Earnings Call: H2 2021

Aug 30, 2021

Good morning, everyone here in Australia, and good afternoon for our U. S. Investors. This is Tamil O'Shannessy, CEO at Adore Beauty Group. Thanks for joining us to discuss Adore Beauty's results for the 2021 financial year. We will be referencing key slides from the investor presentation that was uploaded to the ASX this morning. Joining me on the call is our Co Founder and Chief Innovation Officer, Kate Morris and our CFO, Stephanie Carroll. This morning, I'll provide a business update before handing over to Stephanie to take us through the full year numbers and balance sheet. I'll then be joined by Kate and will provide an overview of our operational highlights, strategy and outlook for the year ahead. And we welcome questions at the end of the presentation. I'm very pleased to present our 1st full year results as a listed company. We have delivered record revenue, profit and customer numbers, outperforming both our half year prospectus forecast and our guidance. Revenue increased 48% over the prior year to $179,300,000 driven by a 39% increase in active to $818,000 Our performance in FY 2021 was boosted by multiple record trading days throughout the year. Pleasingly, retention continued to perform strongly and we saw returning customer numbers increase 64%. Gross profit margin improved 1.2 percentage points to 33.1%, underpinned by product margin expansion. These record top line results demonstrate early signs of the operating leverage this business can achieve. And as part of this result, We also delivered record profitability with EBITDA increasing 53 percent to $7,600,000 We are well funded for growth with $29,000,000 cash as of 30th June 2021 with no debt. The key messages we'd like to share with you today Firstly, Adore Beauty is Australia's market leader in online beauty retail. We are best placed to capture market share in a large addressable market and to benefit from the accelerated structural shift to online. Secondly, we have the online destination of choice for our customers and our brand partners. Our strong performance this year is underpinned by high levels of customer engagement, retention and satisfaction. In addition, scale benefits are enabling us to forge closer relationships with our brand partners through increased co marketing support, optimized supplier terms and exclusive product and promotional support. And lastly, we are strongly executing on our strategic initiatives to drive long term Sustainable Growth. I'll provide more detail on these initiatives later in the call. The next slide looks at Adore Beauty's market leadership and the significant growth opportunity. Beauty and personal care is an $11,000,000,000 market in Australia alone. We operate in the fastest growing segment within that market with online continuing to benefit from structural tailwinds. Adore has a unique and compelling business model. Our integrated content marketing and e commerce retail platform creates a significant competitive mode. As you can see, Australia is still very underpenetrated in online retail in comparison to other markets. So while COVID has accelerated the shift from physical stores to online, we are still many years behind more mature markets such as the U. S. In the U. K. Lastly, we have a strong track record of growing faster than the market with a 3 year CAGR of 50%. We are profitable, capital light and have a debt free balance sheet, meaning we are well positioned to be the online winner and to take a disproportionate share of this shift to online. As I mentioned earlier, Our record performance in FY 2021 is underpinned by strong sustained growth in all customer metrics, including 39% annual growth in active customers. Of our 818,000 active customers, Almost $500,000 were acquired in FY 2021 alongside continued high loyalty and retention rates from our existing customer base. Our customers are incredibly sticky and loyal and become more valuable each year they remain with the platform, increasing both their basket size and their order frequency in subsequent years to create subscription like rates of retention. The chart on the right shows by continuing to expand our share of customer wallet with annual revenue per active customer increasing $13 over the year to $2.19 This growth is being driven by continued high customer retention and increasing average order value. The next slide shows our exceptional customer retention over the past year and our strong trajectory of both new and returning customer growth over many years. As you can see in the gray shaded section, COVID lockdowns drove a spike in both new customer growth and returning customer spend. Really pleasingly, as you can see, Post lockdown, underlying growth in new and returning customer cohorts continue off this higher base. Now even with this strong new customer growth, the aggregated customer retention remains high at 61%. While both our new and returning customer cohorts continue to grow, the chart shows in particular the strong contribution of returning customers to revenue. Our returning customer base accounts for 62% of our FY 2021 revenues. And pleasingly, Our returning customer cohorts grew by 64% in FY 2021. Retention is a key metric for us and we have multiple strategic initiatives in place to continue to improve retention and the lifetime value of our customers. These initiatives include our continued investment in content as well as our new mobile app and loyalty program. We are executing on a growth strategy based on driving brand awareness, new customer acquisition and returning customer retention. We have a clear game plan. We set out to continue to win the market in our core segments. As market leader, we believe Adore Beauty is well placed to take a disproportionate share of the accelerated structural shift to online we are seeing. We also continue to invest in capabilities that build strategic moats around the business and reinforce our defensive ecosystem. So think about headings like data and personalization, mobile app and loyalty programs, our own private label and brand awareness. In FY 2021, we have delivered strong progress on the execution of these strategic priorities. We are ahead of our game plan. We invested in a national TV campaign and grew owned marketing channels to increase brand awareness to 58%. Brand awareness supports new customer discovery and acquisition as well as customer retention. We know from experience that when customers try Adore Beauty, they love us. So reaching the millions of customers who aren't aware of us provides us with a significant growth opportunity. Our newly launched mobile app and loyalty program are key to improving customer retention and the lifetime value of our customers, as well as creating additional owned marketing channel. Both initiatives are resonating well with our customers and more than 95% of our most valuable customer tier has already signed up to our loyalty program. We continue to expand our range authority, onboarding 51 new brands, 7 of which are in the popular Korean beauty category. We are also piloting the men's adjacent category. This expansion will support new customer acquisition and growth in annual spend. And finally, we tested an Adore Beauty branded private label accessories offering, and we are on track to launch our 1st private label brand. I will share more detail on our FY 2022 focus areas later in the presentation. I'd now like to hand over to our CFO, Stephanie