Thank you for standing by, and welcome to the Adidas Limited FY 'twenty Results Conference Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. Question by I would now like to hand the conference over to Mr. Mark Ronen, Managing Director and CEO.
Please go ahead.
Good morning, everyone, and welcome to the Adairs twenty twenty results call. Joining me this morning on the call is Ash Gardner, our CFO and Jamie Adamson, our Head of Investor Relations. The second half of twenty twenty will be remembered as the most challenging period with COVID-nineteen impacting every sector of the economy and forcing businesses to adapt to an ever evolving environment. I am pleased to announce today that the results achieved by Adairs and Mocha through this period highlight both the resilience of our model and the strength of our brands. Adairs achieved sales growth of 4.5% for the year despite closing all stores on the March 30 and reopening them progressively through May.
This resulted in Adaire's total store sales being down for the year, but up like for like after adjusting for the period that were closed due to COVID-nineteen. The decline in store sales was offset by the 61% sales growth achieved online, highlighting how Adairs omni channel strategy enabled us to adapt to the changing circumstances brought about by COVID-nineteen. This sales result was supported by an improved final gross margin rate for Adairs. This was as a result of the continuation of the sourcing work done by the team in the first half, the deliberate decision to reduce the length and depth of Adairs promotional promotions and supported by the strong customer sentiment towards their homes over the last quarter. This culminated in the Adairs business delivering a record underlying EBIT of $54,000,000 The acquisition of Mokka in December further enhanced the group's result with Mokka outperforming over the half.
Mokka total sales were up 30% on the prior year despite New Zealand being close to five weeks and the business trading on low inventory levels through the fourth quarter. This sales growth together with improved gross margins delivered an underlying EBIT of $6,700,000 for the period of Adair's ownership. The group achieved a record sales and profit result with total sales of $389,000,000 and underlying EBIT of $60,700,000 This record result together with the group's strong balance sheet has allowed us to declare a full year fully franked dividend of $0.11 per share. I'd like to take a moment to acknowledge and thank our suppliers, landlords and business partners, who work closely with us to share the impact of COVID-nineteen. I would also like to acknowledge the Australian and New Zealand governments whose employment support packages enabled us to maintain the connection with and continue to pay our teams whilst they were initially stood down.
I will now hand over to Ash to walk through the financials in more detail before I provide some more information on the strategies that will drive the ongoing growth of the group.
Thanks, Mark, and good morning, everyone. Well, we all know the world has been quite different since April. Heading into Q4, both MoCA and Adairs were trading well, and we're well placed to continue to deliver solid growth for our shareholders. However, the disruptions from COVID-nineteen led to some fundamental shifts in our focus. With the closure of all stores in Mocha New Zealand and the loss of up to 80% of our revenue for an unknown period, we moved to a cash preservation mode, standing down approximately 90% of our workforce, canceling the interim dividend and refocusing as an online only business.
We operated as an online only business throughout April and into early May and achieved results that were well ahead of our expectations. Adairs online sales were up 228% and Mocha Australia was up 139% in April. Pleasingly, we were able to sustain these high rates of growth as the stores began to reopen in May and June, with June online sales for Adairs up 66% with all stores open. During Q4, we saw many new customers and a large number of existing linen lovers shop online for the first time. Sales since stores reopen have also been very strong, with many of our linen lovers preferring to shop in store.
The impact of the store closures and the uncertainty in April did result in sales being well down on the prior year, which enabled the company to qualify for JobKeeper in Australia. So for FY20, as Mark said, the group reported an underlying EBIT of £60,700,000 up almost 40% on last year, and an EBIT margin of 15.6%. Underlying results that we've been talking to exclude the impact of AASB 16, and the Mokura acquisition costs. Adairs underlying EBIT was up 24% to 54,000,000 with total sales up 4.5%, and like for like sales up 12.6%. Online sales were up 61% and stores were down seven.
However, store like for like sales were up 3.9% when we adjusted for the store closure period during COVID-nineteen. Our online sales now represent 26.5% of total Adair sales. Our underlying gross margin increased by two twenty six basis points to 61.4%. With our ongoing efforts to manage the impact of the weaker Australian dollar, with lower sourcing costs and active management of our retail price points, whilst also reducing the extent promotional activity. During FY 'twenty, we reduced the number of days the company was on storewide promotions by 30.
