Thank you for standing by, and welcome to the Evairs Results Call for the 2019 Financial Year. 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 Bran, Managing Director and CEO of Adairs.
Please go ahead, Mr. Ronan.
Thank you. Good morning, and welcome to the Adairs twenty nineteen financial year results call. With me this morning is our new CFO, Ash Gardner and our new Head of Investor Relations, Jamie Adamson. We'll take our twenty nineteen financial year results where Adairs achieved a very good sales result with top line sales growth of plus 9.7%, driven by like for like sales of 7.2%. The like for like result was off the back of another great year in online, up 42% and a solid store like for like sales result of plus 1.5%.
We were very pleased with the sales result and the execution on product throughout the year. Our gross margin result was in line with our guidance, coming in at 59.2 pre AASB 15 adjustments. Throughout the year, the gross margin rate was impacted by higher distribution costs and the weaker Australian dollar. Excitingly, New Zealand was profitable over the year, giving us additional confidence to open new stores and continue to develop the brand and the business in New Zealand. The overall impact of the reduced gross margin rate and an increase in efforts of doing business, in particular around supply chain, saw us deliver an EBIT result of £43,400,000 which was down 2.4% on the prior year.
Given this result, the Board declared a fully franked final dividend of $08 per share, taking the full year dividend to $0.01 $4.05 $5 which is up 7.4% on the prior year. I will now walk through some of the key areas in more detail. If we move to Slide three and the sales results. Total sales were up £30,000,000 over the year, with stores driving £13,000,000 in sales growth. The store sales growth came through like for like sales of 1.5%, driven by the performance of our expansion categories, in particular, Home Decor and Adairs Kids, with ongoing growth from our core categories of bed linen, bedding and bathroom.
Further supporting our sales growth was the opening of five new stores and the upsizing of five stores. We expect all these new and upsized stores will meet our sales expectations over the coming year. Our disciplined approach to reviewing our store portfolio saw close seven stores during the year. It should, however, be noted that these closures focused heavily on the smaller stores within the portfolio, including the three Myer Concession stores and two kid stores that were merged into larger Adair stores within the same center. We saw a special year with less total store numbers, but with a larger average store size and growth in our total label area, or GLA, of approximately 4.5%.
We continue to review our store portfolio with a view to increasing the profitability through optimizing the existing portfolio via upsizing, closures, relocations and complementing this with new additional stores. Our online sales grew strongly as we continue to enhance our customers' omnichannel experience. Online sales were up 42%, largely driven by increasing traffic to our site. This increased traffic has come by growing in social media engagement, continual improvement in our search engine optimization and marketing and improving the integration of our Linen Lover program with the online channel. This increasing traffic combined with improved conversion allows us to build our number of new customers online, providing us with ongoing growth opportunities as we look to increase their share of our customers' purchases across our expanding category ranges.
Despite the higher variable nature of costs associated with the online business, we saw strong contribution growth from the online channel over the year, even with there being less operating leverage available. The sales growth across stores and online is being driven by both new customers shopping with Adairs and existing customers buying across more categories. On Slide five, you can see the impact that our product strategy is having on driving the growth of the business. And importantly, the combination of our expansion categories growing as a percentage of the total business, combined with ongoing growth of our core categories. This strategy provides our customers with more reasons to shop at Adairs and at the same time, diversifies the Adairs business.
Over the year, we have seen significant growth in our kids range across bed linen and bedding combined with kid decorator and furniture items. This growth has come from both our store network, in particular, the Homemaker stores and bar online. Further, have seen good success across categories such as wall art, storage and other home decorator categories. In these categories and across the majority of our expansion categories, we remain relatively small players in generally fragmented markets, providing us with scope to continue to grow our market share. The focus on developing a wider, more comprehensive range allows us to furnish more of our customers' homes.
This enables us to both attract a new customer to Adairs and importantly, allows us to capture a greater share of our existing customers' spend on their home. You see our product expansion strategy as being a strong contributor to continuing to drive our sales growth over the coming years. If we move to Slide six and the gross margin rate. I'd like to take a minute to highlight the impact AASB 15 has had on the classification of costs within the statutory profit and loss this year. The changes have resulted in postage costs related to our online sales now being recorded as a cost of goods sold and as such, reducing our gross margin.
We consider it more appropriate to treat these costs as an expense as we always have, and as such, have completed our analysis for the financial year for both gross margin and our cost of doing business based on online postage cost cutting and operating expense of the business. With this in mind, we saw gross margin decline 110 basis points over the year. This decline in gross margin rate can be explained by three key drivers: the impact of the declining Australian dollar. As a business, we tested a number of price increases and started discussions with suppliers around cost prices. However, we did not move fast enough to mitigate the impact of the falling Australian dollar over the year.
