Thanks for joining us. I'll keep it as brief as I can. I've got Carol, John, and Neil joining. Just look, we've had six months, been busy buying brands and warehouses and building teams and infrastructure. There's lots to do, taking our business globally as we move every day. We've built a super platform, and we continue to do our thing. I'll hand you over to John.
Thanks, Mahmud. Good morning, everyone. Firstly, I'm going to give an update on the first half, where the group sits today, then an update on strategy as we invest for the future. Before I get into that, I would like to take this opportunity to thank our teams for their incredible work, talent, and commitment as we continue to navigate through the COVID-19 pandemic. We're now 18 months into the pandemic, and looking back at what we have achieved in that timeframe is nothing short of exceptional. Over the last two years, we have grown 73%. We've increased our customer base by 46%. We've doubled our market share in the U.K. and U.S., and we've significantly extended our target addressable market with our acquisitions. Two years ago, our target audience was 16-24-year-olds.
We can dress everybody from 16 through to 50 plus, and the opportunity is huge. With half a billion potential customers, that's half a billion potential customers today in our key markets versus GBP 100 million two years ago, and w e're investing for the future. Our U.K. D.C. network has capacity today to service GBP 3 billion of net sales. Current investments will take this in excess of GBP 4 billion within the next two years. This will continue to grow and become more efficient as we reap the benefits from future automation at Sheffield and Daventry. Our supply chain has been significantly strengthened, and we're investing heavily to provide a platform for growth. We're committing to invest half a billion pounds over the next five years and create 5,000 jobs, 2,000 of which we've already created so far this year. Moving on to the first half.
We had an extraordinary year last year, and I'm delighted that we've continued to grow in the first half of this year. Macro factors have created some short-term headwinds. That's short-term headwinds. Demand has been uncertain with lockdowns and fewer events, in particular across June, July, and August, with a lack of international holidays and festivals. At the same time, we've seen return rates have been increasing back to pre-pandemic levels. Our proposition has been hampered in overseas markets due to a lack of air travel. Carriage costs are extremely high. On a like-for-like basis, they have impacted EBITDA by approximately GBP 26 million in the first half versus pre-pandemic levels. Labor cost inflation is also increasing as we head into peak trading. All of these factors are temporary, not structural, and will subside as the pandemic passes.
Demand has accelerated in the latter stages of August and into September, and we're very excited about the opportunities in half two and beyond. I wanted to share this slide as we think it's clearly demonstrating not only the structural shift to online that has gone over the last 2 years, but where we as a group sit relative to some of the key listed industry players. Firstly, key apparel markets around the globe are still down versus two years ago in the U.K., U.S., and Europe. Secondly, on here, there are some incredible businesses within our global competitor set, and our growth over the past two years has been ahead of this group of companies. Not only are we emerging from the pandemic in that group of structural winners, we've been the number one performer so far and are delighted with that. Moving on to strategy.
There are six areas that we'll run through this morning, covering everything from the global opportunity ahead of us through to how our technology and infrastructure will act as enablers for us, and importantly, how we can do this in a sustainable and transparent manner. Firstly, the opportunity for the group is huge, and we've made great progress over the last two years. Across our key markets of the U.K., U.S., and Europe, apparel markets remain down versus 2019. The U.K., as we understand it, is down 7% versus pre-pandemic levels. The U.S. is down 11%, and the rest of Europe down 4%. In each of these markets, consumer demand remains uncertain for all retailers. For us, our ability to service customer remains challenging due to longer lead times impacting customer proposition and increased costs, which impacts short-term profitability.
In quarter two, growth in the U.S. slowed due to the effects of the pandemic, but l ooking ahead, as travel restrictions ease in November and air travel resumes, we expect delivery times to shorten and our sales growth to improve. Despite these macro issues, compared to the first half two years ago, we've grown 81% in the U.K., 126% in the U.S., and 20% in Europe. In terms of market share, what does that mean? We've doubled our total market share in the U.K. and likewise doubled our total market share in the U.S. and are delighted to have done this, which gives us great confidence that our brands are resonating with consumers and that as we emerge from the pandemic, we will continue to grow our market share as conditions normalize.
In Europe, our market share has increased by over 50%, and we know the opportunity there is huge.
As life gets back to normal following the pandemic, we are seeing markets react positively. In recent weeks, we have seen a re-acceleration of growth in key markets such as Ireland and France. Two and a half years ago, we had four amazing fashion brands targeting the 16 to 24-year-old demographic with an incredible value and fashion proposition. Since then, we've been strategically adding to the portfolio. Firstly, with MissPap, Karen Millen, and Coast, then Oasis and Warehouse, and more recently, Dorothy Perkins, Wallis, and Burton. We've also now got Debenhams. What does all of this mean? It means, as a group, we can dress everybody from our core 16 to 24 demographic right the way through to customers over 50, giving them the latest trends, unrivaled choice, and amazing value for money.
For us, the opportunity is huge, with an addressable market of half a billion people across the U.K., U.S., and Europe, compared to just 100 million in our core 16 to 24-year-old demographic. We have acquired a number of brands in recent years with total pre-acquisition revenues of over GBP 2.7 billion, offering brilliant potential to drive sales back up to these figures and beyond as we grow the brands globally. To unlock our global potential, it's great to talk this morning about our re-entry into wholesale. Strategically, this will allow our brands to rebuild awareness where it has been lost, having disappeared from the high street, and generate awareness in key markets that will complement our own direct-to-consumer growth. We've launched our partnership with Alshaya Group that will support our brands in the Middle East, and will soon be going live on the fast-growing platform About You in Europe.
We also have two major partners in the U.K. lined up in the coming months, and t here are other global opportunities that are being appraised across India, North America, and the Far East. Tech is at the heart of what we do. It is the enabler that allows our brands to curate and market their products in the most effective way possible, be it across the front end, digitization of our back office, driving operational efficiencies, and embracing the concept of data as an asset. On the front end, we have one platform which has plugged into it 13 fashion stores and 81 customer-facing websites and apps. This front end is constantly evolving so as to drive the best user experience across our brands. We're not afraid to be innovative.
