you for standing by, and welcome to the Adairs Limited 1H19 Results Conference Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Mark Ronen, Managing Director and CEO.
Please go ahead.
Thank you. Good morning, and welcome to Adair's Half Year Results Call. With me this morning is Mandy Drake, our CFO, who will take you through the company's financials as part of this morning's presentation. If we go to Slide two, where I'll take you through some of the highlights of what was a strong first half. Sales were up 10.6%.
This is driven by our like for like sales growth of 7.3%, the opening of four new stores and the upsizing of two stores. The like for like sales numbers achieved were well supported by another strong online growth period with our online sales up 42% and now representing 15% of total sales. Whilst achieving the sales growth, we delivered an improving gross margin rate coming in towards the top end of our long term guidance of 60.9%. New Zealand was profitable ahead of our previous guidance, which stated that we would be profitable in the second half of this year, a very positive result. With good success in sales and gross margin, we delivered an EBIT result up 7.2 to CAD21.9 million.
The Board amended the company's dividend policy to increase the payout ratio to between 6085% of net profit after tax and declared an interim fully franked dividend of $0.65 per share, which is up 18% in the prior year. Further, the company's balance sheet is in a strong position with net debt now reduced to 0.2 times annual EBITDA and is well positioned to support the company's future growth strategies. If I move to Slide three, the company continues to generate growing sales across both of our channels. Total sales were up $15,000,000 over the half with stores driving $8,000,000 in sales growth. The store growth came through like for like sales of 2% driven by the performance of our expansion categories, including Home Decor and Adairs Kids with good support from our core categories of Bedroom and Bedding and Bathroom.
Further supporting our sales growth was the opening of four new stores and the upsizing of a further two stores. We expect all of these stores to meet our expectations over the year. Our review of our store portfolio saw us close to three mile concession stores and an additional two stores over the half. We continue to take a disciplined approach to our store portfolio and as a result we expect to see additional closures over the second half where we don't believe the store profitability can meet our expectations. Our online sales continue to grow strongly as we strive to provide our customers with a true omni channel experience.
Online sales were up 42% over the half driven by increasing traffic to our site by the continued improvement in search engine optimization and marketing together with growing our presence through social media. Excitingly, we significantly grew our number of new customers online providing us with ongoing growth opportunities as we look to increase air share of their purchases in our categories into the future. Our Little Lipper program continues to grow in size and importance to Adairs. We are seeing that our continued investment in the program is providing us with the ability to more easily communicate to our customers, leading to an increase in the frequency of their shopping at Adairs across both channels. Now move to Slide four, our product strategy is delivering like for like as our focus on range expansion provides customers with more reasons to shop at Adairs and at the same time diversifies the Adairs business.
Our ability to grow these expansion categories whilst delivering like for like growth out of our core categories provides us with the capacity to continue to deliver mid to high single digit like for like growth over the coming years. Our product expansion strategy continues to drive this sales growth and with the ongoing upside in this approach as we remain relatively small players in most of these categories providing opportunity for us to grow through market share. Further, developing a wider, more comprehensive range allows us to furnish more of our customers' homes, allowing us to focus on getting a greater share of our existing customers spend on their homes rather than continually relying on acquiring new customers to deliver growth. I'll move to Slide five and our New Zealand profitable business our New Zealand business was profitable over the first half. We delivered sales growth of 30% as we continue to improve our inventory management in New Zealand.
The change of 3PL provider together with our ongoing focus on inventory has seen us better able to deliver inventory into New Zealand and more importantly into store. This has allowed us to improve our stock turn and inventory freshness leading to a significantly improved gross margin rate, up five forty basis points as compared to the prior year. More importantly, these changes have led to a much better customer offer and delivering an improved sales line. Our online sales in New Zealand also grew strongly, enabling us to continue to build our brand profile as an omnichannel retailer in the New Zealand market. We see ongoing upside in online in New Zealand and the focus on how we improve the customer experience and brand awareness to drive sales growth across both channels.
With our improved momentum in New Zealand, we see there is an opportunity to open one to two stores over the coming half as we look to build a profitable New Zealand business. If I move to Slide six, I've spoken before as to how we believe execution of our existing strategies will continue to be the key to deliver ongoing growth for Adairs. The first half results highlight the importance of our continued execution of our underlying strategies. And walking through them briefly, the product, product, product strategy is seen the expansion category growth driving like for like sales. More inspiring larger stores have seen us open four new stores, upsized two stores and closed the My Concession stores where we couldn't deliver what we wanted with our customer experience.