Cost ratios were affected by the store closure period with significant cost reductions in April and May, offset partially by higher online variable costs and increased investment in digital advertising. JobKeeper served to reduce our operating costs by $5,300,000 with a further $5,900,000 pass through to eligible employees who were either fully or partially stood down during the quarter. As Mark mentioned, Mocker exceeded our expectations, delivering sales of $29,000,000 and a profit contribution of $6,700,000 despite the New Zealand operations being closed for almost five weeks. Sales growth and margin expansion accelerated during Q4, which is very encouraging. After taking into account the impact of AASB sixteen and the Mokra acquisition costs, our reported NPAT of £35,300,000 was 19%, up from last year, and our earnings per share of $0.21 was 17% up from last year.
Total online sales for the group now exceed $140,000,000 on an annualized basis and represent approximately 35% of total sales, with growth continuing to be very strong with elevated contribution margins for both Adaes and Mokka online businesses. Our balance sheet is in good shape. Stock is well down last year, whilst we are rebuilding inventory levels across the businesses at the moment to more normal levels and support the continued strong sales. We closed the year with minimal debt and comfortably comply with all of our banking covenants. Now I hand back to Mark.
Thanks, Ash. Apologies. As we've outlined, the business continues to perform well due to our focus on delivering on our underlying strategies. COVID-nineteen highlighted the benefit of our omnichannel business with the combination of stores and online delivering sales growth despite closing stores due to health and safety concerns for our team and customers. This period allowed us to gain greater insight into customer behavior across stores and online.
With stores closed, saw strong online sales growth with new customers to Adairs accounting for more than 30% of these sales. Further supporting our online sales growth over this store closure period were existing Adairs store customers buying online for the first time. Excitingly, there is material upside to our online business given that 63% of our LinenLove members have not shopped with us online. However, we also know that for some of these customers, they are unlikely to move online as they simply prefer shopping in store. This was clearly evident in June as the largest growth in store customers came from returning linen lovers, who elected not to shop while stores were closed.
Adairs is well placed to both increase market share as more customers move online, whilst continuing to support these customers who want to see in store experience. We firmly believe that the home category is better with stores. They provide our customers with the ability to engage with the product and the team in an environment that allows them to be inspired to create the look that is right for them. Whilst online can allow you to easily find what you want, it is harder to recreate the experience of discovery that exists as you walk through a store touching and feeling product. Our in store team support this experience through their product knowledge and ability to help customers achieve and enhance their vision, providing the opportunity for improved conversion, cross selling and loyalty to the brand.
As highlighted on Slide nine, our stores are an asset that deliver solid returns. All stores are profitable and our store formats continue to deliver strong contribution margins. Whilst customer preferences and habits are changing, we continue to ensure we have deliberately created a flexible store portfolio with 72% of store leases expiring within three years, with longer leases attributable to our larger, more profitable stores. This allows 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 hurdles. Whilst omnichannel is important, the combination of omnichannel retail with loyalty is what makes it truly effective.
Adairs is focused on continuing to grow its market share and the best way to do this is to both grow our customer base and increase our share of spend from our existing customers. Linen Lovers is the tool we utilize to achieve this. By focusing on improving our customer experience, in particular for our Linen Lovers, we can build customer loyalty and continue to grow market share. The Linen Lover program today accounts for more than 75% of Adairs sales with members spending 1.5 times more per visit than non members. It is important to note that members pay for their membership, which implies a commitment to shop with Adairs again and highlights the benefit that customers see in the program.
This allows Adairs the opportunity to enhance our knowledge of the customer and build a more personalized relationship. Our loyalty program was a key asset in bringing customers back into stores as they reopened, as we could individually target those customers who frequented those particular stores. Further, during the store closure period, we introduced a lot of store customers to online for the first time, increasing our number of omnichannel customers who historically purchase more often and spend more with each purchase than those that only engage via one channel. Slide 11 outlines the addition of Mokka to the group, which increases our exposure to the fast growing online segment of the market with the significant benefits of vertical integration. Mokka's passion for design centric in house product development allows us to offer our customers high quality design led value for money differentiated product.