For example, launching Debenhams on a headless concept, which will cater for greater customization and provide us with more agility. To highlight the capability and the expertise of the teams we have working in this area and the technology that supports this platform, from acquiring a new brand to relaunching, we're looking at around 8-10 weeks in terms of building a website and launching it on our platform, which is phenomenal speed. For back-office functions, we're pulling more and more technology in place to provide a robust infrastructure that is eminently scalable. For example, in buying end-to-end technology, we'll support everything from supplier onboarding and compliance through to ordering with the order app, supplier management through our hub, and real-time tracking of inventory so we know where in the world our products are, which we think will be a game changer in improving international lead time.
In our DCs, we're investing for the future. We're adding capacity and introducing automation to yield major cost savings. Lastly, using data as an asset, we have endless amounts of data, and the challenge is always how can we best utilize it. Through 2021, we have been rebuilding our data warehousing and data lake, which is a huge upgrade to our systems with all of our data feeding into one place, which is hugely scalable and, for example, will allow our reporting to be more agile, faster, and in real time. The takeaway from this slide is that our global offering continues to scale rapidly, and there are some incredible stats on this page. We have today 13 fashion destinations, compared to five, two years ago. With these destinations, there are 81 customer-facing websites and apps, which will grow. Choice for our customer is unrivaled.
Our offer has quadrupled in the last two years, and our customer has more newness than ever before, with almost 1,000 lines launched daily. Our reach continues to grow with 54 million social media followers and 19 million customers from around the world shopping across all our brands and platform. Our group has been founded off test and repeat. It gives us speed, flexibility, and efficiency. For our suppliers, while we are committing to small quantities up front, this is spread across thousands of styles, giving them the volumes they require to operate their businesses. With our inventory, we manage this by utilizing data to analyze demand, and we back winning styles to maximize full price sales. That gives us low inventory, reduces our markdown, and minimizes waste.
We've embedded this into each and every brand, taking lead times in some of our acquisitions from as long as nine months down to a matter of weeks. Today, we're operating from 4 distribution centers in the U.K. and are investing significant amounts into additional capacity and automation projects. Currently, our capacity across sites and locations caters for approximately GBP 3 billion of net sales. This will increase. By 2023, we'd expect to have capacity of well over GBP 4 billion of net sales as we lay down the foundations for future growth. We'll drive cost savings and efficiencies. For example, our GBP 120 million automation project at Sheffield is due to go live in 2022, and this will be a game changer in terms of driving efficiencies and throughput, with it expected to deliver a cash payback in less than 5 years.
This morning, we are also announcing an investment into a distribution center in North America. This will be our first international distribution center. We're very excited about the enormous potential of the U.S. market and the resonance our brands have with our customers there. We'd expect to go live in 2023, with the site bringing us closer to our customer, shortening delivery lead times, and enabling future growth in that market. That would take our global capacity to well over GBP 5 billion across the group by 2023. Moving on to our final strategic focus area, sustainability and transparency. These are the goals we set out for this calendar year with our year-end results back in April. As you can see, we've made great progress.
As you will know, earlier this week we published our international supplier list, and we'll be launching our Leicester manufacturing site by the end of November. Some really strong progress on delivering on the commitments we have made. In the words of Sir Brian Leveson, "Few, if any, companies undertaking due diligence of their supply chains have gone to the lengths undertaken by boohoo." Lastly, we're delighted to announce a new concept this morning, with PrettyLittleThing launching a resale marketplace in 2022. This will allow customers to buy it, love it, sell it, from any brand, not just our own brands. This, we think, is a game changer, tapping into the structural growth of the resale market and further extending our target addressable market. It will extend the life of garments, breathe life into pre-loved clothing, and help to reduce waste.
Of course, it's not all about what we're doing within the business. Our positive influence spans much wider. Earlier this year, we commissioned a report into the economic impact the group has on the economy and society as a whole. We're proudly a British business, paying tax in the U.K., and since 2009, we've added GBP 2 billion to the U.K. economy. We're committed to investing over half a billion pounds over the next five years and creating over 5,000 jobs. In half one of this year, we've already created 2,000 of those jobs, so we're well on our way with that piece of work. To summarize, in half one, we've continued to deliver growth on top of what was an extraordinary year last year. We've doubled our market share in the U.K. and the U.S. over the past two years.
We've integrated and relaunched four new brands, and we've added two new warehouses in the U.K. Trading momentum has been improving into the early part of half two, which is really encouraging. We're investing for the future and looking ahead with more brands, stronger infrastructure, and a significantly larger addressable market. Thank you. I'll just pass you over to Neil now.
Thanks, John, and g ood morning, everyone. I'm going to move on to the financial review of the first half, and as I go through, you'll see that we've included two-year comparisons for some additional context. I'm also going to share in this section some insight into customer behavior and demand patterns and then talk about guidance and outlook. Onto the income statement, here it shows that we've delivered 20% growth in H1, compounding the standout performance last year, meaning that we've delivered 73% growth over the two years. Gross margin was 54.6%, compared with 55% during the lockdown boost last year. Pleasingly, it was higher than the gross margin of two years ago. That highlights the strength of our full price sales performance.
Adjusted EBITDA at GBP 85.1 million is up an impressive 40% on two years ago. That was notwithstanding the challenges posed by the COVID-19 pandemic. We've seen additional costs of around GBP 26 million during the first half of the year related to the pandemic, with extremely high shipping costs for overseas markets, as well as returns rates normalizing in the U.K. We've also been investing heavily into all of our brands and our multi-brand platform as we invest for future growth. I'll talk a little bit more about those pandemic impacts later. Other profit measures such as adjusted EBIT, PBT, and EPS continue to see further great progress on a two-year view. I'd also like to highlight on this page the exceptional items. As part of the recent acquisitions, we've incurred GBP 15.8 million of integration and restructuring costs.
This is at the top end of our previous guidance and is primarily driven by an extension to our transitional services agreement for the Dorothy Perkins, Burton, and Wallis brands, which, although costly, allowed the brands acquired to keep trading ahead of moving to our fourth U.K. D.C. in Daventry in July. Additionally, we're calling out GBP 4.2 million of warehousing, commissioning, and disruption costs. These are split between the automation project at Sheffield, which is impacting operational efficiencies during the course of construction, and also the startup and moving costs in relation to the third and fourth U.K. distribution centers. Looking at the results by geographical segment, as John mentioned earlier, we're delighted to have doubled market share over the last two years in our largest markets, the U.K. and the U.S. In the U.K., we've grown 32% in the half and 81% over the last two years.
