I would now like to hand the conference over to Sacha Laing, Chief Executive Officer. Please go ahead.
Good morning, everybody, and thank you for taking the time to join us this morning. My name is Sacha Laing, CEO of Adore Beauty Group, and I'm joined by our CFO, Stephanie Carroll. Thank you very much for joining us today as we present Adore Beauty's results for the first half of the 2025 financial year. I'm pleased to report that the early stages of our strategic refresh have yielded a strong performance, setting a solid foundation for future growth as we grow Adore Beauty into a leading omnichannel beauty authority. The past six months have been a period of transformation and disciplined execution. Since announcing a fresh three-year strategy, we've focused on building a stronger, more profitable business while continuing to deliver exceptional value to our customers.
Stephanie will speak to the numbers shortly, but I'm pleased to share that as a direct result of our growth initiatives, we have seen improved quality of earnings and significant margin excellence. Highlights for the first half include delivering a material gross margin increase of 270 basis points, completing the acquisition of iKOU into our own brand portfolio, with the brand performing well and in line with our expectations. I'm really excited for iKOU's future. It's well positioned to enter its next phase of accelerated growth and deliver solid margin expansion for the group. Customer acquisition continues as a core focus across our channels, and I'm pleased to report we grew our contactable database by 20% on the prior year to AUD 1.26 million and an increase on our active customer base by a further 4%.
The launch of our first physical Adore Beauty retail store at Westfield Southland in Victoria earlier this month marked a significant milestone in our transition towards becoming an omnichannel beauty retailer. The store is truly an extension of our online platform and is deeply immersed in our digital ecosystem. Our store network will unlock new revenue streams for both Adore Beauty and iKOU, with another four stores opening by June, along with an additional four to six Adore Beauty stores this calendar year. Over the next three years, we are targeting 30% revenue uplift and doubling of the margin. This slide, slide three, demonstrates how the last six months have begun to steer the group in this direction. Revenue [audio distortion] up to 2.3% compared to the prior corresponding period. We achieved a gross margin of 36.2%, reflecting our focus on quality of revenue and margin accretive initiatives.
EBITDA nearly doubled from the previous year to AUD 4.7 million, representing a margin percentage of sales of 4.5%, and EBIT was AUD 2.8 million, a 126% uplift. These results truly demonstrate the effectiveness of our strategy, of our refreshed strategy, aiming at improving the quality of our earnings and long-term profitability. Adore Beauty's signature online experience keeps our loyal customers returning time and time again, and as shown in slide four, we have not only grown our base of customers by 4%, but also expanded our contactable database to over 1.2 million customers, which is a 20% increase on the prior period. Looking ahead, we remain focused on delivering the Adore Beauty experience while deepening customer engagement and loyalty through increased mobile app adoption, expanding our subscription service, enhancing our rewards program, and utilizing our advanced data and AI capabilities to maximize share of both online and in store.
I now hand over to Stephanie to take you through our financials.
Thank you, Sacha. I'm pleased to share the strong early results of Adore Beauty Group's refreshed strategy, demonstrating improved quality of revenue and profitability. In the first half of FY2025, we delivered revenue of AUD 103 million, an increase of 2.3% on the prior year. EBIT increased 126% to AUD 2.8 million, which drove our EBIT margin to 2.7%, up from 1.2% in half one FY2024. We also delivered a reported EBITDA margin within the full year guidance range, reinforcing the strength of our execution. With this momentum, we are on track to exceed our target of 5% EBIT margin over the next three years, positioning Adore Beauty Group for sustained and profitable growth. This performance reflects the progress on the group's near-term objectives of improving the quality of revenue, with a clear focus on initiatives that drive quality of earnings.
Key contributors to margin expansion included the growth of our private label brands and retail media, as well as disciplined cost management, which helped deliver record gross margins and a strong profit uplift. In addition to our strong EBIT performance, we delivered significant growth in operating EBITDA, which increased 64.8% to AUD 4.3 million at a margin of 4.2%. This was supported by disciplined promotional activity, ensuring both profitability and sustained customer engagement. Marketing as a percentage of sales decreased by 0.6 percentage points to 13.3% compared to the prior corresponding period. This was driven by data-led efficiency gains in marketing, as well as a refined promotional cadence over the half. We invested in our key growth levers, including our omnichannel capability and our first retail stores, while maintaining focus on disciplined cost management and profitability.