Carroll, to take you through our record financial performance. Thanks, Tanille, and hello, everyone. As Taneel mentioned earlier, the full year was the financial year was headlined by record revenue and record profitability results, Outperforming our half one prospectus forecast and our full year guidance. Revenue of $179,000,000 was a 48 Percent increase on the prior year and 1 percentage point higher than at the top of our guidance range. We recorded multiple record trading days as part of this result, including 2 in May, while we were not in lockdown. Gross profit margin increased to 33.1%, up 1.2 percentage points on the prior corresponding period and 3.1 points higher than financial year 2019. Operating leverage is driving profitability with EBITDA of $7,600,000 a 53% increase on the previous year. As the prior year was quite an atypical period, it is beneficial to measure the underlying growth of Adore Beauty over a longer period of time. For example, if we look at the growth rate over a 2 year period for FY 2021 revenue, underlying performance shows a compound annual growth rate of 57%. These three charts demonstrate when viewed over the medium term, Strong growth has been consistent and is continuing to underpin key profit and loss lines. The business was able to pivot and respond to macro events to achieve record financial results during the last year. Even before this period, as Tamille has already mentioned, This business was already delivering long term year on year growth. The next slide shows our profit and loss statement for financial year 2021 versus the prior corresponding period. Record revenue was primarily driven by strong active customer growth, up more than 39% over the prior year and increased annual revenue per active customer. In addition to customer growth, Customers are spending more on the platform with average order value increasing 1.8% on PCP to $102.03 Average order frequency remains stable at 2.1 orders per customer annually. Pleasingly, Adore has had a strong start to FY 2022. FY 2022 year to date revenue is up 26% on PCP with the ongoing COVID-nineteen lockdowns in multiple Australian states, boosting new customer growth and returning customer spend. As we move down the P and L, we improved unit economics. Gross profit margin of 33.1 percent was 1.2 points higher than the prior year, primarily due to product margin expansion, driven by optimized supply terms, brand funded promotions and a changing freight carrier. Increased operating costs reflect our reinvestment in the business, particularly across people and marketing. We stepped up our marketing and advertising spend to drive brand awareness And aggressively acquiring new customers during COVID. This investment includes a national above the line TV campaign, which increased brand awareness to 58%, up from 39%. While we have increased our marketing investment as a percentage of sales to 12.9%, We continue to recover customer acquisition costs within a year and are growing our owned marketing channels to effectively manage these expenses. Even with this increased investment, growing scale and operating leverage has driven record profitability with an EBITDA result of 7,600,000 The EBITDA ramp up has been significantly accelerated due to the record revenue growth with most of the uplift dropping directly to EBITDA. We will continue with a disciplined investment in strategic priorities to drive growth. Turning next to our balance sheet. Adore remains well funded for growth with a cash balance of $29,000,000 as at the 30th June 2021 and no debt. Adore's business model is highly capital efficient and continues to be a cash flow positive business. FY 2021 generated $4,200,000 in operating cash Disciplined management of inventory and payables is driving improvement in these metrics despite record revenue. Our healthy balance sheet provides a solid platform to continue growing the business as well as the flexibility to pursue identified strategic growth initiatives. On Slide 11, we describe the focus of our strategy both in the short to mid term and the longer term. It is a growth strategy. In the near term, we are investing in the business to capitalize on the accelerated structural shift to online and build on the positive momentum of the past year. To do this, we'll focus on sustainable top line growth, which means increasing share in core categories, expanding into new adjacent categories and launching our Private Label. We will continue to leverage marketing, promotions and brand awareness to acquire new customers, Retain higher value customers and grow average order value and frequency. This will be achieved through continued disciplined profitability and reinvesting to build competitive moats, including data driven personalization and our mobile app. From an earnings perspective, we'll focus on growing operating profit dollars. Adore expects to maintain a 2% to 4% EBITDA margin in the short to medium term, while reinvesting to drive above market growth. Over time, we expect growing scale will increase operating leverage. We will focus on growing contribution margin percentage through scaling margin accretive private label, increasing marketing ROI and forging closer relationships with brand partners. We expect this to translate to slowed investment in fixed costs And disciplined investment in the next horizon of growth, which will translate to growing operating profit percentage. As we have demonstrated in FY 2021, we have multiple levers to drive growth in revenue and profit. We remain confident in our ability continue successfully delivering on our initiatives. I'll be happy to take questions at the end of the presentation. But for now, I'll hand back to Tanil. Thanks, Steph. I'll now take you through our key operational highlights for FY 2021 and why we continue to be the online destination of choice for our customers and our brand partners. Our customer led business model continues to deliver best in class levels of customer satisfaction with a Google review rating of 4.9 out of 5 for more than 27,000 reviews. We offer the industry's best beauty shopping experience with an unmatched range, transaction experience and customer led engagement enriched by data driven personalization and highly engaging content. In FY 2021, we continued to improve our customer experience to ensure we were there when our customers needed us the most. We extended same day dispatch cut off to 4 pm, the industry's latest. And we were able to meet our 4 pm dispatch promise even during peak sales event period. We launched new career partners in key lanes and had a real time delivery tracking through data integration with our logistics partner. Another key differentiator for us is our owned inventory and customer fulfillment center, which has enabled us to responsibly manage record volume increases and COVID challenges. As you can see, we have a formidable and distinctive customer service model that is very difficult to replicate. The next slide shows we are continuing to grow the lifetime value of our customers. We closely monitor marketing performance across channels and campaigns with the ratio of lifetime value or LTV to customer acquisition cost or CAC. This is an important measure for us to assess the success of our customer acquisition and engagement strategy. Here at Adore, when we talk about cap, we include all advertising costs, including above the line spend for both our new and returning customers. LTV