This means we have control of the vertical supply chain and importantly, the pricing and promotion of our products in market, which delivers stronger gross margins and earnings. Excitingly, Mocha has been able to take advantage of the opportunity presented by COVID-nineteen to accelerate our brand recognition and growth rate in Australia where website visits have doubled since April and remain elevated. This takes us to our future drivers of growth that remain consistent with our existing strategies and are built upon our proven and resilient business model that has a high exposure to and capability of delivering profitable online sales growth. The strong brands that we own combined with our vertical supply chain philosophy allows us to build out our product offering with increased agility and control, delivering exclusive product and higher margins. Our strong brands combined with our large and loyal customer base enables a lower cost of customer acquisition and provide significant opportunities to enhance and build upon our relationships with our customers to deliver incremental returns.
Stores provide a valued and trusted engagement point with customers. Adaire's profitable store formats enable us to maintain flexibility, whilst optimizing our portfolio to take advantage of new store and upsizing opportunities. Our focus on larger stores allows us to showcase more products and categories, whilst driving increased store contribution. We will also focus on accelerating our digital transformation to further develop our digital capabilities to support an enhanced omnichannel model. This will see us invest in customer experience and customer acquisition through enhancing our digital platform and team.
We know omnichannel customers are more valuable and we expect they will grow as a percentage of the market as more customers become omni. The acquisition of Mokka increases our exposure to online and the opportunity is significant. We have seen an increase in our Australian brand awareness and we'll invest in product category expansion, customer acquisition and infrastructure including warehouse facilities to support this growth. And finally, the strategic review of our supply chain completed in FY twenty twenty saw us appoint DHL as our 3PL partner to build and operate a new purpose built national distribution center for Adairs. Partnering with DHL provides us access to a global leader in the design, implementation and operation of flexible warehousing and distribution solutions to support our omnichannel approach.
With the national distribution center on track, we will continue to invest in our omni supply chain strategy through a number of initiatives that will enhance our inventory productivity and customer experience. Slide 16 highlights the significant opportunity available to our brands even if we only consider the addressable market in Australia. As online grows, our omnichannel business model allows us to address the entire market and we have significant opportunity for growth across both channels. Whilst online continues to see new entrants each year, generally focusing on a specific niche or price point, we believe there will continue to be consolidation in the physical retail space. Our strategies are focused on enhancing our omni channel model, bringing our stores and digital channels closer together and combining this with our product category expansion to enable us to both win more new customers and greater share of spend from our existing customers.
We have successfully achieved this over the past five years and have developed a platform that with additional investment will allow us to continue to grow into the future. If I move to the outlook where we have provided a trading update for the first five weeks of FY twenty twenty one. This has been a very strong sales period with group total sales up 32% and strong sales across Adairs and Mocha. We will continue to invest in our digital capabilities throughout FY twenty twenty one and support this by opening a further three to five new stores and upsizing a further three to five stores to take advantage of the current trading environment. Our national distribution center remains on track to be operational by early FY twenty twenty one.
However, we will watch this carefully over the coming period given the potential disruptions to construction in Victoria. With the ongoing uncertainty created by COVID-nineteen, the Board are not able to provide FY twenty twenty one guidance at this time. The closure of our Victorian Metropolitan stores last week, together with our customer support office, is another example of how we must be prepared to react and adapt to the ongoing changes and challenges created by COVID-nineteen. We are pleased that our Victorian distribution centers are able to continue to operate with reduced team members to continue to support the majority of our stores that remain open, our online business and most importantly, our customers. Whilst we have seen a moderation in the sales growth as a result of these store closures, we are pleased that our online sales growth into Metropolitan Victoria has grown significantly over the last couple of weeks as these customers moved to shopping online.
COVID-nineteen has reminded Australians of the importance of a comfortable home and we believe this is motivating them to spend more on their homes at this time. We expect this behavior to continue whilst COVID-nineteen persists and other areas of the economy remain constrained. To finish, I would like to thank the Adairs and MoCA teams for their hard work and dedication across the year. Our teams are passionate about our businesses and this has never been more evident than in FY 2020. During the period stores and websites were closed, the majority of our team were asked to stand down with a smaller group tasked with managing the online businesses.
They did this with unwavering professionalism and understanding, ensuring that we successfully navigated the closure period and emerged well placed to manage and capitalize on the new and evolving retail environment. Shareholders should be confident and pleased that in Adairs and Mokka, they have teams who are committed to their customers and delivering ongoing profitable growth. I will now hand over for questions.