The group remains in a strong financial position with AUD 11.7 million in cash on hand as at the 31st of December 2024. The reduction from AUD 32.1 million at 30 June 2024 reflects investments, including the AUD 20 million upfront consideration for iKOU and capital outlays for new retail stores. Importantly, we remain debt-free and cash flow positive, with working capital efficiencies driven by improved inventory turnover. Thank you. I'll now hand back to you, Sacha.
Thank you, Steph. For those of you who might be new to the Adore Beauty story and with our first store in Victoria now open, I'm going to recap our three-year strategy, its targets, and how we are going to deliver a material step change in growth to achieve long-term value creation for our shareholders. I joined the company last year with a clear vision to launch Adore Beauty into its next chapter of growth. Leveraging the Adore Beauty technology platform, digital ecosystem, strong brand, and existing loyal customer base, we are embarking on a journey to unlock substantial incremental value to our stakeholders. Our clear three-year strategic plan will see Adore Beauty evolve from a pure e-commerce player to a leading omnichannel beauty authority.
To achieve this, we will materially broaden our addressable market with a 25-plus national retail store network, leveraging our online authority and authenticity and unique content capabilities. We will elevate our engagement with existing customers to reach an increased share of wallet and, of course, grow our own brands to drive margin expansion through retail, direct-to-customer, and wholesale growth in new geographic regions, and, of course, through expanding our range and product purpose. We have set five key targets for our three-year strategy. Our total group revenue will exceed AUD 260 million, representing a 30% growth on FY2024. Gross margin expansion of more than 200 basis points, which we've already delivered in this first half, and cost efficiencies to deliver 150 basis points improvement in CODB. EBIT margin target over 8% and EBIT margin target of over 5% in that three-year period.
Own brands will represent 8-10% of total product revenue, driving more margin improvement, and we will have more than AUD 1.25 million annual active customers. The following growth initiatives are designed to achieve these targets and deliver a step change in the group's sales and profit. Retail stores represent a material high-growth opportunity, which leverages Adore Beauty's strong brand and existing infrastructure. With a physical store presence, we can increase brand advocacy and awareness, as well as drive new customer acquisition. We'll continue to focus on operational excellence by leveraging our multimedia monitoring algorithms, advanced data, and AI capabilities to seamlessly evolve into an omnichannel beauty authority, delivering the signature Adore Beauty customer experience no matter how our customers choose to shop for our 14,000-plus products, in store or a mixture of the two.
We'll continue to optimize our product portfolio, focusing on high-growth, high-margin brands, and in time expanding our presence with other categories such as fragrance, makeup, and wellness. The highly margin-accretive retail media model is another focus area for us. We have recently invested in a dedicated team to drive further growth in this area, as well as an online portal for a more streamlined process for our brand partners. We'll take our own brands, iKOU, AB Lab, Viviology, and Adore Beauty, to the next level to drive brand loyalty and differentiation, delivering growth across multiple channels, particularly in new geographies and in new retail formats. A national retail store network will be a key driver to our growth. By closing the cycle on how our customers shop, we can capture a greater share of market, share of wallet, and drive higher transaction values and improve overall margins.
We've opened the door of our first physical Adore Beauty store and are on track for four to six additional stores throughout the 2025 calendar year, as well as expand iKOU beyond its three existing stores in New South Wales. Many of you have asked, "When is a store opening near you?" I'm pleased to say we have Water Gardens in Victoria opening in early March, an additional flagship Victorian store location now confirmed, and we have additional locations for Adore in New South Wales, Queensland, and WA, all soon to be announced. Stay tuned. There's a common misconception that online and in-store shopping are separate experiences. With Adore Beauty, we're setting a new omnichannel standard by bringing our signature online experience to life. That's true to our digital DNA and aligns with customer preferences. Our stores will be deeply embedded and immersed in our digital ecosystem.
