Wesfarmers Limited (WES) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for holding, and welcome to the Wesfarmers 2026 Full Year Results Briefing. [Operator Instructions] This call is also being webcast live on the Wesfarmers website and can be accessed from the homepage of wesfarmers.com.au. I would now like to hand the conference over to the Managing Director of Wesfarmers Limited, Mr. Rob Scott.

Thank you very much, and hello, everyone. Welcome to our 2026 Full Year Results Briefing. I'm joined on this call with our divisional managing directors and our CFO, Anthony Gianotti. I'll start with a summary of the group's performance, followed by some comments on our strategic progress over the last year. I'll then hand over to Anthony to talk in more detail to our financials. I'll then conclude with some perspectives on our portfolio positioning and the outlook for the group. And then Anthony, the divisional MDs and I would be delighted to take your questions. So starting on Slide 4, a slide that we'll be familiar with many of you. It sets out Wesfarmers primary objective, which is to deliver a satisfactory return to shareholders. We define satisfactory as a top quartile total shareholder return over the long term. We only believe it's possible to achieve long-term value by anticipating the needs of our customers, looking after our team members, engaging with suppliers in a fair and ethical manner, contributing positively to the communities where we operate, taking care of the environment and acting with honesty and integrity. And in the last year, our businesses have continued to make good progress in each of these areas. So turning to Slide 5. This year, we reported net profit after tax of $2.9 billion. Excluding significant items in the prior year, this represents an 8.3% increase for the year. This growth was underpinned by strong earnings contributions from our largest divisions: Bunnings, Kmart and WesCEF. The result reflects the resilience of our businesses and the strong execution of our growth in productivity agendas. Many of you will have heard me talk about the virtuous cycle at the heart of the Wesfarmers model. By running our businesses as efficiently as possible and keeping our costs low, we're able to keep prices low for customers and continue to invest in new capabilities and platforms. This investment helps to build stronger businesses for the future, creating fulfilling jobs for our team, all while delivering better returns to shareholders over the long term. As a result of the pleasing growth in profit, the Board has determined to pay a fully franked final dividend of $1.20 a share, which brings the total dividend for the year to $2.22 per share, a 7.8% increase. Turning to Slide 6. While we're pleased with our financial results, they really only tell part of the story. Over the past year, we've continued to invest in our existing businesses while building new businesses and revenue streams for the future. And this slide outlines these areas. So firstly, with our existing businesses, our focus is very much on reaching more customers and serving them better. Strategic partnerships with leading global technology companies have ensured that our team members have access to world-class tools that support them to be more efficient and to direct time to high-value tasks. In Agentic Commerce, we've launched AI-powered shopping assistance, [ Buddy ] at Bunnings, Joy at Kmart and [ Eliot ] Officeworks and applications that help team members, especially in retail settings to better serve our customers. Across the group, the use of AI is all aligned with our people-first digitally enabled approach, which puts our team and customers at the center. We continue to bring more value and choice to customers as we renew and expand our offer at Bunnings, Kmart and Officeworks. We're also investing in new store formats, including the Kmart Plan C plus renewals, K Home and [indiscernible] & Health. Investments in distribution and fulfillment centers and new express delivery options make our online offer faster and more reliable. And we're also building new platforms that extend our growth beyond our existing businesses. At WesCEF the expansion of Mt Holland, which we announced in July is expected to double spodumene concentrate production, lowering unit costs and accelerating cash flows. Our growing retail media business continues to expand using the scale of our store network and customer reach to generate a new source of earnings. The new marketplace at Kmart and the developing marketplace at Bunnings are delivering very strong growth and provide customers with more choice across hundreds of thousands of additional products. And the [ Built Living ] joint venture is progressing and will deliver residential apartments faster at a lower cost and at scale through advanced manufacturing. Now turning to Slide 7, which provides some of the divisional highlights for the year. I'll let Anthony talk to this in more detail, but I just wanted to touch on an important portfolio action through the year. On the first of July, our Industrial and Safety businesses transitioned to Bunnings Group. This brings together businesses with market-leading positions and highly complementary customer bases and will enhance customer offers, drive incremental sales and unlock cost efficiencies. And we see this as a significant opportunity for Bunnings to strengthen its commercial capabilities and accelerate growth with small- to medium-sized customers. This is another example of our focus on creating long-term value through disciplined portfolio management. Now before handing over to Anthony, I just wanted to turn to Slide 8. And consistent with our objective, this slide sets out some of the broader progress during the year in the areas of team, community and environment. On safety, the group TRIFR has improved from 9.5% to 9.1% at year-end with WesCEF delivering a record result of 0.6. Across the group, 4% of Australian team members identify as aboriginal [indiscernible] trade island to people, maintaining employment parity. And we were proud to recently release our ninth reconciliation action plan, which was our second at the Elevate level. And we've also made good progress on climate resilience, reducing group Scope 1 and 2 market-based emissions by over 20% during the year. This step change was underpinned by our retail divisions achieving their 100% renewable energy electricity targets in the 2025 calendar year. Now with that, I'll move to Slide 9 and hand over to Anthony.