Thank you. Your first question comes from Ariana Rosi with UBS. Just
a few for me, please. First one around the rental side. So can you give us an idea of how many how much rental concessions you guys booked in the second half of 'twenty, please?
Ash, do you want to take that one?
Sure. So where we got deals done, we did take out some concessions. But as I'm sure everyone appreciates, it takes time to get get deals done, but it was in the vicinity of around a million bucks worth of benefits taken up, there's still a significant number of leases that continue to be negotiated and outcomes that still need to be finalized that weren't taken up because the auditors don't allow us to take it up until it's done.
Sure. And on have you done any renewals during the period? And are you getting base rate reductions? Obviously, conscious, you don't don't have to give the exact number, but are you are you getting any any sort of reductions on on on your renewals, please?
Ari, I think the approach we've taken on a on a bunch of that is to take up some short term renewals and work with the landlord to get us into a better environment to actually make a longer term decision. You'll see, obviously, with that 72% stores in that three year period over this time, we've probably extended a number of leases, but that will see us have a significant number of leases expire over the next twelve months. And during that process, we expect to reset some of those underlying base rents. But at this stage, we didn't take up significantly reduced rents. We've more worked with the landlords to actually make sure we could all see ourselves through this period and put ourselves in a position where we understood the environment going forward.
Perfect. And next one is around just online and the contribution margin. So it's obviously a biggest contribution margin channel. And online is basically growing from 4%, 5% sales five years ago to 35% annualized. Why haven't we seen that through the EBITDA margin over time?
Like if online is 35 what's a significant driver in contribution margin? Has there been significant investment in the fixed cost base to get us there and now you should start to see that operating leverage flow through moving forward? How do we think about that?
Yes. So let's just be careful about the use of 35% because that includes moko, right? So let's when you start doing that 5% to where we are today, that's about 5% to 26%. And we've obviously accelerated during the second half when you shut stores for between four and eight weeks depending on the store. So the contribution margin is high, but over that time, we have invested in people and resources that we in terms of our overhead costs to support that growth, be that both in product, category expansion, design and development and also through an expanded marketing team, which we don't allocate necessarily specifically to channel and is included in some of those overhead costs.
So whilst I think you will start to continue to see that contribution margin stay high, what we do know is that it does continue to require ongoing investment in building some of that out. And even our warehouse facilities, we've had to expand them over that time, and we don't necessarily attribute it specifically to online because it supports the entire business. So a lot of the investment that has happened is both to support our stores and online, but there has seen an increase in that overhead cost associated with that. So I think we do start to receive some of those rewards, and I think you start to see them more likely in FY twenty twenty two as we get the warehouse under control and those initiatives we've taken over the last year or so to put us in a position to truly capitalize on the omnichannel model that we're building out now.
Perfect. And last one for me, please. Just around your total addressable market, I think in previous presentations, mentioned the market's $4,000,000,000 to $5,000,000,000 and now you're saying it's about $12,000,000,011,900,000,000 Is there any new category that you're entering in that makes you expand that addressable market? Or is it just a change in definition?
Well, it's a slight change definition, but I think with the addition of Mocha, we talked about Adairs is a soft furnishings business that has an element of furniture and Mocha is a furniture business with an element of soft furnishing. So we never really captured that entire furniture market in that space. And that's the biggest change to that addressable market from prior periods to now is how much of the furniture market we think we can go after with the addition of the Mokka brand into the group.
That's perfect. Thanks,
Your next question comes from Aaron Yeoh with Goldman Sachs.
Mark, Ash and Jamie. Congrats on the good results. Just a couple of questions from me this morning. Firstly, on Mokka, I mean, it looked like the margin there well exceeded my expectations and I think most others as well. Can you just talk about the key drivers of this and whether you think at the EBITDA level, that margin that you're seeing at the moment for Mokka is sustainable?
Look, it exceeded our expectations, and I wouldn't want anyone to pump that number in as being the sustainable EBIT margin of that business. Obviously, it benefited greatly from the fact that a lot of retail stores were closed. People were more likely to be looking online. And therefore, our cost of customer acquisition came down significantly over Q4 as just more and more customers were using that as their only way of shopping and search tool, etcetera, etcetera. So therefore, we saved significantly there, but we did get the operating leverage out of those assets that support that business.
