentiation piece, which shields us from the rampant markdown activity that our peers have been taking. And so it's certainly part of our long-term strategy to give you a number about how we plan on growing it. It's about meeting customer needs. And there was another question in there probably a question on this.

No, I think you covered about that, but you did.

Okay. And there are a couple of pre-submitted questions on CTC. Where are you in terms of optimizing the THRILLS store network and shifting to a growth phase within that business? And any additional comments you'd like to make on the wholesale trading portion?

Yes, I think I gave a pretty fulsome -- I'm sure and I'm glad to hear that customer came early because I really tried to share as much as possible about where we sit with that. So we've onboarded in Q2 a new CEO, a new Head of Product. We are working very closely with marketing teams and product teams, trying to get more quick to market, more responsive behavior out of the team, and they're working really well with us. We have the right leadership in place. So I look forward to the full year to be able to give you a bit more information about what we've been able to achieve. It's been a pretty quick turnaround. We've already seen some positive DTC like-for-likes. But we do think that the wholesale market is going to stay tough with peers really struggling.

Okay. Great. Just moving to verbal questions. First question from Ed at Jarden.

Congrats on a great result and an amazing trading update. I just wanted to touch on that. Could you just talk to whether you benefited from, say, any store closures during the period? Or is it just execution? Have you gone harder at marketing? Any change in the consumer? Just any sort of color would be helpful.

The why we're performing well? I think we're just doing the best job. I think we're winning in our marketplace. We know one of the key drivers for youth customers is to feel proud and excited about what they purchase, and that rarely comes to a 20-year-old because they went through a sale rack. That's something I like doing, finding a bargain and a win. But they are really wanting that peer recognition. Things like TikTok and marketing, if a trend hits and you've got it, you're going to win in this space. So being super close to market, working closely with our team and making sure that we're constantly onboarding young, fresh kids who can really help us see trends through their lens in junior roles, working with the more senior product team to execute. So it really comes down to execution.

Okay. Great. And then just on Neovision, so you're knocking out of the park there. Is there anything that you need to see in particular where you have the confidence to pull the trigger on it being a stand-alone brand similar to Perfect Stranger?

I think that the Universal Store is the Neovision customer. And one of the things we love about Perfect Stranger is we're seeing almost no cannibalization whatsoever, because we truly believe that, that customer wasn't coming into Universal Store. There was a girl who would love that brand, but she would never walk into Universal Store. That isn't the case for Neovision. Neovision is a Universal Store customer. And so I see it having less of a footprint or a need. I think that customer is already coming to us. So for me, it would probably just having a lot of capital. And I don't -- and I think that we'd see cannibalization. However, online business can definitely be bigger. Could the footprint grow in other ways? We're certainly playing with all those in strategy that and looking at how we grow that -- continue to grow that brand. But I'm not confident that a stand-alone store is the answer.

Next question from Wei-Weng at RBC.

Congratulations on a good result. So I guess my question, the youth were one of the first cohorts to kind of show weakness when the economy turned. Your second half trading update was pretty incredible. Do you view the strength in your customer base in any way kind of a forward read on the consumer? Or are you attributing the strength of the trading just purely to actions that you've taken as a team?

Unemployment is not low, not hard. It's easy to get employment if you're a young person right now. So that's not impacting them negatively. What impacted them at first was rental prices going up. And that was hard because most used customers don't have mortgages, they don't have school fees. They're not overly impacted by rate increases, except for the fact that all their rent went up. And then they rightsized their lives and their livelihood. So they made some different decisions. And during that period of your rent going from $450 a week to $650 a week, that was highly expensive for young people to either move, move in with friends, move back home, make different decisions. But we've seen them rightsize and make different decisions and kind of have trade-offs so they might not get the nails done at the salon the way they were. The they'll do their own at home. They might not go to the most expensive salon, but go to a less expensive salon or do more of that at home. But what they will need and want is on-trend cool products to go to laneway, to go to Billie Eilish, to go to Drake, to hit those occasions that are really important to them. And you can see it on Instagram, you can see it on TikTok that if we get the right product in, they'll find the money for it.

Yes. And then online sales in this half, they lagged your retail sales. Just wondering if you could speak to the importance of the online channel for you guys. Is penetration where it should be? Or are we expecting kind of further penetration of online?

That's a hard one because I think a lot of our customers want to touch and feel the product and try it on. So I think there's an element of how the customer wants to shop. But in saying that we know our customers want to shop multichannels, right? So, online will always be important to us. So do we see that drop as a big red flag? I don't think so. But can we always get better at our service, whether it be in-store or online? Absolutely. So online is something we still -- we're going to be looking at, but we're comfortable with the result for the half.