International revenues continued to grow in the first half of the year, and we've delivered 63% growth across the last two years. Within those international markets, we saw significant gains in market share last year as competition subsided at the onset of the pandemic, and we acquired a significant number of new customers. Against that comparative, plus the proposition challenges that we've experienced due to extended shipping time frames, we are pleased with our performance, particularly in the U.S., where we grew by 24% in the half and 126% over the last two years. In Europe, our performance was consistent across the first quarter and the second quarter at -15%. As life gets back to normal, we've seen a re-acceleration and a return to growth in key markets such as Ireland and France.
On revenues, we just wanted to break out a bit of color on our established brand performance. By which I mean boohoo, boohooMAN, PLT, Nasty Gal, and MissPap, who've made further progress in the U.K. and international markets over the last two years and have delivered 51% over that period, and that was evenly split between U.K. and international. Onto costs, we've seen a short-term step change in costs as a result of COVID-19 and also as a result of our brand investments. There's a few themes that I'd like to draw out here. Firstly, central and admin costs. We're continuing to leverage these cost lines. At the same time, we're investing in our multi-brand platform and our recently acquired brands. Secondly, marketing as a percentage of sales has been elevated in H1 of the year compared with last year.
We didn't have to spend much on marketing in the first half of last year. More strategically, we're investing in our brands and particularly those that we've recently acquired, so that we can fully capture the opportunity that they bring to the group. We expect marketing costs to come back down towards the 9%-10% of sales corridor, but we won't be afraid to continue with high levels of investment in order to unlock the growth curve ahead of us. Lastly, on distribution costs. Optically, they're down slightly year-on-year and only up 90 basis points on the pre-pandemic levels. This has been aided by the brand and country mix. Underlying, we've seen significant increases in international carriage rates, which has materially impacted profitability compared to pre-pandemic levels.
Going into more detail on costs, we want to draw out today the impact of the pandemic on our cost base, which represents short-term temporary headwinds and something we believe will pass in the course of time as the pandemic eases. Like for like, our costs are up GBP 26 million as a result of the pandemic versus two years ago, and that's equivalent to 270 basis points of EBITDA margin split across 3 areas that are shown on this slide. Within this, the single largest item in the first half of the year was outbound carriage inflation. That's getting product to and from customers around the world, and that cost is GBP 20 million higher than it would have been two years ago. Heading into the second half of the year, there are three cost headwinds that we want to flag today.
Firstly, outbound carriage, which as I mentioned on the previous slide, was a GBP 20 million headwind in the first half of the year, and that will reoccur in the second half of the year. Secondly, inbound freight, which is included in our cost of goods sold. This has seen marked increases in recent months in both the ocean freight rate per container and also the air freight rate per kilogram. Both of these are a result of supply chain constraints as businesses focus on intake for peak trading. This will be more significant than the GBP 3 million impact in the first half of the year. Lastly, in our warehouses, there is well-documented wage inflation due to a tight labor pool, and this is coming through via higher basic rates of pay and additional incentives for colleagues as we gear up for peak.
Piecing together all of those impacts of pandemic-related headwinds, plus our brand and platform investments, this slide really demonstrates the underlying resilience in our profitability as well as our longer term opportunity. We're reporting today GBP 85 million of adjusted EBITDA in the first half, despite those pandemic-related GBP 26 million of costs. If those cost lines had been at similar rates to before the pandemic, EBITDA would have been materially higher at GBP 111 million. In addition, we've invested heavily in our platform and new brands, which have not yet scaled to the same degree as our other brands. And that's worth around GBP 11 million to EBITDA over the medium term based on overhead efficiencies. Lastly, there's a GBP 13 million opportunity from marketing efficiencies for those new brands as they trend down towards the group's 9%-10% of sales long-term average.
To summarize the last two years, we've delivered 40% more EBITDA, while at the same time we've invested in our multi-brand platform and marketing all of our brands to capture market share. All this whilst facing those significant temporary headwinds and restricted service proposition as a result of the pandemic. That gives us a lot of optimism to invest for the future. Moving on to cash flow. We've ended the period with GBP 98 million of net cash. That's down GBP 178 million since the last balance sheet date at the end of February, and that's driven by three things. Firstly, CapEx. This year is a significant year of investment across our tech platform, our warehouses, and automation, as well as in tech and our new offices, with CapEx totaling GBP 172 million in the first half.
72 million of that was for the purchase of our London office in Soho. GBP 50 million related to the automation project in Sheffield, you'll remember that this is a GBP 125 million project going live next year with a payback of approximately four years. GBP 29 million related to our new U.K. distribution centers in Wellingborough and Daventry, and t he remainder represented investments in the tech stack, supporting the multi-brand platform and upgrading our office environments in both Manchester and London. These investments are all about building a scalable platform and infrastructure that can support our long-term growth. Secondly, working capital. We've seen an outflow in the half as we invest in new brands and building inventory for those new brands, but also building inventory levels generally ahead of peak and getting ahead of the global supply chain issues.
Thirdly, cash restructuring costs and exceptional costs amounted to approximately GBP 20 million in the H1. We ended the period with GBP 98 million of net cash, and we've got GBP 198 million of liquidity, giving the group significant headroom. Looking at customer KPIs, we had just under 19 million unique active customers in the 12 months to the end of the period, and that compares to 13 million two years ago. That's an increase of 46% over the course of the pandemic. In the last year, we've seen further improvements in key customer metrics such as order frequency, which is up 9%. Conversion rates and sales per active customer have also increased, meaning customers are shopping more frequently with the brands and spending more as we capture a greater share of wallet.
Over the next couple of slides, I'll talk through a bit about customer behavior and the demand environment that we're currently facing. Most of you will recognize this slide showing our cohorts of customers. It shows net sales by year of acquisition across the 12 months to the end of August. There's a few aspects in here that point to the impact of COVID-19 on demand last year and the underlying resilience of our customer cohorts. You can see from this chart that our growth is underpinned by really healthy retention of historical cohorts, and you can also see that we saw exceptional growth from new customer acquisition during the earlier stages of the pandemic. The behavior of the customers is extremely encouraging, and we are seeing continued sales growth from the historical cohorts after their second year.