is defined as the cumulative contribution margin, which is gross profit excluding bank and merchant fees. It's important to note here, this LTV is the actual value returned by the cohort in each period. This is not an estimate or forecast number. The graph shows our strong unit economics. For the FY 2018 to FY 2021 cohorts, the average customer acquisition cost in each cohort is recovered within 1 year, while the lifetime value continues to grow over time. By the 4th year, the lifetime value of our customer is more than 6x the acquisition cost. Over the past year, we increased our marketing investment to build brand awareness, acquire new customers and engage existing customers. This investment included an expanded national TV campaign, which increased brand awareness to 58%. Even with this increased investment in above the line, marketing as a percentage of sales was in line with expectations at 12.9%. Looking forward, we will continue to invest in a disciplined data driven way to acquire new customers, given we believe these cohorts will deliver similar accretive benefits and lifetime value. Slide 15 shows how our owned Integrated content strategy is creating a loyal and highly engaged community. Over the past year, We have continued to grow our organic and owned marketing channels, which now include multiple podcasts and follower communities across Instagram, YouTube, TikTok and Facebook. Our beauty IQ uncensored podcast grew 273% in FY 2021, has had 2,700,000 downloads since launch and is consistently highly rated in podcast charts. In the last half, we also launched a second podcast, Skin Care School, which also went straight to the top of the chart. Skincare School featured a hugely popular sellout, best in class Adore Beauty curated product pack. This showcases the opportunity to seamlessly integrate our content and e commerce. Our investment in our owned content channels also serves to reduce our reliance on competitive paid marketing channels and effectively offsets marketing spend over the long term. Another owned marketing channel is our newly launched mobile app. As a reminder, our mobile app has been built in a content first way and enables us to build a deep ongoing relationship with our existing customers so that we can add value to their daily lives, not just when they're shopping. Really pleased to share the app has been well received with a customer satisfaction rating of 4.7 out of 5 and he's already driving higher levels of engagement, conversion and average order value. He's also scaling well contributing almost $1,000,000 in revenue in July 2021. The mobile app provides us with a content first owned marketing channel to engage, retain and grow the lifetime value of our customers. I'll now hand over to Kay. Morning, everyone. I wanted to talk briefly about sustainability and diversity today because they are really important to us as a business as well as to our customers and our brand partners. We're committed to reducing our environmental impact and future proofing our supply chain. 100% of our packaging and void fill is recycled and recyclable. We're eliminating plastic bubble wrap while optimizing our Packaging sizing has enabled us to reduce our cardboard usage. We offer our most popular products in jumbo sizes to reduce packaging and our customer fulfillment center uses 100 percent green power. We're also working with our brand partners to eliminate unnecessarily unnecessary product plastic wrapping. On diversity and inclusion, our progress and ongoing work here covers More dimensions than just gender, but today I'd like to call out that as a business with mostly female customer base, we lead the way presentation for women in leadership with a woman co founder, majority women on the board and 82% of manager roles held by women across the company. So now to our strategy and growth outlook. Beauty is a very resilient category even in Eyes of downturn or a global pandemic. Over the past year, we've benefited from what used to be known as the lipstick effect. Although today it is more like the skincare effect. It's a category where consumers engage multiple times a year to repurchase, particularly in skincare where we index very highly. Consumers use these products every day and consider them essential. Beauty and Personal Care is a large and growing addressable market, dollars 11,200,000,000 as Tamille mentioned earlier and growing at a CAGR of 3.8%. Now while online sales in Australia currently account for 11.4% of the total market, it is going much faster with a forecast CAGR of 26% between now and 2024. And within this market Adore has approximately a 13% market share and we're well placed to increase this over the coming years. We continue to benefit from structural Tailwinds including the accelerated shift to digital channels and the impact of new digitally native millennial and Gen Z consumers entering the market. And these consumers are continuing to increase their purchases in this category. And globally, we're seeing accelerated growth in segments of the market where Adore is Gilly Strong. This includes premium products where Adore Index is strongly, which is growing 88% faster than mass and skincare, which is our biggest category. The way we think about Adore is more than just an online store. So traditionally retailers have only focused on the fulfillment element of a transaction, just making products available for purchase. But Adore's unique content element means that we also own the destination for discovery. So we started heavily investing in content 5 or 6 years ago, And that's meant that we've been able to move past just offering convenient replenishment. We can also introduce our customers to, as we say in our podcast, the product they didn't know they needed. Through our expanding media network of podcasts, videos and blog posts, We use content to educate, engage and entertain our customers. So to our brands, we've become a marketing partner, not just a distribution channel. Slide 21 outlines 3 pillars of how we're thinking about our growth strategy. Our range authority will continue to drive new customer Acquisition and Expanding Share of Wallet. Adore's diverse brand portfolio covers prestige department store brands, professional salon and clinic brands and niche brands as well as mass stage. Adore's focus on providing an exceptional online transaction experience and best in class customer satisfaction will continue to translate to growth in new customers, improved conversion rates, retention and lifetime value. And we also continue to invest in our marketing platform built on content and data. We are building a loyal, satisfied customer community through data enriched personalized engagement. We're leveraging our online market leadership position to pursue a growth strategy and capture the lion's share of the shift to online. Beyond this, our strategic priorities will also lay the foundations and position the business for sustainable long term growth. We'll continue to build on the strong momentum established in recent years to unlock new addressable markets into the future. In the short term, our market leadership ensures we're best placed to capture market share as online penetration in Australia approaches the UK, the U. S. And China. Our focus on increasing brand awareness and expanding our owned marketing channels will further position us here. Longer term, we see significant additional addressable market opportunities through