Best in class omni retail capabilities is driving our online growth with our online sales now representing 15% total sales and our Win and Lover program continues to grow in number of members and share of revenue. International expansion of senior and profitable with room for growth. And finally, our passionate high performing team members strategy has seen us continue to invest in our people and our capabilities. We've added capability into supply chain and digital to drive opportunities in these areas and enhanced our leadership development program as we look to build our future leaders from within the business. It has been a good first half in what has been called a more challenging retail environment.
We remain focused on ensuring we execute our underlying strategies well and on remaining focused on what the customer wants to deliver ongoing growth for Adairs. I will now hand over to Mandy to walk you through the company's financials.
Thank you, Mark. If we now move to Page eight, I will talk through the profit and loss results. Mark has already spoken about the revenue drivers that delivered a 10.6% increase in sales for the half, and we achieved a like for like sales growth of 7.3%, starting from a strong 14.8% from the prior year. Our gross profit dollars increased 11.3% to GBP 100,000,000 with the gross margin rate increase of 40 basis points to 60.9%. Our expenses came in at GBP 74,300,000.0, an increase of 12.4% over last year and an increase in our cost of doing business as compared to sales of 70 basis points on the prior year.
This is a disappointing result, which I will talk to in a moment. EBIT increased $1,400,000 on last year to $21,900,000 a 7.2% increase and 13.3% to sales. If we now move to Page nine, I will go through the gross profit and cost of doing business lines in more detail. With like for like sales in line with our medium term outlook, we are pleased that we can continue to deliver like for like sales against strong prior year periods with the growth continuing to come from increased volume of transactions. The chart on Page nine shows the progression of our sales and more importantly, our gross profit dollars that increased over the last couple of years.
Our GM rate has also steadily increased over the last three halves, a reflection of both the execution of our product expansion strategy, which typically delivers higher margins and less markdowns taken with a cleaner inventory. If we now move to Page 10 on cost of doing business. Our CODB as a percent of sales increased 70 basis points on last year to 45.2%. The chart shows that our store costs remain well controlled at 30% of sales, whilst our DC and online costs have increased. Salaries have increased 20 basis points on last year, mainly in online and the DCs to support the increased volume of transactions.
This increase also includes an element of higher labor costs in digital and supply chain as we continue to invest in capability to support our supply chain initiatives. Whilst our online expenses have grown as a percent of sales, it is worth noting that online operations have less operating leverage than stores due to the high component variable costs incurred for each incremental sales funnel. In saying this, online is a highly profitable channel of our business, and the costs are in line with our long term average. Other expenses have increased 90 basis points, which is predominantly attributable to the increase in DC costs with two additional temporary DCs and extra costs that have been incurred to transfer stock between multiple warehouses. Our supply chain plan is expected to be finalized over the next few months, with execution taking place during FY 'twenty to look to reduce the CODB costs related to our supply chain.
If we now move to Page 11, I will walk through the balance sheet. Our balance sheet continues to be well positioned to support future growth with our net debt position improving $2,100,000 from June to now be at $10,100,000 Our inventory grew to 43,000,000 a $10,000,000 increase in June. We acknowledge that this increase is higher than what we would have liked and reflects a combination of a few factors. Firstly, there is an increased level of stock to support the natural lifting inventory and sales growth both in store and online of around $2,500,000 There is additional stock to support the six new and two upsized stores added to the store portfolio. The decline in the AUD to U.
S. Dollar of around $0.35 from last year has also increased the inventory valuation by approximately 900,000.0 The change in timing of inventory ownership and our purchase commitments in factories has resulted in an increase in stock in transit of CAD 2,200,000.0. It's worth noting that the other side of this entry is trade creditors. There is no impact on earnings, net working capital, cash flow, net assets or net debt. Lastly, we were overstocked at the December by around $2,000,000 which was a result of lower sales than expected in the December as well as the timing of stock purchases arriving due to Chinese New Year.