Whilst this will remain a headwind in FY 'twenty, we have now obtained a number of cost cost reductions and implemented a broader price increase strategy based on the learnings from FY 'nineteen, which has seen us start to improve our underlying gross margin rate to combat this decline. Further impacting the gross margin rate was the impact of increased distribution costs. Distribution costs increased during the year due to the growth of the business in areas outside of Victoria and New South Wales. Ongoing growth in the sales of our bulkier products and the impact of some costs associated with the activation of the additional DC capacity to support the growth of the business. The underlying margin made up the balance of the decrease against the prior year, but is impacted by us driving the business harder towards the end of the year as we saw sales decline, combined with some challenges in selected product categories that resulted in further markdown activities to ensure we finished the year with point inventory.
In relation to our cost of doing business on Slide seven, our operating costs increased by 11%. However, we were able to maintain costs as a percentage of sales across the key areas of salaries and occupancy expenses. Ultimately, our other expenses grew as a percentage of sales, reflecting increased costs to support the online sales growth, including online postage and additional DC operating costs as we ended up with inefficient processes brought about by running multiple distribution centers in Melbourne to cater for the growth of the business, including setup costs across labor, freight and establishment of the facilities. FY 'nineteen year saw Adairs grow sales in line with our expectations and maintain a relatively stable underlying trading margin that was impacted by the speed at which we reacted to the weaker Australian dollar and our costs that were significantly impacted by supply chain not having the capacity to manage our continued growth. Importantly, both of these challenges can be managed by the business, and we are already actioning plans to better manage both the overall supply chain costs and improve our underlying trading gross margin to reflect the current Australian dollar.
I'll now move to our strong balance sheet position as highlighted on Slide eight. The closing cash position of £16,700,000 saw our net debt reduced to £8,200,000 with our net debt to EBITDA ratio falling to 0.16x. Our inventory position increased £9,200,000 with £5,900,000 of this coming from stock in transit as a result of system improvements providing greater visibility of stock at overseas ports and in transit to Australia. Further increases came from the revaluation of stock based on the lower Australian dollar, and a small increase in actual stock helps support the sales growth across online and our up sized stores. The increase in other liabilities reflects the impact of AASB 15, which sees the deferred revenue relating to the LinenLover membership reflecting its unearned income.
Ultimately, the balance sheet is strong and provides us with a great platform for growth. Throughout the year, we continue to invest capital for growth via opening stores, upsizing stores and through ongoing expenditure on technology, as highlighted in Slide nine. The CapEx requirements for the year were less than anticipated, largely due to the contributions received from landlords to support our larger, more inspiring store strategy. The cash flow of the business remains strong, as highlighted on Slide 10, although we did see an increase in working capital requirements, in particular around inventory and changes in the funding tax payments, reducing the level of cash flow from operations. As I mentioned previously, we reduced our net debt to GBP 8,200,000.0 and have declared a fully franked final dividend of $0.08 per share to be paid on the September 25.
Slide 11, we've highlighted our FY 'nineteen year and how we've delivered on the underlying strategies of the business. Our product, product, product strategy, which sees us focusing on delivering differentiated product and growing our expansion categories, delivered the like for like sales growth of 7.3%. The team delivered a year of on trend, well curated products that inspired our customers and delivered a strong sales result. Our focus on more inspiring larger stores saw us open five stores, upsized five stores and refurbished another six stores. Whilst we did not increase our overall total number of stores, we increased the average size of our store and executed well on merging two kids stores into a large store within the same center.
International expansion in New Zealand had a good year. The sales results improved throughout the year with stores and online growing strongly, particularly across the last quarter. This improving result in New Zealand provides us with confidence that we can build a successful business in New Zealand, and we will look to open additional stores in FY 'twenty. We continue to grow our teams through enhancing our management capability, in particular in key areas such as finance, supply chain and digital. Further, we increased our investment in our team's learning and development across the year that will reward us in the future through leaders in our business and develop from within.
We have continued to build upon our omnichannel capabilities with online sales increasing 42 and now representing 17% of our total sales. Further, we grew our Lunar Lover loyalty members by 17%, with these members now representing 75% of total sales. Our omnichannel capabilities are being constrained by our supply chain. This has seen us add an additional strategy focused on creating an agile and efficient supply chain to support growth in both online and stores. We know there is significant value to be created by optimizing our supply chain's capacity, productivity and efficiency over the coming years.
This will be supported by the consolidation of multiple DCs into a single DC facility in FY 'twenty two. On Slide 12, we have highlighted the creation of this six strategic pillar around the improvements required to deliver an agile and efficient supply chain. The FY 'nineteen year was a challenging year in supply chain as we extended the capacity in our primary DC and took too long to develop an operating rhythm for supply chain across the multiple facilities. This resulted in the business incurring not only one off costs associated with establishing the additional facility, but ongoing increased operating costs. Whilst we expected to be in a position to provide a more detailed plan of how we expect to create an agile and efficient supply chain and the costs associated with this, we are currently in negotiations with a number of parties around finalizing detailed plans to support a restructure of our supply chain, anchored by a single new facility that will be operational by FY 'twenty two.