expanding into 8 adjacent product and service categories, new business lines and geographies as we position Adore Beauty to be the beauty discovery destination. I work on private label and geographic expansion into New Zealand, as well as our current adjacent product category expansion into fragrance, wellness, sex and men's positions us for this. I'll now pass back to Tanil to talk through our focus areas for FY 2022. Thanks, Kate. FY 2022 is focused on growing our market share and cementing our online market leadership. We have demonstrated strong execution of our strategic priorities. And this year, we will continue to focus on building out our range authority, including launching our first private label brands in skincare and hair care. We will continue to improve our online transaction experience using data driven personalization to deliver a highly engaging and relevant experience. And lastly, we will continue to invest build the competitive moat that is our content led customer engagement platform. We will scale and embed our mobile app and loyalty programs to grow retention and lifetime value and we will continue to grow our brand awareness and expand our own marketing channels. Outlook for FY 'twenty two. Importantly, the business continues to benefit from the structural shift to online and the ongoing retention of new customers added over the peak COVID period. We experienced record growth in FY 2021 And pleasingly, FY 2022 has started strongly. FY 2022 year to date revenue is up 26% on the prior period with the ongoing COVID lockdowns in multiple Australian states, boosting new customer growth and returning customer spend. We continue to monitor the COVID restrictions closely. However, given the uncertainties in the operating environment, We, like many others this reporting season, are not providing explicit guidance for FY 'twenty two. Adore has a strong track record of delivering growth Over more than 2 decades, we have consistently delivered strong revenue growth and are growing faster than the market. Our dedicated and passionate team are executing a clear and robust growth strategy to cement our market leadership. And we believe we're well positioned to capture market in a large and growing market benefiting from structural tailwinds. Adore Beauty expects to maintain a at Adore Beauty Group, 2% to 4% EBITDA margin in the short to medium term, while reinvesting to drive above market growth. As the business grows, in the longer term, we expect scale benefits increase operating leverage and to deliver further EBITDA margin expansion. It was great to take you through our first set of results as an ASX listed company, where we've delivered record growth and financial performance exceeding guidance and prospectus forecasts. Before I finish, I'd like to quickly remind you of Adore's market leadership and our significant growth opportunity. Adore Beauty is the online market leader in a large addressable market that's still very early in the online adoption curves. Our unique sustainable business model provides us with a significant growth opportunity. Our strong performance is underpinned by high levels of customer retention and satisfaction, even with the strong increase in customer volumes. We remain the online destination of choice for our brand partners and loyal customers. We have a clear strategy we're executing strongly. This strategy will cement our online market leadership position and position us to capture market share. As the business grows, we expect scale benefits to increase operating leverage and to deliver further EBITDA margin expansion. Thank you all for your time today. I'd also like to publicly thank all of the Adore Beauty team for their passion, their customer focus and their dedication and resilience as we have navigated these uncertain times. Rapidly scaling any business is not an easy task. This team has done an amazing job on executing a roadmap while dealing with what has been a significant increase in customers and orders. Kate, Stephanie and I will now take Questions, I'll hand you back to the operator to put them into the queue. Thank The first phone question today comes from Apoorv Siegel from UBS. Please go ahead. Good morning, Taneel, Steph and Kate. Congrats on the result and the trading update as well. My question is about the trading update, so 26% growth And that's comping 2 of your strongest months on record from last year. Am I right in saying that the comps should actually get easier into September, October with the lockdowns Likely to remain and your sales dollar numbers actually getting smaller and moderating in September, October last year? Thanks, Apoorva. I'll take that one. So look, I think we're very pleased with the strong start to FY 'twenty two. As you mentioned, The year to date growth of 26% is comping off what were particularly high months. So July August for us, if you think back This time last year, Victoria was in a hard lockdown, so Adore did see strong growth in those months. Reflecting back, I think Slide 5 in our investor presentation provides a really good indication of how, I guess, the COVID lockdowns tend to impact our business. And what we're seeing is that same elevation in terms of new customer numbers and returning customer spend that's driving that 26% performance year on year. Okay. That's clear. My second question is on EBITDA margins. You're sort of indicating 2% to 4% margins over the short to mid term. I just wanted to check what sort of timeframe are you referring to there? Like should we be thinking about the next call it 3 years being in that 2% to 4% margin range as you're reinvesting in the business? Yes, I'll take that one. Thank you, Paul. Yes, I think that that actually that is What we would be saying is about a 3 year range is the mid term. That's correct. Okay, that's clear. Thank you. And just one final question for me, please. Just on gross margins, a pretty nice uptick there in the second half. If I do a backfill, 33.8% gross margin In the second half, first, 32.5 percent in the first half. What have you changed in the last 6 months? And is that second half gross margin number the right to be thinking about gross margins heading into FY 2022? Yes, good question. So in terms of the difference between half 1 and half 2 of FY 2021. In half 1, we were working through changing our freight providers and we didn't have which Had a cost saving in gross margin that we didn't have the full half impact of that in FY 2021 and you will see That come through in the second half of FY 'twenty one. Also, there's a timing element in terms of when rebates get Paid, so more paid in half 2 than half 1. In terms of the way we look at it from an ongoing position, I think where We've landed at the end of the year is right to say that we want it's not going to decline at all. We will keep those gross margin improvements that we've made. Wonderful. Thank you. Thank you. The next question comes from Danny Yunus from Shaw and Partners. Please go ahead. Good morning, Taneel, Stephanie, Kate. Well done on a fantastic year with the IPO and the great results. I've got A couple of questions, please, and they're pretty much follow ons from the previous questions. So in terms of the gross margins, can you break out that improvement of 20 bps, can you maybe break out the 3 separate buckets of contribution in terms of supplier terms, the brand funding and the freight costs? A lot of other retailers are talking about