Thank you for standing by, and welcome to the Adairs Limited FY 'twenty one Results Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Mark Ronan, Managing Director and CEO.
Please go ahead.
Good morning, everyone, and welcome to the ADEAA 2021 Financial Year Results Call. Joining me this morning on the call is Ash Gardner, our CFO and Jamie Adamson, our Head of Investor Relations. The 2021 financial year has been an exceptional year for the group. The results achieved by Adairs and Mokka continue to highlight the strength of our brands, the hard work of our teams and our culture that sees us look to delight customers every day, providing us with the ability to adapt to the ongoing challenges from COVID-nineteen. The group achieved Exceptional sales and profitability growth across both Aderes and MoCA.
Group sales were up 28.5% to nearly 500,000,000 with online sales representing more than 37% of total sales, driven by great results across both Adairs and MoCA with all channels delivering strong Sales results. The exceptional sales and gross margin results combined with disciplined cost management delivered strong operating leverage allowing both brands and the group to achieve a record profit result with underlying EBIT of $109,100,000 up 97.3 percent on the prior year. FY 'twenty one also saw the group invest in distribution facilities to support the future growth of both Adairs and Mokka. At MoCA, we doubled the size of our Brisbane distribution facility, whilst SEDARES continued to work on moving to the national distribution center in Melbourne in partnership with DHL. The FY 'twenty one year result came on the back of a trading environment that was supported by consumers' Additional focus on their home as a result of the COVID-nineteen pandemic.
However, the ongoing focus on our underlying strategies helped deliver this growth. Some of the key drivers of the Adairs sales growth over the year included the growth in retail floor space with gross lettable area growing 8%. The store sales result continues to be highly correlated to increasing our GLA. Over the course of FY 'twenty one, Adairs delivered strong sales growth through a combination of opening new stores in areas where we were not well represented and the continuation of our upsizing program. Both our new stores and the store upsizing program delivered great results as our largest stores provide us with the opportunity to showcase more products and categories and deliver a higher store contribution margin.
Importantly, the new stores delivered strong sales and profit growth, but also drive an increase in online sales in those catchment areas. The linen lover membership base increased by approximately 14% across the financial year. The team was highly focused throughout FY 'twenty one on signing up linen lovers as we know this gives us the opportunity to build a relationship with our customer and increases the chance of them returning to shop with us in the future. An increased omni channel conversion, More customers were comfortable shopping across channels than ever before. While store closures were one driver of this, we saw Customers happy to shop both in store or online depending on the circumstances at the time.
Ultimately, we know the most important driver in creating a multichannel customer is building their trust and loyalty to the brand. We saw strong sales growth driven by the increase in multichannel shoppers as they on average spend more, which is driven by their engagement with the brand and their comfort in shopping with us how they want, when they want and where they want. The MoCA sales growth was driven by continuing to build out our product offering, enhancing the customer experience through initiatives such The introduction of augmented reality to help customers visualize the product in their home and continuing to build brand awareness as highlighted by the 35% increase in website sessions. At Mocha, we also continued our focus on building up our customer database with us now having more than 550,000 e mail subscribers available for us to both showcase our new product and promotions too. FY 2021 was a terrific year, and I'll now hand over to Ash to walk through the financial
Thanks, Mark, and good morning, everyone. Yes, FY 2021 was certainly an exceptional year with many highlights. Total sales for the group of almost $500,000,000 were 28.5 percent up on last year despite onethree of trading days being affected in some way by COVID related store closures, most notably in Victoria in the first half. Online sales for $187,000,000 across aderes and mokka now represent 37% of total sales. Both businesses were able to grow their customers and achieve higher average selling prices and like for like transaction growth, which converted to strong like for like sales growth and an expansion in contribution margins across all channels.
AdeS stores achieved like for like sales growth of 7.4%, Online sales were up 33 percent to $127,000,000 and MOCA sales grew 31% to 60,000,000 Despite the sporadic and at times lengthy disruptions caused by COVID, our customers demonstrated a willingness to shop across both channels, with total sales now more than 30% up on the pre COVID-nineteen levels of FY19. This strong like for like sales growth, combined with a focus on gross margin and cost control, delivered the record EBIT results for the group of 109,100,000 up 97% on last year and delivered an EBIT margin of 21.8%, an increase of 760 basis points on the prior year. Ades reported a record underlying EBIT of $96,700,000 up 98% on last year With an EBIT margin of 22%, driven by the strong like for like sales growth across both channels and margin expansion. OCA contributed $12,400,000 for the year, up $6,000,000 and ahead of the business plan that we put together when we acquired the business in 2019. It should be noted that Mokkel is only owned by Adairs for 30 weeks in FY 2020.
Costs continue to be carefully managed throughout the year with improved labor productivity With improved labor productivity across our stores and distribution centers and an ongoing focus on achieving high returns and investment for key marketing and digital initiatives. As we announced in February, the company repaid its JobKeeper wage subsidy benefit and has not been eligible for any other government support. We've continued to work collaboratively with our landlords to share the impact of the store closures with rent rebates received In FY 'twenty one related to COVID store closures since Throughout the last 18 months, we have adapted our operating model and cost base to be able to respond quickly to unplanned disruptions caused by COVID or other issues that are beyond our control, and we continue to employ these measures today as we deal with the current lockdowns across Victoria and New South Wales. It is a credit to our team for the way they've adapted to the different situations throughout the year. Their resilience and commitment to servicing our customers has been the critical ingredient to achieving this result for our shareholders.