Thanks, Rob, and hello, everyone. I'll start on Slide 11, where we've provided some further details on the sales performance across each of our divisions. I'll speak to performance across each of them in more detail on Slide 12, but overall, it was pleasing to see sales growth achieved across all of our divisions in the financial year. In our retail businesses, the group's well-established everyday low-price operating models continue to resonate with consumers supporting transaction growth across all of our businesses. Our marketplace has delivered strong growth in the year, extending our reach across e-commerce channels with gross merchandise value across Bunnings and Kmart marketplaces now exceeding $250 million. GMV and Bunnings marketplace grew more than 25%, reflecting strong demand for home and living categories and an increase in the number of vendors on the platform. On Slide 12, at a group level, divisional earnings increased 6.2% for the year, supported by strong results in Bunnings, Kmart Group and WesCEF and positive momentum in Health. Our retail businesses continue to execute well and their ongoing focus on productivity and cost discipline supported continued investment in low prices and customer experience while also delivering operating leverage with earnings growing faster than sales. I'll now step through the divisional results in a bit more detail. In Bunnings, sales growth of 3.9% was supported by Bunning's lowest price positioning, which underpins sales growth across both consumer and commercial customers and across all product categories and regions. Consumer sales growth was supported by strong demand for home repair and maintenance products, while range innovation and expansion drove strong sales growth in the tools, automotive, rural pet and lifestyle categories. Growth in commercial sales reflected resilient demand as Bunnings strengthened its proposition through faster fulfillment and specialist services. Digital sales grew across all channels with marketplace continuing to deliver strong growth benefiting from the launch of the Bunnings commercial and services marketplaces during the year. Bunnings continued to progress a range of productivity initiatives, which strengthened its cost discipline and allowed further investment in price. Bunnings earnings, excluding property contributions of $2.45 billion represented an increase of 5% for the year. Kmart Group delivered earnings of $1.1 billion for the year, an increase of 6%. Kmart Group's strong value credentials and world-class product development continue to resonate with customers with prices dropped on more than 2,500 items during the year. Product innovation in [ Anko's ] 1 up and 2 up price tiers also continued to generate strong demand. Comparable sales growth in the second half reflected more challenging conditions for seasonal categories in the fourth quarter and the impact of a material deterioration in the exchange rate on Kmart's New Zealand dollar-denominated sales. Adjusting for the New Zealand dollar impact, comparable sales growth for the second half was above the first half. Strong earnings growth reflected Kmart Group's focus on productivity and cost control, which mitigated the impact of ongoing cost of doing business pressures during the year. WesCEF earnings increased 18.5% to $473 million for the year, driven by higher prices for nitrogen-based products and spodumene concentrate. In Chemicals, earnings decreased on the prior year due to the rapid rise in ammonia index pricing following escalation of the Middle East conflict. Given the price lag in sales contracts, this significantly impacted earnings in the second half, but will provide a benefit as index prices normalize into the 2027 financial year. In Energy, our earnings decreased due to a lower Saudi CP price, and in fertilizers, earnings increased on the prior year, which was supported by a strong end to the 2025 season, partly offset by increased import costs in the second half of the financial year, again due to the Middle East crisis. In Lithium, the business delivered its first positive earnings with a profit of $40 million, which was driven by higher market pricing for spodumene concentrate and above nameplate production at the Mt Holland mine and concentrator. Ramp up of the refinery and the progression of qualification activities were affected by intermittent odor issues with the installation of mitigation measures initiated late in the financial year. In Officeworks, sales increased 3.7% and earnings of $165 million were 22.2% below the prior corresponding period, but in line with our previous guidance. Earnings were impacted by approximately $40 million in one-off costs associated with its transformation program, largely reflecting restructuring activities and the ERP-related costs. Successful execution of the program will structurally lower the cost base and provide a foundation for improved performance. The program remains on track for completion by the end of this calendar year. Wesfarmers Health continued to focus on its transformation program to accelerate growth and improve returns. Earnings of $92 million, excluding purchase price accounting adjustments, increased 12.2% on the prior year. Priceline Pharmacy's headline network sales increased 12.7%, which includes both retail and dispensary sales. Priceline's retail sales were supported by a positive customer response to differentiated price beauty, skin care and private label ranges and competitive pricing on key value lines. Digital sales also grew strongly, supported by the launch of the new Priceline Pharmacy app. MediAesthetics also delivered profitable growth, supported by a simplified operating model and digital health maintained strong momentum with growth in Instant Scripts users and services. In Industrial and Safety, excluding Coregas, earnings increased 16.9% to $76 million, supported by a strong performance in Blackwoods, which delivered growing share in a challenging market and a higher earnings from Workwear Group. As Rob