the freight costs increasing not incrementally, but significantly and having an impact. So that's the first question, please. Thanks, Danni. No, we haven't split out those particular lines. But what we did, we actually had a sighting in freight And that's because we changed our freight provider in 2 of our key lanes in New South Wales and Victoria. And at the same time, we were able to deliver a better customer experience in terms of delivery. So from our element work From our perspective, we didn't have an increase in that line. It actually went down. And then we have, as stated, as we've said, we've had a stated goal to improve Our margin through supply terms and brand funding, which is what we've done. Okay. And maybe another one for you, So in terms of the EBITDA margins, that 2% to 4%, I'm trying to get an indication of the mix shift in Of those OpEx levers into FY 2022, so should we see M and A or marketing and advertising continue to incrementally increase From 13% of sales to, I don't know, maybe 15% and employee come down and other come down? Yes. So let's start with other. Other, we don't see that that would materially change from where it's been. If we look at employee, we will continue to invest in our strategic priorities. So that will be additional people, but not materially Additional people, we've already done that build out of our key personnel. So we don't see that that would materially change. There'll be an increase, but it will not be material. And then, as you rightly say, is that, the increase will come in marketing and advertising. And that is through, there's returning To more normalized levels in marketing and advertising, and there's more competition, and there's also a rate increase that's coming through. So that really is where it's coming from. We will look to offset that. Sorry, look to offset that. We're looking to offset that through our own channels. And obviously, with the increase in mobile app as well. Great. And maybe a more broader question, just the 3 new buckets that you're Investing in private label, the mobile app, the men's category. Can you maybe touch on the sort of key metrics we can look forward to that you're Expecting to hit in the next 6 to 12 months across those 3 categories, please? Yes, certainly. So I can have a go on with that one, Danny, and then I'll hand over Kate, to talk through private label. So if I look at mobile app to begin with, just as a reminder, we launched mobile app back in December and what we did there was a soft launch. So we've spent the last 6 months working very closely with our customer feedback to iterate and improve that mobile app experience. We're really pleased with the results we're seeing with the app. So we're seeing an uplift in engagement, conversion and average order value. That's given us the confidence to move into a stage which we're calling the more hard launch. And what we mean by that is we're now, I guess actively promoting that mobile app and encouraging our customers to download. And so what we expect to see over this financial year is the continued scaling of that mobile app. So in July, as an example, mobile app delivered $1,000,000 in revenues. We would expect to continue to scale that as we look to transition more of our customers into using that platform, given the benefits we're seeing in terms of engagement and conversion. The other one that I think you touched on was adjacencies and in particular men's. So men's for us is a category that we have been experimenting or piloting with. So what we've done in that space is we've launched some additional brands. We've had a look at how we can optimize the experience for men's on our site through how we categorize on the site. And then you also might have seen that we launched another podcast that was focused specifically to our male audience called Mr. Beauty IQ that focused on the 101 or basics of skincare for men. So we've seen really strong engagement with that category. We would still consider that very much in our pilot or experimentation but we're seeing some really positive signs there. And I think the last one you asked was on private label. I'm going to hand over to Kate take us through that one because that's her baby and she's very cluttered. Thanks, Taneal. Good morning, Danny. Yes, so look on private label, we Had a successful pilot in an accessories range, which we launched prior to Christmas last year. Now that was obviously just a fairly small and niche category for us, but that was a really good test. So we'll expect that there will be more impact In terms of private label, once we start launching and scaling our standalone brands in core categories. So the first of those to come is a skin Care brand, which will launch, look, probably somewhat sometime between December February. We've had just a couple of delays, COVID related with getting packaging elements, things like that in from overseas, but that is otherwise all on track. So That's very exciting. We've also been able to use the capabilities that we're building out internally to extend into a few other sort of curated areas. So the best in class Skincare School Pack, I think is a really good example of a multi brand curated product that utilize our private label capabilities. We've got some more things coming up to Christmas, which I can't share yet because it'll spoil the surprise, but there's a few nice sort of things around around gifting for Christmas. And then we have our 2nd standalone label, which is a haircare brand, which will launch sometime next year. So with those sorts of private label brands, we're planning for them to be both revenue and margin accretive In the medium term, but they will take a little while to scale. And we also see some really good future growth opportunities there in terms of international Expansion, Direct to Consumer. Excellent. Thank you. And if I can sneak in one more quick one, just on the 3T loyalty program. I know it's early days yet, But does your is there a material difference already between your level 3 versus your levels 12 Loyalty programs, please, in terms of average order values? Yes, certainly. So let me I can take that one too, Danny. So this This one that is much earlier stage. So just as a reminder, we launched this one late March, but we've been very happy with early performance. So we've had very strong member sign up. And to touch on the point you're getting at there, probably most pleasingly, we've had over 95% of the most valuable customer tier sign up. So really strong engagement with our most valuable customers. So our focus for now is continuing to scale up the sign up of those members. But also we've been experimenting with how we can use that database and look at much more targeted engagement of this audience. So in the last half, we've also trialed virtual events, including things that are more education focused. So as an example, we did a fragrance masterclass. We've also been collaborating with our brand partners to look at more brand Pacific Special Events. So we did run a SkinCeuticals Masterclass in the period. Both of those events were extremely popular with that top tier customer base. And then probably just to round out on loyalty in Phase 2, so we'll continue to scale up for this financial year. And in Phase 2, we're also looking to at opportunities around delivering subscription capabilities. So whether that be subscriptions linked to routine based samples or trial based boxes as well