Everyone for joining the Accent Group FY 2024 Half Year Results Investor Briefings. We will begin with a presentation by Daniel Agostinelli, Group CEO, and Matthew Durbin, Group CFO and COO, followed by a Q&A session. If you would like to ask a question, please select the raised hand button to be placed in the virtual queue. The raised hand button can be found at the bottom of the Zoom interface. Now, Daniel, over to you.
Thank you, Chiara. Good morning, everyone, and thank you for taking the time to attend the call today. I am joined today by our Group CFO and COO, Matthew Durbin. We will now take you through the results for the half year ended 31 December 2023 and a trading update for the first seven weeks of the second half of FY 2024. There will be an opportunity to ask questions at the end. To open, and in light of the prevailing consumer environment, I am pleased with the company's overall performance for the six months to December 2023. The Accent team's ongoing focus on our customers online and in stores, new and fresh products, and the rollout of 72 new stores all contributed to us achieving a group EBIT of AUD 72.3 million for the half.
If I can now refer you to the operational highlights on page 4 of our investor presentation, which was released to the ASX yesterday evening, key highlights include: the opening of 72 new stores bringing the total number of stores to 888, inclusive of our online websites. Our contactable customer database grew by 200,000 customers to 10 million customers. This has been a major KPI for us as a team. Vertical owned brand and product sales grew to more than AUD 60 million, reflecting 8% of total sales. 34 Nude Lucy stores are now open and trading well. Other highlights are we are quite pleased with how we are tracking with HOKA, both at wholesale and at retail. Our Stylerunner business continues to get great traction with our move into more footwear, and we are very pleased with that business.
Indeed, UGG, being a new business to us, is trending all over the world, and we plan to roll out stores in this business as well. Finally, pleased with our continued growth in our Platypus and Skechers store rollout with 30 new stores open between both of these retail banners. I will now hand you over to Matthew Durbin.
Thanks, Daniel. Moving on to page five, total sales for the year, including TAF franchisees, were AUD 810.9 million. Noting that the prior period was a 27-week half, this sales result represented a small growth on the prior year. The reported EBIT of AUD 72.3 million was inclusive of a AUD 3.1 million non-cash charge relating to store transition costs and an increased provision against the carrying value of a small number of Glue stores. As previously reported, the company estimates that the pro forma H1 FY 2023 EBIT for 26 weeks was AUD 81.2 million. Inventory levels at the end of the half were cleaner, reflecting an AUD 11 million decrease from prior period due to cleaner aged stock levels offset by the addition of 99 new store openings since half one FY 2023.
Moving on to page six, gross margin percentage was up 140 basis points to 56.6%, reflecting our ongoing drive to increase the mix of our distributed vertical brands and improved error rates and sell-through in vertical apparel. Cost of doing business of 45% was an increase of 300 basis points on the prior year and was impacted by negative LFL retail sales, lower wholesale sales, and cost inflation, particularly in occupancy and team costs. Net profit after tax for the half was AUD 42.2 million. Moving on to a review of retail wholesale and vertical. During the half, 72 new stores were opened and five stores were closed, where sustainable renewal terms could not be agreed. New stores continue to perform strongly, with 39 stores opened in Platypus and Skechers. Nude Lucy now has 34 stores and is trading well.
Wholesale sales declined 25% in H1 FY 2023, reflecting softer demand from our wholesale customers. Finally, sales of vertical owned brands and products grew more than 13% to greater than AUD 60 million, and margin across these programs also improved. Coming on to customers, contactable customers grew by 200,000 customers to 10 million customers. And as Daniel mentioned, this is a significant milestone for our business and continues to be the result of a strong drive to invite customers to provide emails in store, along with the impact of our loyalty programs gaining strength across our company. Company now has 7.1 million members in its loyalty programs in membership across TAF, Hype DC, Platypus, Merrell, and Skechers. The loyalty programs are driving repeat spend behavior and improved customer insights and value. Furthermore, we continue to invest in the rollout of new loyalty programs in our customer data platform.
Through the half, we indeed launched a new loyalty program exclusively with Qantas, which is available across all of our banners. Coming on to the growth update on page 10, company continues to have a valuable portfolio of growth opportunities across its core banners and new businesses, including the continued rollout of new stores with further store rollout in core banners and new businesses and further significant growth for online growth. At least 20 new stores are planned to open in the second half of FY 2024. Improved underlying gross margin from continued growth in our moat brands, being at distributed and vertical owned brands. Along with margin improvement, these brands continue to provide an unreplicable competitive advantage through product access, forward visibility to global product trends, and brand with improved apparel sell-through.