We will continue to focus on inventory levels and can say that there is no issue in the quality or aging of this stock. We also don't believe there will be any impact on gross margin as we trade through this stock during the second half. For those who want more detail, a bridge of the movements in stock from December 2017 to December 2018 have been included in the presentation deck under Appendix five. I will now move to Page 12 to talk through capital investments. We continue to invest to grow in the business across both our store and digital networks with our capital investment for the half of $3,500,000 New and refurbishment store capital expenditure was $2,100,000 with four new stores opened and six refurbishments completed.
The balance of the capital expenditure of $1,400,000 predominantly relates to purchases of fixtures and equipment for the two additional temporary DCs, which will be reused as part of our long term supply chain strategy. If we now move to Slide 13 on our cash flow position, our net debt is at $10,200,000 and $6,800,000 lower at the same time last year. Operating cash flow did decrease $2,400,000 on the prior year, reflecting the increased investment in inventory in the business. Net cash flow improved and was up 3,400,000.0 Our net debt to EBITDA sits at 0.2x, and our gearing ratio has reduced to just under 8%. As Mark mentioned, the Board has reviewed the company dividend policy and increased the payout ratio to between 60% to 85% of NPAT.
The previous payout ratio was 55% to 70% of NPAT. The total interim fully franked dividend has increased 18% or $01 on last to 6.5%. The interim dividend payout ratio represents 72.4% of impact. The fully franked interim dividend will be paid on the 04/17/2019. I will now hand back to Mark to discuss the FY 'nineteen outlook.
Thanks, Randy. And for the outlook for FY 'nineteen, we remain confident in our ongoing like for like sales growth numbers and expect to open three stores and up five stores over the second half. Supporting this confidence, we have seen our first seven weeks of trade deliver like for like sales growth of 7.1% with strong growth in online and lower growth rates in store as we saw over the first half. With the depreciating AUD, we expect to see some impact on our gross margin rate. Second half gross margin is expected to be in the lower half of our long term range of 59% to 61% due to an estimated unfavorable currency impact of circa $2,000,000 Given the gross margin impact, we have refined our EBIT guidance to between 46,000,000 and $50,000,000 for the year, which will see us continue to grow our full year on the prior year.
We are confident that we can continue to deliver sales growth and are working with our suppliers and reviewing our pricing to look to minimize the impact of a weaker Australian dollar on the overall result. The first half has been a good result and it wouldn't have been possible without all the hard work of the EBS team. I'd like to thank the team and our loyal LinenRubber customers for their support over the half and look forward to a good second half. And with that, I'd like to open up the line for any questions.
Thank Your first you. Question comes from Jordan Rodgers from UBS Investment Bank.
Just could you talk a little
bit more, you touched on the appraisal around those additional costs and the other expenses line on the PC side. Because if I just look at when you've given that breakdown of CRDB by percentage of sales where online has increased from three percentage points to 5% and that other expenses line has been one of the biggest movers. It looks like online costs are growing faster than online sales. Is that right?
No. What we've done well, no. So online remains what we've seen is that costs continue to remain in line with what we've seen go through that channel in the past. However, as online is now growing after overall, we've seen those and more incremental in terms of variable costs adding for each online sales dollar, it's taking a bigger percentage of the overall costs of doing business across the entire business. There's also an element that we've had to up spec some space in the DC to support those online growth numbers.
So there's a little bit of a step change in there and the ongoing incremental costs associated with online sales. But overall, if I look at online, the ODB as a percentage of online sales, it's still running in line with our long term average of what we've been producing in that space. So it's a it's a little bit distorted in there. It's another cost that have hit that that other expenses line.
There's some other costs that also hit that line in terms of some additional costs in technology that we've had to increase our security overall customer data base. And then the other one is is also added some additional costs as we've rolled out some improved Internet in our stores.
Okay. And then so what is likely to continue over the next this half or next couple of halves in that sort of additional online spend?
Yes. I think you're likely to see it continue at about this rate. We'd like to pull it back a little bit, Jordan. We think that it's a little bit high. And as we said, it's a disappointing part of the result that we didn't manage to keep that a bit more in line.