But we know to take that from where it is today to where we think we can get it to. We will need to invest some of that EBIT margin. But we talked when we acquired the business that it's sort of that we are aiming at that 18% to 20%, and I still think that's the right long term number for us to be thinking about. But there's no doubt it exceeded our expectations over the half and in particular over the last quarter.
Sure. Great. Thanks. And then just with regards to the Adairs Group gross margin as well, I mean, very sort of pleasing results there. Heading into next year, can you talk about what sort of initiatives you have in place to manage the gross margin next year?
Well, I think we continue to do what we do We've delivered a terrific result and we said that twelve to eighteen months ago, we set out with a very deliberate approach that what we wanted to do was work with our suppliers and improve, I guess, the inbound cost given the falling AUD and wanting to manage that piece. But also more than that, we wanted to really think about how we made sure we capitalized on the effort and work of our product and design actually stopped promoting as heavily as we once were to drive sales. We wanted to make sure we rewarded that team for their efforts and got the true value of that product. And I think for us, we will continue to operate with that as a key philosophy, and that should continue to deliver good EBIT margins.
Now good gross margin, sorry. I'm not suggesting that we could drive a similar increase into FY 2021, but we certainly will look to maximize, as we've talked about in the past, like for like gross margin dollars rather than simply chasing like for like sales dollars, because we think it's important that we manage the business for the long term and chasing sales at a detriment of margin is not a great way to play it. So we think the ongoing work that the guys have done and that focus that we've created in the business will continue to help us maintain a higher gross margin than perhaps we operated on in the past.
Yes, sure. Thanks. And then with regards to the strong sort of, I think, the new customers that you're seeing online, can you make any comments with regards to their sort of purchasing behavior in terms of frequency of purchase or types of products that perhaps might be sort of doing a bit better at the moment?
Well, it was an interesting period over that Q4. We saw a number of new types of customer. That new 30% of customers sort of were spread a variety of people, those looking for, let's call them, core product essentials, so bedding, so quilts and pillows, sheets, towels, those sorts of products, and then those that were looking for a change. So we probably saw a couple of distinct customer groups come through there. It's a bit early to talk about frequency of shop.
We have a category that generally people shop three to four times a year. So with the thing only in the fourth quarter, we're a bit early to actually see if they are significantly different customers, but we will learn that over the coming period. And the beauty of our Linen Lover program and the way we're collecting that sort of information, we have the ability to actually trace those customers and whether we do see any significant change with them over the time. But I mean, it was an interesting period, and we did certainly see a big portion to some of those both categories. Initially, it was very much focused on setting homes up and getting comfortable.
But then as COVID-nineteen has progressed, we've probably seen people really come back to really thinking about some of the fashion elements within their home, cushions, throws and additional pieces like that to build out their home and their space to create that look that they're looking that they're after.
Great. Thanks. And sorry, one last question from me. Just with regards to the 3PL supply chain investment you're putting in place. I mean, obviously, you'll have increased capacity moving forward.
How should we think of that in the context of, I guess, your online strategy? Just a bit of a left field line here, but would you ever consider adding a marketplace to your website?
Well, we don't we don't rule anything out. That's that's something that we consider. But I I think one of the key strengths of our brands is the vertical nature of them and making sure that we don't dilute that vertical nature by trying to be all things to all people. So what we need to make sure of is that whatever we do, we continue to deliver for those customers and think about it as an omnichannel retailer, how we're ensuring that customers are getting the very best experience. And I think one of the things that we really focus on is making sure that we create a curated and ease of shopping as opposed to potentially some marketplaces where you blow out SKUs, you blow out width of range, and that can create a challenge for customers.
You can argue it creates an opportunity to find everything you like and everything you want, but it also creates, for some customers, a difficulty in actually working out how do I get to that product. So for us, as I said, we don't rule out anything. But at the same time, we want to make sure it comes back to what Adairs is and what Adairs aims to be for our customers rather than just thinking about it as it's a good idea and work down that path. So in the short term, I can say that it's not something you'll see from us in the next six months.
Great. Thanks very much, guys, and congrats again.
Thanks.
Your next question comes from Mark Wade with CLSA.
Firstly, just curious, I mean, what's prompted the early results release,
which was unaudited for the first time?
Well, I think when we finalized well, we haven't finalized the order, but we got to a level where we thought the numbers were pretty solid and well up on perhaps consensus that we obviously looked at our continuous disclosure requirements and felt that it was required that we come to market a bit earlier, given we now had a set of numbers that we were confident in and therefore presenting to you guys.