Growth in Nude Lucy has been very strong from the continued rollout of new stores and online growth. Nude Lucy is now strongly profitable and continues to grow. Profit growth from Stylerunner with the store rollout program for this banner to recommence. There's more detail to come on Stylerunner in following slides. Continued growth in TAF from product margin expansion and the potential to buy back the remaining franchisees over the next five years, which we'll talk about further. On slide 11, a little on Nude Lucy, customer appeal for the brand continues to be strong, driving profitable growth for the business. There are 34 stores now trading across Australia, with at least 10 stores planned to open in the next 18 months. In Stylerunner, our new footwear-led strategy targeting a footwear mix of around 60% has driven sales and strong comp or LFL store growth.
We are partway through the rollout of the strategy to all stores, and this brand was strongly profitable for the first half. Improved sell-through in apparel in the company's own brands, Stylerunner The Label, and Exie has also driven margin improvements both in-store and online. Currently, this banner has 26 stores and an online website with at least 10 new stores planned over the next 18 months. Moving on to The Athlete's Foot. Over the last five years, The Athlete's Foot has experienced strong financial performance driven by margin expansion, improved operational efficiencies, and the successful franchisee buyback strategy, which has seen 73 acquisitions since FY 2018, with 62 franchisees remaining. The company announces today that it has determined not to renew franchise agreements at expiry and to explore the acquisition of the remaining 62 TAF franchise territories expected to be over the next five years as franchise agreements expire.
Based on FY 2023 franchise sales, this initiative has the potential to add an incremental AUD 170 million to own sales as they convert from franchise sales over the next five years. The program will be funded from resulting cash flow and existing debt facilities. Coming on to dividends, we're very pleased to announce today a fully franked interim dividend of AUD 0.085 per share, fully franked for the first half. In terms of the trading update, at the end of January, owned sales are up 1.6% and owned retail sales, excluding wholesale, are up 5.6%, reflecting new store openings. For the first seven weeks of FY 2024, like-for-like sales are down 0.7% on the prior year. However, gross margin percentage continues to be above last year following the trend in half one.
Cost of doing business percentage also continues to be higher than last year, albeit at a lower increase than half one, with the impact of negative LFL store sales, increases in store team costs, and occupancy continuing into half two. I'll now hand back to Daniel to wrap up.
Thanks, Matt. While we recognize that there is some uncertainty in the economic outlook, we have been pleased with the trading and execution in the key periods of November, December, and January. Looking forward, our store opening program remains on track. Stylerunner performance has been positive, and Nude Lucy, the brand, is resonating very well with our customers. Continued store rollouts are planned in both banners. Our announcement regarding TAF today, the Athlete's Foot, provides the opportunity to continue to explore the reacquisition of franchisees over the coming years. That concludes our presentation today, and we'll be happy to take any questions. Thank you.
We will now begin the Q&A session. As a reminder, if you'd like to ask a question, please select the raise hand button at the bottom of your Zoom screen to be placed in the virtual queue. Our first question will come from Chami Ratnapala. Please go ahead and ask your question.
Yeah. Hi. Good morning. Thank you. Good morning, Daniel and Matt. Congratulations on the result in the current context. I have a few questions. Firstly, with the wholesale channel, has that rebounded in trends at all?
Yes, it's starting to rebound, yes, particularly as we start to supply some people with HOKA. Most importantly, Chami, what is occurring as we're opening more and more of our own banners, we seem to be getting much more share of what the brands are selling in the market. However, we're still very, very determined to still supply others in the market that can showcase our product in the manner we expect it to be showcased. But we're quite pleased with the shift in where some of those sales are going.
Perfect. Thanks for that. Just on the trading update, obviously, January was a very strong period in the PCP. Heading into sort of February and through to the rest of the third quarter, how supportive do comms get?
Yeah. Thanks, Chami. So when we headed into the back end of the second half last year, comps certainly deteriorated. They were still positive but less positive than they'd been. So the PCP comps are less challenging as we head into the back half. That's not any prediction that things might get stronger. Part of the message is we've sort of been down minus 0.7, and to this point, we haven't really seen that trend change. What is good is that our new store program's going well, margins strong, and we're working hard on cost of doing business.
Perfect. Thanks for that, Matt. And lastly, I think I will go back to the queue. But lastly, just on gross margins, I mean, back in FY 2019, obviously, it was around that 57% level. And I suppose you're not too far from that. Yeah. How should we think about the margin outlook?