But as Mandy mentioned, we've got the supply chain plan that we are towards the final stages of putting together, which we see should start to pull that back. And I think the positive for us is we actually think there's a big upside if we can put that plan in place to actually driving out some costs in relation to supply chain and online more in the pick and pack area to make sure that we continue to drive profitability through those channels. So I think in terms of looking forward, second half largely in line with what we've seen in the first half, we'd like to pull a little bit out. And then in FY 'twenty, probably first half FY 'twenty same again. And then I think we start to see some of the impact of what we're doing now.
We'll start to hit second half 'twenty and full impact into FY 'twenty one.
Okay. And that supply chain work you're doing is largely the merger of the two DCs or is it broader than that?
I think it's a bit broader than that. I expect that we yes, merger of DCs will be one element of it. And then looking at how we improve the efficiency of our picking and packing, whether that's via a level of automation in there. So there'll be some form of what we're working through now is level of investment to level of CODV improvement and what that investment looks like, which is why we're saying over the next few months we'll sort that out. So I think you've got a natural improvement by putting most products under one roof.
That's a win. But I think going forward, we also need to look at some automation, which will improve efficiency and improve our ability to offer a better service, in particular, that online customer in terms of speed of pick back and out the door in terms of dispatch. So we're working on a couple of elements together in order to bring it all together in the next twelve to eighteen months.
Okay. Great. And just an update on Click and Collect?
Gosh. Click and Collect, yes. It's a work in progress. I don't want we're just working through some other elements within that. And I don't wanna promise anything because I promised about four times and missed every one.
But before they get that over the next couple of months and give you a definitive answer, then what I'll give you now and then change my mind on. Yes. Sure. But I'm well aware of the accident group at MSA, our delivery owners. Yes.
Okay. Just around your comments on the potential for additional closures in the second half.
Because if I look at
the closures that you had in the first half, was mainly the My Concessions plus you rolled one of the kids' stores into it.
Yeah. And closed the number.
It was kind of looked it looked to me like it was one closure.
Yes.
So that but has changed your thinking again in terms of long term targets? I know as your online tech is going, you don't need as many stores. But where are
you thinking for the long term? I think there's I think in the second half, Jordan, there's likely to be another one of these non closures, which will be a kid's store rolled into a bigger store, if not two. But I think we'll only get one done in the first half and in this half coming. We've got a couple of stores that we think are excess to requirements not delivering the numbers that we want. And that's more due to where they sit in the portfolio and what we've opened around them in terms of homemakers.
So that's two. We've got a store in Queensland that we probably look to exit and we've got a couple of outlets in WA that we're just thinking about whether we need one or two over there. So there's two or three. So there's not significant closures on the horizon. It's more that we wanted to give the message that it's not just an ongoing store open plus three equals roll it out.
There's a few of these machinations happening in the background. So I think that we two to three closed with one of them, as you say, with sort of not a closure. It's a combination of two stores into one and then a few stores that were just sitting marginal and having a look at whether they're actually good contributors and whether we need them in the portfolio going forward. But I think on the longer term view, we still think there's still homemakers can be done. The message from us remains more inspiring, larger stores remains a key part of our strategy and we'll work that through.
But I think rather than opening 10 stores a year, we're probably more likely to grow our GLA and that will be a combination of these. Let's merge into a bigger box and maybe take a store and expand it within the existing center to drive sales and then add order six stores a year type processes through new stores into that portfolio as we go forward. Okay.
Great. Just one more for me, and I'll give someone else a go. What are you anticipating, re average pricing to offset that lower FX in the second half? What's sort of embedded in the guidance?
Embedded in the guidance, to be honest, is almost DAU. I it will be tough to push through too many price increases over the second half. We'll continue to monitor what happens and how it works, and we'll do some testing. I think you're more likely to see a bigger impact in the first half next year. So we're using second half to test and learn some things and see what we think we can we can push through.
But we're going to need to start pushing through some pricing process and really we haven't seen a lot hit the market. So we'll once again, we've done this before and we've spoken about it before. It's all about being quite selective about where we think it is, focusing on stuff that's truly unique to Adairs rather than trying to really jack up the price of white queen-size sheets. I think that will be not something where you'll see it. You'll see it more in our fashion and our ability to charge a slightly higher price in there.
I think circa 1.5% would be a good outcome, the 3%. That's sort of our target, but we're going to do a bit of testing over this half. So I don't think it impacts this half, and we certainly haven't banked in big price increases into that guidance range that we've given you. Your
next question comes from Aaron Yeoh from Goldman Sachs.