Our reported net profit after tax of $75,400,000 was double last year and includes the effects of AASP 16 as well as the one off transition costs for the new national DC of $1,700,000 after tax and the true up of the mock deferred consideration following the agreement to settle the deferred payment in September of 2021. The record operating result achieved has enabled us to finish the year with a strong balance sheet. Our inventory levels have improved, and we have chosen to carry more stock than we would normally We closed the year with cash on hand of $26,000,000 and no bank debt and declared a final dividend of $0.10 per share, which brings the total dividend for FY 'twenty one to a record $0.23 per share. Back to you, Matt.
Thanks, Ash. On Slide 10, we look at the continued drivers of our future growth, which are largely based around our omni model. Adaire's model aims to deliver exclusive design and developed product through our vertical supply chain. The total addressable market is large with management estimating the market to be over $13,000,000,000 in Australia. By offering our exclusive product across It allows us to maximize and fully leverage the benefits that come from our Linen Lava program, back end infrastructure and highly capable team.
This provides Adairs with the opportunity to offer a seamless, inspirational customer experience across channels, resulting in high levels of customer acquisition, retention and preference. Given the size of the market, our opportunity to continue to grow market share by focusing on our strategic pillars is high, enabling us to deliver strong EBIT growth and margins for shareholders over the medium term. With this in mind, you can see how our 5 key drivers of future growth Highlighted in the presentation continue to build upon this model to enable us to capitalize on the growth opportunities for both Adairs and Mokka. If I start with our proven and resilient business model, the strong brands that we own, our vertical supply chain philosophy and our direct Consumer store and digital channels allows us to develop and control the expansion of our product offering and customer base. This enables us to be more agile and responsive to changing customer needs through the delivery of exclusive on trend product at higher margins.
Our strong brands, combined with our large and loyal customer base, delivers a lower cost of customer acquisition and provide significant opportunity to enhance and build upon our relationships with our customers. We see the combination of omni channel retail with loyalty as a key growth driver. Adairs is focused on continuing to grow its market share, and the best way to do this is to grow our customer base, whilst increasing our share of spend from our existing customers. Linen Loves is the program through which we provide value to our members, allowing us to achieve this. The Linen Loves program today accounts for more than 80% of Adeir's sales, and we have started our investment in data analytics capability to enhance our ability to build upon the value of this program for our customers and deliver ongoing returns for shareholders.
At MoCA, we continue to review the opportunity to create a loyalty program that is relevant to our customers. We have focused on growing our email subscribers and have added more than 30 The database over the FY 2021 year. This provides us with the opportunity to remarket to these engaged customers at significantly less cost than general digital marketing allows. Both in store and online together with online chat. Adairs will continue to build upon its digital capabilities by upgrading the online platform in 2022.
This will help enable a more seamless omnichannel customer experience and see us introduce additional personalization and basic items such as click and collect and express delivery. Mocha is continuing to build upon its digital capabilities after successfully upgrading their online platform in FY 'twenty one. This gives us both a solid foundation upon which to grow over the coming years and enables us to trial new technologies such as augmented reality in the short term. We will continue to trial different technologies to ensure that any significant investment delivers an enhanced customer experience. The combination of Adairs and Mokka allows us to capitalize on 2 great brands with well developed digital platforms.
With strong online sales growth achieved by both brands and 37 Total group sales now coming from online, we are well positioned to win share as traditional store only customers transition to become omnichannel shoppers. The addition of MoCA to the group increases our exposure to the fast growing online segment of the market with the significant benefits of vertical integration. Based on MoCA achieving the same penetration in Australia as it has in New Zealand, there is the potential for MoCA Australia to exceed $100,000,000 in sales revenue simply based on population size. MoCA provides the group with greater exposure to the furniture segment and provides the opportunity to reach a different customer through design led, value for money differentiated products. With a significant market to grow into, we continue to invest in product category expansion.
Whilst this has been more challenging due to travel restrictions, The team have adapted to these conditions and continue to work on enhancing our width and depth of offer at Mokka. This will enable us to provide Welcome to the Mocha management team and excited to announce the appointment of Vanessa Brennan for the role of Mocha's CEO. Vanessa brings a wealth of retail and e commerce experience to Mocha, and her appointment combined with ongoing investment in additional talent will ensure we are well placed to execute on our strategy of building market share by delivering Differentiated, stylish and functional product, convenience and value for money to our customers. Our digital Channels are enhanced by our store network. All of our stores are profitable and our store formats deliver strong contribution margins.
Larger stores are more profitable and there is a strong pipeline of new store and upsized store opportunities for us to capitalize on. As I mentioned earlier, these larger stores give us the opportunity to showcase more products and categories and enhance the customer experience. With a highly profitable store portfolio, we remain focused on deliberately creating flexibility within our store leases through relatively short lease terms, allowing us to strategically manage our store portfolio through opening new stores, upsizing existing stores, obtaining more favorable terms on renewals or closing stores that simply do not meet our return requirements. And finally, our omnichannel business model needs to be supported by an omnichannel supply chain. Construction of the National Distribution Centre in Melbourne for Dares is now final, and we are currently transitioning stock into this facility.
Whilst this project has experienced some delays as a result of a variety of COVID-nineteen restrictions, we expect to be fully operational in Q2. The consolidation of our multiple distribution center operations into a single national facility will improve stock flow and online fulfillment, Increased stock availability and improved service levels for both our customers and stores during peak trading periods at a lower cost. We expect to realize $3,500,000 in annual savings over our existing operations once we are fully operational. The National Distribution Center is the foundation for Adaire's integrated omni channel supply chain strategy to better enable customers to shop Adaire's how, where and when they choose and has the capacity and flexibility to support Adaire's growth well into the future across all channels. Over the 1st 7 weeks Of FY 2022, the group has achieved like for like sales growth of 5.2% against FY 2021 50.5% against FY 2020 after adjusting The impact of closed stores.