Yeah. Look, I'll talk to the long term rather than make any comments around the next six months. We're very pleased with the momentum in gross margin. I think it's a proof point that our ongoing program to drive our vertical brands and our distributed brands in our business is working and is the right thing. The Athlete's Foot business in the corporate stores is getting strong margin improvement as well, again, through that same theme. And what's really pleasing now with Nude Lucy and Stylerunner is that we're really starting to understand this apparel space, and our error rates and margin is starting to increase simply through less mistakes in product that causes us expensive markdown. So thematically, we don't think we're finished with the underlying margin improvement. And look, the currency is going to be up and down in the short and mid-term.
But underlying, we're trying to make our business stronger over time.
Perfect. Thank you very much, Matt and Dan. I will go back to the queue.
Thanks, Chami.
Next up, we have a question from Alexander Mees. Alexander, please go ahead and ask your question.
Thanks very much. Good morning, Daniel. Matt, two questions. With regard to the performance of your various brands, one of the big advantages of your business is you have a wide variety. There's a great portfolio effect. You've called out Skechers, TAF, Hype DC, HOKA, etc., as being particularly positive. Platypus, Vans, and Glue as being a little bit weaker. Is there any theme as to why one brand is doing better than another in this period? Is there any particular trend or any other reason that we can extract to try and predict where these brands go from here?
Thanks, Alexander. I'm not sure about a theme, but it's no secret that Vans worldwide or what we call the cups ole has been a little bit tougher as a trend. I've been doing this for 17 years now, so I've seen a few of these troughs. Vans will come back very, very strongly. We're very confident, especially with the product pipeline we see in front of us. As an example, even though the Vans brand is a little bit soft, as we say internally, it's still our number one of the SKUs in there. It's still our number one seller across the Accent Group, albeit a little bit down where we want it to be. And some of that slack's been taken up by new trends into New Balance and Adidas. We have great trading terms and great relationships with those two.
So that's where the slack's been taken back from there. In terms of Glue, we are still on a mission to understand and get it right in terms of where we see the business. We've been playing with what we call pinnacle doors. One of them is at Bondi Junction in Sydney. The results are positive, very positive, in terms of what sales are doing, comp growth, and margin. But we want to continue to explore what that will look like moving forward. But at this stage, it's business as usual, and we continue to find the next winners within that banner. What was the other business? It was Vans, Glue, and.
Skechers. We're calling out Skechers.
I can call out Skechers, Alexander. It's been very strong worldwide, continues to be a standout in almost every banner that carries the Skechers product. The stores are trading very well. Wholesale is a little bit softer, but we've opened a lot of stores. So I guess the combined effort is favorable for us. And indeed, Platypus are now also selling the Skechers brand very, very well, which is very new for that banner.
I suppose.
I hope that answers the question.
It does. I suppose HOKA is another example of a brand that's been extremely strong with a heavily cushioned sole. Do you expect that to continue to remain as strong as it has done?
Absolutely, Alexander. I mean, HOKA is a standout for us. I happen to be wearing a pair right now. If you just look at their results worldwide, it's one of those brands that has disrupted that whole sports market. We're very, very fortunate and pleased that we have an exclusive agreement with them for Australia and New Zealand and indeed all online. Every measure point or KPI is green. It's positive. It's slowly but surely becoming our number one brand within our own Athlete's Foot business. And indeed, it's selling very well through Hype DC and starting to get traction through our Platypus business as well. We are yet to supply the market. We will. We're being very, very cautious of where the brand should sit and who can do the brand justice in line with what the brand owner, being HOKA in the U.S., are advising.
A very exciting time for HOKA. We've now opened four stores, and we plan to open more the next half and indeed into the first half of the new financial year.
Excellent. Just finally, digital sales. I couldn't see that quantified anywhere. Have you disclosed that?
That's a good question, Alex. No, we haven't. The thinking is we have viewed ourselves forever, actually, as an integrated omnichannel business. We feel that driving digital and driving stores at the same pace is important. What I can say of what we did call out was that digital sales have been very strong, and we're really pleased with the progress. Don't take that lack of disclosure as any form of us backing away from the importance of digital or from wanting to drive that forward as hard as we can, nor from the performance of it in the last six months. We're very, very pleased with it.
Great. Thank you very much.
Thanks, Alex.
Next up, we have a question from Tom Camilleri. Tom, go ahead and ask your question.
Morning, team. A quick one from me, just on what the solid gross margin expansion achieved in the period. Can you just discuss with us a little bit more about the drivers and headwinds that you are seeing? It looks like FX couldn't have been a tailwind, so there must be a lot of organic improvement in there, which might be related to pricing. Can you help us with that?