Our brands are really built on the strong foundations of a loyal and growing customer base. The next slide shows how volatile customer demand has been through the different phases of lockdown restrictions being eased in the U.K. In the charts on the left on this slide, it's quite clear to see how stores reopening in April and the delays to Freedom Day in June, as well as uncertainty in overseas travel and festivals, has really dampened demand at times in the first half. You can see that there's definitely been a resurgence since just before the actual Freedom Day on the 19th of July. The chart on the right focuses on our established brands in the second quarter who have started to see a meaningful increase in gross demand since the 19th of July.
On a two-year stack, we can see customer behavior has demonstrably changed since Freedom Day on the 19th of July, when they've got more reasons to shop. Within the U.K., our rate of growth in sessions over that timeframe has jumped 20 percentage points and gross sales by 15 percentage points. It's great to see that momentum has continued into September. Moving on to current trading. We're seeing sales growth accelerating into September, where gross sales growth for the first four weeks has accelerated significantly over the rates we saw in the second quarter. Demand has improved through August, principally in the U.K., but also in key overseas markets such as Ireland and France, where there's been a re-acceleration and a return to growth.
This has again improved in September, where the rate of gross sales growth has increased compared to that achieved in the second quarter of the financial year. Moving on to guidance, we now expect top-line growth of between 20% and 25% for the full year, which implies 20% to 30% growth in the second half of the year. The acceleration we've seen in August and September gives us confidence that as we head into peak, we could have a demand tailwind behind us. That's through the following: ongoing easing of restrictions in different international markets, greater international airline capacity into markets such as the U.S., and that will improve our service proposition, and events such as Halloween, party season, Christmas holidays, all of which were canceled last year.
Adjusted EBITDA margin is expected to be between 9%-9.5%, reflecting the impact of those short-term cost headwinds from the pandemic that we talked through earlier. We continue to invest in our tech platform, and we'll start to incur CapEx from the initial phase of investment in the U.S. distribution center, meaning that we now expect capital expenditure for the year to be around GBP 275 million. In addition to the first half investment in the GBP 72 million London office, we're making great progress on our program to build GBP 4.7 billion of net sales capacity by 2023. With all of those investments in the future, our medium-term guidance remains unchanged for 25% sales growth per annum and a 10% adjusted EBITDA margin as those pandemic-related issues unwind in future years.
In summary, it's been a strong first half, and you've seen lots of great progress made over the last two years. We're in a great position to keep delivering high levels of profitable growth in the future. On that note, I'd like to hand over to Carol.
Thank you, Neil, and g ood morning, everyone. This morning, I'm going to cover off Debenhams and the opportunity we have to grow the business, and t hen I'm going to cover off our brands and our ever-evolving marketing strategy and how we've reacted to the easing of the COVID restrictions. Lastly, some detail as to how we've evolved our customer database and the significant wider and broader appeal that we have today with our new demographics. Firstly, Debenhams. We relaunched Debenhams brand earlier this year as an online-only department store. Unlike our other brands, the website has been built from scratch with functionality to plug in third-party brands to enable us to have a marketplace. The opportunity for Debenhams is huge.
Brand awareness of the brand in the U.K. stands at 90%. Prior to acquisition, the website had circa 300 million visits a year and was within the top 10 most visited retail websites in the U.K. The business generated approximately GBP 400 million of sales online with a net turnover of GBP 1.8 billion. In beauty, it was leading in prestige beauty across makeup, skincare, and fragrance. It was number two for beauty and number one for fragrance. With a customer base of 19 million, 6 million of which were beauty shoppers, it also has 1.4 million members of a beauty club loyalty program, which we'll be relaunching later this year. We have a fantastic opportunity ahead as we aim to be the number one online destination for fashion, beauty, and home.
To do this, we will further expand the ranges across fashion, beauty and home, improve the overall customer experience to drive conversion and launching a brand new app, invest in marketing to drive traffic and accelerate the growth in the customer numbers. A little bit on Dorothy Perkins, Burton and Wallis here. We acquired the brands in February this year and just relaunched them in April. It was quite incredible. We managed to launch three new websites within 11 weeks, all with brand-new apps. It is testament to the tech and teams and the scalable platform we have put in place. Prior to the acquisition, the brands generated GBP 428 million of revenue and had 2.5 million customers. It is another fantastic opportunity for us to grow our addressable audience.
Now I'd like to break out the presentation with a video demonstrating what the brands have looked like in the last six months. I hope that just gives a little flavor of some of the achievements over the last six months and some of the foundations that have been put in place for us while we're investing in the future growth. On to this next slide. Agility has been key to our ever-changing global landscape of lockdown, and we've been optimizing our marketing channels with the right mix of brand and digital, and all of that's been key. Our collaborations have also evolved in their approach. For example, Oasis launched a collaboration with the RHS, and it's focused on botanical prints over the summer months.
Karen Millen continues to see success with Lydia Millen collections, and w e worked with artist Kate McMorrine on a collection of the most beautiful printed pieces. I am wearing one today. I always like to wear our products when I can. We're constantly adapting to the environment around us. It's been great because we're bringing PR and brand and events back to life. Missed them so much. It's just so great to be able to have, well, have today actually live face-to-face as well. In the past few months we've been able to get back to some of that marketing activity that we're all being famous for. Here in the London showroom we've been having several brand events each week. Internationally, we've had events at Miami Swim Week, New York Fashion Week, where diversity was the key theme.
With our models have been covering off from sizes two-24, mirroring the inclusivity that we offer across sizing across our brands and catering for every woman, every size, every shape. All these events help to support our growth of our social channels, where we now have 54 million followers across the group. Over the past two years, our customers have grown from 13 million-19 million as we've grown our brands and expanded our portfolio. Our addressable audience in this timeframe has shot up fivefold from just under 100 million people to almost half a billion. The acquisition of new brands has positioned us to address everyone from our teenagers to our 50-plus market. Not only are we addressing age and gender, but sizing, so offering petite, tall, and curve across all our brands.