This restructure will provide us with the platform to support the ongoing growth of the business, both through stores and will assist the achievement of our medium term online sales target of $100,000,000 As we conclude these negotiations, we will provide shareholders in the broader market with more detail. However, given the length of time that the project will take and the operating costs incurred in FY 'nineteen, we are making changes in the interim. We will see an improvement in our supply chain over FY 'twenty and FY 'twenty one by our investments in the management team and their execution of initiatives that will improve our capabilities and productivity within our existing facilities. These initiatives will see us both lower our costs and improve our customer experience over the coming years. If I move to the outlook for FY 'twenty.
We remain confident in our ongoing like for like sales growth numbers and expect to open four to six stores and upsize a further three to five stores over the year. We've seen our first seven weeks of trade in FY 'twenty deliver like for like sales growth of plus 4.8%, with online growing at 26.9%. Due to the changes in accounting standards, we no longer believe that we can provide gross margin guidance. We acknowledge the currency headwinds that we will face in FY 'twenty. However, we believe that we are better placed based on the learnings of FY 'nineteen to manage these headwinds and have already implemented widespread price increases and negotiated reduced costs early in the year.
This has seen the business improve underlying trading gross margins over the last seven weeks. Given the introduction of AASB 16 in the coming year, we have provided guidance pre any impact of this standard. In Appendix five, we have highlighted the likely directional impact on our statutory accounts, although we note that the standard should not have any economic impact on the business as it will not change our cash flows, debt covenants or net assets. With this in mind, we expect to deliver modest EBIT growth in the coming year, reflecting our sales expectations, the additional investment in our team to drive our growth initiatives and better management of our supply chain costs and our underlying gross margin rate. Whilst the FY 'nineteen year didn't deliver the bottom line result we were looking for, we executed well on our underlying growth strategies and believe the business is well placed to continue to grow.
I'd like to thank the Adairs team for all their work and support over the year, and we look forward to delivering on our underlying strategic plan. And with that, I'd like to open the line up to questions.
Your first question today comes from Aaron Yea with Goldman Sachs.
A couple of questions for me this morning. Just first one, with regard to the improvement in the like for like sales growth for the first seven weeks in the year,
is there anything you could
call out as to sort of what has driven this improvement? And I guess just your comments around expecting revenue growth to continue to be strong over the course of the year. I guess what gives you the confidence that we should expect this, particularly given what we saw in June?
Yes, it's a good question. What we're seeing is the we saw it bounce back as quickly as we saw it disappear. And ultimately, we've delivered a good set of numbers over the first seven weeks, driven by the new ranges coming into store, the ongoing growth of some of those expansion categories and the additional ranges we're adding into those. So we think there's continued growth around those expansion categories and increasing our inventory investment and width of those categories to drive increased sales, together with some refinements we've made to our underlying core categories that are delivering good numbers over the first seven weeks. So the hard part of this game is that you're only as good as the last little trading period, and we've seen these results.
And what the good news for us is we're not seeing them being particularly driven by one thing in particular. The combination of those core elements that we have been looking to put in place that has really driven it. And the new season ranges in particular have driven a lot of that. Now does that mean it continues over the year? That's we wait and see what the customers' reaction is as we continue to deliver the product.
But as we sit here today, we feel good about what's going on. We've moved prices, driving better margin in the business and driving that like for like sales number that we continue to see that we think we should be able to execute on that. And if you think even to the full year results for last year, we delivered plus seven in the first half and plus seven in
the second half. We had
a rough patch there in June that knocked us around a bit and made us think about some things. But ultimately, the underlying strategy of the business continues to deliver a good like for like number, and we don't see that dissipating unless we see something macroeconomic that isn't there today impacting us.
Okay. Great. And then just second question on gross margin. I'm a bit confused as to, I guess, what's your comment on gross margin tail as to be as around sort of what we should be expecting for gross margin next year relative to this year? Are you saying that gross margin should be I mean, should we expect to be
more than just this year or around the sort
of same level? And I guess just with regards to the commentary on pricing, have you seen any of your competitors make price changes to combat the FX headwind as well?
I think we're seeing so if we start with I'll start with competitors. We're definitely seeing competitors start to move prices, and we're hearing it both through wholesale and retail components of that. So I think all we all know that we are all in the same boat. We're all exposed to the USD and the Australian dollar. So therefore, we expect to see that come through the market.