Yes. Thanks, Tom. Just quickly on the FX and the sort of, I'm going to call it, freight. So FX was pretty neutral in the first half, period on period. The freight was a benefit. So we've still got a 12-month sort of benefit of some of those very high freight rates we were seeing last year and much lower freight rates in this period. So small tailwind sitting there. The much bigger impact has come from we right-sized our inventory by the end of June, and we took a bit of medicine into May and June last year, into last year's result around that. That meant we went into this year nice and clean. And largely, we've also got all the inventory that we wanted when we wanted.
So that's meant less promotional intensity and certainly less markdown on product that was barking, and we needed to get out of the business. So they're probably the two biggest, I'll call it, short-term impacts that you've seen in the half, if that makes sense.
Yeah, that makes sense. So I guess how much of, I guess, that expansion then was your private label or mix-shift type expansion in the period from your Nude Lucy's?
Yeah. three, two. Look, certainly, Nude Lucy has played a role in that. The vertical program's now AUD 60 million+. And that whole program underwent a significant margin expansion year on year through improved error rates in particular, and us just starting to learn what we're doing and get better at it. So we talk about good vertical margins, end margins being above 70%. And I'm really pleased to say that we're not quite there, but we're nearly there now, and that's been better than we have been in prior periods where we've had excess markdowns as we've had to deal with some mistakes. So that definitely played a role. I haven't sort of broken it down into 20 bips of this, 30 bips of that, but yeah.
Yeah. So you've still got upside, I guess, from continued improvement within the vertical gross margin itself?
Yep. No doubt. I think there's more points to come in within the vertical margin as we continue to get better, get more volume, more volumes, better buying power as well. That's certainly a theme that's starting to come through now. We've got 34 stores in there, and there's plenty of vertical apparel in there with Stylerunner label and own. So absolutely.
Yeah. And then just a follow-up, which is kind of related. So when did you push through your last round of, I guess, material price increases? And do you have another round coming through near term, or do you think you'll probably hold it pretty consistent in the second half?
Yeah. So the last round sort of went through June and July this year, and that was sort of the last sort of meaningful round. And indeed, in the environment that we're in, be prepared to acknowledge on some lines, we went a little too far and had to pull back on some core lines, in particular in Docs and Vans, which we felt was the right thing to do. It's good to push it as far as you can. But we made an assessment. There's a few things we've just gone a bit far on. So they also got pulled back fairly quickly within the half. In terms of future price increases, I wouldn't say that there is any trigger or sort of plan to do any significant future price increases.
However, across all of our products and all of our banners, we're always looking to have we got the right price in the market for the product we've got? And that's always a discussion on is it too high or too low? However, where we can push some price points. And in particular, in our vertical business, where we've got some unique product and, frankly, the Nude Lucy product's pretty good quality, those sorts of things we're looking at, can we push the price a bit on certain items? So that's an ongoing process. I don't think there's any rationale or plan for I can tell you there's no plan for more wholesale price increases in the environment.
Yeah. That's great. Thanks, Matt. And then just finally, could you just make a comment on the efficiency initiatives you put in place for non-customer-facing areas? When was this enacted? Was this late in the period to show, should we get an absolute step down in the second half?
The second half, yeah. Good question. And I think there'll be some other questions on CODB, first, second half, vis-a-vis first half. So there's a couple of things, and we called out that we felt that the cost of doing business increases a percentage relative to last year would be lower. So it'd be a sort of it's still an increase, but a lower rate of increase than we had in the first half. One of that is that there's a little bit of distortion with the 27th week and the movement of December and January, which sort of pushed a bit of extra cost as a percentage of sales into the first half that we won't have in the second half. So there's a little bit of just distortion there.
The cost initiative, one of the significant ones we did, which really only kicked off in October, was a review of our support office expenses. And that's from people administration costs right through. And we've taken some reasonably significant action there, not silly or radical, that will start to impact costs of doing business in the second half and in the first half next year. There is no doubt it remains very challenging with slightly negative comps. And we've got that indexation. Everyone will recall there was a 6.5%-7% indexation in team costs, store team costs that came through in July last year. So we'll still be pushing into that in the second half.
It is also a fact that for the last 12 months, up until quite recently, we've had 25% of our store portfolio on CPI-plus, and those renewals have been done as significant increases. So that's a longer-term fix. We've got about 190 renewals coming up over the next 18 months in our business. And Daniel and I sat down the other day with our head of property, and we've got a very significant program of work underway to make sure that all of those renewals get done at the right rates that they need to get done at.
Yep. That's great. Great call, guys. Thank you.
Thank you.
Next up, we have a question from Sam Teager. Sam, please go ahead and ask your question. Looks like Sam might be having some trouble, so we'll move along to Shaun Cousins. Shaun, if you'd like to go ahead and unmute yourself.