We've also launched beauty and homeware, so not only can we dress customers, we can sell beauty to them and homewares to them as well. Just giving them all the more reasons to shop with us as a group. There's lots of upside as we globalize our brands, expanding into new geographies and reaching new customers. Now on this slide, I just wanted to demonstrate the change in inventory. The agility of our business is one of our key strengths. We've been adapting our brands to ever-changing customer demands. For example, this summer, you can see we've seen a return to occasion wear. With Coast, it's really been positioned as a brand, as a go-to dress brand for every occasion. And at Burton, we've seen tailoring and formal wear perform really strongly with the return of the wedding season and a return to the office.
As I mentioned, our strength has always been about agility and ability to meet these ever-changing demands. In the last 6 months, we start the season selling athleisure and casual wear, and today across the summer months, we've seen a surge in demand on dresses trading as our number one category, where we have today 28,000 options available across our 13 brands. Finally, to summarize on our results presentation this morning. We have experienced short-term headwinds from the increased freight costs. We've seen a positive start to the new season with demanding trends throughout September. The group have continued to deliver strong growth. It's 73% over two years. We have emerged with the pandemic with brands relaunching four this year alone. We have stronger infrastructure across technology and distribution with our first overseas warehouse announced today. We're driving sustainability across the business.
We can now address every customer from 16 to 50 plus across our brands, and as I said earlier, that's half a billion people with a market size around GBP 500 billion. We continue to invest for the future. Thank you, and I'd like to hand over to questions.
Have you got a microphone? There's one coming around.
Should we start with John?
Morning. John Stevenson at Peel Hunt. A couple of questions to get us going. Sticking with the Debs theme, regular question, but just wondering what it looks like at launch, just as you look at the appendices, I think you got a few bit of detail, but what are we going to see in terms of the marketing? What's going to be on the platform? How ready are you in terms of the build-out of product, beauty brands, and what Debenhams essentially looks like coming into peak? Second question, just on the USDC. What does that do for your thoughts on supply chain, given the sort of tax regime and what it implies? Do we start seeing more product coming out of, say, South America?
Final question, just in terms of the guidance and margin expectations, I guess we're sort of baking in 9%-9.5% EBITDA margins going forward, or at least I have this morning. I guess, are we saying that when the headwinds leave boohoo and the rest of the sector next year, we should expect a bit of upside to that number?
Should I take U.S. warehouse first, actually, on that one? In terms of tax duty, yeah, look, it's obvious, U.S. direct imports duties are higher than what you see into the EU. We will naturally look to preferential country treatment. For example Central America, Mexico, North Africa, et cetera, some of those countries. We'll look at the mix within that, in terms of getting that balance right, while still keeping our test and repeat model there. We'll be open for business, we're looking at 2023. We're down to a number of potential sites, and we'll update everybody on that in the coming weeks and months. In terms of Debenhams, maybe I'll leave the brand to you. I think from a functionality, we're still building from a tech platform.
To give you some indication where we are there, I would say we're about halfway through the journey in terms of capability on the tech platform. In terms of from product, again, we're at the early stages. It was from scratch. New teams taken on board, new ranges taken on board. If I give you an example of beauty, particularly around the prestige beauty, we're probably at about 25% in terms of onboarded at this stage. Within the next couple of weeks, that goes up over 50%. Again, all building as we go forward. Equally, I would say the other in-house product ranges and third-party brands are about at the same stage. Early stages, and what we've seen so far, really, really pleased, but clearly a lot to go yet, and really the full benefit of that is going to start coming from 2022.
From a branding perspective, we've done the initial, the little repositioning really. It was very important with the store closures to tell our customers or tell the Debenhams old customers that we're still here. We've been doing some out of home. We've been doing some social. We have launched on TV, w e've got new campaigns going in next week, I think, as well. Really, it's about positioning the brand as an online only department store now, and that's the initial bit. That's all going, but obviously all of the regular channels and the formulas we've used in the past.
Good. The third question, which was about guidance and margin expectations. I suppose what we've seen is an actually very strong performance profitability-wise in the first half of the year when you consider that we've got those GBP 26 million of pandemic-related costs that we're carrying. As those effects unwind over the coming years, then it gives us a lot of confidence to reiterate our medium term guidance, which is sales growth of 25% and above, and the 10% EBITDA margin. Within that, you could really see on that slide, we've got the headroom to be able to do those marketing investments of new brands and all the brands actually into new geographies. We'll have that headroom as those cost impacts unwind to be able to keep that double digit EBITDA margin and that superior growth rate going.
Clear. Thank you.
Simon. Simon's got a question.
Hi, it's Simon Irwin from Credit Suisse. When talking about wholesale, can you just talk about how going to wholesale partners works with test and repeat and very short production runs? Because presumably they need stock, they need predictability of range, and all the things that are not kind of core to your offer at the moment, where you're trying to push through new product as fast as possible. Secondly, can you just talk about your expectations around air freight and shipping freight as to where you expect rates to come back to and when? There's certainly a school of thought which suggests that air freight rates have been too low for too long, and simply aren't going back to historic levels. How does your model sit if that actually happens?
Can you just talk through the numbers around the U.S. in terms of what you're trading off for higher tariffs, and higher OpEx on a site, in a relative to benefits of transport costs?
If we look at freight rates first of all, so air freight, where's the big impacts we're seeing there at the moment? It's really around capacity. As we all know, there's a lot less passenger planes flying around the world at the moment, and usually those passenger planes, in the belly, are carrying cargo. With that reduced capacity, obviously drives up price in terms of demand. If you look, for example, the U.S. hasn't been open to European travel for pretty much 18 months now, and obviously, with the recent announcement that that opens again from November. That's going to, again, drive more passengers going to the U.S., which will make more aircraft available on those lines, therefore, more supply available for us.
We see pieces like that actually beginning to open up, that light at the end of the tunnel, and therefore, we see prices beginning to move from that time. Equally, you see Australia from a similar basis. It's not just about cost, it's about speed. Part of the proposition at the moment is a little bit slower because of lack of numbers of aircraft going over. If I give you an example, currently, a standard delivery to the U.S. would take 8 to 10 days, and that's pretty much twice what it would've been previously. From a fashion customer point of view, at the moment, waiting that eight- 10 days versus four- 5, for some, that's a consideration. That's really great news in terms of where we're coming to in November.