has already mentioned, Blackwoods and Workwear Group have transitioned into Bunnings from the 1st of July this year. And as a result, the Industrial and Safety division will no longer continue as a separate division and the financial contribution from these businesses will be included in Bunnings result moving forward. Turning now to Slide 13. Our other businesses and corporate overheads reported a loss of $170 million, which was in line with the prior year. The group's share of profit from associates and joint ventures increased by $42 million to $106 million, primarily driven by favorable property revaluations from the BWP Group and improved contribution from the group's investment in [ Fly Buys, West Pine and Grassin ]. Group overheads were broadly in line with the prior year, while other corporate earnings decreased by $27 million. This decrease primarily reflected a lower group insurance result and the loss of BWP management fees following its internalization earlier in the year. Other EBIT includes the operating costs and investment in OneDigital comprising our OnePass membership program, acceleration of our group AI initiatives, investment in the group's customer and data insights capabilities and the group's retail media network. Total investment across these initiatives for the year was $73 million. As we said previously, the benefits from these investments will continue to be realized through incremental sales and earnings in our businesses. Turning to working capital and cash flow on Slide 14. Group operating cash flow finished 6.5% lower than the prior year due to deliberate investments in working capital in WesCEF and Health. These investments were temporary decisions our divisions made to strengthen availability to customers. In health, inventory contingency was increased to protect ethical supplies against supply chain disruptions due to the Middle East conflict. Similarly, in WesCEF, investment in additional fertilizer inventory at elevated prices to minimize the impact of supply chain disruptions from the conflict in the Middle East adversely impacted operating cash flows. WesCEF also held higher spodumene inventories, which will be used as feedstock in preparation for the ramp-up of the covalent lithium refinery. Across our retail divisions, cash realization remained strong at 99%, reflecting disciplined working capital management. Overall, inventory remains in a healthy position with good stock availability across the retail divisions. Free cash flow for the year increased 15.8% to $4 billion with lower operating cash flows offset by the proceeds from the sale of Coregas and the sale and leaseback of 7 properties following the wind up of the BPI restructure during the year. Moving to capital expenditure on Slide 15. The group invested gross capital expenditure of $1.2 billion during the year, which was 4.1% higher than the prior year. The increase reflected major project spend across a number of our divisions, in Kmart and Officeworks, both commenced the development of new omnichannel supply chain facilities. In Bunnings, CapEx included investment in new stores and expansion projects with an increase in space growth, reflecting its focus on optimizing warehouse and smaller format stores. And in WesCEF, CapEx included spend on the covalent lithium project and the completion of the first phase of the expansion of the sodium cyanide facility. Proceeds from the sale of property increased for the period, which reflected increased disposals as a result of the wind-up of the BPI structure which resulted in net capital expenditure for the year, decreasing 29% to $779 million. For the 2027 financial year, we're expecting net CapEx for the group to be in the range of $1.3 billion to $1.5 billion. And this includes approximately $200 million of CapEx associated with the expansion of the Mt Holland mine and concentrator, which we announced in July this year. and increased investments as well in new stores, refurbishments and supply chain across the group. Turning to balance sheet and debt management on Slide 16. The strength of our balance sheet continues to provide the group with significant flexibility and capacity to support future investment. The group's net financial debt increased to $5.3 billion which reflected the distribution of $1.7 billion associated with the capital management initiative in December last year. We continue to actively monitor the group's debt mix, and we manage exposure to variable interest rates. Lower average cost of funds for the year reflected lower cash rates for the majority of the financial year, combined with our low fixed rate bond program. Our finance costs, including the component of interest that was capitalized increased 8% to $202 million. During the year, Wesfarmers debt-to-EBITDA ratio increased from 1.7x to 1.9x following the capital management initiative, but we have continued to maintain significant headroom against our key credit metrics. In July, S&P revised the group's credit rating downgrade threshold ratio from 2.75x to 3x debt to EBITDA, increasing the group's debt headroom within its current rating. The group retains considerable funding headroom and committed unused bank financing facilities of approximately $1.7 billion. In the 2027 financial year, total borrowing costs are expected to be higher due to higher levels of net debt, increased capital expenditure and a high cost of funds. And finally, to shareholder distributions on Slide 17. As Rob has already mentioned, the Board has determined to pay a fully franked final dividend of $1.20 per share, bringing the total dividend to the year of $2.22 per share fully franked. This is consistent with our dividend policy, having regard to available franking credits balance sheet position, credit metrics and cash flow generation. In line with the recent practice, the group does intend to purchase shares on market to satisfy shares that are issued as part of the dividend investment plan. And with that, I'll now turn back to Rob to cover off on outlook.

