Thank you for standing by, and welcome to the Adore Beauty Group Limited results conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. To ask a question via the webcast, please type your question into the Ask a Question box and click Submit. I would now like to hand the conference over to Tamalin Morton, CEO. Please go ahead.
Good morning, everyone. I'm Tamalin Morton, CEO of Adore Beauty Group. I would like to begin by acknowledging the traditional owners of the land on which we meet today and paying my respects to their elders, past and present. Thank you for joining us today to discuss Adore Beauty's results for the twenty twenty-four financial year. We will be referencing slides from the investor presentation uploaded to the ASX earlier this morning. Our CFO, Stephanie Carroll, is here with me. We are very pleased with the results we've delivered in FY2024. Adore Beauty has demonstrated strong operational performance and growth across key metrics. Our value proposition continues to resonate with customers, and our three-pillar growth strategy is yielding results.
Annual revenue of AUD 195.7 million increased 7.4% over the prior corresponding period, driven by a record 519,000 returning customers, while active customers increased to 814,000. Gross profit margin of 33.4% was up 0.8 percentage points on the prior year, and pleasingly, reported EBITDA increased 661% year on year to AUD 4.8 million, at a margin of 2.5%. Turning now to slide three and some of the operational highlights FY2024. Adore Beauty is a three-pillar Beauty Done Better strategy that's focused on customer centricity, brand awareness, and operational optimization.
We know that with a strong and compelling offer, we will retain our customers, and by building brand awareness, we will attract more customers, which will in turn build scale and drive operating efficiency. I'm excited to say we have achieved some record metrics against our areas of focus in FY2024, including record customer retention, up 8.5 percentage points to 64.7%, and record brand awareness, which was up 9 percentage points to 71% in our target demographic. As these metrics show, we have made significant progress on our mission to deliver Beauty Done Better for our customers, grow our brand, and our business. Moving now to slide four. Revenue in FY2024 was underpinned by our loyal returning customers, who represented 79% for product sales. This has grown from 62% in FY21.
These valuable customers contributed a record AUD 151 million in revenue, a 9% increase over the prior period. The other category, which is highlighted in yellow in the graph on the left, reflects the growing contribution from retail media and brand partner advertising. Turning now to active customers on slide five. Our returning customer base has grown 44% over the past three years to now account for 64% of all active customers. The higher proportion of returning customers is driving improvements in key metrics, including record average order value of AUD 114 and record annual revenue per customer of AUD 235. We continue to focus on delighting our customers to support retention, which ultimately drives profitable growth. With that, I will now hand over to our CFO, Stephanie Carroll, to take you through our financial performance.
Thanks, Tamalin, and good morning, everyone. Adore Beauty's FY2024 financial performance highlights the business's significant growth potential as our strategic initiatives mature. 7.4% growth in revenue was supported by record-returning customers who spend more on the platform and shop more frequently, and highly successful promotional events including Cyber, Click Frenzy, and Afterpay. Gross profit margin of 33.4% benefited from cost optimization programs, freight improvements, and retail media. There was a 661% improvement in reported EBITDA to AUD 4.8 million and 2.5% margin. This reflects revenue growth and increased operational efficiencies. Moving to our profit and loss slide, profit and loss statement on slide eight.
What I'd like to draw your attention to on this slide is our margin improvement and operating leverage, which, together with revenue growth, delivered a AUD 2.2 million net profit after tax in FY2024. This is a significant turnaround from a loss in the prior year. As I mentioned earlier, margin-accretive strategic initiatives and disciplined cost management across the business drove gross profit margin by 0.5 percentage points over the prior corresponding period to 33.4%. Our marketing has been more effective, and we are benefiting from operational efficiencies across the business. Our operating leverage and cost optimization improved profitability with operating EBITDA, which excludes share-based payments, increasing more than 5,900% over the prior period to AUD 5.4 million and margin of 2.8%. Moving now to our balance sheet.