Total Adaire sales are down 16.1% on FY 'twenty one, but up 5.5% on FY 'twenty. This has obviously been significantly impacted by stores closed due to government mandated lockdowns, with Adaire store sales down 27% on FY 'twenty one despite losing 40% of the available store trading days. All states and territories, with the exception of New South Wales, Have experienced strong sales growth over FY 2020 with the customer responding well to our new ranges. While stores have been impacted, the Adairs online business And MOCA continue to grow. Adair's online sales are up 12.9% on FY 'twenty one or 131% on FY 'twenty And MOCA sales are up 16.1% on FY 2021 or 74% on FY 2020.
These are clearly strong results on the back of strong trading periods last year. The gross margin for the group over this period has moderated against FY 2021, however, remains well up on FY 2020. If I move to the outlook and I start with consumers. While stores being closed as a result of lockdowns will impact the FY 'twenty two result, We believe the underlying consumer conditions remain positive for the home category. Household savings remain elevated with households accumulating circa $137,000,000,000 of incremental savings over the last 18 months, which is almost equal to 1 year's worth of discretionary retail spend.
The housing market continues to grow strongly with churn returning to this market, delivering a tailwind for household goods and ongoing travel restrictions continue to support Customers transferring a portion of this travel spend towards household improvement further supporting the home category. Given Adeze and Mokka's positioning, we expect to benefit from the current environment, which sees customers having an increased focus on their homes as a sanctuary and increasingly a place of work, entertainment and education. Our buoyant home category market continues to provide Adeze and Mocha with a significant opportunity to continue to grow market share and build brand awareness. We note in the outlook side that we expect the gross margin will be impacted by supplier cost price increases caused by increased global demand and the increased cost of sea freight. We expect that these will be offset somewhat by the stronger AUD and our ongoing focus on managing price and depth of discount.
Mobile supply chains have been significantly impacted by COVID, and both Aderes and Mokka see ongoing challenges in production capacity and shipping availability, resulting in longer lead times. As a group, we have attempted to insulate ourselves from some of this risk by carrying additional stock over the first half of the year to allow for these longer lead times. Adairs expects to open 2 to 4 new stores and upsize 8 to 10 stores over the coming year with a strong pipeline of opportunities available. CapEx for the year is expected to be in the range of $10,000,000 to million reflecting the expenditure on these new and upside stores as well as supporting the ongoing investment in our digital initiatives. Given the inherent uncertainty in the market Today, as a result of store closures, the Board did not consider it appropriate to provide further guidance at this time.
Before I finish, I'd like to thank a few people. I'd like to start with the MoCA founders, Emma and Cameron and Rachel and Jeremy. We've got to know them well over the last 18 months or so, and I'm thankful for the way they have helped transition the MoCA business to independent management over this time. They've done an exceptional job in building the MoCA brand into the business it is today, and we look forward to making them proud of the brand they created as we continue to build and grow it over the coming years. I'd like to thank the Adairs and Mocha customers.
We get the privilege of being a small part in helping them create a home they love. Our aim every day is to continue to inspire and delight them, and we thank them for their ongoing support. And finally, to the Adairs and Mokka teams, The last 12 months have seen us come through some very different times, and unfortunately, many of the team are back in lockdown as we give this presentation today. Our teams are passionate about our businesses, and this continues to shine through in the way they go about delivering for our customers, despite ongoing challenges and changes as a I'd like to thank all team members across Australia and New Zealand for their hard work and dedication. I remain confident that with this great team, we are well placed to not only manage the current conditions, but put ourselves in a position to capitalize on the new and evolving retail environment, delivering shareholders ongoing profitable growth.
I'll now hand over for questions.
Thank Your first question comes from Arun Noorozi from Berenjoy. Please go ahead.
Hi, guys. Just first one for me around Mokka. So the second half EBIT margins, I think, were about 17%. I mean, I think you guys have historically said that 20% -plus mark is a good Sort of indicator for balancing growth and profitability. So what's driving that?
Is it plant loaded cost investment and you expect the fruits to bear over the next 12 months or is it a change in thinking around profitability, please?
I think it's a combination of things, Ari. There's an element of Additional investment, doubling the size of the warehouse is obviously investing ahead of the curve to enable us to manage the future growth. We've added team into that business, which we knew will add value over a longer period of time. And over the second half, we probably had a quite lumpy Our inventory supply chain piece, we had a lot of stock on the water as we gave these results in February, And we probably ran a bit feast and famine, which meant that we had to play around with inventory and promotion. So we didn't quite extract the gross margin that we expect we can deliver over the longer term.
And equally, we invested a little more in marketing and some of the things that we trialed didn't work quite as well as others, but I think that's the nature of a growth business such as this. We continue to remain pretty committed. That range of 18% to 20%, we think, which was what we came out with when we started and we first acquired Mokka is sort of the range that we think we should be able to operate in. So obviously, the second half was a little bit below that, but I think that's the approach we take going forward. And obviously, as we continue to grow the business and learn what works and what doesn't, we'll continue to adjust that EBIT margin accordingly, but we continue Focus on that sort of range as being how we'd like it.
I think we can deliver over the medium term. I think in relation to MoCA as we look forward, Particularly the shipping costs, probably a bigger component of our cost of goods sold in Mokko as compared to Adeze. So we've probably got a little more gross margin pressure in that business over the short term, but we expect over the medium term, they'll moderate to a more reasonable level. They might not Go back to where they were, but we're going to end up with a more reasonable level. And we also think that given that market, price increases are probably likely to go Through that larger bulkier goods in terms of homewares given everyone's having to deal with the same thing.
So As I said, it's a little bit disappointing where we ended up, but that was largely based on some investments we made and that lumpy stock coming through in that second half.