as auto replenishment, we see that as a key lever that that would be the expansion of that loyalty program strategic priority. Fantastic. Thank you very much. The next question comes from Elijah Meyer from CLSA. Please go ahead. Good morning, Teniel, Kate and Stephanie, and Congrats on your 1st full year results. Good to see. Just a couple from me. Maybe if we could just start with the Q4 2021, obviously, above your expectations. Could you maybe give a little color on the key delta in that outperformance? I mean lockdowns didn't really come in until late June. Was that enough to sort of drive that outperformance? Or was it a couple of those key sales events you discussed earlier in May? Yes, I think I'll kick off broadly and then Steph, I'll get you to cover off the details. So Elijah, we won't be making specific comments about months in detail. But what I can say is and Steph will go into this in a little bit more detail. We're really pleased that as part of that result, we saw multiple record trading days in May. And I guess the call out there would be that Those trading record trading days were delivered in a time where we weren't in lockdown. So that just really, I guess, calls out the sustained growth in new customers and returning customer spend that we continue to see as we transition out of the COVID lockdown. Thanks, Tamille. I don't think I've got too much more to add to that in terms of the shape. And you can see from Slide 5 In terms of where it was and we've got we've had good, very loyal returning customers that occurred in quarter 4. Yes, that's understood. And then Maybe just going on to, I guess, that lockdown impact and the guidance. So we've got 26% year to date Great at the moment, I guess the difference largely from this time, versus last year, New South Wales being in lockdown as well. Is there any difference In consumer behavior, you can call out between the lockdowns this year versus the lockdowns last year in terms of maybe purchasing patterns or how consumers are responding during this lockdown? Sure. I can have I can go with that one. I think we've shared Previously that what we tend to see quite quickly once a lockdown comes into place is that elevation in particular of new customer growth numbers, but then also just the returning customer spend and lockdowns tend to showed for us on platform a pretty predictable range of consumer purchase behaviors. And so what we tend to see at the start of lockdowns is an elevation in those purchases that relate more to you might call it the bulk of the stock up buying. So whether it's Shampoos, conditioners, skincare products, some hand sanitizers, but quite quickly within the category, what we see is as lockdowns continue for an In a period of time, our consumers very much transition into a phase where the focus is for them on self care. And so we see an elevation in our core categories like skincare and hair care, but also some strong purchase behaviors around Categories that relate more to self care, so at home devices, whether it be hair dye or nail kits. So some of those categories continue to perform strongly while our customers are in lockdown. So we've seen we see that fairly consistently. We saw that in the lockdowns last year, and we've seen a similar pattern of behaviors both in Victoria and New South Wales in this later stage of lockdown. And following on from that, any changes or at least material changes To order value and frequency versus last lockdown? No material changes. So we continue to say, I guess, that similar elevation as what we've shown historically as shown on Slide 5, but nothing materially different between the lockdowns that we saw last year and the ones we're looking at right now. Yes, understood. And then maybe if I can just squeeze one more in And just referencing, I guess, that slide on that graph on Slide 5 and just how post lockdown, Obviously, you have sort of new and returning customers dipping. Is there anything that you've learned from coming out of previous lockdown that you could maybe apply This time around, now that we're in a position where we've got sort of at least a bit more of a line of sight on when and how we're going to roll out of lockdown that you could Maybe retain more of those new customers. Is there anything that's maybe been put in place that you can sort of Drive that retention a bit higher now that it is a bit more clear. Look, I think we've shared retention remains one of the most critical metrics for us. And we're really excited. It's a stated strategic priority. What we're focused on in terms of our content He's very much geared towards retention. I think the two things that we're most excited about as we're looking into FY 2022 is the positive impact that we'd expect both our mobile app and our loyalty program to have on those levels of retention. So you'll see us focusing on that as a key metric and a lot of the work that we do is looking at how can we continue to engage our returning customer cohorts in a way that is provides education, entertainment and engagement and encourages them to think about us as the beauty destination and the point where they start their beauty shopping experience each time. So we come into this set of lockdowns, I would say, feeling very confident and in a very strong position, taking a look at those priorities that we've put in place that we believe will positively impact retention. Excellent. Thanks again for the questions and congrats again on the results. Thank you. The next question comes from Joseph Michael from Morgan Stanley. Please go ahead. Good morning, Tenille, Kate, Stephanie. Congrats on a great result. Just A couple of questions from me. So firstly, just on the higher reinvestment and the sort of EBITDA guidance of 2% to 4%. How should we think about the relationship between that higher reinvestment and your sort of medium term So the sales targets, like is that higher reinvestment allowing you to sort of upgrade your sort of medium term Sales targets or is that higher reinvestment to hit the existing sales targets? So I can have a go at that one. What we would say there is that the reinvestment that we are flagging It's part of our core strategy and what has been our focus for many years. And so the reinvestment that you'll see us focusing on will be opportunities to brand awareness, new customer acquisition and new growth. And the reason we call that out explicitly is we continue to be very excited by their, I guess, the market opportunity that we see in front of us. So we're looking at a market that is very large, is very underpenetrated And the CAGR out to FY 'twenty four in terms of online market growth is 26%. So we thought it was really important to just share in a very Clear way that our stated strategy is one of top line revenue growth, and we will continue in a very disciplined way to invest in those strategic priorities that we are already seeing delivering benefits in terms of growing faster than the market and taking share in this large market. Okay. Got it. And just to clarify, I mean, because there's a lot of noise with the growth rates with COVID. You were sort of growing 40% pre COVID, the market is expected to grow 26% over the medium term. So You with this high reinvestment, you think you can do better than the market over the medium term? Absolutely. Our aspiration is to continue to take share and grow faster than the market. And Joe, as you rightly call out, this is a business that