The stores are powered by our advanced digital infrastructure, with digital kiosks enabling customers to explore, browse, and order from our 14,000-plus products. They can also access online aspects that they value most, such as detailed product information, ingredients lists, and authentic customer reviews, all while enjoying the added benefits of our in-store product interaction and personalized advice from our beauty experts. We have digital product pricing and dynamic content that is linked to our website throughout the store, ensuring our customers receive the full Adore experience no matter how they choose to shop with us. We'll be creating moments of delight that drive customer loyalty and engagement, including free samples, of course, access to our rewards programs, and the highly sought-after Tim Tam with every transaction. Our in-store beauty experts provide professional, brand-neutral guidance to help customers navigate their skincare and beauty choices with confidence.
Trained in the latest industry trends and equipped with cutting-edge skin analysis technology, they offer personalized recommendations tailored to individual needs. By delivering educational support and unbiased advice, just like the insights featured in Beauty IQ, we empower customers to make informed decisions, enhancing both their shopping experience and brand loyalty. Lastly, slide 15 demonstrates how we will elevate our retail media capabilities, both online and in store, to drive further margin expansion and profitability. Our enhanced retail media capabilities are unlocking new revenue streams while delivering high margin growth. We have streamlined the process for our brand partner portal and provide them with data-driven insights to ensure they are highly engaged with us and have easy access to value-added marketing solutions. Our newly appointed in-house team is dedicated to maximizing media effectiveness, optimizing placements, and driving measurable results for our partners.
By leveraging in-store opportunities, including strategic advertising and product placements, we can capitalize on real-time customer data and first-party insights to create targeted high ROI campaigns and enhance both brand visibility and profitability. We have a clear three-year strategic plan that will leverage multiple growth initiatives to deliver a material step change in customer acquisition, revenue growth, and profitability, and importantly, improve value for our shareholders. We are already seeing early success with strong EBIT and gross margins in half one of FY25. We have clearly defined tactics to expand our gross margin, including multi-channel growth of own brands, retail media revenue, refined promotional cadence, and disciplined inventory management. We've strengthened the leadership team and reset the organizational structure to align with the needs of the revised strategy and creating capability and efficiency aligned to our strategic growth initiatives.
We have a strong pipeline of new stores underway, with the first Adore Beauty store successfully opened at Southland, with an additional four to six Adore Beauty and two iKOU stores planned in calendar year 2025. The group is on track to deliver 25-plus stores by 2027. Lastly, I'm pleased to reaffirm our EBITDA margin guidance of 4-5% for FY2024 and provide guidance for EBIT margin at 2-3% for FY2025. I'm truly excited about the path ahead for Adore Beauty, and our three-year plan is just the beginning. We have a significant opportunity and a well-placed position to capture further share of the $1.3 billion beauty industry over the long term, and I look forward to providing further updates at our next briefings. Thank you.
Thank you. If you wish to ask a question via the phone, you'll need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please enter it into the ask a question box and click submit. Your first question is a phone question from Paul Segal from UBS. Please go ahead.
Hey, good morning, guys. Thanks for taking the questions. Maybe first one in terms of kind of the core online business. If we sort of look at kind of July, August trading last year, you were growing kind of 7% for the first seven weeks. Then the last four months of the year, growth kind of slowed down quite a bit, closer to kind of flat in the last four months. I appreciate, obviously, the pivot in strategy to stores and kind of the margin optimization, but any other drivers you could speak to regarding that slowdown in the core online business? Was that as expected? Was there a deterioration in the consumer environment or something that may have driven that as well?
I think as we've spoken to in our release and investor presentation, we've been very much focused on quality of earnings. The way I'd like you to think about that is that we have looked at ensuring that every piece of revenue that we take is profitable. That may mean at times we're either deleting products that aren't profitable, and that may have a top-line revenue impact. Moreover, we're refining our promotional cadence. By that, that means pursuing revenue that's of higher margin capability and caliber, which we believe will deliver a more sustained long-term profitability model for the business. Yes, revenue has slowed in that second quarter, but not slowed through anything more than us consciously ensuring that all of the revenue that we pursue is profitable.
I guess then going forward, Sacha, just take into account the focus on profitable revenues and stronger gross margins. I mean, is it fair to still expect the core online business to grow sales going forward, at least at kind of what the market grows at? Is that still fair, or might it be a bit more kind of closer to flat in the next few years?