Perfect. And just on
the inventory piece, Adair's inventory is up 6% on 2019, moppy is up 70%. What and then you've obviously flagged that you're holding some safety stuff given all the sort of disruption in the supply chain. What assumptions have you made For sort of the key second quarter trading period, I mean, and what's the risk you need to start clearing product To sort of clean up the inventory position, please.
Yes. I think I mean, we've assumed that In most instances, stores will be open to a large degree. We're expecting to have ongoing lockdowns. Obviously, that's the environment we're in. But equally, I think it's important to note in relation to that inventory, a lot of the extra inventory we're holding is largely based on core ranges.
So we don't expect that we'd have to clear those core ranges should that not be the environment we're trading in. They have a longer shelf life. So you think about white sheets, Towels and in the Mokka examples, a lot of our cot ranges are quite they're ongoing ranges that is where we're putting a lot of that inventory. That doesn't say there won't be some clearance that we need to move through should conditions not be there. We've got Christmas.
We've got beach towels. We've got those seasonal type products. But overall, we've tried to maintain a balance on that inventory base to ensure that we're well positioned All of our stores are going to be open between now and Christmas, but we think we've struck the balance and made sure that we're focused on Taking that safety stock in areas where it's less risky.
Okay.
And the gross margin commentary, it sounds like it's obviously down year on on 2 years ago. I mean last year, same time last year, you were up circa 700 basis points, which is quite phenomenal. What's the view around how much of that you can give back versus retain? I think pre COVID in January, the margins were up sort of 300 basis points. So So we're thinking sort of half of that goes away and the other half continues?
Yes. We spoke at the half that we'd like to retain circa 2 thirds of it, but I think the current environment we're trading in probably sees us give a little bit more back. As we think about it today, about half of it, we think we look to Put into back into price, and equally, we've got those obviously ongoing challenges. We think we can manage the price and depth of promo Piece of the puzzle quite well. We're not expecting to have to significantly reinvest in that area, but we think the cost price pressures are going to be slightly harder to see those All of those pass through to consumers in the current market, just given the uncertainty that's out there today.
So I think if you think about Us retaining 50% somewhere between 50% and 2 thirds is what our aim will be. And obviously, we'll see other season trades out. It's 7 weeks. The smallest 7 weeks of the year, it's pretty hard to tell, and there's a lot of moving parts this year, more so than other years.
Yes. And so last one around the divi. Do we interpret the I mean, the payout ratio is well below your Target or your PISRAP range, do we interpret that as your future comp like an indication of your future confidence? Or is that just being conservative
Yes, I think everyone knows that the Adairs management team tends to take a conservative approach to these. So I think You can take that as being conservative, and that was our approach. There's plenty of time to think about How those dividends roll out in the future once we get a little more clarity on the trading environment we're operating in. So we adopted a lower A lower ratio on a conservative basis to make sure that we balanced both rewarding shareholders for a terrific year, but equally Just maintaining the strength of our balance sheet to trade through uncertain times and still consider what other opportunities might be out there on the other side of these uncertain
Perfect. Thanks, guys.
Thank you. Your next question comes from Mark Waid at CLSA. Please go ahead.
Good morning, guys. You had a brilliant result. Just Playing devil's advocate, what should give us the confidence that this is not as good as it gets, yes? I mean, you said something unique there in the number of customers you've attracted new to the brands, Something in the behavior of the shoppers, which means they're more likely to stay in the home categories for longer Since the onset of COVID. So yes, is there more to it?
Or is this as good
as it gets?
I think there's always more to it. I think if you think about the size of the We're still a relatively small player in relation to the size of the market. I think when we look at it, the beauty of the Linen Lava program is that we continue to grow that year on year and those customers continue to come back. So every year that we keep investing in Alting on more linen lovers and when we talk about investing in attracting linen lovers, it's not done with a high marketing spend or anything like that. A lot of it's actually converting those customers Spend or anything like that, a lot of it's actually converting those customers in order to become linen lovers using the assets that we have such as our store team.
And that approach enables us to build a relationship with the customer. So I think in that regard, we do have an element of a unique Consumer proposition in relation to continuing to build that LinumLaver program, I think unlike potentially other Databases and the like that are thrown around as statistics, you've got to remember that every one of those linen lovers on that program had to sign up in the last 2 years and pay the $20 So that says they are more highly engaged. They're looking to extract value from that the program that's joined. So I do think we're well positioned there. And equally, it comes back a bit to also creating products for them.
We are one of the few businesses In Australia, that's trying to drive that fashion and trend element in this space at this sort of scale. And the product team has done an amazing job again at Continuing to meet customer needs and interpret the trends, and I'd say that in a more challenging environment given our inability to travel. We've adapted to different ways of doing that. So I think we've got good customer engagement today, and we think the markets There's still many more linen lovers that we can add into that. We've obviously got the stores and continue to upsize and roll out the larger Stores in areas where we're not.
And I think the exciting thing from there is as we roll out those stores, we do see more customers Shop with us both in store and online in that catchment area. So that does build an advertising and a brand awareness piece as we build that out. And as we continue to invest in creating a more seamless experience, I think we've got a lot of work to do in that space. So I think we've got lots of levers. I think FY 22 in the short term is going to be challenging given the lockdowns and all the rest of it.
But as I said in my presentation there, I think our strategic pillars and the growth levers we've got put us in a good position over the medium term to ensure this isn't as good as it gets. And we'll continue to focus on customers and product because I think that is what delivers it over the longer term, And there's lots of levers within those two areas for us to continue to pull.
No, that's a really comprehensive reply. Thank you. And just on that matter of the lockdown, I mean, you've seen it in the past when you as you come out of them You feel like you haven't had a lot of demand destruction, I mean, like people just delayed their purchasing value. Is that still the current thinking? You haven't currently lost our sales and you can still call them back?