Mhmm. Okay.
Fair enough. And then just just looking at I mean, how are you kind of planning to to run the business in this kind of environment? Must be very challenging. I mean, you can't really travel,
finding stores would be hard.
I mean, looking at just getting designs and, you
know, you'd normally look at
what new fashions are coming overseas. I mean, just how how are you tackling that that enormous challenge to to think about setting business up for the next twelve months and beyond?
Yeah. I think you you've just gotta become adaptable. Right? So in all of those elements, we've got other ways and means. I mean, between us within this management team, there's not a shopping center we haven't been to.
So it's not particularly difficult in terms of new stores for us to understand where they are, understand whether we like the center, where they are on the list. We had a list three months ago and I don't expect that to change. When you start to think about product, that does become more challenging. But at the same time, the guys have already thought about different ways of addressing that. So for instance, we've all got friends and relatives and others overseas, and we are engaging with some of those sorts of people that we trust to work with us walking around stores and providing us with that input and feedback back into our design process.
We obviously can work with our suppliers as well as to what they're seeing out there. So there's a number of ways in which we can adapt and address some of those elements that we would consider more challenging or might be considered more challenging. And I mean, of the great things about Adairs is our long history with a number of our suppliers allows us to work with differently and come up with new ways of working those guys to ensure that we get that right. So there's no single answer to that question, but I think we're just seeing different ways of doing it. And I think the beauty of a business like Adairs and others out there, no doubt, is that we just have to adapt.
I mean, you can't change the circumstances that you're operating in. So therefore, the only response you've got is think about it and how we're to overcome it in this business and this team are very capable of doing that.
Okay. And lastly, I mean, it's a $64,000 question, but look, how long does this real purple patch that last for retailers, homewares, retailers, what you sell, so it's in furniture where sales are going up Mean, long how long can it really last? Is it just a matter of borders reopening and people travel again or they're back at work? What's your sense there on the the longevity of this surge?
Yeah. It's a good question. It is the you're right. It is the million dollar question for everyone to to consider. And I think when we look at it, we believe that whilst, you know, people are constrained from doing a lot of the things that they would normally do, including international travel, travel amongst the states, even all of that suggests that there'll be more money spent in home over that period.
So I guess that's the question for us all to answer, how long do we believe that to be? If you'd asked me four weeks ago, I wouldn't have thought it was going to be as long, but four weeks changes a lot in today's world. So providing any real guidance as to how long that might be there is very hard to do. And I think that goes to our approach, which will be to maximize the opportunity that's being presented to us in as risk free way as we can. So we're not going to sit here and blow out inventory.
We'll manage our inventory closely. We'll do all the things that we normally do as a disciplined retail business to make sure that we don't get caught short or caught long if it comes off or if it continues for a longer period than we believe it to be. So I think if I look at what we've delivered over the last six to eight weeks, we're operating the business on significantly lower inventory than normal, yet our sales results are quite incredible. So with those two things, we know what we can do. We've thought about that.
And we'll just manage to the best of our ability. So I think, again, I come back to it a bit like your previous question, Mark. It comes back to creating a business and a philosophy of adaptability and agility that as things get announced and as things change, we just move with them and work out how that impacts the way we were operating beforehand and the way we're going to operate going forward. And again, I really want to shout out to my team and the businesses that have been really good at working in what is quite a different environment given, no doubt, those that have spoken to me for a long time, I talk a lot about executional excellence. And that's more challenging in a world where you change what you're doing every four weeks.
But the guys have done a great job, and I expect we'll continue to manage that accordingly.
Yes. No, I think that whole philosophy and that's something you guys have had for a long time, it sells up really well. So all the best, I think it will continue. Well done. Your
next question comes from Joe Little with Morgan.
Just firstly, just from a cash perspective, can you just quantify deferrals and make goods that will flow into FY 'twenty one just on tax and rent, etcetera?
So obviously, you can see our tax provision for tax is a little bit higher. We've also got some rent deferrals where we're still in negotiations with the landlords to finalize. And then in terms of other taxes, they're minimal and that's net of a job keeper receivable for June that we haven't got the cash flow yet. So there's not a significant amount of deferrals and rent sort of 3 to 4,000,000 of deferrals, which we're still working through.