Yeah, I think you should think about it in a couple of ways. We won't expect it to be flat. Absolutely not. We are absolutely focused on growing the core business and growing our online business. We expect to see that in a BAU sense as well as the incrementality that we will no doubt see from the halo of the store network. As I said, importantly, we're looking to grow margins. When you look at the gross margin dollar growth for the half, as per our financial reports, you'll see a substantial lift. I think if we were aligning revenue and gross margin growth and thinking about them in the same way, the gross margin growth is a material performance relative to market.
Actually, just on those gross margins, I guess you were targeting 200 basis points expansion in your three-year target, which you've already kind of got to in this half itself. Could we be thinking about gross margins going up even further over the next couple of years, especially thinking about kind of the physical store economics?
Look, I think if I was looking at a high-low scenario from a modeling perspective, I'd certainly expect there'd be a high case and a low case, and the high case would be higher than what we've already seen. We've been very pleased with the delivery of our margin improvement in half one. As I said, that's come through three key drivers. One is the improvement of quality of earnings, particularly through managing our promotional cadence. The second is the growth of our own brand, and we are fully on track to continue to accelerate that growth, particularly the iKOU brand. Thirdly, the ongoing and continued growth of retail media. As I said, we've only just onboarded a new platform to support our partners working directly with us, as well as a dedicated team to continue to focus on driving revenue and service to those brand partners.
We have got very strong positive momentum in our margins, and we expect that to continue moving forward. If I can provide any insight, the first half of this second half of FY2025, I should say, this first period of trade, we have seen that gross margin expansion continue.
Actually, just on the own brands point, I can see that you're obviously targeting 8-10% of your mix to be owned brands. Sorry if I missed it. Is there a comment you can make on what that sits as of today? Like what is owned brands as a proportion of revenue?
Yeah, so we made a comment in November that that would see owned brands doubling over that 2024 to 2027 period.
Got it. Yep. Understood. Okay, maybe just one kind of final question from me. If we're just thinking high level about the store rollout strategy, I guess the obvious question people would kind of ask is, okay, physical store industry, pretty competitive, the likes of Mecca, Sephora, department stores, all pretty they all focus pretty well on the beauty category. How do you see Adore Beauty differentiating from a physical store perspective versus some of your key competitors?
Yeah, great question. I think for those that've had the opportunity to visit the store, what you'll immediately see is an elevated store execution. The actual store itself, the design, the architectural elements of the store are elevated, and they certainly stand the brand apart and very much in keeping with the brand positioning in market. The store is deeply digitally immersed, and by that I mean it is a direct extension of the online ecosystem. Throughout the store, every product is digitally priced, directly linked back to our core online platform, while the content that you see in store is an extension of what you'll see on the online platform. Ratings and reviews that you'll see on the endless aisle portal in store are directly coming off the website. The store is a deeply, deeply digitally immersed experience.
Equally, the basket of goods that we've curated for the store are reflective of what Adore has always been very well known for: high-low shopping, brand-agnostic, great product that's going to solve the end-use need of a consumer. When you walk into the store, what we'd like our customers to feel is a sense of comfort, that it's an environment that's conducive to having an open and honest conversation with our beauty advisors around the particular concern that a consumer might be looking to solve. Importantly, knowing that they can trust as they do online that we'll deliver them a solution in a brand-agnostic way that gets them the right outcome. The store is truly an extension of our online platform, and we think is a very unique proposition to market.
As we've just touched on earlier, we opened the Southland store on the 1st of February, so 17 days ago. It's trading very well. Customer response has been very strong, and we're continuing to evolve the brand portfolio directly through feedback from customers. Needless to say, without talking to the specific results of the store, it's exceeded our expectations, and we're delighted, looking forward to the next one.
Can I just ask one quick follow-up question? Is the category mix expected to be the same in store versus online? Like that sort of bigger skew towards skincare per usual?
Yeah, no, it's a really good question, actually. What we typically see online, as we've talked about previously, is skincare and haircare over-indexed, and that's what we're really well known for online as a pure-play e-commerce retailer. As we move into the offline environment, categories like fragrance and makeup, which tend to be more sensory and tactile, have played a much heavier role. We expected and had forecast that, and we've seen that come through. Both fragrances and makeup are over-indexing relative to online. Importantly, too, those are two high-margin categories. What we are seeing is the store margin exceed expectations as well, which is something we've been very pleased to see.