Yes. Kids just lack that sort of -- they don't have time to wait for it. And then if it's not right, wait for a refund, even if we -- so we're looking at how do we speed that up and make that easier for them. But they will research online, come in store, try it on. We see them moving fluidly through the 2 channels, and we are really channel agnostic. Happy for them to shop with us however they choose. I will say 2 things about online, they love a markdown. So if you're not waiting neck deep in the markdown world, chances are your online customers definitely love a markdown and they love brands on markdown where they can sort of weigh up where can I get that trainer in 6 different places and who's got my size and then who's got it cheapest. That's a very different proposition to what we have in our businesses.

Next question from Aryan, Barrenjoey.

Look, just on the like-for-likes, you obviously talked about comps getting tougher. Can you just put that into perspective for us? I mean, January, February last year, you're cycling 1% growth. The rest of the half or second half '24, you're cycling 9% growth. So is that a good way of thinking about the comps getting tougher or -- and sort of done 23% this for the first 2 months?

I think that's fair. Aryan, you're right. We're about 9% comps from February to June. So that just shows you the strength we had in the back half of last year.

Okay. So that still means that your like-for-likes all else equal, should run at sort of 15% for the rest of the half, which is really high. So sort of other questions, has there been something like, I don't know, the Drake concert or whatnot that's impacted this sort of 7-week period? I appreciate it's a really short period, but I'm trying to find a reason not to annualize that rest of the sort of underlying comp up 15%. So that's what I'm trying to. And look, in reality, you're actually probably not cycling tougher numbers because March '23, the consumer -- there was a downturn in the consumer condition. So you're actually on a 2-year stack basis, cycling easier comps. But if we even take it to mean that you're cycling sort of tougher numbers, is there anything else that we should be aware of not to put 15% in our numbers for the rest of the half, please?

Yes. I mean I think consumer confidence, yes, there's a lot of unknowns still. There's travel commitment to kids have. There's lots of other reasons to spend. We are cycling -- everyone is sort of the tail of swift effect, but we were fortunate this year to have a number of other things happen this year that kind of offset that growth. We are taking a reasonably cautious approach. We feel that this is, I guess, a reflection of perhaps some of our competitors not performing very well, and we don't know what -- where they'll be in the next couple of months. Surely, they will have been responding to what we see as a lot of discounting. They won't want to continue with that. They'll be looking at more effective ways of retailing. Anything to add? I mean it just doesn't make sense to me that those comps are going to continue at that rate, and we will be cycling definite growth.

Got you. And then just on the gross margin for the Universal Store brand. So I mean, first half '25, you did 59.8% and second half '24, it was 60.2%. So, a bit of a sort of step down despite Perfect Stranger sort of building in terms of the sales penetration. Just how do we think about the second half of '25 in terms of that Universal Store gross margin? And is there a seasonality half-to-half that explains why it dropped? And just trying to think about what the proper baseline is for this half in terms of gross margins for Universal Store, please?

Compared to half 2 last year, we had a slight negative impact in USD. So as you know, when change leadership in the U.S., we saw the rate drop. So there was a slight -- that was moderate. It wasn't big, but that's probably already more of the factor for the change half 1, half 2.

Great. So moving forward in terms of that FX impact, so how do we -- I mean, you've given us what you hedged, but you haven't told us what you hedged at. So how do we think about the half-on-half headwind from FX? Is it I mean, a 20 basis point headwind next half and then another 20 basis points in FY '26. Is that how to think about it?

Currency would do -- I'd be trading currency. So but look, if you assume it stays around $0.62, $0.63, you're probably looking at a slightly bigger impact than we saw at half 1. So half 1 was probably 20 to 30 basis points. So it might be sort of 50 basis points. But the big thing depends on how the currency moves. We did have about $6.5 million of hedges at the half at a pretty good rate. So quarter 3 should be pretty good. And then it's more quarter 4 and quarter 1 next year where, as we said in the past, looking at other pricing opportunities, cost opportunities to mitigate that risk.

Sorry, 50 basis points, is that second half '25 and first half '25? Or are you saying FY '26 on where you're at in first half '25?

I was saying, if you look at the delta between half 2 to half 2, there's a bit of a headwind in currency. But again, it depends on how brand mix goes...

Sorry, second half '24 versus second half '25, all else equal should be down 50 basis points if the currency remains the same. Is that what you're saying?

Yes, the currency remains the same. There's no other change in anything else. That would be kind of the impact. But of course, everything else will change. So it's just one of the factors, yes.

Next question from [ Sam at Petro ].

Congratulations, Alice and Ethan on the strong result. Just on the cost of doing business outlook, can you talk about the positive and negative moving variables as we look into the second half and where you think what the gauge is at the moment in terms of where you're sitting?