Okay, great. And just on the inventory, Mark, which we're just talking about then. I guess we landed at $43,000,000 order at year end. What's the more normalized level today for that? I know you commented that Muckle was probably 20% below adequate kind of levels.
Is there a number you can kind of point to today that would be more normalized across both businesses? What's the rebuild, I guess?
Yeah. I I I think it's somewhere between 10 15,000,000. I mean, that that number there has significantly more stock in transit than perhaps normal because we had to get back into stock. So, you know, there's of stock on the actual in the actual business as opposed to in transit and the like is probably operating about 25% below where I think it should be. And Mokka, obviously, we've called out the 20.
So yes, if you think about a rebuild of somewhere between 10,000,000 and 15,000,000 that's the sort of number I'd expect to flow back into that inventory line.
Great. Thank you. And just on that, Mark, how are you positioning your inventory? Obviously, you're balancing the gross margin equation. But just for Christmas, balancing, I guess, what you're seeing today versus what might happen at Christmas.
So you last time you had a conference call, I guess, you're a little bit more circumspect on Christmas and running it tighter. How do we how are you thinking about that today?
I I think I've probably loosened it a little, but not not significantly. I think we can see what we can do with the inventory we've got today, which, as I said before, is is pretty amazing. So therefore, we we probably don't need to loosen too much to capitalize on the opportunity that might present itself over that quarter. And therefore, we can derisk as we approach that Christmas period by moving our inventory levels back to more normal. And if the customer is as buoyant as they are today and spending as much on home as perhaps they are today, then we'll take advantage of that opportunity with the inventory we've got coming.
So we've probably tweaked a few things and increased our purchases for this half to make sure that we put ourselves in a good position to capitalize on that, but not such a position that we feel like we could end up way high on inventory should the consumer step away for any reason over that period. So we've tried to balance risk and reward. And I think the guys have done a great job in sort of positioning ourselves sort of down the middle of the fairway, which allows us to play up or down depending on how the consumer is over that second quarter, which obviously is a great unknown at this stage.
Yes. Okay. And just on the trading update, which was obviously very strong. I mean but you're pointing out the lower inventory. Are we to assume that, that was still, despite being very strong, constrained by the lower inventory position, particularly in Mokka?
Yes, for sure. Yes. Yes. There's no doubt that if we had more inventory today, we'd be selling more stock.
Perfect. Thank you. And just on the Mokka earn out, I think it's got in the account the max of kind of $30,000,000 kind of value carrying value. How much of that's payable in FY 'twenty one again, Ash?
None. None in FY '21.
All in '22. Got it.
Yeah. Yeah. Yeah. It's FY 2223. The payment is based on FY '21.
Yeah. Perfect. Thank whether they extend it for the third year, it's sort of thirty to 50% in the end of FY 'twenty one.
Okay. Got it. And just lastly, just a couple of things around just state performance. If you can just give us a bit of a guide there and also the average Linen Lovers basket size, if possible, in that fourth quarter versus TCP?
Getting into the detail there, Jack. Generally, to be honest, across that fourth quarter, we were strong across all states. We didn't see significantly different results. WA is probably trading better than others. That would be the one that I'd call out that was above average.
Linen lover basket size has probably remained about the same, but fair to say probably lower items per se per basket and a higher average retail price. So we haven't seen significant growth in ATV, but we have seen significant growth in both transactions and retail prices over that quarter.
Okay. Perfect. And I know I think I know the answer to this last one, but obviously, we've reached your online target well ahead of, you know, what was kind of expected. Is there any rough online sales targets you're looking at in coming years? Or are we just in such a a weird kind of period at the moment?
It's you're not willing to do so?
Yeah. Look, you know, I I come back to my comment, how do we how do we just continue to enable customers to shop anywhere, any anyhow, and any way they want. But, there's no doubt you're right. We've achieved it beforehand and now the trick over the next sort of twelve months for us is how do we make sure that we continue to grow that given the weird world that we are sort of operating in. And let us get to the other side of that and we'll set some longer term targets, but there's no doubt that we think there is still significant opportunity in both online and physical retail sales over the coming years and that's what we're going to go after.
Very much guys. Have a great
day. Joe, just one other thing on Mokka. Just remember, there's no maximum payout. The better they perform, the more they get paid.
Your next question comes from James Casey with Baylou.