In terms of from an ocean freight point of view, really what we're seeing there, you've got to go back to last year. The world was stopped for many industries, not just retail. In terms of there wasn't that demand. What you saw was the freight companies taking capacity off the routes. What we haven't seen since the world is waking up again, and demand, we haven't seen that capacity going back in. What you've seen is a very profitable time for freight companies in that timescale. Those ships are sitting around the world, and they'll come back in the coming months, is our view. Again, that will drive more capacity in, which will mean the demand will be met better. In terms of the wholesale point or in terms of test and repeat.
We operate the wholesale separately to the main businesses. The main businesses continues to run on test and repeat. Obviously the wholesale orders, as they come in from the different customers through the different brands, will then meet those orders on those products. Clearly, we have a very good and efficient supply chain still, but we treat them separately. We're not waiting on a wholesale order before we put down our main order on the brand. Again, really, really excited about that, especially for the brands that we've acquired over the last 12 months or so, who were predominantly stores. Obviously, as those stores have disappeared from the high street, that brand awareness now, whether it's the U.K., whether it's Europe, or whether it's other markets that we're looking into.
Thank you.
I think the third question was around the USDC.
Yeah.
At the moment, we're expecting the cost savings that we get from shipping costs within the U.S., distributed into customers, will offset more than fully the increased import duties that we'll have when we ship items in bulk into the U.S. That business case has got better and better as we've gone through the pandemic based on what we expect shipping costs to settle back to after the impacts of the pandemic have passed.
Okay. I should know this, but are you charging sales taxes in the U.S. at the moment?
Yeah.
Okay. Nothing changes there.
We're charging sales taxes in all states, yeah.
Okay. Thank you.
Okay, we've had a number of questions from people on the webcast at the moment. The first question is from Anne Critchlow from Societe Generale. Is the lack of a warehouse in Europe hindering progress in those markets following Brexit? Is a European warehouse something that is under consideration?
I think we've obviously seen proposition and lead times since Brexit been slower than what they were prior to Brexit. In time, will a warehouse in Europe come? Yes, we see the priority being the U.S. in 2023. If we look at our long-term strategy, we see actually more than one warehouse in the U.S. as well. Equally, we see a warehouse coming down the road in Europe. If we look at Europe today in terms of that proposition, actually, it's getting much closer to what it was pre-pandemic and equally, pre-Brexit. Again, if we look at our trade in Europe, particularly over the last few weeks, some of our key markets like France, we've seen a real acceleration there. We're not really seeing that.
We see the priority really number one being in the U.S., but I do see in the future, a warehouse coming down the road in Europe as well.
We'll just take one more question from the webcast before we go back into the room. From Anne Critchlow. Were sales held back by poor inventory availability, and will you have sufficient inventory to meet demand?
No, I wouldn't say sales were held back by poor inventory. I think if you just put yourself into the head of a consumer over the summer, if you look at particularly that sort of June, July, and August period, most of us would've gone on a sun holiday in that period, and actually not many of us did that this year. That whole wardrobe purchase of beach wear, beach to bar, evening wear in the nice sort of 28, 30 degrees when you're outside, was very different to what we would've experienced, for example, at home. Equally, if you think about that 16 to 24-year-old profile, we didn't have the number of festivals, we didn't have the number of events. We had kind of the Freedom Day, even in the U.K., pushed back.
If you think of markets like Australia, Freedom Day is not for another couple of weeks yet, so t hat's been more the impact rather than reduction in inventory. Equally, in terms of inventory going forward, Neil would've talked earlier about those inventory levels at the end of the first half. We're in a good position, and w e're all experiencing those issues around the world in terms of sourcing countries and getting it in. Equally, we're doing things that we wouldn't have done previously. We're chartering aircraft and filling those aircraft ourselves, coming out of countries just to guarantee and get that supply in. At the moment, we're happy. There's some areas we're a little lighter than what we'd like to be, but don't see anything fundamentally affecting us.
Maybe I could just finish Anne Critchlow's final question. Are the newer brands still expected to contribute circa 5% percentage points to revenue growth this year?
The new brands so far have contributed a high single-digit number as a percentage for our growth rate. We're expecting that to be the same in the second half of the year. High single-digit percentage. They're slightly ahead of where we were guiding before.
That's great. Now if we get any questions from the room. Tony?
Yeah. Tony Shiret from Panmure Gordon. Just some background, I think, on marketing. Just wondered if you could give us a sort of rough split of your marketing spend, between sort of categories you consider sort of meaningful, but something around brand, influencers/social and SEM. Secondly, in terms of visits to site, can you give us some sort of idea of how much is organic, how much is SEM, and how that's likely to trend with the new brands coming on?
On the split of our marketing spend, it does vary a lot between the brands and different geographies. Overall, we've got a split between of about 30% brand, 30% direct response digital advertising, and 30% around brand awareness and influencers, et cetera. It's roughly in those areas. The digital, if anything, is becoming a higher proportion of the mix and paid social with the different social media platforms is always becoming more and more important, as are influencers as well as a channel. In terms of organic traffic, five years ago, that was probably around direct and organic, about 80% of our visitors. As we've invested more and more in digital marketing and social media, that tends to come down a little bit more. It's below those levels, trended down to over 60% in recent years.
I think that's been very much in line with trends in the industry generally.
That's great. If we can just go to another question from the webcast just now. We've got Miriam Adisa from Morgan Stanley. How long will it take you to get back to the GBP 2.7 billion of revenue from your newly acquired brands? What are the key steps in achieving this? Which brands do you expect to drive this?
I think in terms of time, first of all, it's about, as explained earlier, even with Debenhams and new brands, it's about getting the site's functionality up and running. It's about getting the ranges. A good example of that would be if you looked at Karen Millen when we acquired it just over two years ago, it would have had just over 400 styles on the website and available. Today, that's over 4,000. It's the opportunity of building out the categories, building out the offer to the customer. We see the GBP 2.7 billion as fully achievable over time. Clearly it's about kind of building the website, marketing and branding to the customer, getting the ranges in terms of where they need to be. The key point on that GBP 2.7 billion is really around pretty much 95% of that was U.K.-based.
Again, if you look at the journey on Karen Millen as an example, just over two years ago to now, we're now sort of seeing real interest in the U.S. market in Karen Millen, and equally, we're seeing interest in Australia and a little bit in Europe, particularly in Ireland. Again, just beginning that international drive with that brand. It's getting it up and running, getting it established, and then obviously in terms of marketing and then going outside of the U.K. is the journey, but over a number of years is what I would say.