Adore Beauty is debt-free and generating positive cash. Our cash balance at the end of the financial year was AUD 32.9 million, up 18.3% from the prior corresponding period. We're also seeing the benefits of our disciplined investment in inventory of higher turnover products, which is supporting sales and customer satisfaction due to improved availability. I'll be happy to take questions at the end of the presentation, but for now, I'll hand back to you, Tamalin.
Thanks, Stephanie. I'm now turning to our growth strategy on slide eleven. Increasing brand awareness, customer focus, and operational efficiency provide the platform for Adore Beauty's ongoing growth within Australia's large and growing beauty and personal care category. On this slide, you can see some of our initiatives that support the three pillars of our strategy, such as subscriptions, leveraging brand campaigns, retail concept stores, and technology, including AI. I'll now talk to our progress on these initiatives in more detail. I'll start with customer centricity on slide twelve. Customer engagement and retention are top priorities for Adore Beauty, and an important component of our value proposition is our Adore Society loyalty program. In FY2024, we further developed the program with more rewards and benefits, and our loyalty member base grew by 8.6% on last year.
We also introduced other initiatives to encourage repeat visits and purchase. These included new site features such as Price Drop and Wishlist, plus individualized offers enabled by the use of AI in our customer marketing. And importantly, we launched our new subscription service, Subscribe and Save. Now available across 42 brands, Subscribe and Save has contributed more than AUD 1 million in revenue since its soft launch in late October 2023 and has been well received by customers. New brands and additional functionality are being introduced in the coming months, and we expect the use of this service to grow considerably this year. Turning now to slide 13. Our mobile app was also created with customer ease in mind and is a key driver of improved marketing efficiency.
In the second half of FY2024, it contributed more than 28% of all product sales, up 4.6 percentage points from last year. The graph in the bottom right shows the steady growth in app revenue contribution on a half-yearly basis. We're continuing to encourage app adoption with downloads increasing almost 50% over the year, supported by initiatives such as app-only promotions, gift with purchase, and content integration. In addition to increasing the proportion of direct traffic, customers who shop the app have significantly higher average order values and frequency compared to the website. Let me now move to how we are further building our brand on slide 14. We're very pleased to have significantly increased brand awareness year on year in our core 25-45 female demographic, benefiting from investment in above-the-line activity.
We are also excited to have recently secured leases to two Adore Beauty branded retail concept stores in Southland and Watergardens shopping centers in Victoria. Expected to open in the second half of the financial year, these stores have clear brand awareness benefits and are expected to be profitable. Our new brand campaign, Adore Yourself, is launching today, and together with the other initiatives, is expected to further drive brand awareness and sales. Turning to our own brand portfolio on slide 15. Our private label or own brands play an important role in differentiating Adore Beauty and increasing traffic to us. These brands also drive improved profitability and deliver a substantially higher gross margin compared to third-party brands. Over the year, we continued to develop our own brand portfolio, adding 23 new products, including our first cosmetics range under AB Lab.
Our private label portfolio now spans 61 products across Viviology, AB Lab, and Adore Beauty brands. In line with our strategy, range expansion will continue in FY25. We've also signed a trial distribution agreement with Advanced Cosmeceuticals, which will see our Viviology range stocked in selected skin clinics in New South Wales. This will further increase Viviology's brand awareness, engagement, and trial. Now turning to range expansion on slide 16. One of Adore Beauty's points of difference in the market is our broad range of beauty and wellness products, which we continue to expand in FY2024. New brands and products are a key driver of customer satisfaction, new customer acquisition, and ultimately, revenue growth. We further strengthened the breadth of our offering in FY2024, onboarding 38 new brands to increase our portfolio. Today, we offer more than 300 brands and 13,000 products.