I think you lose some to be fair. I think there are Some that moment in time, you lose the impulse, right? Someone walks past the store window, sees an amazing product on the bed, Buyers didn't think they were going to buy it, but and didn't necessarily go looking for it. So I think you lose an element of the impulse buy. I don't think you'll lose them all, and we expect that like we've seen is when other states have come out of lockdown, we do see it revert pretty strongly back into store, in particular.
So I think we will the longer they go, What we also see is we get a bigger transference to online. So short, sharp lockdowns, we tend not to see an immediate Response to online, people think it's going to be 3, 4, 5, 7 days. So we tend to get a deferral in the 1st week, then after that week gets extended, which Seems to be the way lockdowns are just going at the moment. We then start to see online pick up its share. And then when we come out of it, we see Customers come back to store.
I mean, I can't remember whether I gave the example on this call at the half, but we regularly see customers come in and they love to The store team again, we had people deliver cakes to the store team last time we reopened. So our stores And we probably have little windows there where you get a bit of a bubble as those stores reopen over the half. I think for us, we're in a good position, and we expect that we will see some of that return. But equally, Mark, it's fair to say that the longer they go on, the harder it is to pick up those particularly those impulse sort of components of those sales that you would normally get just with
All right. Credit to the whole team. Well done on an amazing result. Thank you.
Thanks, Mark. Thanks, Mark.
Thank you. Your next question comes from Apoor Sehgal from UBS. Please go ahead.
Good morning, Mark, Ash and Jamie. Just my first question on the stat that store sales in the 1st 7 weeks are down 27 There's 40% of store trading days closed. Do you think you potentially won further market share in these last 7 weeks?
Potentially, I mean, it's hard to work out. It's really hard to work out. You haven't got a lot of direct competitors providing Similar sorts of numbers in that sort of trading window when you think so much of this category is still shopped in department stores and obviously there's a bunch of private players out there. I I think we've done a reasonably good job of things like call and collect helping to ensure that we maximize the opportunity. So I think that continues to be what we aim to do.
Whether we've grown market share, anyone's guess, to be honest. I'm Probably more focused at the moment on just thinking about how we continue to manage these trading conditions to the very best of our ability within our own circle Rather than think too much about is that are we winning or losing share, just given the number of moving parts that we're obviously dealing with on a, Unfortunately, week to week basis.
Yes, sure. That's clear. And how are you seeing the competitive environment over the last couple of months in terms of Promotional activity, any discounting and overall marketing intensity? Yes.
Well, I think the marketing intensity is there. We're definitely seeing Strength in increasing costs in that digital marketing space. We've seen a lot of the retailers go back So a more traditional style of depth of promo, length of promo and those elements and we've certainly continued our approach That's not what we want to do. We want to balance that out, and we've been reducing that and continue to stay strong to that strategy, Probably despite the trading conditions that we're seeing, it means that we play around with it a little bit, but we think that's still the right long term decision for the brand. So we've seen the department stores ran a far more traditional mid season sale and that ran through the normal Period is not slightly longer at some instances.
Our friends at Bed Bath and Table have pretty much done what they normally do. So I would say that we've returned to a more normal trading retail trading environment in relation So depth of promo and length of promo, and we have endeavored to maintain our approach to try and to both reduce the length Of time, we're on full store promos and equally keep managing that depth of discount. And as I said previously, we've definitely learned some elements around Which categories need that stronger discount and which are a bit more commodity, and therefore, we've had to give a bit back in those areas, but equally Capitalizing on the uniqueness of our designs and ensuring we maximize the opportunity in that space has been something that we've retained focus on. So Yes, the competitive environment is it's probably back to normal and just like we've seen in the past. So it just gives us It's no different.
I would argue perhaps it's a little more expensive in that digital space though.
Thanks for the detail. Just one final question for me. Any color on recent rental negotiations
and how you see the environment for that
and therefore the outlook for occupancy costs into FY 'twenty two?
Well, we continue to see ongoing it depends on the store. I've always said this is stores fall into 3 categories. You have great stores. And if you've got a great store, you are unlikely to get significant rent reduction or change in that space. We're seeing some good deals in and around shopping center and potentially some of those more B grade shopping center stores and working through those.
So that comes through the numbers, but it takes time, right? There's not going to see you're not going to see a significant change in the Rental expense in the short term, just given the nature of how many stores are there and the way these reductions sort of flow through. So I wouldn't sit there suggesting that you Seeing that you start modeling a significant reduction in occupancy costs in FY 2022. Obviously, there's ongoing Thoughts and discussions going on at the moment around rental rebates and COVID related lockdowns and all the rest of that that have got a lot of Water to go under the bridge, and I think what we're going to see actually over this half is a deferral and a delaying of some of those renewals Whilst landlords have to deal with, obviously, the impact of the lockdown, so what we find is Most landlords have to we all go back to managing the day to day and what's happening in the market today and some of the longer term stuff gets kicked down the road a bit. But There are rental reductions out there, but I wouldn't be expecting significant changes to our occupancy costs in the short term.
Very good. Thanks, Mark.
No worries.
Thank you. Your next question comes from Jo Little at Morgan. Please go ahead.
Good morning, Mark and Ash. Most questions have been asked, but just you make a point that you continue to assess potential acquisition opportunities in the slide deck. What does the like the perfect or the right acquisition look like for you? The start up is established online only, core products, does that have to be profitable, etcetera?
That's a big question, Joe. When I think about it, I mean, it will be home. It will have enough scale and size about it to move the needle over the medium to long term. It needs to have great growth prospects. It needs to be It can either be online only with a thought that how might we turn it into an omnichannel business or an existing omnichannel business.