Thanks, Anthony. I'll turn to Slide 19. And as said, Wesfarmers' primary objective is to deliver satisfactory returns to shareholders over the long term. But what I wanted to do in this slide was really to -- in a time when economic conditions are quite challenging for many people, underscore the importance of when businesses like Wesfarmers are generating profits and investing in their businesses, the broader benefit that we play to national prosperity. So we provide salary, wages and careers to more than 100,000 team members in Australia with wages of over $6 billion paid last year. Each week, our businesses serve millions of customers each seeing value and convenience in the goods and services that our team worked hard to offer. And in fact, this is probably the greatest source of value that is delivered back to the community through the amazing value we offer to customers. Across our customer base, we also serve 2.3 million Australian business customers across Bunnings, Officeworks, Blackwoods and Workwear Group. Our divisions help raise $102 million for community organizations across Australia and New Zealand. We're also one of Australia's largest taxpayers. Last year, we paid $1.6 billion to federal and state governments. And then this year, we will distribute $4.2 billion to over 470,000 shareholders with millions more Australians invested through their super accounts. Now turning to Slide 20. Before I discuss the outlook, I just wanted to make 3 points on how the group is positioned. First, our portfolio is strong. It consists of high-quality, resilient businesses that allow us to deliver satisfactory returns through the cycle. Second, we're making good progress on our growth and productivity agenda, which allows us to invest more in our customer offer and supports our future growth. And third, we have exposure to growing demand through our newer platforms with attractive long-term fundamentals, including opportunities in health, lithium and now modular construction and retail media. Of course, underpinning all of this is our disciplined approach to capital allocation and our strong balance sheet, which, as Anthony said, gives us flexibility to invest in our portfolio and consider new opportunities that may arise over time. Turning to the group outlook on Slide 21. Uncertainty about -- around the outlook for inflation, interest rates and house prices continues to weigh on consumer and business sentiment. Households are facing persistent cost of living pressures and higher operating costs are affecting business confidence and investment. And we've obviously been calling this out through most of this calendar year. Despite these challenges, Australian consumer demand remains resilient and Wesfarmers retail divisions remain well positioned to deliver on our corporate objective. Our divisions will continue to mitigate cost pressures through the execution of their productivity agendas. Bunnings, Kmart Group and Officeworks are well positioned to grow profitably and win a greater share of customer wallet supported by their lowest price positioning, expanding addressable markets and their broad customer appeal. This positioning will be reinforced by the ongoing development of the omnichannel assets and capabilities to drive incremental sales and earnings. For the first 7 weeks of the 2027 financial year, Bunnings sales growth was slightly stronger than the second half of the 2026 financial year assisted by some unseasonably dry weather in July. Kmart Group sales growth was broadly in line with the sales growth experienced in the second half. And Officeworks maintained positive sales growth with sales growth slightly below the second half. Now together with our joint venture partner, [ SQM ], we remain focused on ramping up the covalent refinery while optimizing production and sales of spodumene concentrate. Wesfarmers Health remains focused on executing their transformation program and capitalizing on health and wellness trends to further improve earnings and returns. Overall, I'm really pleased with the group's performance and strong execution of our strategic agenda, and we're well positioned to navigate a range of economic circumstances given the strength and diversity of the group. Now lastly, you would have seen that today, we announced that Mike Schneider will retire from his position as MD of Bunnings Group in February next year. I'd like to thank Mike for the exceptional contribution he has made to Bunnings and the Wesfarmers Group over many years. Mike will be succeeded by [ Rachel McVitty ]. Rachel will be an excellent leader and brings strong commercial and operational experience. She is currently the Chief Customer Officer, where she leads Bunnings store network and more than 50,000 team members. Rachel has been with the group for 17 years in a variety of roles. I look forward to working with Rachel to continue to deliver Bunnings strategic agenda. And we'll also have more opportunity to celebrate Mike's amazing achievements prior to his retirement later this financial year. So this succession process has followed the usual process adopted by Wesfarmers over years, and we're very fortunate to have such a depth of internal talent to draw on across the group. Now with that, we'd be very happy to take your questions. We will now begin the question-and-answer session.