Follow-up question from Miriam. What contribution to revenue do you expect from wholesale?
This year it's going to be pretty negligible, certainly, in a low single-digit percentage, but we've got that as an opportunity in the second half of the year. We're not creating any great expectations around it straight away. We see it as a big opportunity for the back end of the year and into the next year.
The final part from Miriam's questions. In Europe, your market share development was not as strong as the U.K. and U.S. Why was this? What do you think about the customer proposition here?
I think the opportunity, I would describe it, in Europe is more really to talk about. Our key markets in Europe would really be currently France and Ireland. Clearly, Europe's a lot bigger than those two countries. We have some Germany business, very small Spain, very small Italy, very small Scandi, very small Eastern European. Actually, I would describe the European journey as really just at the beginning, and it's about the opportunity in terms of marketing and getting our brands in there. What we have seen, even in the markets that we're pushing in, like France and Ireland, actually, there's a real appetite for the brands there. It's really about expanding on that market opportunity and taking it on.
That's great. If we could just go to another question from the room, if we have one.
Thanks very much. It's Charlie from Exane BNP. Firstly, I just want to go to the obvious question. You've given some encouraging, but unscaled charts with respect to the improvement in gross sales trends in September. I just wanted to qualify, are you now confident enough to believe that you'll be back in that 20%-30% range that is implicit in the second half guidance within Q3? Secondly, I just wondered on the topic of acquisitions, you obviously did a huge number of brands in the last six, nine months. Your logistics is obviously all in the U.K., and you do have challenges outside. Is M&A on the back burner for now whilst you digest? Is it constrained to the U.K. until you've actually got logistics to support a brand in foreign markets, or are you looking very actively worldwide still?
On the demand into Q3, yes, we're very confident that we're on that trajectory. Although the charts were unscaled, you could see a big increase there in the gross demand as we go through the back end of August and into September. That gives us a lot of confidence. There's a long way to go, of course, but there's definitely been an acceleration. At the same time, we've seen the returns rates in the U.K. go up significantly. That has stabilized going into Q3, but we're seeing that acceleration of gross demand. That's positive, I think, for the third period, which will be the next time we report is about the four months to the end of December.
I think in terms of European proposition and generally international proposition, generally, I think what we are seeing is as the world is beginning to reopen, and freight movement, aircraft movement, et cetera, increases, we see that proposition really coming back to what it was previously. We can see Europe coming back quicker. Clearly, for example, key market, the U.S. Obviously once November in terms of air passenger travel is allowed again between Europe and the U.S., we see that really expanding in terms of availability of aircraft. Europe's very close now to what it was pre. U.S. is still sort of 10 days versus five days previously. Again, we see that in November improving. In terms of logistics and long-term, pre-COVID, we can service and grow very well international markets. We've outlined this morning our first distribution center in America in 2023.
If we look at our roadmap in terms of where that takes us, we would probably see a European coming after that, and then probably a U.S. too after that as well.
Sorry, the question was also related to your appetite for further M&A versus sort of digesting and getting up and going with Debenhams and so forth.
Yeah. I think we'll always look at interesting opportunities as they come along. Again, at the moment in the kind of weeks ahead as we head into peak, that's our kind of real focus now. We're always looking at interesting opportunities, is what I would say.
Can I just ask a follow-up? We're a year on from the Levitt report. Can you just talk about what's changed in the balance of your sourcing, particularly? I mean, obviously we've seen all the changes in terms of process, which the Leveson's reports have updated us on. In terms of actually where you're sourcing from, has anything changed materially?
I think what you'll see, if you've had a look at the global supply list that we issued on Monday of this week, what I would describe it is no surprises really in there in terms of garment-making countries. In Asia, China, Bangladesh, Pakistan, India, Vietnam, Myanmar. Europe in the sort of Italy, Turkey, in terms of what's coming through there. We've said, and I've said before, in terms of the kind of natural mix of the U.K. would go down anyhow because of the type of garment that we make here in the U.K. As the brands, in terms of the acquisition, making jeans, jackets, shoes, all of those product categories we couldn't make here. That will just expand the offshore mix. The U.K. mix, while still important to us, but just as a scale of company now, that will come down naturally.
We obviously have our factory opening in Leicester at the end of November, so we're really pleased about that. Again, that will service all of the brands. That'll be up and running by the end of November. Again, for that kind of fast test and repeat. Obviously again, just kind of again supporting the importance of kind of number one, U.K. jobs, but equally our model and being able to get goods fast. That will really be important to us then.
Thank you.
Okay, maybe if we have another one of the questions from the webcast, from Adam Cochrane from Deutsche Bank. Do you expect any of the short-term headwinds to carry into FY 2023?
I think it's difficult to say at this point, I would expect them to carry on into FY 2023 in terms of those elevated freight costs as we ship orders to overseas markets. Inbound freight, not sure about that, whether that will normalize in time. I think on the positive side, we're seeing flights open up to the U.S. in November, maybe those headwinds can start reducing now. Whether they'll be eliminated by February, it's really hard to say. I'd like to think that that air capacity is really going to be ramping up quite quickly from November. As John said, Freedom Day in Australia, maybe restrictions will open up there. It's likely there's going to be some drag left into the next financial year. Hopefully, we'll get past the worst of it soon.
Adam's got a few questions. How many of Debenhams customers have remained engaged with the brand?
I think we haven't got numbers right now. Debenhams is a huge opportunity, but we're just starting with it. We're developing the proposition there and really the big launch for Debenhams is before peak for this year. There's not really much to say on how many of the Debenhams are engaged. Because in terms of email lists, it's very engaged. We do see good levels of traffic already, but that's going to increase as we develop the proposition on the Debenhams website.
That's great. Thanks, Neil. Last question from Adam Cochrane. Why have the higher outbound freight rates not been passed on to the customer?
I think from a competition point of view, clearly in the different countries that we operate in, that's our first and foremost, that we make sure and ensure that we're still in that competitive space. We see the current freight as short term, which we keep saying. Therefore, what you don't want to do is take any short-term steps from a pricing point of view versus your competitors that could impact your business in the medium term. We look at everything. We look at efficiencies in the warehouse, we look at pricing, we look at sourcing, everything that we can do, but obviously we've got to make sure that we keep it in our competitive set.