We've decided that with the learnings we took out of the second half of FY 'nineteen, we pushed some price increases through. We tested, we trialed. And what we've identified is a plan to bring that through more fully in FY 'twenty. And so far, we've seen that resonate with the customer or not impact the customer. Therefore, whilst I'm seeing it come through other competitive set, I'm more interested in how ours is working with the customers, and they're seeing some good results in that in terms of increasing underlying gross margin delivered week on week as we've moved those price increases through.
Back to gross margin, well, think what we've done in gross margin there and the reason why we haven't given a lot of guidance is it really does start to play into a number of points into the statutory gross margin is going be impacted by the impact of online postage and how big online is as a percentage of the overarching business. Now we have our underlying expectations on what that looks like. We're just adding in additional factors. At this stage, we sort of think that we can continue to try the business in or around the same gross margins as we've experienced in the past, that underlying trading gross margin, including FX, and that's really our aim for the year. But and that flows through into those EBIT numbers that we've obviously put out with the results or with the guidance there.
Okay, great. And then last question,
just with regards to the
near term initiatives on the sort of CODB line. Can you sort of give us some more specific details around that?
Well, a lot of it will be in supply chain. And what we can see in supply chain is currently, we have a complicated element within there, particularly around our online orders. So you guys have seen my facilities and come out and visited us in the past. The moment we consolidate all of our online orders through one distribution center, and we will look to that will be amended and we will be distributing from multiple distribution facilities that will take out some costs associated with handling that stock. We've also done a lot of work on improving a number of elements within the supply chain, upstream out of China, working with some freight forwarders to how we improve our freight rates, working on how we might be able to reduce costs coming through into the Australian market in terms of that cost of delivering product into Australia, and then working with our local providers on how we provide a more efficient and more cost effective delivery into stores.
So we have a lot of work going on in supply chain all at the same time in order to not only look at that underlying cost of that, but how we can improve the productivity and efficiency within that supply chain piece. And ultimately, that's where a lot of our focus is on that CO2B line. We still think there's opportunities within rent, occupancy expenses. It's definitely something that as all retail businesses are doing at the moment. We think there's good opportunity for us to continue to focus on how we drive additional savings out of occupancy lines.
So and ultimately, I think the other piece for us, our earnings as a business, we'll continue to focus on that CODB and increase the focus on the CODB over the next couple of years across all areas of the business. So there won't be one individual silver bullet. It will be the combination of all of those sorts of mini projects that will do it, but there's some big ones, particularly in supply chain, that we think can deliver real value, and we should be able to execute early in FY 'twenty. The
The next question comes from Jordan Bridges with UBS Investment Bank.
Just first question around the online margins. I know you've talked in the past about it being sort of where you think it's right at the top in terms of taking orders into incremental margins. Now given the extra supply chain costs,
I know some of them are sort
of one off. Just interested in your thoughts. How do you think now it compares relative to your group EBIT margins of 12.6%?
Yes. I mean it's really hard to think of it at a group EBIT margin, Ron, Jordan, on the basis that how do you allocate the cost of the product team. We're creating the product for stores and online. So the best focus we put on it is how does it contribute at a let's call it, a channel line or a store contribution line is where we see it. And it continues to sit at around the same as Homemakers.
And we call that out at circa 30 or thereabouts of sales delivering that through to a store contribution or store profit line. So I just we don't call it profit because it sort of doesn't fall down to EBIT quite neatly as we think about the consolidated costs. Because ultimately, the supply chain increases across a lot of areas have impacted both online and stores, and we need to be efficient across both of those and come back to thinking about our supply chain in an omnichannel mentality rather than thinking about it specifically for online versus stores. So I mean, we definitely saw over the year that if I think about it from a store contribution level, bid online increase its contribution as a percentage of our overall EBIT? Yes, it did.
So that's driving that sales through there is driving additional profit into the business. The supply chain costs are more broadly than that. They're supporting growth. So if you allocated a portion of them, probably would come in as a net contributor to the overall result. And what we're seeing is we need to work harder at driving operating leverage out of our store portfolio when you think about the cost increases that run through there in terms of occupancy and wages and making sure that we create that really efficient store portfolio to support or to work together with the online business to build this business going forward.
So it's a hard question when you think about it at EBIT margin levels, but I still see it as solid contributor to the business. And we think there is net incremental profit being driven by our online sales growth. And what we need to do is work harder at getting a more efficient back end to support both stores and online in that sense.
Great. And then if I just go to your medium term online target,
what's in
your mind? You've rattled off a bunch of things you're doing and what worked for you in FY 'nineteen for lifting traffic so significantly and conversion rate, what do you think are the sort of biggest factors in getting it from under 60,000,000 to the over 100,000,000?