Great. Okay. Thank you.
Pleasure.
Thank you. Your next question comes from Joseph Michael from Morgan Stanley. Please go ahead.
Morning, Sacha. Morning, Stephanie. Thanks for taking my questions. First question just around stores. Very early days, I know, but is there any sort of areas of improvement you'd like to call out or things that have gone better than expected? Any sort of early feedback on your first store? I know it's early days, but anything there would be appreciated.
Yeah, we've seen a really high level. Just in an overall sense, I think I commented on just a moment ago, but we've been really pleased with the customer response. The store's trading ahead of expectations, margins ahead of expectations, footfalls ahead of expectations. That being said, we're always looking to learn and improve as we move forward. We're learning more and more about the basket in terms of what customers are looking for from a brand mix in store, and we're continuing to refine that. In fact, just in this last week, following conversations with one of our brand partners, we've agreed to put a particular brand in store. Why I use that as an example is that normally in a typical beauty store environment, that might take three to six months to get fixtures built.
In most environments, as you can appreciate, they're custom-made fixtures in the particular brand design. The way that we've built our stores enables us, through the use of digital execution, to be able to immediately personalize a space for a brand in a way that they would be used to seeing in a more physical execution. Within 48 hours of agreeing for that brand to go in store, it was set up in its own way in the store, looking fantastic, and in fact, has traded as our third-highest performing brand since it went in at the start of last week. To give you an example of just how powerful the digital immersed environment that we have there is, we'll continue to refine the brand offer. We'll continue to refine the store design.
In our Water Gardens store, which will open in early March, we will have a private consultation space in the store where customers could come and have treatments and very much a personalized consultation experience. We have an in-store semi-private consultation environment in Southland that's performed very well, where customers are coming and getting a digital skin analysis and then getting product recommendations from that analysis. Between Southland with that in-store experience in that semi-private environment and Water Gardens with a fully private area, we'll take the learnings from both of those two stores forward to inform how we'll execute treatments in store beyond those first two stores. Needless to say, response has been great from customers.
Okay. Great. Next question I had just around, I guess, what are the key metrics to focus on going forward now that you're becoming an omnichannel retailer? I noticed today in today's presentation, you've added a contactable database. You've dropped a couple of the other metrics. As investors, what should we be most focused on to sort of get an understanding and a feel of how the business is performing?
We're holding ourselves to account. The reason why we've specifically provided guidance on the key financial metrics of gross profit and that improvement in gross profit margins by 200 plus basis points and the expansion of EBIT margins to 8 plus and EBITDA margins to 8 plus and EBIT margins to 5 plus, they're the metrics we want you to be holding us to account for to see continued momentum on those three metrics over the course of this strategic horizon. The reason why I call out those three specifically is that as we continue to take share as we open more stores and we see the online benefit of that as well, the improved gross margin is a key driver in, obviously, that profitability model, the continued expansion of our own product as well.
That is why we're particularly calling out the growth of iKOU stores, which will be substantially margin accretive over this period. Holding us to account on margin expansion, I think, is something that we're happy to put our hand up and talk about on an ongoing basis because ultimately, with a AUD 260 million plus ambition over this three-year period, we're talking about margin expansion that's three to four times historic levels. To do that off of a 30% increase in revenue will deliver real sustainable and long-term shareholder value.
Okay. Got it. Next question I had just around, I guess, second half trading. No trading update provided today. Is it fair to assume that the trends from the first half have continued into the second half?
Yeah, I think it's just aligned with our longer-term strategy. We've said we're focused on improved quality of revenue, reshaping our promotional cadence and refining our promotional cadence to ensure that we're growing profitable revenue, continuing to grow retail media, continuing to grow our own brand. I think those trends that you've seen in the first half through substantial expansion of gross margins and ongoing growth of EBIT and EBITDA margins, you can expect that momentum to continue as our guidance hasn't changed on both the mid-horizon and long-term horizon on those metrics.