New additions include a wide range of brands such as Burberry, Shark, Therabody, and Allkinds. Our aim is to make Adore Beauty the one-stop shop with a truly compelling value proposition for all your household beauty and wellness needs, from everyday personal care to luxury beauty products and fragrances. Moving now to slide 17, which covers our third pillar in our growth strategy, operational optimization. There are several initiatives supporting this. One example is our new revenue stream, retail media. Continued growth in content-driven impressions is supporting the commercialization of our marketing assets. Engagement with Adore Beauty's authentic content continues to build, with content-driven impressions increasing 46% on the prior period, supporting traffic to our owned marketing channels. These channels include our award-winning podcast, downloaded 7 million times, as well as blogs and follower communities across Instagram, YouTube, TikTok, and Facebook.
Overall, retail media contributed AUD 4 million in revenue for the year. This has more than doubled since FY 2023 and remains a sizable growth opportunity for the business. Given this, we have invested in a dedicated team to further increase the associated revenue and support our profitability targets. Turning now to slide 18. In addition to other operational improvements, enhancing the efficiency and effectiveness of our marketing has been a business priority over the past year. This has included a greater focus on retargeting existing customers, growing our own channels, and enhanced channel analysis. We've also leveraged AI to automate customer marketing and SEO, which has improved our ability to personalize communications and promotions. Other operational adjustments have included changes at our customer fulfillment center, for instance, shift structures, as well as renegotiated supplier terms and the use of AI.
Turning now to our acquisition of iKOU on slide 20. In previous updates, you will have heard me talk about the importance of iKOU in building our private label range to drive margin improvement. At the start of FY 2025, we completed the acquisition of premium Australian beauty and wellness brand, iKOU. iKOU is a strong strategic fit with a similar customer demographic to Adore, a loyal customer base, high historical average order values, and diversified revenue across channels and categories. Importantly, iKOU's attractive gross profit margins of 73% compared to Adore Beauty's current margin at 33%, supports our longer-term margin expansion targets. The iKOU business includes established retail, online, and wholesale operations, and adds more than 300 products to Adore Beauty's existing private label portfolio.
These products are primarily in high-margin categories and are aligned with Adore Beauty's core offer: premium skincare, body care, home fragrance, and also gifting. Turning now to slide twenty-one. We've identified multiple opportunities to grow iKOU beyond its New South Wales-centric origins, leveraging our platform and marketing capabilities as well as range expansion. This is in addition to growing the brand's retail, wholesale, and international presence. At the same time, we can leverage iKOU's product development skills and retail expertise as we open our first Adore Beauty stores early in the second half of this financial year. We will also explore opportunities and learnings through iKOU's wholesale network. Our complementary capabilities across the businesses and channels, coupled with Adore Beauty's scale, operational infrastructure, and brand strength, enhance our growth prospects as we continue to increase group revenue and improve profitability.
Moving now to our growth plan for iKOU on slide twenty-two. Slide twenty-two outlines some of the growth opportunities. In our first year of ownership, we are targeting AUD 10 million in revenue and to more than double iKOU's revenue by FY twenty-seven. Prior to the acquisition, iKOU was not available on the Adore Beauty online platform. Our broad audience reach and scale enable us to drive brand awareness and deliver material growth in online sales of iKOU rapidly and at minimal cost through our Adore Beauty and iKOU websites. Wholesale is a key growth market for iKOU, with the brand increasing its presence across retail stores, hotels, and luxury spas. Supported by a dedicated team, this channel will continue to grow both locally and internationally. Wholesale may also provide opportunities for Adore's own brands.
iKOU's three existing retail stores in Sydney, Byron Bay, and the Blue Mountains are fantastic flagships for the brand. These stores are profitable and expected to further benefit from increased brand awareness as part of the Adore Beauty family by leveraging our social media, podcast, and marketing expertise. We also expect iKOU to benefit from a presence in our new retail concept stores in Victoria, and over time, we plan to roll out more standalone iKOU stores. Onto slide twenty-three. Our growth plan for iKOU is very much aligned with Adore Beauty's three-pillar strategy of enhancing customer centricity, building brand awareness, and optimizing our operations. Given the scope for synergies, we're currently undertaking a full operational review to comprehensively identify the opportunities. iKOU's experienced general manager, who has been in the business for several years, will lead the integration, along with Adore Beauty's Chief Operating Officer.