[Operator Instructions] The first question today comes from Michael Simotas from Jefferies.

Good morning in WA. Good afternoon, everyone else. Look, just wanted to try to understand your view on the consumer as they face into your key retail businesses. We sort of look at the outlook commentary and some of the sort of numbers that you've given. Is it fair to say that there's been a slight moderation in demand generally, but it's happened at a fairly moderate rate. And then you've delivered some pretty good operating leverage over the last few years. Do you think in the current environment with demand and cost of doing business inflation coming, you can continue to do that over the coming 12 months?

Michael, it's Rob here. I might make some high-level remarks and I'll then hand over to Aleks and Mike Schneider, just to talk a bit more about the consumer. If you look at our commentary on the economy, the outlook, I would say it's very similar to what we talked about at our Strategy Day and very similar to what we talked about at the half year. We're not seeing a worsening of conditions. We're actually seeing a continuation of the conditions that we've experienced through much of 2026 calendar year. I think what's important to -- I know that you guys focus a lot on 7 weeks trading, and you try and interpret what does that mean for the year ahead. I would just give you -- provide a bit of caution to how you analyze that. We did call out a couple of factors. Weather is not a reason to celebrate or commiserate results over the long term. But on a week-to-week basis, it can have an impact. As John Gualtieri can talk to, the supply of tech products can also have a short-term impact. on sales. But the point I'd like to leave with you is that we are really just seeing a continuation of conditions where customers remain very discerning around how they spend their money and very value conscious given the cost of living pressures. So I might hand over to Aleks first and then Mike Schneider to give a bit more color. And they can also talk to your question on operating leverage.

Michael, just on consumer, consistent with what Rob said, very much a continuation of the themes that I talked to at the Strategy Day. So the overarching piece is that the importance of value is continuing to grow for our customers. We continue to see them become really focused when they shop and value seeking in their behavior. What does that mean for our business? The trend of fewer items in basket is what we're seeing. However, the positive is our active customer base continues to grow, and our transaction count continues to grow, but we are definitely seeing customers become more deliberate in their shopping behavior. The other one that has continued within our business is the strong value proposition of our offer and the product innovation and really extreme value within our top price tier continues to resonate very strongly for our customers. So when we deliver quality and aesthetic at an extreme value price point. We continue to generate really strong demand for those price tiers within our business. So we feel across all of that, we're extremely well positioned in the current environment to continue to deliver value for customers and continue to grow our share of wallet and we continue to see growth across all of our customer cohorts, whether that's demographics or affluence levels. From an operating leverage perspective, there's a few factors within the result that are continuing within our business. So firstly, we maintained really strong pricing and inventory disciplines across the year and across the second half, which contributed positively to margin outcomes. It is an inflationary environment from a COGS perspective, but we work really hard with our supplier base to drive productivity across all of our sourcing business. We're also starting to see some benefits from the investments that we're making in shrink reduction initiatives, including our front of [indiscernible] gates across our store network. And clearly, FX is in a more favorable position in terms of mitigating some of the cost inflation we're seeing, both domestically and overseas as well, including the impact of fuel, which have been a material impact in recent months. Productivity is very much still on our agenda, and we're delivering really good productivity across our supply chain and across our store network from the ongoing digitization of our operating model, which is also continuing to mitigate some of the inflationary pressures. In terms of the look ahead, a lot of those things are in our base and will continue to play out in FY '27. And clearly, we've called out an elevated level of investment in FY '27 related to our next-gen commissioning. So we take over the site in October which means that we have a period of dual run costs within New South Wales with no benefit because we won't start to operate the site until early FY '28. We haven't quantified the impact of that, but clearly, it's a material enough impact to call out. What it will do is it will impact our ability to deliver operating leverage to the same degree as we have in recent years. However, I'll reiterate what I said at the Strategy Day, which is we're still aiming to grow earnings in F '27 and we are also aspiring to deliver earnings growth ahead of sales growth for the year ahead as well because of all of those other factors that I talked about. But clearly, the level of that operating leverage will be impacted by this very material one-off investment. I'll hand to Mike now. Thank you.

So just check with Mike. Mike is actually in Melbourne today on the conference call. So Mike, I just want to check if you're connected.

Rob, can you hear me now?

Yes, that's great. Thanks, Mike.