You think about what we think about when we look at our, I guess, proven and resilient business model, as we call it. We think about they need to develop and design their own Product vertically sourced, we think all of those things are key strengths in a retail business, direct to consumer. So as you start to play that out, there's probably plenty of brands out there that potentially fall into that bucket. Equally, I think some of the challenge is in the businesses that we've obviously I said last time, I think every homewares business in Australia was somewhere between February June of last year, but trying to work out what the sustainable earnings of a lot of those businesses is quite challenging. And therefore, given our conservative nature, we tend to pull away pretty quickly from a lot of them if the expectations are So it needs to be I think that gives us some element of it needs to be well priced and on traditional sort of metrics given our love of EBIT and cash flow.
Okay, great. Thank you. And just in terms of that $7,000,000 impact short term, Should we just run that through the gross margin? I mean, are you actually paying rent in your stores that are closed today and that deferral conversation happens down the track?
Yes, I think that's fair. We're in negotiations or discussions with them. And at the moment, I'd wash Pretty much through the P and L pretty directly at the gross margin level given we'll continue to pull levers. But as we sit Today, we haven't got any of those levers in the bag. So therefore, you should assume that the only cost we've really taken out is a level of Team in those stores that are impacted by the lockdown, so you think about our casual workforce and the like, and we've obviously had To stand a lot of those guys down given the current circumstances, don't see them having any meaningful work to do as opposed So we wanted to do it.
It's just there's not enough to do in stores while we're just running the call and collect model. So that's really the only significant saving that we've banked In the 1st 7 weeks and the rest of that will be an ongoing negotiation, no doubt.
Yes, perfect. And If you just look at the comps outside of the store impact, I mean, it's quite encouraging. I'm presuming like a market like WA, least impacted, West Coast is probably going to be one of your strongest markets. Would that be fair? And are you seeing quite healthy single digit comps in a market like that?
Yes, I think WA is definitely a good example of a market that's largely operating more normally. And yes, we're quite comfortable that our store sales have stacked up really well against FY 2021 in that market. And that gives us great confidence that the product itself is resonating. And if we had all stores open, obviously, these numbers would be a bit different for the 1st 7 weeks. So yes, we've seen good like for likes in WA as compared to other And that low single digit is about the area where we should be you should be thinking.
And equally, Yes. Word of caution, 1st 7 weeks of the year, really small time, all the stuff that I normally put around it. But To be fair, it's one of the few markets we've got real visibility as to whether the product is resonating, and it's definitely one that we're probably a little more focused on at the moment given it gives us some Direct line of sight as to success of product as opposed to trying to manage the overarching business given the lockdowns in other states.
Okay. Thanks a lot. Thanks Ash.
Thanks Joe.
Thank you. Your next question comes from Wilson Wong at Jarden. Please go ahead.
Hi, guys. Can you just quantify the savings on wages from the store closures in FY 2021? And how do you think about it in terms of the net change in FY 2022, just given the reductions from the current lockdown as well?
Well, Josh, do you want to have
a go? I think it's probably better to look at it from a Wages to sales ratio, I mean, we look to try and run the stores. So if we go into a lockdown, like Mark just Mentioned before, where we've got to stand the team down, we look at what are the minimum hours we need for safety and what are the hours that we need to maintain an acceptable level of productivity. We will flex the wages up quickly as sales demand increases because our Business is very much focused on service and driving higher returns or sales per hour. So So you're better off looking at it from a labor productivity perspective.
And from our yes, we are continuing to manage that carefully and do what we need to do to get the same levels of productivity out of our team as possible.
Okay. That's great. And just my second question is just around, I guess, which product categories have been prominent, I guess, in the 1st seven We are trading in this financial year. And can you give us a sense of sort of the level of repeat customer sales you're seeing more recently?
Yes. In terms of product categories, I mean, obviously, the bigger ones have probably followed the trajectory of the numbers You see in there, given something like bed linen and 40% of the business, it largely trades in line with whatever numbers we publish. So those 1st 7 weeks, you're largely seeing some of our core categories trade to those sorts of levels or slightly behind Those levels because we've seen good growth out of, in particular, home decor and some of Our category expansion and investments we've made in things like home storage has been a greater investment that we made, and we started to build our home storage Category in February, March and that continues to trade well. Tabletop's been amazing as we start to invest in that. So areas where we've really Thought about and invested in product width and depth are obviously trading well.
We've actually seen kids trade really well over the 1st 7 weeks as compared to Last year, so I think the beauty of that is the areas that we are investing both people and inventory have traded Well and ahead of the rest of the business, and we're pretty confident that having a look at our WA numbers that When we get stores reopened, our core categories should bounce back relatively well, which sets us up well for both Continuing to drive the business forward and obviously identifying those growth categories and seeing good performance in those is encouraging for us to continue to build that out over the coming years.
Okay. So my last question is just around, I guess, the investment strategy for Mokka, Under the new CEO, any sort of indication on that? And I guess the size of the investment in construction, are you flat?
Look, I think we don't think we need to invest super heavily to deliver ongoing growth in That's why we talk to trying to maintain that EBIT margin. That might dip in the short term if we think there's an opportunity to invest more in people and talent to get us The longer term opportunity and obviously that was one of the key conversations we had with the founders At the time in that we wanted to invest more quickly and more heavily and given the nature of the earn out, That led us to not being aligned on timing and horizons in some of those investments. So, at this stage, Given in particular that Vanessa hasn't started, it's hard for us to give you a lot of color on that, but it's definitely an ongoing conversation that I We might be able to give more color at the half once Vanessa has definitely spent a bit more time in the business. And Together, we've worked up that strategy and made sure that we're comfortable with it. We obviously have an underlying strategy, but we're really keen for her to Get her feet under the desk and start to understand how it all works today and where those key investments need to be made to continue to build That business under her leadership going forward.
Thanks, guys. That's helpful.