Founder, Naomi Whitfeld, is also available to support the transition, retained in a consultancy capacity. Importantly, integration success is a key KPI for the entire Adore Beauty team. Adore Beauty has a long history of growing relatively lesser-known brands through our content and platform ecosystem. This supports our confidence in our ability to unlock iKOU's long-term growth potential as a key component of our margin expansion strategy. Moving now to slide twenty-five. As we look ahead, increasing profitability remains a priority for Adore Beauty, underpinning many of our strategic initiatives. This slide outlines the main levers of margin expansion, revenue growth, improved gross profit margin, and business optimization. Scale, brand awareness, stores, new brands, and retail media will all support top line revenue growth and deliver operating leverage.
Gross margin improvements will come from iKOU and other owned brands with higher margins, ongoing pricing and promotional review, partner support, and adjacency expansion. And finally, cost optimization and more effective marketing will continue to reduce expenses. Turning to our outlook slide now on slide 26. We've had a positive start to FY 2025, with revenue in the first seven weeks up 7% in total sales from the prior period. While trading has been resilient, challenging conditions are expected to remain for the year ahead, given ongoing cost of living pressures and softer consumer sentiment. We are confident that Adore Beauty can increase revenue, active customers, share, and profitability in FY2025, underpinned by our clear growth strategy. The integration of iKOU will further support sales growth and margin expansion. Given this, Adore Beauty is targeting an EBITDA margin of 4%-5% in FY2025.
Adore Beauty will build on these strengthened foundations over the coming year, progressing strategic initiatives that drive top-line revenue growth, increase the lifetime value of our customer base, and improve profitability. Thank you for your time today. Before we open the call to questions, I'd like to acknowledge the hard work and dedication of the entire Adore Beauty team, as well as our partners. Our continued growth reflects their innovation and customer-first mindset, and we remain focused on delivering value for our customers, partners, and our shareholders. Stephanie and I will now take questions.
Thank you. If you wish to ask a question via the phones, please press star one and wait for your name to be announced. If you'd like to submit a question via the webcast, please type your question into the Ask a Question box and click Submit. The first phone question today comes from Apoorv Sehgal from UBS. Please go ahead.
Morning, guys. First question on operating costs. A pretty solid cost control again this year. I think your OpEx was up 3.5% year-on-year. Where are we at now with the cost optimization program? It seems like there's still a bit more to go on FY2025. Can you talk about what levers there are left to pull, headcount levels of the business and any requirements for further hiring, in FY2025?
Thanks, Apoorv. So you know, we've you know, provided. We're really pleased with the cost optimization that we've done. We have guided to 4.2-5% EBITDA margin. You know, we will continue to you know, focus on cost optimization. We're not providing details on where that might come from. We're continuing to work through marketing effectiveness and optimization. We continue to be very measured in where we will invest resources. Resources being you know, those that support strategic initiatives. We've called out retail media, for example, is where we're putting headcount. But with that, you know, we might review when people leave, we do those roles get filled? It's an ongoing conversation.
And every, as we have done with diligence and vigilance really, is we've gone through every line in the OpEx expenses to make sure that we are maximizing wherever we can and reducing costs across the business.
Presumably, Steph, you're expecting the marketing cost as a percentage of sales line to keep coming down into FY25 as well? You've done some good work there in the last 12 months.
Yeah, we certainly would hope so. That's correct.
Absolutely.
Yeah.
I think, you know, there's also the benefits of initiatives around AI that we're starting to see. We recently introduced a chatbot. There's a lot of great initiatives that are focused on this area.
Then maybe gross margins. You're obviously expecting some further margin improvement in twenty-five. There's a number of drivers I guess you've listed, but what would be the most sort of important driver? Like, is it, is it private label? Is that sort of the big one that's gonna help drive that margin expansion going forward?