Michael, thanks for the question. And look, Aleks, obviously gave a really extensive answer, and there's not a lot of things here that we would sort of think differently on, particularly from the consumer point of view. I think what we've been very successful at doing over the last sort of 24 months or so is diversifying range growing in new categories. That continues to give us a strong customer acquisition pipeline. We're seeing that through the comp growth in some of those core categories. So we've been really pleased with that. I fully agree with Rob and with Aleks's comments on sort of the focus on value from the consumer. But I think that's really playing to the sort of capabilities that businesses like Bunnings have and the value proposition we put in front of our customers. So from that point of view, and then sort of looking into the sort of immediate next couple of months, what we can see with [indiscernible], with seasonal and through the sort of spring summer campaigns that we're in a really strong position to participate and compete strongly. And I think that will benefit customers, but also benefit Bunnings from a sort of performance point of view. On operating leverage, we are pleased with the ongoing work that we're doing, continue to sort of demonstrate that through the work that we're doing on productivity. We're less mature than, say, a Kmart business on a global sourcing aspiration. So that's continuing to give us opportunities to deliver great value for customers, but also improve performance in the margin space. So as we look forward over the next sort of 12, 18 months, I'd anticipate the initiatives that we've got underway will continue to deliver operating leverage. But as I've said, probably every one of these results calls over 10 years, very focused on absolute returns over the term as well, and we'll keep driving those really hard.

The next question comes from Shaun Cousins from UBS.

Another question for Mike around Bunnings and Mike thanks for answering my questions over the years and best of luck to Rachel in the new role. If we think about Bunnings in the past has called out, macro drivers such as household disposable income, renovation activity, housing churn, housing value and formation, where the lifestyle demographic trends and technology. Several of these are quite weak at the moment, particularly housing churn and value following the federal budget. Can you talk a bit about how that -- how these negative factors impact Bunnings sales growth? Alert to the comment you made earlier around it being a diverse business. But you've got probably a more challenging macro outlook, and what happens to Bunnings sales as you have less housing churn. It seems to have been a driver in the past and there's less of it happening now?

Yes. Thanks. Great question. Shaun, I've enjoyed your questions over the years as well. So thank you for those. But for us, I think the point on diversified business is important because we've always thought to have a very resilient business balancing discretionary and necessity spend. There's a lot of characteristics that's still very favorable in the housing space. We've got a lot more people spending a lot more time working at home, doing things around the home, so we continue to see a lot of active participation. What's also really pleasing is sort of the attachment rates of the newer categories when customers are shopping in our stores. So coming in for a core mission and then adding on with some of the things in our more consumable sector. So that's performing well. And some markets are performing very strongly. In the Western Australian market, the South Australian market continued to perform very strongly on all the indicators we've seen and we've probably called out weaker economic performance in some East Coast markets now for a little while. So we're sort of established in understanding consumer behavior responding to that. And I think, ultimately, at the end of the day, even though housing churn is down, we still see housing as a long-term asset in our personal portfolio. So we really want to make sure that we invest in that, and that's what we're seeing customers continue to do. We continue to see activity on alterations and additions and there still is housing churn, obviously. So we're participating in that. So I think notwithstanding some of the sort of headlines you read about, we're seeing strong participation in our core categories. and ongoing attachment to those new ones. So we'll be watching it very carefully. We're working super hard to make sure the offer is strong, but our ability to outperform the market is something we've always been really focused on and will continue to do so.

The next question comes from Adrian Lemme from Citi.

Congrats, Mike, on your pending retirement. Always enjoyed our discussions. The Bunnings EBA, I believe, expires at the end of this month and to my knowledge, hasn't been renewed yet. You may not be able to give us a lot of detail. But can you give us a gear at all as to the level of wage growth we should expect in FY '27 might it be similar to the fairway decision of 4.75%, please?

Yes. Great question, Adrian. We've obviously had a long history of sort of making sure that the way we structure our AI it really benefits our seen place to sort of permanent base that we've got, and it has for a long time and remains well above greater. So we're well positioned around that. We've got long discussions underway with team and obviously with the FDA as well, and they are coming to a conclusion, which is great put that in front of our team pretty soon, but we don't anticipate anything above [indiscernible]. We think we'll be able to strike a really good balance. And we [indiscernible] through the P&L over a multiyear period. So our ability to sort of absorb the increases and offset those with productivity improvements across the business were well established. So I think our ability to handle that commercially is very strong. Our ability to reward our team is very strong and that's something we're really focused on. So I think that's sort of where we sit at the moment.

Thank you. The next question comes from Tom Kierath from Barrenjoey.

I've got one for Aleks. Just on the K Home format. It's been running a couple of months now. Can you maybe just step us through what some of the learnings are, which categories you're doing well? How are you kind of thinking about the rollout potentially?