Congrats on the results. Just first question for me. Just with regards to the 2% like for like in off line, how would the Homemaker centers compare to that?
Well, I think in the to be fair over the first half, pretty much in line. We haven't seen a big disparity between homemakers and regular stores over that half, which we've seen in the past when called out that our homemakers are probably trading stronger numbers than our reg stores. But over the first half, they were pretty much you can sit here and talk to what was a big difference for them.
Okay. Great. And in terms of the first half like for likes, how does that compare against foot traffic versus basket size?
Well, yes. Foot traffic hard to we haven't got great data on that, so I can't give you too much on that. But what I can tell you is, if you think about what we're growing is transactions. If we look at it in transactions versus basket size, we're seeing transaction growth really strong, basket size slightly down, but not significant enough that we call it out. But really, the 7% like for like is coming out of transaction growth.
Okay. And in terms of
the like for like starting the second half of twenty nineteen, it's fairly consistent in terms of the breakdown versus the first half?
Yes, correct. Yes. We're not seeing significant changes to stores or online. They're picking along at about those rates.
And in terms of your 5% to 8% like for like guidance, does that imply that online will continue sort of growing at a similar rate as the first half?
Yes. I think that's yes, it will be about that.
And I guess what gives you the confidence that it can continue at that sort of run rate?
Well, we're not seeing anything that's stopping it yet. And we continue to drive more traffic week on week to the site. We've got a series of initiatives that we wanna roll out, which, you know, I won't sit here and rattle them all off. But we're not sitting there thinking people are just going to turn up. Team are working on how we increase engagement with customers, drive more traffic to the site.
And I think what the investment we've made in that team allows us to really focus on what's working, what's not working. And you can almost treat online and driving traffic a bit like it's another market where you can move your money as to where you're investing in driving that traffic quite readily. And you can actually trade that market quite well to work out where's the most profitable traffic coming from, how do we continue to drive profitable traffic to the site and the like. So the guys are doing a lot of work there and we're really confident that we have some plans in place in the second half that will continue to see that number come out of transaction growth and out of driving more traffic to the site. So I think that's where we see it when we're not seeing anything like that.
So just as strong as we do, we'll continue to forecast. But with the numbers, think we continue to see that we the other thing we're doing is increasing our inventory availability online, which also helps us to drive that sales. There's nothing worse than people getting to the site and not being able to buy what they want. So a combination of those factors, we are quite confident that we can deliver that growth rate.
Okay. Just one last question. Just in terms of the inventory balance, I think one of the things you called out was change in timing of inventory ownership. Is that with regard to that same comment that Mandy made around the timing of Chinese New Year?
No. No. I can answer that, Aaron. It's basically just more the timing when you recognize that purchase commitment from the factory, and that just caused an increase in stock in transit of the $2,200,000. And that's because we've got greater visibility in some of our reporting and everything that we get from our freight forwarder.
Your next question comes from Olivia Bible from Lenox Capital Partners. I've just got a couple of questions just in relation to your store rollout program. You mentioned that you closed a number of stores due to them not hitting your sort of target profit levels. Was that mainly due to lower than average like for like sales that you weren't getting the rent deals you were expecting or a combination of both?
Look, as Jordan mentioned earlier, you know, the two that we closed in the first half, one was a kid's store where we weren't delivering the sales numbers. We didn't the location wasn't great and we merged that back inside a bigger upside store, so which is part of that store rollout strategy we've seen. Where we can, we'll move the kids' store back inside a regular or a larger homemaker store. And then some of the others were in relation to rent deals that we weren't happy with and couldn't deliver. The numbers.
And some of that was actually just in relation to center redevelopment and waiting for our spot in the queue to come up. So I expect that with the right rent deal, we'll be back in some of those centers. So yes, we're definitely working on both elements. We look at the store portfolio, some of the stores one of the stores we've got earmarked for the second half would be more around not so much like for like, which is the store is generally over the years not traded as well as we would have liked. We could get the cheapest rent deal we want there, but ultimately it doesn't fit well within the store portfolio.