Yeah, I mean, private label will definitely assist, but we've been-
A key driver.
It is a key driver, and you know, both our own private label brand, Viviology, AB Lab and Adore Beauty, plus the investment we've made in iKOU, will assist in improving those gross margin, but again, it is also, you know, around how we work with our brand partners and how we onboard new brands as well and the margin we derive.
Yeah. And then just maybe on the Aussie consumer, any changes you've observed now versus six months ago, incrementally better or worse? And maybe specifically, are you seeing purchasing habits more so than usual around key promotional events at all?
... We've definitely seen that our customers are loving our promotional activity. We've had very successful events, but I think we're still seeing customers valuing the total proposition, and Adore Beauty has a really strong proposition across its loyalty offer, the benefits that it has. So I would say that its core proposition is strong, and that customers, as you say, are also really enjoying and making the most of the promotional activity.
Got it. Thanks, guys.
Thanks.
Thank you. The next question comes from the webcast: What is the strategy behind the opening of investments in bricks-and-mortar retail? And is there a strategy to expand this in FY25 past the two leases signed?
Thanks. Great question. So the strategy around the opening of the bricks-and-mortar retail is really around building brand awareness. It's one of our three pillars in our growth strategy. We really want to be able to bring the Adore Beauty brand to life in a physical form, and we think that'll be really exciting. And from the insights that we have on our customer base, we feel they'll be really excited by that opportunity. So we're looking to bring that to life, in the next, you know, half two.
Thank you. The next question from the webcast is: Will further M&A be part of the brand strategy to increase profitability in FY 2025?
So I think really for us, it's we continue to be open-minded, but we certainly want to now focus on iKOU and how we integrate iKOU really effectively in achieving our targets, but we do continue to keep an open mind.
Thank you. The next webcast question is: Is there scope to transition iKOU stores into multi-brand retail stores?
At this point in time, I'd say we would like to retain the iKOU stores as iKOU stores. They're strong flagships for the brand, and they're performing really well. We will continue to evaluate, however, any incremental opportunities that the stores provide.
Thank you. Once again, to ask a question, please press star one on your phone. Alternatively, please type your question into the Ask a Question box and click Submit. The next question comes from the phone. It's a follow-up from Apoorv Sehgal from UBS. Please go ahead.
Hey, guys. Thanks for the follow-up. Just wanted to ask a question about category trends. Like, where does the mix of the business sit today, skincare versus makeup versus hair? And what's sort of performing better or worse? And if I can add one onto that, in terms of the new Adore Beauty stores, is the mix of those stores gonna be different to the general mix of the business? Like, are you gonna skew the physical stores more towards makeup, for example?
Great questions again. So taking your question in parts, so our current mix, we're still very strong in terms of skin and haircare, so I would say they are our focus categories still. But we've seen really strong improvement in makeup and fragrance.
They would be the fastest growing.
Yeah.
And you know, particularly where we've added new brands. You know, we've certainly added new brands at a fast rate in the fragrance category, where we were under indexed.
Absolutely. We've seen some really strong luxury brand additions in the fragrance category, and we're really pleased to have been able to launch AB Lab's Color Cosmetics, which also, you know, has had very positive feedback. And I think in terms of the stores, we're likely to represent the categories in that kind of weighting so that we can represent our offer with strength in our areas of authority, I would say.
Got it. Thank you.
Thank you. At this time, we're showing no further questions. I'll hand the conference back to Tamalin for any closing remarks.
Thank you. Thank you so much, so thank you for joining us today and for your continued support. As I step down from my role in September, I'm very pleased that Sacha Laing, a highly experienced retail executive, will be joining as the new CEO of Adore Beauty from the first of October. Sacha's extensive experience will benefit Adore Beauty as the company continues to deliver on its strategy, driving further revenue growth and profitability. Stephanie and I very much look forward to connecting with many of you over the next few days. We'll now close the call. Thank you.