Thanks, Tom. And so we're really pleased with the early trading results of the first K Home at Box Hill. Some of the things that we've seen in there has been really reinforcing the opportunity we see on furniture and really creating a new market for extreme value price points in our furniture offer. The penetration of that within the box has been very strong, and we're seeing very strong cross-shop with furniture in a lot of the baskets in the store, which has been really pleasing. We've seen really strong basket sizes as well. So the transactions have been good, but once costumers are in the store, they're really engaging with the breadth of the offer in the store, which has been really and we're seeing really good penetration of our 2 up price points within the store as well. So there's some of the early very early reads that we're seeing. We clearly have a lot more to do to understand the format and the way that customers trade over the course of a year and really how we optimize our inventory offer in there, particularly for furniture side of things, which to date has been online only and really surfacing that in store, we can see a very strong demand for it. We're going to plan to open a second K Home store in November this year in Queensland in a very different type of catchment. And we haven't announced it yet. But I think that will be an important second data point in terms of the way that the store trades in a very different type of shopping center to the Box Hill store. And I'm sure we'll get lots of new learnings out of that, that allow us to optimize the format even further.

The next question comes from Peter Marks from Goldman Sachs.

One just on Bunnings and [indiscernible] categories to FY. Are you able to give us a bit of an update on how you're thinking about applying [indiscernible] as we look into FY '27 that can support that top line growth in Bunnings.

Peter, I really apologize that didn't come through very clearly. Can I just get you to ask the question again, please?

Yes. Sorry, Mike. Just thinking about how you think category expansion into FY '27. Could you give us an update on appliances and anything else, any other categories which you've been thinking about for FY '27 that can support that top line growth in Bunnings?

Yes, great question. Similar to what we talked about at Strategy Day. We've got a number of different growth initiatives growing from the core of the business. So categories like tools and automotive and pet care. They've all gone through sort of Phase 2 and Phase 3 range expansion and innovation, which are continued to perform well. We're just expanding our smart home category. We've got our EV charging category, our solar category. We've got now rolling out to 121 or so stores across the network. So all the things we sort of picked out a strategy that we continue to execute on. What's really pleasing us is that they are all resonating with customers really well, and they're all solving different problems and projects around the home. So for us, that's really exciting. And when you start getting to sort of the solar space, that really plays across both consumer and commercial. So that's performing really well as well. So I think all will continue to be drivers as we go forward as well the categories like marketplace, you heard Rob talked about before, we've been blowing away with the growth in marketplace over the last 12 months. That strong double-digit growth has continued into this financial year. So I've been really pleased with that as has been the takeup both of endemic and nonendemic retail media customers. So -- that one is still very nascent for us, but we think will be a really important earnings driver as the years go by as well. So I think foundations are good, the expanded categories are good. And I think that gives us some really positive things to chase as we head out this financial year.

Okay. Great. And any update on the appliance category in particular?

Yes on appliances, we've got plans now signed off for the layout in about 78 or so stores, I think it is. So CapEx has been approved for that. We've got a couple of different brands. We're working with and looking forward to bringing that into market. Some of those will come in pre-Christmas and then in the second half. But if you've been in our stores, you'd have seen some promotional drops of dishwashers, washing machines and dryers. They're not brands that customers would necessarily know, but the value in them has been extreme and the take-up and sell-through has been fantastic, which really, I think validates the view that we can drive great volume in this with brands. And when you sort of sell the volumes of kitchens that we do across the Bunnings business, driving attachment rates to those makes it a really exciting category for us.

The next question comes from Craig Woolford from MST [indiscernible].

Rob. I just wanted to ask a question about the cost of goods outlook for the retail businesses. I think there's always a lot of moving parts, and this year is no different, but I'd expect there's currency how you're managing that combined with the implications on either cost of goods from raw materials or packaging and higher freight costs?

Craig, it's -- look, as you rightly said, there's a very -- there's a whole lot of different cost drivers across a very broad mix of products that we sell. I might let Mike kick off with a couple of observations and then go to Aleks and John.

Yes. Thanks, Rob. I think, firstly, the work we're doing in the global sourcing space, which is really target sort of commodity-based entry-level categories is delivering a couple of things. It's delivering us some lower COGS, which we're obviously able to deliver greater value to customers, but it's also giving us a much better look through the broader supply chain. So raw materials and on. really helping us understand and in some way, sort of replicate the amazing work that Aleks and her team do at Kmart. As I've said probably many times over the years, there's a mix of inflation and deflation across the board. We've got such a diversified portfolio from timber to green light to paint. And all of those things are growing or manufactured here in Australia, so immune from some of the global supply chain challenges. So from a COGS point of view, we're not sort of seeing significant inflation on COGS through the P&L. But obviously, we watch very closely what's going on globally, but then work very hard with our supplier partners and sourcing agents to make sure that we're really justifying any increase to cost because we're super mindful that it's challenging for our consumers out there, and we want to just continue to offer compelling value to them. I might hand over to Aleks.