Yes. So I think we mentioned sort of 100 to 110 basis point increase year-on-year. So I think that the full year, I think that still holds pretty true. We've onboarded those -- that team capability, we've onboarded the team. So there'll be a bit of, I guess, annualization of that in half 2. But yes, look, I think the 100 to 110 basis point increase over prior period for the year is still where we're seeing it come in.

Right. And just since you've joined as CFO, Ethan, have you started to see any further efficiency opportunities across the business as you start to look out to FY '26 that you can sort of share with us?

Look, we've done some desktop reviews, but the problem of desktop reviews is it can sometimes not be reality with operational execution. So I think answer the question, say, we have some ideas, but we now need to kind of do that due diligence with operations and say, is it possible? And what we don't want to do, Sam, is get a cost savings here but then adversely impact the customer experience over there and lose EBIT in the interim. So yes, we've done our first level of work is just trying to round that out with the operational teams.

And Sam, that's one of the reasons I was really excited to onboard Ethan because he really shows an extraordinary talent to be a well-rounded CFO as we've had before, where we understand operational excellence and store growth and customer acquisition as well as cost efficiency. So he's been a brilliant addition to the team.

Next question from Chami, Bell Potter.

Congratulations, Alice and Ehan. Well done, another solid set of numbers today. I think I'll go for my 2 questions in the interest of time. First, with Perfect Stranger, I mean, really good to see that 60 long-term store target sort of in the pack today. And looking at first half to second half this year, I think second half has one more store that you're planning for the brand. Could you talk to the long-term target and even going forward, what the thinking is and versus the interest that you're receiving from landlords, the expectation for the brand? And then you've noted that in the fourth quarter that the new design is about to come as well. Maybe perhaps a bit more details into that.

So pardon me, Chami, if I was unclear. We've got 3 new stores to open in the second half with plenty of other negotiations on the table. So there is interest in landlords -- from landlords. And we are expanding in different markets to get a better understanding, and we're trying to do that in a clustered fashion. So we don't just stop one store all around the place. So yes, there's definite interest in landlords. The new shop fit is a little bit more elevated, a little bit more refined, looks great. So now we're looking to scale that shop fit as we go forward. We are understanding we can't go too small. And we're still -- we're going to keep learning about this brand, much like we did with Universal Store, probably took 10 to 15 years to fully understand what's the potential. And then, of course, that keeps growing as market changes. So it's very positively received by landlords, and we are negotiating to get to that 60 plus, I might add that word plus on the end of the store rollout.

That's great. And the new fit-out, would that be, again, a bit of an add-on? Or would some stores have to be changed? Or what's the thinking here?

I think what we'll do, it's -- whilst it is a new fit-out and it's more elevated in it, we really like it. There's nothing wrong with the original stores that we have opened. Some of those will probably be too small by the time their lease expiry comes up, and we might be looking to relocate them anyway. So that is a possibility. But we won't go back and retrofit anything because there's something wrong with the shop fit it's just not as good as it could be.

Yes. Perfect. And then next question on THRILLS. Again, good to see the progress made here, new store coming on board. Perhaps talk to the wholesale. I mean, you called out some structural changes. Obviously, we know the challenges in the wholesale industry at the moment. But how is the thinking more towards -- has it changed strategy? I mean, obviously, the focus here is D2C. But perhaps with where it is now and you've had keys in the business for a while now, what's the thinking forward?

I'll start off and you can add something. But to win in wholesale, you've got to deliver what your retail customer wants and you've got to be fast and you've got to be responsive and we need to pick up pace. So, it's really how can we be more responsive and faster with, and implementing that retail cadence thinking into the team has -- well, let me just say it is being absolutely embraced by new leadership, and that is a key focus, and the team are learning to build a new muscle in terms of speed and effectiveness to get things done quicker. Anything to add?

No, I think the speed and the customer centricity.

Those are the 2 key areas.

Perfect. And anything on the D2C side, will you -- will this sort of, I mean, a bit of, have you got to the end of that proof of concept, or I mean...

No, but we are -- we're comfortable that there's a D2C customer, we're comfortable both from the marketing and online perspective, there's a lot of growth and opportunity there, and also getting that retail cadence. So if you've got a wholesale cadence, then you're not going to be able to fuel your retail stores, and whilst we made some progress, we need to make, and that progress wasn't accelerated to the degree that it needs to be, so now we have some team members who bring that skill set into the team, and are able to teach, get better reporting, understand more about how the product needs to flow within stores, so there's just a whole lot of retail smarts that have just gone in at an elevated and accelerated level.

Next question is from Sam at Citigroup.

Alice, in your new role where you have more time to focus on longer-term strategy, I appreciate that there's still work to be done here. But as you see the business today, when you think about new brands, acquisitions and new countries out of those 3, which do you see as the greatest opportunity for the business?