Is that the Well, ultimately, I think it comes down to the combination of those two again, which will be more traffic and improved conversion. And preferably, if you add in onethree, you'd increase the ATV, which would make the orders more profitable as well. And we think that comes about largely through thinking about our product width and our expansion strategy. So when we think about our stores, obviously, challenge within them within the stores is they are the size they are. Despite our upsizing strategy, we're not going to be able to increase every store size.
So working hard at developing additional products that stores can sell via a home delivery option and now online then gets access to more width of product is definitely helping drive we think that drives both conversion and in additional categories, it will drive traffic. So a combination, as always, of our strategies of expanding our category ranges and offering together with driving more traffic to the site and the larger, more inspiring stores. Those three things combined are all aimed at building out that online piece. But we think there's still significant room to grow traffic. We know there's room to grow conversion, and we know there's enhancements to ATV.
So things like better product recommendations, thinking that through the emails, including so product recommendations within emails. So we've got a whole bunch of pieces of the puzzle where we are not doing today what I would think best practice omni channel retailers are doing, which gives us great upside and means we're not sitting out here with leading edge opportunities. We're actually well and truly sitting, some would say perhaps even slowly following others and building the business. We'd like to think we could move towards fast followers. But again, that supply chain piece is probably holding us back a bit on really trying to crank the handle on traffic and driving it if we can't make sure it comes out the other end with a great customer experience because we know that will that's what a lot of people talk about in the online space, that delivery experience must be good and must be able to keep up with the front end.
Otherwise, we're going to create damage to the overarching online business. So getting those two things and those ducks in a row over the next little while, I think, gives us great opportunity to push that towards £100,000,000 And ultimately, in here, I can tell you that the list of things we want to do, the biggest challenge is what don't we do to get us towards $100,000,000 not what are the ideas that get us towards $100,000,000
Sure. And do you think we can collect the material?
Do I think we can collect the No. It'll be it'll form a part of the solution, but I think it will only form a part.
Yes. Okay. Just to follow-up on the like for like post balance date. The $4.8 is that majority price? You said you'd be widespread price increases post balance date.
Would that be more than 2,400,000,000.0 of that?
Yes. Price will make up a
fair chunk of it. It's price and still transaction volume, but price is definitely I don't think it'd be more it's not more than 2.4, but it is a portion of it. And we're seeing that definitely drive that through. And there's more to
go, Jordan.
We're sort of it's still very much a test and learn business. So we've implemented a bunch of price increases, and they'll be given the success of those, we've got more confidence again to push through some other categories and selecting when we do it and how we do it over the course of the first half. But over the first half, there is significant price increases to be pushed through. But I would think in terms of your percentage, it's probably more like 1% to 1.5 than 2.4%.
Yes. Okay. And on that, with your
hedge rate, where did your
effective rate end up for FY 'nineteen, just comparing your 51% hedged to $0.07 $15 where do you end up?
That's a
good one. Came in at about 73 over the year. Did you take the full year? Yes.
Okay. And I appreciate you haven't finalized the new DC, so you can't talk to the details yet. But is that is that gonna take a little bit longer than I think previously you thought it's gonna take at least another sort of eleven plus months rather than sort of twelve from today? Is that because you haven't finalized negotiations? Or is it is it a more complex
build? I think what we wanted to do is depending on the final solution selected, want to be careful about what I say given we're in the middle of negotiations. But I expect that by FY 'twenty two, it is fully operational and delivering. And so just depending on the solution and the final components of that, I don't think it impacts FY 'twenty at all. But when it comes online in FY 'twenty one and how long it takes to get up to speed is probably the couple of points that we're working through at the moment.
But I don't expect that next eighteen months, I don't expect it to be impacting. That was probably always, once we got further into the detail, our expectation, but that's probably been evolving piece of the learnings that we've undertaken over the last six months and getting to this point where we're now in this model negotiation. Okay. And last one for me.
Just have you noticed anything competitive wise that's changed at the Maya store closures or floor closures rather?
Had it impacted anything else
sort of competitive landscape wise? Not significantly. I think there's still a lot of driving of sales. So we're seeing a lot of discounting in the market and heavier maybe not heavier, but more prolonged discounting rather than actually debt discount. So we're
in
that quite a competitive environment. And I think what we're trying to do is make sure that we're focused on curating the range and giving the reason to shop as opposed to driving it all on price. So and giving up any of those price increases that we push through. So we're not seeing significant changes in the competitive set at this stage.
Right. All right. Cheers.
Question comes from Jo Little with Morgan.
Sorry, just a bit further on those prices. Sorry to half on a minute. So would it be fair to say you probably want to put them up by, don't know, in the range of 3% to 5% this year? Or I don't want to put an exact figure on it?
Well, I think that's a reasonable range for us to go on. Of course, it's a little bit distorted given how much of our products are sold on promotion. So it's all about how we move the promotional price and whether that's and it varies by category. So that's where it becomes a little bit tricky for me to say, 3% to 5% price increase across the board. But it is fair to say that what we're actually aiming to do is lift our average selling price of products.