Great. Good morning. Matt, Daniel, can you hear me?
We can. We can. Thanks, Shaun.
Okay. Great. Okay. Thanks. I'll ask my questions. I'm sure Sam will be up soon. Maybe just to discuss the wholesale decline, how much of it was retailer caution about ordering, and then how much of it were some of the challenges that Vans and Dr. Martens are having globally in terms of some of your brands, even though you've got HOKA as a business that's really on fire and quite strong? But is it just also some of the trends that are going on with some of your big wholesale businesses like Vans and Dr. Martens? Did that also contribute to some of that 25% decline?
Yes, Shaun. The trend of, as I mentioned earlier, the cupsole, we call it, which is traditionally Vans and Converse in our market, that trend is a bit softer at the moment. We had the same issue about seven or eight years ago, and then it bounced back very, very strongly. We expect the same thing will occur. But yes, the trend is playing into that a little bit, and therefore, the market requirement softens a little bit. But the new products, particularly in Vans that we're seeing, is much more in line with a much more cushioned sole. We've only just started seeing that product. We're very confident and looking forward to getting that product into our stores and offering it to our customers who follow the brand Vans.
Great. And maybe just you called out, I think, to the earlier question around wholesale was actually getting a little bit better. Why is that? Is it just selling more of HOKA, or is it actually underlying retailer confidence? Are they ordering more? I'm just curious around what's driving an improvement on that down 25% in the first half seems to be getting better in the first half sorry, excuse me, the start of this calendar year.
The start of this year. Look, I think definitely HOKA and UGG. So we're really only in our sort of second year with HOKA and really our first year of what I'm going to call proper orders with UGG. And we're going into the second half of the winter half is the half for UGG. So there's a lot of interest. And in the other brands, it's sort of slightly improving. There was certainly a lot of, I'll call it, conservatism. So to your earlier question, yes, I think everyone has been a bit tentative. But HOKA and UGG are driving it. And I think people are getting just a little bit less nervous about, is it really going to tank hard, which is playing into confidence.
Great. And then maybe just the decision on TAF. I'm just sort of curious around maybe what's not working or what's suboptimal about the current sort of process. And if you think about you're not going to renew the lease, pardon me, renew the franchises, you still need to make a payment. And I'm just curious around what we should think about, be it is there sort of working capital, lease assets come on balance sheet. I'm just curious around why the decision to sort of make this announcement around TAF, a more bolder decision to sort of corporatize the stores, and what some of the financial impacts of that would be, please?
Yeah. Good question. And I'm very happy to talk about that. So clearly, the strategy to date for The Athlete's Foot and the buybacks that we've done to date have been successful. The main idea of setting out on the strategy going back six years ago now, and Daniel and I were both there, and Daniel was instrumental in sort of driving what we needed to do, was in this modern environment, you just can't move fast enough on the decisions that you need to make, the product changes that you need to make, going to the customer with one voice where you have a franchise, a fully franchised network. So that was the inception of the program. Subsequently, we've been able to successfully integrate the franchisees to date and drive margin and profitability because of that.
So we're now at a point where we have confidence that we can move forward, and we think we can move even faster if the network's fully in corporate ownership. And we also feel as though that there's a good opportunity for our business and our shareholders. So look, I don't want to say too much more because, as you can imagine, it's a decision that we need to treat with some sensitivity. We've called out that we expect that AUD 170 million of franchise sales have the potential to convert to owned sales. And we feel as though that makes our business stronger overall with suppliers and whatever else, more efficiencies that can come out of that, Shaun. So I hope that helps.
I think we've got to get through a lot of discussions with the franchisees and treat that with sensitivity and get through that over the next few months.
That's great. Thanks so much, Matt. Thank you.
We'll move back to Sam Teager. Sam, are you able to unmute yourself?
Yeah. I think I'm good now. Hi, Daniel. Hi, Matt. Thank you.
Hi, Sam.
Hey, guys. Hey, just on Nude Lucy, at this point in time, which states is the concept, is the format resonating the best in?
Mate, so far, as the sample we have, which is whenever it is, 30-odd doors, New South Wales has been really strong. Queensland's been good. Western Australia's been a surprise. It's been better than I certainly expected, given nobody really knows us over there. That's been really surprising. And Victoria, given, I assume, the weather, the so-called weather, has been probably the softer one. However, we just opened in Highpoint, and we think that we're going to hit the numbers we need to. The team have already pivoted towards making sure that we've also got a range that is, I guess, more in the darker colors as well to accommodate that. But definitely New South Wales, Queensland, and Perth, mate.