has a very strong track record of growing faster than the market for many years. So success for us is to absolutely keep doing that. Okay, great. And then just one last question from me. I guess supply chain disruptions has been a key thing through reporting season. So I know that you called out Some packaging delays on some of the private label products. Is there anything else going on in the supply chain? Are you seeing any delays or disruptions to any of your Any of your 3rd party branded products? Yes. Not materially so, Joe, in terms of out of stocks for the financial year, I think that they were less than 2.5% for our top 100 SKUs. So not materially so. I think that what we've done is that we are working very hard on our planning. We end our long term Our long range plans with our top brands and providing that to them. And so at this stage, It's not material impact to supply chain. Okay, great. That's all I had. Thanks for your time this morning guys. Thank you. The next question comes from Ryan Noorozi from Barrene Joey. Please go ahead. Okay. Hope you're well. Just first one for me. Just in terms of marketing costs and change of sales, how does that look For a new customer that you're acquiring versus a returning customer? Because I think the delta between that gives you an idea around how much leverage you should get On marketing spend long term? Yes, I can have a go at that one. So we haven't provided the breakdown of, I guess, the costs associated with acquiring a new versus retargeting an existing. As you call out, the tax that we have in there is a full tax, so includes those full costs. Obviously, I think what we can say is that, we focus marketing, using analytics to understand and optimize across every single campaign and channel. The 2 audiences are interconnected and not exclusive, so it's hard to say the split between the 2. As we invest in new customer campaigns, we're also actively optimizing to improve the life and value so that they've transitioned into strong returning customers. What we would say is that initiatives like our mobile app, Like our loyalty program, our intent there is to be building owned marketing channels with a focus on returning customer cohorts so that we would expect over time to see that, I guess, a natural positive benefit on marketing as a percentage of sales, both as we build out and grow our organic and owned channels. The other benefit that we'd expect to see over time is as our in the longer term, as our growth starts to move closer to market growth and we start to see the mix shift to move more towards returning customers because returning retargeting returning customers is more cost effective. We would expect that to have a positive benefit on marketing as a percentage of sales over time too. Perfect. Just second one in terms of the 2% to 4% margin guidance or margin targets. You've quoted above market growth. Just to confirm, when you're saying above market, is that The 26% you referenced in Slide 19 or is that a different market size or growth you're looking at? Just so we can get an idea around top line, When we think about market growth, we would be referencing online market growth. So the 26% is a reasonable view taking a look over the full year period over the years to FY 'twenty four. I think it is probably important to call out, however, that the positive benefit of COVID has been to accelerate or bring forward a significant portion of growth. So we would expect that as we transition out of COVID, there might be a natural period in the market where that growth settles and stabilizes as the market processes what has been in ingesting a very large volume of customers to online. So we're very confident that over the long term that that CAGR looks at 26%. Over the short term, we would expect that the market does settled or stabilized given the significant growth we've seen in the market over the last 18 months in particular. Perfect. Next one, just trying to train up that for July, August. Was there any change in your marketing intensity? So whether it be marketing as a percent of sales or customer acquisition costs in those 2 months Relative to the second half of twenty twenty one? Yes, I can have a go at that one. So we are very, I guess, data driven and analytical in our marketing investment. And then I think we shared In June last year, we saw an opportunity with favorable marketing rates as well as essentially a captive or lockdown audience to So what you may have seen for this period is we've identified another opportunity to speak directly to our customers that are in lockdown conditions. So we lead to our customers that are in lockdown conditions. So we have engaged in above the line activity, focused on supporting during lockdown in New South Wales. So you will see that we have made investments in above the line for that period. Just very quickly last one. Gross margin, that was strong. Look, how much of that was due to sort of Higher industry pricing or lack of promotional intensity in the industry, and could that benefit you in any way in the second half, please? No. So gross margin, the improvement in gross margin, we've been working on a strategic priority to You improved margin and that is through optimized supplier terms as well as brand funding. And then the other element that we have discussed is around freight and changing freight providers. So no, I don't think it's around higher pricing in the market or actually delivery. Thank you very much, Mark. Thank you. The next question comes from Philip Pepe from Blue Ocean Equities. Please go ahead. Hi, all. Yes, firstly, congratulations on a record result, certainly very impressive. You've talked about and it's Ben well talked about the growth in online sales over the last sort of 18 months and your team is definitely A leader in that space. Some of your bricks and mortar competitors, even some of the brands have eventually woken up to that and they've started investing In some cases, significantly on their online capability. So as the traditional retailers in your products spend more and more online, How do you maintain your moat, to make sure you keep your competitive advantage? I mean, you've talked about the app and The loyalty program, but how do you stay ahead of the game now that the laggers have woken up to the sector and are starting to invest in it more heavily than in the past? Yes, I can take that one. Look, quick question. And I mean, I think we would acknowledge that premium beauty in particular has always been a pretty competitive space because obviously there's so much that's attractive about the resilience of the category and the customer loyalty. I think the difference for us is the investments that we have already made over so many years are Pretty difficult to catch up to. So being a digital native and gearing our entire experience towards Digital first leads to the really high NPS and customer satisfaction scores that we get, we've already successfully built the content platform that keeps customers engaged and continue to scale that. In terms of the brand crossover and the brand portfolio that we've built, we have a particular strength in skin and hair. And there's actually not a huge amount of brand crossover with any of those omnichannel competitors because our range does span across so many across so many different kind of segments. And actually our track record has been that Regardless of the competition, we've continued to accelerate