Just a question with regards to the JobKeeper payments, the $11 odd million there. You split those into two components. Can you just explain those two components, why you've split them in two?
Sure. So the $5,300,000 represents the direct cost saving that we received for the people that actually worked during that period. And the government subsidized the wage that we're paying them. And the 5,900,000.0 is effectively us acting as Centrelink and passing money through to our team that was stood down either partially or fully. So the 5,900,000.0 has no financial benefit to us.
It's us passing through the government benefits to our team. But the 5.3 was a direct cost reduction that's reflected in our before.
Okay. I take it the difference between the cash flow statement where
you've
got receipts from government grants, 7,100,000.0 and the JobKeeper payments, is that just a timing difference on the receipt of the cash, is it, from the keeper?
Correct. Yes. That's the June the five weeks of June that we haven't received. We received the money from the government in arrears.
Yes. And then going into first quarter twenty one, is a a similar payment, $11,300,000, you said, where you see the number landing?
Yep. Yep. There there are. And then
yeah. And then beyond beyond September, what happens then?
Based on our interpretation of the way the scheme is likely to evolve, we doubt we'll be eligible given how we've been performing. But it is an uncertain world, and time will tell, but we don't plan or expect to be eligible post September.
Okay. And then just lastly, on rental relief, are there any clawback provisions around the rental relief you've received?
Not directly. So some of the arrangements we've made with the landlords I mean, the principle we we engage with landlords was to share the pain. So in some cases, to going rents are higher. See the fixed order amount.
Your next question comes from Jack Strudwick, a private investor. Most
of my questions have been answered. The one thing I wanted to ask, though, was about the provisions. That more or less flat on the current provisions, but the non current provisions are down a bit. Can you
speak what that to me about what that's about? It's largely to do with the movement of employee provisions between current and non current. There's nothing of any real significance in there. I'm just making sure there's no IFRS 16 related things, which there there isn't. So, yeah, it's just largely to do with the the movement of employee provisions.
There was a quite a few team took leaves and were paid leave during the stand down period. Okay. And then there's other minor bits and pieces in there.
And so rent deferral, say in Victoria doesn't go through to your provisions, or
you don't provide for that? That's just a normal trade creditor.
Your next question comes from Ariana Rosi with UBS.
Just around your cost base, I mean, how much flexibility after you post job paper, if things do slow down quite materially, how much flexibility do you have on your labor cost base in terms of lowering staff hours, casuals, etcetera? I'm pretty sure it's a sensitive issue, but any comments you're going to give us around flexibility on your labor cost base, that would be great. Look,
I mean, like other retailers, we have a significant portion of casual workers who we are capable of moving hours around with. So I think if you thought about our labor cost base, there's circa 30 to 40% of our store labor that is casual. But I would argue that some of that, depending on the hours of trade, you can't you can't get that to grow in in a big hurry. You've got to operate the store, and we don't have enough team necessarily across the balance of the full time and part time to adequately staff the store over a full week. But I think what we're seeing during this period is retailers becoming a bit more flexible and thoughtful around how we use things such as opening hours and center opening hours and all of those sorts of types of other levers that also help us manage that that labor cost line to bring it into line with how sales and how the consumers are are operating in a in a COVID type world.
So, you know, if you think about that 20 to 30% would be flexible in our store labor number. That that would be where I'd I'd sit it at.
Sorry. That's 30 to 40% of your dollar cost labor cost or your hours? Sorry.
I'd say 20% to 30 of our hours and our store hours as opposed to our total labor cost, which you would take out of the p and l, which will obviously include a significant amount of our customer support team, which realistically is not overly flexible. Would argue that is a predominantly fixed cost and would require restructuring and the like to significantly take out costs. However, I think we expect that those sorts of management is what we continue to do on a store basis and the opportunity presents itself at the moment in relation to the market and where we want to take the business would see us continue to support our customer support labor or our support office labor here to drive the future growth of the business. Thanks, guys.
There are no further questions at this time. I'll now hand back to Mr. Ronan for closing remarks.
Thank you. And I'd like to thank everyone for their continued support of Adairs and for joining us on the call this morning, and in particular, throughout this period where I know a lot of people have had a lot of challenges. And again, I'd just like to thank the Adairs team for the amazing effort that they put in over this period and the way they approached COVID-nineteen. And thank you again.
That does conclude our conference for today. Thank you for participating. You may now disconnect.