So we look at it more at that level and how we move that number, which is a combination of increase the full price in some instances, reduce the depth of discount in other instances, combination of both. And in some instances, we've actually gone the other way. We've reduced first price and then reduced debt to discount and started to move towards how do we sell more at full price rather than necessarily having to sell it all at promo when we found out promo product was too far away from our full price number. So that's why it's a little bit tricky to sit here and say it's 3% to 5% across the board. But that's definitely the aim of the underlying business is how we move our average selling price when we start to look at it by numbers in that sort of range, probably towards the bottom end, though.
We're probably more looking at 3%
across the
entire business, because there's categories that are harder to move than others. That's where we're really targeting at the moment.
Great. That's helpful. So if you think about some of the wholesalers out there, you've got Sheridan, etcetera, I mean, that'd be more pain at that point in the channel. What can you give us an indication of what their what the wholesale price move has been for some of these retails?
We don't necessarily get access to it, but I have heard through the rumor mill that it could be as high as 10 in some in some products rather than across the border. As I said, I don't necessarily get that information handed to me visibly, but there are definitely price increases being pushed through by wholesalers.
Great. Just interested to know how your like for like sales performance has gone some of this year and in the back end of FY 'nineteen between when you're in a sale and out of sale? Just trying to understand if that's really moving the dial for your customer at the moment or not.
Yes, that's a good question. And what we are seeing is we're actually performing better out of sale than in sale, which is both a great result for the business in terms of it shows the strength of the product. And think it comes back a bit to the potential that sale fatigue, how long we run some of those promotions for and how we get the balance of the right promotion length and the right depth of discount and when we're on sale versus not on sale. And as most of you are well aware of the business, we are generally permanently had promotions running within the business that are driving the business. But what we're finding is out of sale, we're definitely delivering better numbers.
And that is really good for us and a real positive in terms of the product that we're putting out there in front of the customer, that they're happy with what we're curating for them and then they're buying into that look and feel. That gives us good confidence that over the least the next little while, while we're in more of that inspirational mode, we don't see why it should change. But it also means we've got to figure out our sale periods, which ultimately drive big dollars and didn't deliver as well as we would have liked in the back half of last year. So that's something for us to challenge our marketing talent and what we want to do to drive those.
Okay. Just lastly, sorry, just whatever the cost will come out to be for the new DCE ultimately, I guess, just from a CapEx perspective, will that still be reasonably evenly split, do you think, FY 'twenty one, probably more towards 'twenty one at this stage? But just trying to think from a capital management perspective, will if it split more evenly, we can see the dividend payout has to be a little bit higher than previously thought, certainly lower than this year.
Yes. I think what you'll find is there'll be minimal spend in FY 'twenty, and bulk of that spend will be '21, depending on where that what the final solution is and where those numbers come out. So we don't see there being a real big investment, although we still haven't just negotiating on some of those key terms, in particular, around some of it. So I say that, but I think more will be 'twenty one than 'twenty will be where we sit today.
Awesome. Sorry, just one more in, Mark, sorry. By the time we get to the new DC being fully operational, we'll probably be a bit closer to your store target. What's the view for growth above and beyond online, given I know it's a couple of years out, but I guess any more indications around New Zealand, other territories, outside of the store rollout, etcetera, please?
Yes. I think we still see good opportunity over the relatively short term, if you think three years in rolling out the stores. And I think, Joe, what we're now in this position is we solve the supply chain challenge or at least put the supply chain plan in place for us to start to think about what are the next opportunities within that in terms of is it international expansion, what other growth opportunities sit within the business. So as we sit today, I'm probably not comfortable commenting too much on what they look like. But I think what you will get over the next twelve months is more commentary from us in relation to that as we solve the supply chain issue and are able to get that down.
But within that, we are also thinking about how does that supply chain help us and particularly some of the work we've done upstream on what that might look like if we did think about other markets and the like, how do we make sure that we've got a supply chain that we're building that doesn't hamper our ability to continue to drive the overall growth of the business because what we've seen over probably the best part of the last three to four years even is we're often trying to keep up in supply chain. So this supply chain strategy that we're putting in place now is not aimed at solving today's problem. It's aimed at providing us a platform to not only support the growth within Australia, but where else that growth might come from.
Your next question comes from Mark Wade with CLSA.
Question around the just the general health of the consumer, how you're
seeing that? And then more specifically to Adaes, some of the
customer perceptions calls and how they've
played out over the last year?
Yes. I mean, I haven't walked away from my commentary on the consumer for quite some time. And that I continue to think customers have money. They are happy to spend it if you put the right product in front of them at the right price. So whilst I'm not quite sure what went 100% wrong in the back half of last year in those few weeks of really poor trading compared to what we've seen for such a long period of time and whether the consumer stepped out.