our growth. I mean, I think the entrance of Sephora into the market in 2015 has a pretty good example because for us that's when things have really started to kick off. So look, I mean, I think we would agree But it has always been competitive and will continue to be, but we've always had a strategy where we're trying to Think further and further ahead in terms of what we need to be building now to continue to keep that market leadership position. And I think we've got a pretty good track record of continually being able to do that. I understand. Thank you. And secondly, and apologies for the short term nature of the question, just want to avoid any sticker shock. If I interpret your EBITDA guidance and we are talking lower of small numbers, 2% to 4%. If the 26% revenue growth rate continues and you hit the bottom end of that range, that's an EBITDA of 4,500,000 Which is below what you delivered in FY 2020. So to what extent can you control your additional cost in marketing, whatever, The next 12 months to make sure that your EBITDA doesn't go backwards in dollars before it goes forwards and we see the operating leverage. Could your EBITDA go backwards in FY 2022 before it goes upwards in FY 2023 onwards? Yes. So I can have a go at that and Steph feel free to jump in with the details. So this is a business where I think Our record results this half using the benefits of operating leverage flow through in the EBITDA result we've delivered. I think that as we look forward to the next financial year, there's a couple of call outs I'd make. One would be, as I mentioned earlier, when we're thinking about revenue, We are very confident that the market continues to grow at 26% at a CAGR out to FY 2024. What happens in the very short term will be driven, I guess, a little by what how the market responds to what has been a significant increase in new customer numbers coming online during the peak COVID period. And so potentially there is a settling of that in the short term as we work through that. The way we make our considered investment decisions on our variable cost lines, in particular, marketing and advertising, we set ourselves very Clear criteria in terms of the performance that we would expect that investment to deliver and we will continue to deliver in a very disciplined, in a very disciplined way in particular in terms of marketing and advertising to deliver the outcomes we're continuing to deliver. So that will be taking very close look at the LTV to cap ratio that we're delivering, but then also the return that we're getting by channel, by campaign. So we will manage that very closely. But our stated strategy is 1 to continue to drive Top line revenue growth and that will be our focus. Thank you. We have time for one final Question comes from Ana Guyan from Goldman Sachs. Please go ahead. Hey guys, thanks for taking my questions. Just conscious time, I might just limit it to 2. So the first one is a follow-up on Kate's comment earlier in terms of competition. And if I can maybe just guide it more towards your competition in the pure online space. From my perspective, I think I'm starting to notice a little bit more Aggression in terms of promotion campaigns from some of your online competitors. So my question is, firstly, is that sort of Your observation as well. And secondly, from your perspective, in terms of the cohort that you guys acquired During COVID, have you noticed any particular changes in their, I suppose, price sensitivity? Does that make sense? Yes. No, that makes sense. I'll take that one, Anna. Look, I don't know that we've sort of observed anyone else's increased promotional intensity having that much of an effect. We're certainly year to date, we're comping very, very high Numbers from last year and still seeing really good growth and kind of positive customer metrics all around. So obviously, we're not necessarily okay with every single promotional event that our competitors might do, but I think that at the moment the results are probably speaking for themselves. In terms of the retention of COVID acquired cohorts, look, all of the data that we have So far, it's things looking pretty normal. I guess the thing that we don't know is what the exit out of COVID Look like this time around, whether it involves international travel or people getting out of the country for a little bit. I guess that's part of the uncertainty for us around FY 'twenty two. But look, at this stage, I think we've observed that the longer customers spend in lockdown, kind of the more habit forming shopping online tends to be. So yes. Yes. Okay. Now that makes perfect sense. And then my second and final question is around brand churn. Can you give us some color in terms of, I suppose, the pace of your or the pace of onboarding brand over the last 12 months? And then have you had any sort of Whether it's challenges or whether COVID made it easier or more difficult in terms of onboarding brands over the last little while, please? Yeah. Look, I can talk to that one too. I think we onboarded with 50 something new brands 51, 52, 53, sorry. I know that number right in front of me, but it was sorry, what was that? 51. 51. Thank you. So look, certainly our onboarding continues apace. We certainly I think we've observed that with Our brand partners, both current and potential is that there is definitely an increasing appetite to partner with us and invest with us to continue to drive the growth because obviously in the market, the online Segment is where all the growth is coming from and we're the leading player in that segment. So look, it's I don't think COVID has represented any particular challenges. There haven't been material issues with stock availability and the brands definitely a much higher level of engagement. Yeah, I would reinforce that. I would say that what we're seeing, and perhaps COVID has amplified this, It really does represent what has been a structural trend for many years. Our brands are increasingly calling out the importance of the online channel for them. So as they share with us their growth aspirations, there is absolutely a recognition that all of that growth is coming from the online channel And Adore Beauty as the market leader growing faster than the online market is where they want to be to support those growth aspirations. And so how that translates is not only easier conversations around the brand onboarding, but I think an equally important point is The shifting nature of those conversations is we're able to deepen our brand partnerships. So increasingly, our brands are thinking about us as a marketing channel. And so we're working collaboratively on content initiatives on how they can engage with our loyalty Club members. And so you're starting to see the nature of these partnerships deepening. And that's one of the core benefits that's coming as we are both increasing the scale of what we do, but also as we are positioning Adore Beauty as not only a distribution partner, But this integrated content and commerce platform that supports both their aspirational Discovery and growth elements as well as the fulfillment of that growth through distribution. Thank you. At this time, we're showing no further questions. I'll hand the conference back to Tanil. First of all, I'd just like to say thanks again for joining us today. We really look forward to connecting with many of you over the coming few days. Thank you for your support and we'll now close the call.