Thanks, Mike. I think as I mentioned in my earlier comments, in terms of input costs across raw materials, it's a net inflationary environment. And clearly, the impacts of fuel feed into a lot of those raw materials as well. And then from a fuel and an ocean freight perspective, it is an inflationary environment, the strengthening of the Australian dollar plays a mitigating impact to all of that. And similar to what Mike said, our sourcing teams work really, really hard with our supplier base to continue to drive productivities through our entire supply chain and look to offset those impacts as much as possible to ensure we can continue to invest in value for our customer base. I'll hand to John.

Thanks, Aleks. I think I'll break the question up in too. So we've got a private brand business. And it's like Mike and Aleks, we've been working through. And a lot of the cost of goods sold, you've been able to negate through scale through the partnership with [ Aimco ] and through the reset of our merchandise strategy. Then if I just take a moment and talk a little bit about chips and memory. We've seen an increase in chips and memory. But the increase started last November, December, and our teams have been working with supply since that point in time to try to mitigate those cost increases. And so we've been able to secure, I think, better than market increase products for our customers as a result of the planning that we have been able to work with our suppliers. So that's kind of negated I think where the market's increased their prices. But we do have other areas where prices have flow straight through to our cost of goods sold and working through with our suppliers.

Thanks. Just one for Aleks. Just you said that there was an inflationary environment. Is that even after the currency and maybe the, I guess, the implication there is that there's still hedges that need to roll off [indiscernible].

Yes. I mean I think we've talked about our hedging policy in the past. So we hedge 12 to 18 months advance. So the spot rate impacts that you see don't flow through immediately. It's quite a progressive impact on the P&L, which is really important for us because it means we can plan our business well in advance. My point on the net inflationary is more in terms of raw material input costs across all of the different inputs. You've got your ups and downs, but overall, raw materials are in an inflationary cycle. But equally, we worked really hard on productivity with our supplier base to try and offset as much of that as possible.

The next question comes from Bryan Raymond from JPMorgan.

Just another one for Aleks on K Home actually. I just want to extend on the bright question there. I'd just be interested to see what you're sort of looking for out of these trials, how many trial stores you might need to do before you can really push go on a broader rollout, whether it's dependent on the being fully up and running before you can do that if the expenditure category is dependent there and also just how you see the opportunity in terms of space in the large format or stand-alone centers which you can look to roll that form out in.

Yes. Thanks, Bryan. In terms of what we're looking to prove out, it really is the economic the format. So sales density is a really key measure that we would look at, and we would want to really satisfy ourselves that we can generate really good sales density out of this format because if we can do that, the economic equation, clearly becomes a lot easier for the rest of store. Outside of that clearly, we've got a lot to learn in terms of how we resource it, how we flow stock through to the store, and there will be a whole lot of operational things that we need to learn from. But sales density would be the key metric we focus on from an economic perspective. The second one really is how does the format perform in different catchment types? And I mentioned the second store that we're going to do is in a very different type of shopping center to Box Hill, again, given it's a brand-new format with no trading history, really understanding the transaction frequency, the basket size of customers and how all of that plays out across different catchments is going to be important for us. On the supply chain perspective, we've sold for that through our existing facilities in Victoria it's not currently a constraint in terms of being able to roll out more stores over time, clearly, depending on the materiality and the number of stores in different states, we would need to look at supply chain solutions, but the supply chain at the moment isn't a constraint to doing more trial stores. How many would we want? I think realistically, a handful of stores in different demographics and different catchment types would allow us to get confidence that the results can be replicated more broadly. We're having really constructive conversations already with lots of landlords around opportunities. nationally. So I'm confident that if we can prove out the economics and we can get good commercials in terms of available space that there is a rollout opportunity when we're ready to press the button on that.

The next question comes from Caleb Wheatley from Macquarie.

I was just interested if you could provide a bit more detail in, I don't know, the "nonretail income streams." And I guess I was particularly folks to have a media, I appreciate it's still quite early, but it has been sort of up and running for maybe a year or so now. But then even your comments on marketplace and the growth that's coming through there. So just kind of broader sense across the business, what's the sort of materiality of those sort of nontraditional income streams? And how are you thinking about sort of the opportunity for that to become more meaningful in a group sense?