So when you review a store portfolio, you do it on a number of factors. But we have quite high benchmarks for our profitability because you've got to factor in then cost of getting stock to the store and all of those sorts of things in model. Store P and L might look profitable with a variety of other costs that actually go into supporting that store. We're just reworking those and that will be an ongoing piece. But as I said before, I mean, it's still upside in our store numbers and we don't have any lack of stores we want to open and lack of stores that we'd like to see how we could open, but we're just working through those deals at the same time.
So going forward, do you think about, you know, the number of of new stores that you guys could open versus the improvements that you're making to your online pace?
Well, still think there's circa four to six new stores a year plus upsizing over the next two to three years. And I mean, thought four to six, it could be eighty one year because the deals come to the table. But I mean, Michael and I sit there and have a look at the portfolio of stores where we say could we be there probably, right rent deal, all of those sorts of things. And we've got a pipeline of 40 to 50 stores. And as we've always said, you never do them all, but that gives us good run rate to continue to grow those store numbers, continue to support our online business with increased investment in there and then look to how we upsize particular stores to really capitalize product expansion strategy and the range expansion to ensure that the customer experience in the right centers and the right stores is what we wanted to do.
So I think you'll end up with a portfolio that covers a variety of different looks. But so but overall, we still see an increasing number of stores over the next two or three years as opposed to, you know, we've hit a a rationalization point. I think you'll continue to see that number pick up. It's just missing on a pickup at 10 to 12 stores a year. It's probably more like that four to six number.
And then how do you think about when you upsize the store the listing sort of like for likes that you're getting?
In terms of our yeah. Well, in terms of our like for likes, we don't. So if we upsize the store, it doesn't count in our like for like calculations. We take it out until it's traded twelve months in its new format and under its new size. But what we've found historically as we've done these stores is if you double the store space, you won't double revenue, but we are seeing a significant increase of circa 30% store profit generated from the upsized stores that we've done today.
So when we look at it, we think there's upside in sales revenue of somewhere between 40% to 80%. And in some instances, we have doubled revenue. But overall, we sort of look at that 40% to 60% revenue growth, which generally delivers a 30% plus store profit growth of the upside score as compared to what it was trading like in its previous format.
Perfect. Thanks very much, guys. Thank you. Your next question comes from James Casey from Bowie U. Please go ahead.
Well, good morning. I just had a question with regards to the balance sheet. The trade and other receivables, they look like they're being reclassified into other assets. I assume that's part of the accounting standards change. Can you just explain what's happening?
Yes, of course.
It's Mandy here. Basically, we've reclassified into other assets our prepayments and deposits. So that's moved from our trade and other receivables into other assets. And also, again, just there's a small amount that has increased our other assets this year for the IFRS 15 adjustment to the right of return, but that's less than a 100 k. The same has also happened in our liabilities as well.
We basically moved some of our money from trading other tables to unearned unearned income into other liabilities, and that basically is about $3,800,000 that we've moved to current liabilities and another $1,900,000 in noncurrent liabilities, which is all the deferred revenue from IFRS 15.
Right. Okay. And then just following up to that, Mark, I just wonder if you could comment on the competitive environment currently. DDS or the discount department stores in particular sort of talking repositioning, not for the first time. Is that are you seeing any impact there or any potential impact going forward?
Look, we're always trying to stay aware of what the competitors are doing. Do I see it having a significant impact going forward? Well, it's a bit of wait and see. But as we've always said, we've paid particular attention to the guys. We try and remain focused on what we see as the upper end of the market.
So when I sit there and talk about our competitors, Maya, David Jones, Bed Bath and Table, Sheridan are our key competitors. And the DBS then we need to be well aware of what they're doing at the same time to see what they're doing. I guess more of a value perception in the market. But an end game for us is not to go and compete with those guys. So at this stage, I understand what you're talking about, but I've sort of taken a step back and wait and see what actually flows through before we try and overreact or jump at shadows come back to executing really well should keep us well away from that extent department store, I guess, customer demographic and requirements trying to really compete on price.
Our aim is to make sure that our product is differentiated and that we're providing the quality and the service that then all enables us to meet the pricing and the style of customer presentation that we're looking to do.
Your next question comes from Peter Cooper.
Peter Cooper from Melbourne. Just looking to get some clarity over what's happening with basket size and online only. Basket size in online only. Look, basket size across the business, as I said before, it's slightly down, not significantly, but otherwise, we would have called it out in some way, shape or form. But basket size in online is about the same as this time last year, slightly down.