We've probably done a bit more work since then and found that perhaps there was some underlying product that wasn't quite as good as we wanted it to be, not I don't think it had a massive impact because we were selling it three or four weeks before then, but definitely there were some results through that overarching six or seven week period that didn't quite hit the mark that we would have thought we could have delivered on. But I think the consumer still is relatively okay in most markets in Australia. Think they're happy to spend. And as I said, our focus must be on providing them the product and giving them the reason to shop with Adairs over that time. So I don't think the consumer is going out backwards or anything like that.
Think feel pretty good about that. And sorry, what was the second part of that question, mate?
I think that's just around the customer perception,
like, can you do your
own surveys and you get a bit
of sense for a pulse take the pulse of your own, what
the consumer thinks of the brand and just how that fits in those moves?
Yes. Well, I think what we're seeing is, generally, we're still being rewarded for our service that we're providing in store, and we really see that as a key differentiator between us and others in the market and making sure that we continue to build and develop upon that. So we continue to get good feedback on that. I think overall, we continue to be seen as a bit more contemporary and more fashion forward, which has been a big driver of our success over that time. And I think the final part of that is we haven't quite got them there to how we get more of the customers home.
We're still in bedroom and bathroom and some of those areas. But we think with additional work, what's a good part about that is because we haven't quite transitioned customers to thinking that broadly about it, particularly if your store is just a regular shopping center store that perhaps doesn't have the category width that we will see in a homemaker store. We see that being good opportunity for us to continue to drive the growth of the business by expanding those categories and getting more customers to buy into the fact that Adair is the place to shop for those. So I think generally, probably if we call out the challenge part of that, it comes back to our supply chain and our ability to deliver to customers through the online channels. Definitely, that impacted our I guess, customers' feedback on us over the last six to twelve months.
And that's something that we think we can with the work we're doing now, we should be able to resolve at least to get it to a point where we're comfortable the standard has got back to a more expected standard. It's not exceptional, but it will be it should meet more customers' expectations. So hopefully, covers that.
No, no. Helpful. And that's for my outlook. I mean, if it's possible for him to just share his thoughts on the business, I mean, hopefully, we'll track it into the role and what he sees as kind of the immediate and then the longer term opportunities for Dave.
I'll defer answering the last part until I get a little bit more time in the second half. And that's only been a week or two. Certainly, from an outsider, I'm probably not even as informed as you are just yet. I haven't been here for less than two weeks, but a business that resonates well with the customers. Mark touched on the service, and there's absolutely no doubt that, that is a big differentiator of the business.
And I think it has great potential. So I'm excited to be here and looking forward to what the next few years has installed. I think there's great potential and it's great place to be. Thank
you. Your next question comes from Peter Cooper, Private Investor.
Just a couple of quick questions. Firstly, over the last twelve months, is there a lack of visibility on the recent capacity issues?
No, I wouldn't say there was a lack of visibility on them. There was a combination of lack of management of them, which did see us invest in additional team and leadership in that space over the last twelve months. So I think it went back eighteen months ago, there was a lack of visibility. We identified that. And obviously, the challenge in supply chain comes back to length of time to get a facility set up, put it in shape and make sure that we could do that with a view to not altering our view on what a longer term strategy might look like.
And in that, I say, ultimately, we need to find some additional DC capacity for a period of somewhere between eighteen months and three years, which not too many people leasing DCs are overly happy to provide that sort of term. So it was a bit more challenging to find the space. So I think over the year, we're adding the DC capacity. It definitely started with a potentially a bit of a lack of visibility on it and some core planning, but we've now, I think, resolved that internally and put us in a space where we've got much better planning around it as opposed to visibility. I think the visibility was there, but what people were necessarily doing with all the information didn't necessarily gel, so it would be overarching strategy.
Okay. That's my other question. If you can tell me your product line, it's such a strong sales price. Are there any product lines, rather than all, can you see any product lines that you're looking to discontinue?
No. Well, I wouldn't it depends how you define that. There will be lines within the business that we will always discontinue. I think that's the business is constantly changing. If we think about Bedlin and we talk about the fact that within our Bedlin and Wall, if you go into the store in twelve or thirteen weeks' time, you will see significantly different Bedlin than you see today.
And it may not be significantly different. The trends and things might be there, but the Bedlin won't be the same. And that's in view of giving customers different options and different choices and the view of constantly trying to reinvigorate the store. So there'll be lines within that. And even within core lines, we see things come and go over time, and tend to work them through products have a life cycle of they start, they're new, they're exciting, then we move them into a more core ongoing piece of the business.