Thank you. Your next question comes from Damian Hector, a Private Investor. Please go ahead.
Hi, guys. I'm glad I got a question and congrats on the good work. I've just got two questions. 1 on your linen lovers membership. In raw numbers or percentage terms, could you maybe share what the growth has been year on year?
And second, you mentioned Data and analytics, are there maybe a top 3 or 5 priorities? Have you set them in stone on How you can use data and analytics to drive measures you have in mind?
Yes. So let me answer the first one. In terms of our Linn and Lava membership, over the last sort of 5 years, the CAGR of that is 14.5 percent per annum and last year was largely in line with that. So and we think that was probably Impacted by, in particular, the Melbourne store closures over the first half, we know that stores deliver a greater proportion of linen lovers to the program, as I said before, given the Great work that store team doing, talking to customers and convincing them or selling to them the benefits of that membership program. So we see that as a continued strategy for us and something that I think will be impacted by the store closures.
But over the longer Or medium term, we should continue to be able to grow at those sorts of 10% to 15% per annum. In terms of the data and analytics, What we've started our investment on is, I think, doing a lot of work in building our views of customers and how we start to build out our What we call our customer data platform and single source of truth, that will initially, we see a lot of benefit coming from that in relation to personalization and more targeted segmenting of our customers, such as they get more inspiration and offers that are relevant to them as opposed To a larger batch and blast sort of approach, which we whilst we do segment and target specific customer groups today, a lot of that is manual and quite time So the first element of investment should start to see us be able to improve that. And I think the beauty of data and analytics Whilst I've got a number of ideas, I wouldn't want to share them now because I think as we build out that platform and that program, we'll be using the data to help Drive those ideas and really dig into those ideas as opposed to and maybe proving my hypothesis right or wrong as we look forward.
So I think the first one you will see is personalization, product recommendations and some of that taking the data we've got, which is obviously extensive and putting it to better use, which should improve both the customer experience. And I think we can also get an improvement in efficiency So, I hope that gives you some inclination as to where we're going, but we've got a long road to walk there, which is both exciting in the relation to future opportunities for the brand, but equally, I think we've got a really clear short term target that we're going after in that space.
Okay. Thank you.
Thank you. Your next question comes from Graeme Douglas from ESAN Investments. Please go ahead.
Great result, guys. Thank you so much. Much appreciated. But I've got a question That's very helpful. Well, I've got a question looking a little bit further down the track.
And it really concerns When the economy starts to open up bid for travel, I mean, at the moment, we've got a situation where there's $60,000,000,000 $70,000,000,000 Sloshing around trying to find a bit of enjoyment. And no doubt, looking at my own life, your place is good as any debt, get some enjoyment. That money is going to start to flow out of the country. And when that eventually does in the next year or 2, how do you see that shaping the business and the numbers we're seeing now?
Well, I think that's what when we sit here today, we think we know that is likely to occur at a point in time. Clearly, as you say, that money is looking for a home. A lot of it is obviously ending up in that savings bucket as well, but a lot of it's also looking for a home. And with that in mind, that's why we focus on, in particular, the Linen Lava program. So my view on that, Graeme, is that what we can do today to Best put us in a position to manage when that starts to come off is to build out our relationship with our customers, put more people into the Linen Lava program.
And with that, we have the ability to obviously talk to and market to those customers who have engaged with us over that period And continue, what we find with customers is once they start, and maybe you're what's a good example of this, they don't tend to stop even though these other Things come into it. They might defer or delay, and we might have slightly less transactions a year or we could have those sorts of things happening. But as we build that database, what we find is when I talk to customers, they've always got the next idea that they want to move to in their home. The home is never complete, and that's the beauty of, I guess, selling into homes and thinking about the home category. And with our team also then thinking about the fashionability, we know that changes over time and colors change and themes change.
So Those people who are highly engaged in this space will continue to invest in that space to maintain on trend, and they see it as a really important part of who they are and should, I expect, still be able to do some of the other stuff. I think we end up but there will be a period, no doubt, when that happens. But when I sit here today, the number one thing for us to do as a business, and this is what we've been very focused on, is continue to grow our loyalty program and the members Within that loyalty program because that gives us the best opportunity to talk to them when market conditions change for whatever reason that might be. And That will that is something we can do proactively now, build that relationship, become their brand of choice, such that when that changes, what we might find is some of that shift happens, but we still will maintain our share and we might take an Increasing share of their wallet as opposed to today, perhaps it's being spread around 4 or 5 retailers and we're not getting it all, but in the future perhaps That's another way to mitigate that.
So that's how we think about it today. We're really focused on how we continue to grow those linen lovers and how the other one for us is that Everything home as we build out our categories, and equally that allows us to access more of that market share and more of their spend per annum as they spend across a variety of areas in their homes. So those two pillars become they're our biggest Opportunity for growth and also I think our biggest defense against those times when things get a when I guess the world returns to somewhat more normal. I'm just not sure when that is at the moment.
Okay. One other question. When you started to Put together the new warehouse, you flagged that there would be some savings there between $3,000,000 $5,000,000 Are you still expecting that to come up? And if so, will that come up in the financial year 'twenty two?
Yes. We still expect to deliver $3,500,000 roughly $3,500,000 per annum Savings, that's come down a bit from the top line because we're putting more product through it as part of that. And equally, we've had a bit of a shift Clearly, in percentage of online, the good thing is that the facility, we made sure that it was more than capable of handling any shifting channel. So we're very comfortable that the facility is set up to support our online business in the way that it is today and the way we So yes, you will see that $3,500,000 It will obviously be a bit pro rata for FY 'twenty two. I have no doubt that probably first half, you won't see heaps of it, given where there's always A few teething problems whenever you go live with something like this.