And like the rest of the business is being driven by both our online growth and our in store growth is coming out of the growth in transaction volumes as opposed to significant movements in that basket. Your
next question comes from Joe Little.
Good morning, guys. Just you're clearly taking share. I mean, you just comped 13% with a 7%
in the first kind of
seven weeks and a bit further from the last question, a little question before, sorry. Just DJ's admiring, what kind of quantum of sales do you think they command, I suppose, in your addressable market at the moment?
That's a good question. I'd like to know a more definitive answer, but I bounced around about 5,000,000 $500,000,000 sorry, dollars 500,000,000 of revenue that they've got in our true addressable market in terms of Bedmin and Tau. So more in our core walkers, neither of them do significant, I would think, expansion. So in our core market, I think that somewhere between 50,000,000 and $500,000,000 of revenue.
Okay. And do you think that's where you're getting a bulk of the share from, Mark?
Without any other evidence other than their sales numbers and their high level sales numbers without any of that being broken down, you have to think that some of it's coming from there. I'd like to think that, you know, we continue to capture it from a variety of places. And I think part of the strategy in online is by delivering a better online experience in some of our competitors as people maybe transition from a bricks and mortar shopper to an online shopper or better yet, an omnichannel shopper that they're finding that there is a better place to shop whereas they might have once shopped in of your Myra or DJs and we know in the online space we're particularly stronger than some of those sites, I would think, in terms of the way our sites work and the QRAD experience we're trying. So I think some of it comes out of there, trying to work out how much is probably not something that we spend a heap of time trying to work out. We're probably more focused on how we drive that top line and continue to build the share that we've got in the market overall.
Okay. And I think your first fleet of upsized stores lamp in the comp basket somewhere in September, October. Can you just remind us how many stores and what kind of comps they're doing into their second year?
Well, that's a good question. There's about three of them, and they're all comping still strongly on the prior year. It's not going to make a massive pointing to there in terms of our overall number. You're probably looking at the comping still that 10% to 20% like for like depending on the store. So we're getting some uplift, but three out of 160 stores in terms of like for like is not driving the top line significantly.
But it is we're seeing good ongoing growth from those, which is really positive for that upside store strategy.
Yeah. And they'll continue those
the next slate will just continue to flow through whatever the next six to twelve months, imagine.
Yeah. That's right. So our aim was to make that a little more meaningful in two or three stores, and then we might start to provide a bit more color on it as we start to see what comes of them rather than quite a short three months, two to three stores. Let's wait until we've got a bit more runs in the bag and the like to really start harping about it.
That sounds about right. And just the average hedge rate, please, in the second half and then in first half 'twenty, where you're at there?
Yes. So our basic sorry, our average hedge rate, so second half is roughly speaking just under 74¢ with about 60% of that hedged.
Sorry. When was that what period was that for? That's the second that's for the
next half, so second half nineteen. And for first half nineteen, we basically started a blended rate of about $74.70.
Okay. And sorry. Were you talking about second half nineteen? Sorry. Just under 74¢.
Sorry. Yes. Second half nineteen is what we have currently got hedged in our books. It's roughly 60% of our of our purchases and an average rate of about 74¢.
Okay. And, Mark, so if you can if you just say you put through that one and a half percent price increase in in the start of FY twenty. And in addition to supplier support, I suppose you're starting to have that kind of conversation is should you be able to lift EGM off second half twenty nineteen or
Yes. Yes. I still think we will aim to deliver gross margin in the top half of that 59% to 61% long term gross margin rate, I think we can get it there. Just going to take us six months, I think, to work our way through some of, as you said, working with our suppliers, trying to work out what price increases we think we can put through and do that testing and drive that pace. Mix and all of those sorts of things as well, obviously plays into that, but I think we can continue to put a gross margin number in the top half of that guidance range into FY twenty twenty at this stage.
We'll see what we learn over the next few months, but I'm pretty confident that that's where we will see first half 'twenty next year.
There are no further questions at this time. I'll now hand back to Mr. Roening for closing remarks.
Thank you. I'd like to thank you all for your attendance this morning on the call. And obviously, as the management team here, we look forward to producing a good second half results and catching up with many of you over the next couple of weeks. Thank you.
Thank you.