Got it. That's helpful. Yeah. I'm just trying to understand if this is a banner that's better suited to certain regions in Australia, or you think it really has a national potential, and you'll soon be taking it to SA, Northern Territory, Tassie, and maybe even New Zealand.
Sam, all of those places you mentioned, absolutely on the open stores list. In South Australia, we have already opened a store, and we're still testing with that. But we are already negotiating for a second store as we speak in South Australia. And what we don't want to do is just spray and pray sort of stuff, open wherever opportunities arise. We've got landlords all over the country wanting the banner. We will really be, I guess, cautious where we go. And we want to open probably the next dozen in the so-called A-grade or A-minus shopping centres as the next round.
Understand. And just circling back to The Athlete's Foot, of the 62 stores, what year do the bulk of the franchise agreements expire? Just trying to think when we'd really see the kick-up in the P&L.
Yeah. Look, it's quite progressive, Sam. There's a little bit of a bell curve in it. So they're more in the middle, less in the, we'll call it, the next 6-12, more in the middle. And then there's some very big ones at the end as well. So I'll probably say years 2-4 will be the big ones, if that helps all the bigger ones.
Yeah. That's good. Thanks. Just last question. How many stores have you opened across the group in January and February to date?
Well, that's a good question.
Well, January, we tend to open.
Not many in January.
Not many.
Probably one, I think.
We can't get shop fitters. We've got quite a big refit going on with some of our A-grade stores, which we want to continue to invest in. So it's been a lot of work is being done with refits. I think we've opened probably two in February.
Yeah. I think two. Yeah. Yeah. Unlike other years, we think at least 20 might be closer than it has been, Sam, for the second half.
All right. Thanks, guys.
No worries.
Next question comes from Mark Wade. Mark, if you'd like to go ahead and ask your question.
Good morning, guys. Just on that Athlete's Foot thing again, I mean, what do you anticipate as a likely reaction from those franchisees, and how would you kind of go about managing any negative fallout between now and the time you take hold of those stores to keep them humming?
Yeah. Look, that's a very good question, Mark, and certainly something that we've thought very carefully about. So look, we've got a very, very good team in TAF who engages on a daily basis with the franchisees. It's in everyone's interests, to be honest, to continue to try and drive the TAF business and the TAF banner as strongly as they can. We're going to rapidly support, I will say, all of the franchisees until the last transition has occurred.
I think we started this journey six years ago, and we really felt that we needed to wait until we had the right capability in our business and scale in our business to be able to make sure that first, we treated all of the franchisees with respect as we move through this process, but that we've got belts and braces around supporting them and making sure that we get through this in an orderly fashion. It's not to say that these guys have absolutely been involved in the network for a long time. They've helped build the network, and we're highly respectful and appreciative to them for that. We hope we can get through this with respect for all of them.
Yep. Okay. Fair enough. And just turning to the Glue, it sounds like it hasn't really gone to plan. Is it just a case of that brand was just irrevocably damaged at the time you picked it up, more so than you anticipated, or has it lost a bit of relevance in the crowded marketplace, or is it just some own goals and trying to get the ranging right? So where to from here, and kind of what was the diagnosis on the current state of play?
Yeah. Look, I might tackle that, and then I might hand to Daniel to talk about some of the good stuff that's going on in there. No question, it's been harder than we thought it would be. We certainly don't think it's lost relevance. That segment is a little bit challenging at the moment in comps. You've seen that from some other market data points. We've definitely kicked some own goals and some early own goals in terms of some of the decisions that we made. But look, we feel as though there's some momentum starting to build. We're still a fair way though, I think, from being able to say that we're where we want to be. I'm not sure if Daniel's got any color to that.
Yeah. Further to what I mentioned before, it has been a tough sector, but we've got a great team in there. And we've been, I guess, testing with what we're calling pinnacle doors. And how big should these stores be moving forward? It seems the big format stores are not relevant in that space as they were probably 10 or 15 years ago. So we're still playing with store size. Where we have, I guess, executed closer to where we think it should be, particularly Bondi Junction, and there's a couple of others that are close behind it, the fit-out's looking much more on point. It's softer. It's much more female-driven. And what we're finding in there is we've ended up with comp growth, margin growth, and indeed just much more being relevant in what is expected from our customers today.
Not much more to add to that except for we're still testing through it. The business has 28 stores or 30 stores. Is that about right?
Yep.
Yep. So at the moment, it's just business as usual.