I don't want to give everyone it's so far so good, but I want to make sure the team know that We're expecting that they probably have a few things that might go wrong over the next little while, but equally, Yes, I'm really comfortable that we're in a great position and that those savings will come through as soon as we get that operation on a BAU sort of basis. And Yes. At this point, I'd also just like to shout out, I think the team in Nordea has done an amazing job and partnering with someone like DHL, we see the real value in that and we've been really impressed What they've brought to the table, so we think we're in a really good position.
And one last question then. Given the situation in Asia with COVID running pretty ramp up through Do you see if that continues, how do you see that on your stock position, your ability to get new products? I know you've got stock in your warehouse, Balambie, so far. If you assume the 50% margin was, it's like $120,000,000 $130,000,000 worth of sales, And that's a long way short. So therefore, what sort of situation how do you see the situation playing out to make sure you've got What you need and the quantity you need, where you need it?
Yes. Look, to be honest, I think it's going to be pretty lumpy over the next little while. There's a combination of Supply chain challenges, capacity challenges at suppliers, etcetera, etcetera. So as you pointed out, we have tried to Isolate the business a bit from that by carrying some more inventory. It does have the ability to impact our fashion coming in.
What it comes back to though is we've just got to work with our suppliers as closely as we can to understand where they're at and how they're dealing with it in their specific area and region. And as a business, I think the beauty of being in a retail business is We never expect everything to go right. So therefore, we're well prepared to think about how we change, adapt, Move away from right, that was the promo we were going to run. That was a product we thought we were going to get. It's going to be late.
How do we adjust our marketing and promotional plans? So for us, what it means today is we have a bunch of Plan Bs. I'm not concerned that we run out of inventory. I think Today, I haven't got anything coming to me that says we're going to that our suppliers are in a spot where they are going to have to close down for a significant period of time or anything like that. I am concerned that our supply will be a bit lumpy.
And therefore, what Done with that is made sure we've got the relevant plan Bs ready to go and thought about that and even just thought about where what's the right to make in marketing and promotions and those elements such that we provide ourselves with the greatest flexibility to adapt to the environment as it plays out. So yes, as I said, I'm not concerned about inventory running out of inventory. I think it will be I'm also don't expect it to run exactly to the plan I've got today, and therefore, we've built contingency around that.
Okay. Well, that's great. Thank you very much. I appreciate your time.
Thanks, Brian.
Thank you. Our next question comes from Pete Cooper, a shareholder. Please go ahead.
Good morning, Mark, Ash And Jamie, congratulations on a great result in exceedingly difficult circumstances. Just a quick question for me In terms of talent, what are you doing to, firstly, retain the talent in the business? And secondly, what are you doing to attract Talent into this growing business?
Good question. I think I'll start with retained because I think we've got a great team and how do we continue to retain and develop that team. We are actually investing Relatively heavily compared to prior years in our ability to add talent Through training and education of those key leaders within our business, so we've got a we're working actually with a program with the Melbourne Business We've got a number of other initiatives happening in here where we're looking to add capability to our existing team and give them the right level of Challenge within their role and equally the right level of training and development outside of that role to help them fulfill their total opportunity because I think, As you say, the business is growing and what we want to do is build a really solid, not only management team, but next level down that continues to drive our strategy going forward. And with that then in relation to attracting that comes back to making sure that we're In market and that we're providing the right both environment for our teams to operate in and equally thinking about things like flexible working conditions, which has become something that's a little more wanted by potential candidates and understanding how that all works.
And I think over the time, the one thing we've made sure of throughout COVID is Communication with our team has been really important whether we know the answer or not, equally supporting the team from working from home through So providing them with incentives when we are delivering such results as these. So we've tried to make sure that we have Looked after the existing team as well as we can. And with that, we're obviously hopeful, and we expect that, that word-of-mouth as to how well the team has been looked after during the last Well, for 18 months continues to get out there and we move towards becoming an employer of choice in this space. But it's No doubt at the moment that attracting great talent is potentially harder given lack of borders, movement around All of those sorts of things, but we think we're in a good position and we'll continue to invest in that. I think particularly the learning and development opportunities for our existing team, Building great talent from within is something that we think is a great opportunity for the business to build on the strength of the team we have today and
Thanks, Mark. And just one final question from me. It's in relation to The Aderes brand, are you looking to develop any new categories within Aderes itself?
Well, we continue to think about how we build out that category range expansion. As I said, we've been really happy with our tabletop, our home Storage over the last little while, we think we've got more room to go on those. Kids is amazing, and we've played around with our Mactucky furniture, which is delivering some terrific results as well. So I think what you'll see from us, Peter, is an ongoing Slow and test and learn approach to our category range expansion, building out the business, whilst maintaining those heroes of Bed linen, bedding, cushions and throws, so we're getting the balance right of not trying to confuse customers about why you come to Adairs, but equally Start to build out more and more options in some of these other categories to enable them to decorate the home. So I wouldn't sit here today and say there's a silver bullet.
This category is going to deliver Big numbers over the next 3 to 4 years, but I think any one of those categories that we're trialing and learning in, which We see great opportunity in all of them to add significant sales and obviously profitability to the group over that 3 to 4 year time horizon.
Thanks very much, Mark, and again, congratulations on the great results.
Thanks, Peter.
Thank you. That does conclude our question and answer session. I'll now hand back for closing remarks.
Thanks everyone for attending today. Apologies to those that didn't get a chance to ask a question and we'll They can reach out to Jamie directly if they want to follow that up. But again, thank you all for attending. We look forward to what is an time in retail and we'll continue to react and adapt to the changing circumstances and we expect to continue to delight our customers over this half and deliver What will be the a good result given the circumstances that we're trading in. Thanks everyone.
Thank you, everyone. That does conclude our conference for today. Thank you for participating. You may now disconnect.