Maybe if we just take one more question from the webcast before we go back to the room. Georgios Pilakoutas from Numis. What does the increased CapEx guidance relate to? Is this pull forward of outer year CapEx? How much this relates to U.S. warehouse?
The increase in the CapEx guidance is around the progress that we're making with the program that John talked about to achieve GBP 4.7 billion of net sales capacity. We're making great progress on the automation project in Sheffield, and also we've got the U.K. D.C.s up and running. The additional amount of CapEx over and above that relates to a few things that are coming into play. One is the international as were pointed out there. We're going to see the investment in the first phase of the U.S. D.C. towards the end of this year now. That could be around GBP 10 million of the GBP 25 million increase in the guidance. The other amounts relate to just pulling forward the program around our tech.
Improving our front-end apps and websites for all of the brands, and including that new headless e-commerce platform for Debenhams. Improving the office environments in Manchester and London as well. That's what the additional CapEx guidance is around.
Thanks very much. Do we have any questions from the room just now?
Yeah, Tony Shiret. Just a quick, it's not a follow-up, it's a sort of separate issue. I'm involved with a sort of small, much, much smaller than you, clothing company. We've been having a lot of problems, in fact with supply out of Vietnam and China in the last very short period of time. Just wondered if you're encountering any issues with that and how big you are in terms of your total supply out of Vietnam and China.
I think Vietnam, firstly, is probably the worst affected in Asia in terms of supply chain. We have tiny, I would describe it, very, very low single digits coming out of there. It's not really an issue for us. I know there's been a lot, even in the last week about trying to get Vietnam reopened and kind of factories back working, it's not an issue for us. In terms of China, we're like most countries, in terms of getting it into a port, whether it's a port or an airport, getting it on a ship or an aircraft, getting it over here. It's slower than what it was previously, we're getting product through. If I look at China as an example, last week, we would've chartered a jumbo to take out our freight, and we have another one coming out next week.
We're again, kind of just working slightly differently to make sure we're getting our product in at the right time and getting that volume moved for us. Vietnam, no issue. China, are issues there, but we're working our way around that.
How big are you in China, sir?
Sorry?
How much from China?
We've probably got about 30% of our capacity coming out of China.
Thanks.
Okay.
Hi, Andy Wade from Jefferies. Just on the revenue re-acceleration that you're going to see or you're expecting to see in the second half, I'm just wondering if you've got any guide as to how we might expect to see that pan out geographically. There's obviously a lot of stuff going on in terms of delivery proposition and annualizing store reopenings and events and stuff kicking off again and unlocking and so on. If you could just give us a bit of a hand in how geographically you might expect that to pan out.
I think geographically, the best way to think of it is that we are seeing that strong re-acceleration in the U.K. and some of the European markets. I think we're going to see it in the U.K. initially and Europe initially. As Europe's going to increase through the period, as different markets go through that pattern. We've seen it in some of our key markets, but momentum's starting to grow in Europe. Then the U.S. I think is going to be around the run up to the holiday season through Halloween, holidays, and then through Christmas. As we generally see, and I think we're going to see the demand stimulus in pretty much all markets be quite different to the way it was last year. This year, all of those events are going to be happening this year, whereas they weren't last year.
Actually, I think it's going to be pretty evenly spread across the geographies, that we're going to see improvements across the geographies. In the order of events, I think you're going to see it in the U.K. first, continue in Europe, and then the U.S. as we get through Halloween.
Great, thanks. Then sort of a big picture one. Obviously, we've seen growth a bit slower through the current period. Would it be fair to say how you're viewing it at big picture level is we're obviously up against very big comps last year, a year where you made great progress, and there's some disruption going on, but we'll get through that. We'll get through to next year, and we'll sort of be back to normal and you're talking about 25% growth rate again. Is that oversimplifying? Is that sort of how you're thinking about it?
No, that's a good summary. I think we're definitely thinking of it like that the pandemic has dragged on in terms of those transit times for the international business. As soon as those get back into the more normal levels, then we've got a really competitive proposition, and hopefully that's going to be in the second half of this year to a certain extent and going beyond that. For future years, definitely we've reiterated that medium term guidance of 25% year-on-year growth and the 10% EBITDA margin. We're pretty confident that this is short-term temporary factors around the pandemic, and those are going to subside. What the exact timing of that is, nobody knows, I don't think. Hopefully it's sooner rather than later.
Great. Thank you.
If we can now go to question from Ben Hunt from Investec. Inventory levels are up significantly, which is primarily from supply chain disruption. How clean is your stock position?
Our stock position is very clean. We exit a season clean. We've become very clear disciplines across all the brands in terms of where we get to. We're happy with our stock mix in autumn. Clearly, we're coming towards peak. We need those coats, knitwear, boots. We need the party dresses in. That's coming through, and where we need to get them in, if they're not moving quick enough, like we just talked about, was we'll take an aircraft and fill it coming out of China. We're happy and we're clean, I would say.
A follow-up question from Ben Hunt. Gross margin is up significantly in U.S. but down in the rest of Europe. Are you keeping your pricing proposition competitive enough in the U.S.?
We would say that we are very competitive on price in the U.S., but we're always every day, every week, exploring that elasticity around that, and it very much depends on what those demand stimuli are. We'd say yes, but we're always testing that and testing that elasticity.
We've also got a question from Paul Rossington from HSBC. Is increased competition impacting your performance in Europe and U.S.?
No. We've had competition around for a long time, and we fought competition for a long time over the last number of years. As we've demonstrated, if you look at the last half year, look at the last two years, we've continued to grow very strongly. Competition is good in our minds, and clearly the big shift that everybody's seen in the last two years is just that structural move more to the online. Yeah.
Maybe we could go to a final question from the floor. As well, Rachel at the back.
Sorry.
Morning, guys. Rachel Birkett from Zeus. Just a very quick one. Having seen your really great showroom upstairs, is there any chance you would ever consider opening any kind of physical retail, even just a pop-up or a flagship?
No.
No. Well, that might be the answer. It looks great upstairs.
We'll leave that to the competition.
Thank you very much.
Thank you.
Okay.
Okay. Great.
Thanks, everybody.
Thank you, everybody.
Thank you very much.
Thank you.
Thank you.
Thanks.