Okay. Got it. Just one last question from me, just around a more modeling type of question. Have you thought about how you might sort of disclose your segments going forward? Will it be just Adore like an omnichannel, or will you have Adore online, Adore stores, and iKOU stores? If you could just help us just for modeling purposes going forward.
We'll be keeping to until we reach a level of maturity. I'll probably preface that by saying maturity being a national store network opened. We've seen a maturing of those stores. We see the omnichannel because those stores are deeply connected to the online environment. Equally, our iKOU business is deeply embedded within now the Adore ecosystem and infrastructure as well. Individual brand and/or channel reporting becomes less and less relevant in the medium term. For the long term, when we talk about comparable growth, comparable growth in the store network won't mature for at least three years.
Yeah. Okay. Perfect. Thanks. Thanks for your time.
No problem. Thank you.
Thank you. Your next question is a webcast question. Douglas, a private investor, asks, "How is the performance of the recently opened store going, and what benefit is it, and subsequent stores likely to add to earnings?
Thanks for your question, Douglas. As I just mentioned before, the performance of our first store, very early days, 17 days open, but performing well, and we're very, very positive about the opening of Water Gardens in a few weeks' time and subsequent stores thereafter. We're actively working on our real estate pipeline now. As I said, we've secured a couple of iKOU stores, which we've already talked about, and with four to six Adore stores in this calendar, you're well underway. Each of these stores are absolutely benchmarked against profitable contribution to earnings. You can expect, as we said in our November strategy update, that we will continue to see each of those stores incrementally add to earnings, both at the top line and at the bottom line.
Importantly, what we also talked to in November is that in our guidance for that long-term view of AUD 260 million, we haven't necessarily provided specific category or channel guidance consciously because of that integrated ecosystem that we see between online, offline, and between the various businesses.
Thank you. Your next question is from Ron from Cannon Asset Management, who asks, "Can you clarify the 25 stores to be opened exclude iKOU stores?
What we've said is we'll open 25-plus stores over this three-year horizon, and that's across both Adore and iKOU. Within that, we said that we would open 8-10; we would end up with 8-10 iKOU stores at the end of that three-year period. We currently have three, but we've said 25-plus in a total network sense.
Thank you. Ron also asks, "In terms of the 30% revenue uplift forecast next three years, do you expect all of that to come from the 25 new stores? So approximately AUD 2 million per store?
A good question. The short answer is no. We'd obviously expect to see growth in our core business and are planning growth in our core business. We would expect to see growth from new initiatives as well over that period of time. An important callout, and it actually came in a question I had earlier this morning. When we've talked about our guidance for 2027, we've also indicated that we expect to open that network of stores at around 8-10 stores each year over the three-year financial period, which means in FY 2027, we will have 6-10 stores that will only have just opened in that year, hence not reached a maturity or a full year's revenue contribution to that guidance of AUD 260 million plus.
You can expect to see further growth beyond that as those stores open in the FY 2027 year and a versa rise in FY 2028.
Thank you. Ron also asks, "What was the contribution in the first half from iKOU revenue and EBIT?
Thanks, Ron. As we said earlier on, we are reporting segment reporting as part of our results ongoing as we now are a fully integrated business.
Thank you. Steve from Forager Funds Management asks, "Can you please outline the impact of the iKOU acquisition on gross margin, i.e., what was BAU for the—sorry, i.e., what was BAU for the half without the acquisition?
Hi, Steve. Look, as I said, we aren't breaking down individual segment reportings for the half. I appreciate the question, but that's not something that we'll do. We're now fully integrated at the back end and also at a product level as well. Happy to take any further questions in that way, but it's not something that we'll be disclosing at a segment or brand level.
Thank you. Your next question is from Jim, a private investor, who asks, "Can you talk about the capital outlay required for your first store?
We haven't provided individual.
I'm sorry. You go.
You go on.
Oh, I was just going to say, we haven't provided individual guidance for each store, but we did say that it would be—we'd estimate that it would be between 300 and 600 per store, and Southland has fallen into that guidance.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Laing for closing remarks.
Thank you for everybody that has joined the call this morning. We appreciate you taking the time to hear a little bit more about our business. We look forward to continuing to update on our progress against our three-year plan in further briefings over time. Thanks very much for your time this morning.
That does conclude our conference for today. Thank you for participating. You may now disconnect.