I see all of those as opportunities for the business, and we are going into our Board Strategy Day with our leadership team next month. Those are all the questions that we'll be pondering as a group. But certainly, I think you can test markets online if we had the opportunity to trade more effectively online internationally. There's loads of opportunities for us to test and trial the appetite for our businesses further afield. There will be a transition period as well for George. We're going to be supporting and leading and handling his transition and his team's transition very carefully and very cautiously. But my title actually has been Group CEO for a very long time. It's just that there's an opportunity for me to now execute on the things that, kind of get put to the side with operational requirements. And finally, something came up yesterday, and I thought in a month's time, that will be George. But George and I work so well together. We've worked so closely for a long time. This is a really joyful opportunity for him, for our business and for me personally to work more strategically. So we'll get back to you on strategy, working with that -- we're working through that with the team.

Okay. Great. And second question, I just want to talk about the currency hedges in more detail. Where would the Aussie dollar, U.S. dollar have to get to for you to take out new currency hedges? And how are you thinking about managing downside risk given the current hedging position?

Yes. No, good question. So we're always looking for -- right now, we're sort of September, October, and we're always looking for opportunities to hedge at reasonable rates. I mean, when you have more volatility, there's opportunities to buy at the right time. So look, we have a pretty active program, Sam. So we're always looking for opportunities to purchase. And as we mentioned previously, we're also looking at what are those kind of price and cost opportunities to mitigate any risk as well.

Okay. Then I guess, is Universal more likely to be one of the first to put up prices in the industry? Or are you more likely to hold prices even if it means sacrificing margin?

Look at the end of the day, we have to do what's right from a customer -- the biggest cost is losing a customer. So we're going to try to carefully here. So we know sudden moves with pricing...

But we are not afraid to put prices up.

Yes, that's right. Yes. So we need to make sure we make a considered decision.

We've always -- but we do it line by line. There are certain items you know you can get that a little bit more for and there are others where you know you need to hold. And the team have been really great at building those bundles actually losing margin. So I'm comfortable that we'll continue to do what we've always done in terms of pricing.

Yes. I think the key message, Sam, is just something we're very aware of, and there's a couple of levers that we need to manage. It won't just be one thing.

Next question comes from Ben at JPMorgan.

Just a quick question on the pricing you're seeing from your suppliers on the private brand product side. I mean with tariffs and the minimis exceptions and whatnot coming into place in the U.S., I mean, are you seeing any beneficial pricing coming through on that sort of excess capacity coming from your suppliers?

Nothing material to call out. I mean, obviously, it's going to vary by supplier, but yes, nothing from a material point of view.

Great. And then just to add, are you able to make a comment on sort of performance of private branded products in the Universal Store banner versus like third-party product where you don't have necessarily that same differentiation Universal versus your peers? Are we seeing a divergence in performance on private label versus third party?

It comes down to the curation. So it's about the selection that the team make, ensuring that we are selecting for our customer out of those third-party opportunities to ensure that we are on target. We don't just -- we're not lazy in that selection process. It's very targeted, very clear. And we SMU quite a lot of product with third-party brands. So which from THRILLS to A brands to Front Runner, like we are often getting exclusivity out of those brands. That really helps a lot.

And then just a final question we've got today just around the competitive environment. I know, you touched on it a little bit, but you did note in the first half -- sorry, the second half that you had continuing discounting from peers. Has that started to normalize at all?

No.

No.

And it hasn't for a long time. It doesn't seem to be getting any better. It seems that those that are doing it tough are finding it very hard to crawl out of that discount mentality. They trained the customer to wait them out. And the only way out is to differentiate completely. So what we have seen is some people are trying to elevate, get much more expensive brands in. So again, it's not competing head-to-head with us in that regard. That's the strategy. Another is to go more private label to increase margin. But you're seeing fewer team members on shop floors in those locations. They're looking at ways of reducing their cost. But now the discounting, every time I think we'll have a breather, there's another banner, 30% off everything or up to 60% off. So it didn't stop.

Great. Thank you. I think that's all the time and all the questions we have today. If you do have any further follow-up questions, please feel free to e-mail me and all the team, and we'll endeavor to come back to you. And maybe with that, Alice and Ethan, I'll pass it back to you for any closing comments.

Yes. Firstly, I'd like to thank you, Sam. I really appreciate and Ethan and I really appreciate your support. It's great working with you. And thank you to the shareholders. We're here for you. We are working our shoulders really been to the wheel. We wanted to keep that momentum going from the last year into the first half. So we're extremely pleased. The energy in the business is high, and we continue to execute to our best ability, always doing after action reviews to ensure that no matter what the result is, if there was more to get, how do we get there. And we're moving into a Strategy Day to really question ourselves on everything that we do and look for improved growth opportunities and improved performance opportunities. Thanks, everyone.

Thanks, everyone.

Thank you. That concludes today's first half FY '25 call. Thank you, and goodbye.

Thanks.