And then they as they start to wane with customers and we start to bring them back out and out of the business over depending on the price, it could be a six month life cycle, it could be a two year life cycle depending on where it fits in the overarching business. So but is there individual categories within the business that we start to think that we wouldn't be in going forward? Not at this stage. We've definitely switched some things. I think tabletop is a good example of a category where we exploded the category for a while there and found that actually we had a real niche, and we needed to bring that back to the niche and what we were good at.
And something like lighting falls into that same sort of category as well, where we exploded it for a while to see how big we could make it and have found where our niche is and made sure now we'll actually have spoken to some of the niche because we're not aligning business and what we need to make sure of is we know what our customers want and what they come to us for and how we provide that for them rather than trying to be all things to all people in all categories. So there's nothing specific that I'd call out and say we're not going to be in going forward. I think what you're seeing from us is ebbing and flowing and rebalancing the percentage of the overarching business dedicated to each of the categories within it today.
Okay. And just one quick follow-up question. What can we expect to see on your social media campaign over the next few months?
I think you see a lot of collaboration. I think the customers are definitely responding to So and when I talk about collaboration, collaboration with artists, collaboration with different designers, collaboration with different brands, I think those sorts of elements will not only fall out as part of our product strategy, but that will then naturally link back into our social media strategy and being able to work collaboratively with some of those sorts of influencers and other brands to help drive the visibility of Adairs and get more people looking at it is a great opportunity and one that the team are definitely working on today. There
are no further questions at this time. I'll now hand back to Mr. Ronen for any closing remarks. Sorry, I do apologize. We have one more question from John Hein with Wilson.
I just wanted to focus on the outlook statement, if possible, and just some of the changes that we're seeing, if you could help illustrate some of the changes we're seeing come through the business. The previous guidance statements you've given us throughout FY 'nineteen, you're doing you're going to similar EBIT with substantially less sales. The sales line is now for 20% is now well ahead of the consensus range that I look at, but EBIT hasn't moved too much. I'm wondering, I guess, why are you more confident on the sales? And can you just maybe break down what's changed between the EBIT from previous to now?
Well, I think the we're confident on sales because I think we've largely delivered that over a number of years now. We tend to be very or better, not very good, but better at actually identifying our sales and where we think that's going to come from and how we're to deliver that. And I think what you're seeing in the numbers we've provided highlights that. I think within the EBIT, what we're acknowledging is there's a number of underlying challenges the business needs to work its way through this year, be that the following Australian dollar, be that our continual supply chain improvement strategies that we're working Occupancy costs will rise as they always do with a lot of the leases incurring plus 4s and the like year on year. And the same with wages in store and the general increase to the underlying rate of pay.
So and with the business heavily focused on service, our answer to increases in rates of pay is what we need to do is become more efficient and not take away service because that's a key differentiator in our business. So how do we get good at managing those? So I think what you're seeing from us, John, is that we know there's a number of challenges within the business. We think we can continue to grow the top line, and we think we should continue to grow the top line whilst we have the customers engage with us. The worst thing I think we could do is try and scale that back and then try and work the rest of it in the background.
What we're better to do is continue to grow that top line, understand more and more, which gives us great opportunity for growth going forward. And in the meantime, we're seeing through the EBIT number that we've put out there that we know we've got to manage a bunch of these challenges that the business faces today, and we'll get some more right and probably less right. But overall, we think we can grow the underlying EBIT of the business by modestly in FY 'twenty. So the structural change of the business comes back to structural change in the way the business operates as opposed to structural changes in the macro environment comes down to ultimately the combination of supply chain, Aussie dollar and how we work all of that through the business rather than a specific point within that. But if you sit here and you take from this call, one of the guys heavily focused on is a business.
We're heavily focused on the gross margin rate and the underlying trading margin once we factor in what we're seeing in the Australian dollar, and we're heavily focused on making sure we have a better year and a much more efficient and productive year in our supply chain. The changes we made last year are now all done. And now what we should be doing is operating those facilities and trying to improve our efficiency within those facilities rather than spending time setting them up and getting some things wrong and then changing them up and getting it to where it is today. That work's being done. We just don't know you never know quite the success of each of those elements.
What I do know is I think we deliver, and that's why we see that underlying EBIT coming out at more like it's a lesser percentage of sales than it has been in the past. And that's something that we think as we start to improve the supply chain over the coming years, we hope to improve that number and push it back towards where it was once upon a time. But that's sort of a change that I see in where we are today. Does that answer your question?
Yes. And my follow-up question as well. So thanks, Mark.
I'll
now hand back to Mr. Ronen for any closing remarks.
Thank you. I'd like to thank all of you for your attendance this morning. No doubt, we'll see many of you over the coming weeks. And I'd again like to take the chance to thank the Adairs team and our loyal customers for their ongoing support. We look forward to a good rest of 'twenty.
Thank you.