Yeah. Mark, the other thing I'd say is that the market in that space has changed quite a bit. So we are evolving. And maybe I'll call out Stylerunner. It took us three years to nail that model. Obviously, we'd like to think we can do it faster than that. However, Stylerunner was a turnaround when we bought it as well. It had never been profitable when we bought it. And for the first time this year, we've got it to profitability and sustainable profitability and at a decent level as well. So these things do take a bit of time is what we're finding. Yeah.
Yeah. I mean, I'll put kind of both of them were quite fragile brands when you picked them up. So I think you've done about as best you can. So yeah, keep it going. All right. Thanks, guys.
Thank you.
Next up, we have a question from Garth Francis. Garth, go ahead and ask your question. We might move along to Edward Woodgate. Edward, if you'd like to go ahead and ask your question. It looks like Garth, you might be able to unmute yourself now.
Can you hear me now?
We can, yes.
Yep. Terrific. Good day. Matt and Dan, hope you're well. I just wanted to touch on the landlord fit-out contributions and whether you're seeing the same sort of levels as you've seen in prior periods. Are they as accommodative, or are they less generous than history?
On renewals, of course, it's very difficult to get contributions. We've got a lot of those to do this year. On new stores, yeah, you'd have to say that cost of money these days is eaten into the amount they used to give us. But it's still very solid, particularly where we have a banner that makes sense that we go into a key site with the landlords. At this point, I can say, yes, it's a little bit softer, but not enough to knock around the metrics of our performers when we look to open a store or not in terms of what that may do to appreciation.
Yep. Great. And then your inventory turns of, I think, around 2.5 at the moment. Just in terms of the initiatives of adding more vertical product, are you expecting that to slow, or are you expecting improvements just with the recent cleaner inventory and improvements to the supply chain?
Yeah. So I might just talk to the math and let Daniel talk to the strategy. But in terms of the math, we are expecting turn improvements over the next six months, and we're targeting turn improvements. We'd like to be somewhere closer to high 2s, 3s in the business over time. So that's our objective.
Not much more to add, Garth, except for we've put a lot of time and effort in every banner in this space. Indeed, we have divisional CEOs that this is a key KPI for them to manage inventory. I think the team's done a fantastic job this year. We're very clean. There's evidence there in our margin. I think there's some more good news to come from that effort moving forward.
Fantastic. And then just on the apparel, it sounds like you're obviously scoring goals with Nude Lucy and Stylerunner. In terms of adding new brands to the group, would that be via acquisition, or are you hoping to develop those internally, and should we expect to see some new brands being added?
Well, every week, as you can probably imagine at the moment, and for the last 12 months, indeed, there's been many opportunities to buy brands, particularly in the apparel space. We feel we've got a formula that we can develop more internally. We're building a really strong team in both Nude Lucy and in Stylerunner. And given the pace we can move at, I mean, if you look at Nude Lucy, the whole thing's a couple of years old. So it's been really fast growth. You will find soon our team with Nude Lucy launching a brand called NiLS . That'll be sold within the Nude Lucy stores, but it's next level. It's a bit higher price point.
It's very, very exciting for the overall group of what's going on with all things apparel, albeit it's still a small part of the overall combined company sales, but it's growing fast.
Terrific. Thanks, guys.
We'll move back to Edward Woodgate. Edward, would you like to ask your question?
Yeah. Yes, please. Can you hear me okay?
Yeah. All good. Thanks, Edward.
Thanks for taking the question, guys. Maybe just initially, it'd be good to get your thoughts on how the comps evolved during the half and then into the trading update. Was it foot traffic? What was the sweep turnaround foot traffic? And you showed a bit of momentum into January. So yeah, can you find any color there, please?
Yeah. No problem. So I might talk about at the update we gave at the AGM for 17 weeks. I think from memory, we were about 1.7%-1.8% comps at that point in time. And then we wrapped up the half at 0.6%. So there was strong performance through that period of we'll call it Cyber and then into Christmas. And then certainly into the early weeks of January, it was also quite strong and then probably not so strong in the latter weeks or the final week of January and into February. So what I think you can read into all of that is I don't think the fundamental consumer trend has changed. I think it's what I describe as just a little soft but not terrible.
I think what we are seeing is that when there's promotions or a reason to spend, the customer's coming out. And indeed, we called out we had a record result in Cyber, and we had a record result in Boxing Days. So there's still strength there. And indeed, Back to School was also right where we wanted it to be. I think it's the periods where there's sort of less promotions, and there's not necessarily a social reason to spend. There's just a little bit of softness.
Yeah. And Edward, I can add. Our world is no different to everyone else's world in terms of where the product's absolutely hot or in absolute demand, we're actually very, very strong. The business has always been you get a trough with one brand, and then it comes good six months later and so on. If you take our Skechers business, they are just so innovative. The product is on point. It works almost everywhere. And we just look at the forward pipeline of what the brand owners in America have got. It's just a terribly exciting time with that brand. So you end up saying, "Well, that one's okay. Let's move to this one here." But the overall driver is product innovation and what's in demand. And you've just got to stay on that curve. That's what's going to drive the traffic.
Okay. Thanks. Appreciate the color. And then just on the qualitative commentary around cost of doing business as a percentage of sales in the second half, that's going to increase less than it did in the first half. I mean, the first half increased 240 basis points if I've got my numbers right. So it feels like there's quite a wide range, and I just wouldn't want consensus kind of going the wrong way on this. Can you just talk through kind of, I guess, particularly given it's quite a seasonally higher period for CODB? Kind of roughly where you're thinking about that being?
Yeah. Look, I won't call out a number. There's a couple of things there. The number inc., the occupancy cost was a 300 basis point increase. So 240 was also correct. That was ex. That was ex, the occupancy, sort of the difference between the AASB 16 and what I'd call the real cost of doing business. So that's why we call that the 300 because I think that's a better reflection of what's going on when you think of leasing as our second biggest cost. I call out there was some distortion between the first half and the second half, which was simply created by that retail calendar, which pushed a bit more cost as a percentage of sales into the first half vis-a-vis the second half. It's just the difference between where the calendar fell in December and January.
What we will see in the second half is the cost initiatives that we've taken in support office start to bite and help us, which is also good. That distortion, hopefully, we get a bit of joy on the comps. As I said, if we don't, the indexation in team wages and the indexation in leases continues. I expect it'll be a lower increase than the first half as we sit here today. There's some good reason to believe that. However, I'm not sitting here saying that there won't be a year-on-year increase in cost of doing business percentage. Indeed, we expect there will be one. You can read into that. It will be somewhere between 0% and 3% increase on last year, if that helps.
Yeah. No, not really. Anyway.
Look, we've got to try it, mate, as you know. So we're going to be doing everything we can. That's the message I want you all to take away. However, there's certain things that are just a fact of the structure of what's going on in our business. And we're not going to pull back on frontline team to engineer a result and impact our long-term service because that's just not the right thing to do for our business.
Okay. And just given you're taking the costs out from the business, it sounds like you're comfortable you don't need to see like-for-like increases to be within that qualitative guidance range.
Correct. So that's thinking about comps stay broadly where they are because we're not going to be delusional. They could easily stay where they are for the rest of the half. I'm hopeful as we get into May and June, we're cycling lower comps. So we might get some joy, but we've got to trade it. So that's sort of the underlying thinking in terms of that cost line.
Okay. And then just given promotional intensity, I know you pulled back a little bit there, but given ongoing mixed shift, are you thinking that GP margin expansion continues in the second half? Sorry if you've already asked Matthew this.
No, that's good. We talked about that it had continued as regards the first seven weeks. So GP margin is up in the first seven weeks again. What I'd call out is I don't know what's going to happen for the rest of the half. However, we have clearly called out in May and June last year, we took some pain on a bunch of markdowns on excess inventory that we had to take. And given where our inventory levels are, there's not going to be the need to take those inventory clearance markdowns through that period. The unknown will be the promotional intensity through that period.
Sure. And just one final question for me. Could you just walk me through, but does he call out the loss from Glue's currently, if it is still making a loss?
Say again?
Glue EBITDA loss?
Yes, Glue is making an EBITDA loss.
Yeah, but what is it? What's the number?
Oh, I'm not going to say what it is.
Okay. I'm not going to say.
Sorry, let me clarify. It's not an EBITDA loss at full whack. It's an EBITDA loss after the associated support office expenses for that business.
Okay. All right. Thanks, Tim. Appreciate the questions.
No problem at all. Cheers.
Next up, we have a question from Wei-Wern Chen. Wei-Wern, please go ahead and ask your question.
Hi, guys. Yeah, just a couple of questions about the Athlete's Foot plan. Can you help us understand if you were to secure AUD 170 million of additional annual revenue, what would that do to group margins given, I guess, franchise holdouts tend to be higher quality? Would it be margin accretive?
Look, I won't comment on the margin on that. I think, as I said to an earlier question, we've got to get through the discussions with those. It's got a long way to play out. The only chat I would say is in terms of trying to get something in your model, our group EBIT margin is 10%. So that's a place to start. However, we have called out that when we're able to convert a franchise to corporate, there's a margin expansion that comes off putting our distributed and vertical brands through those stores. So I hope that gives a little bit of color, but it's way too early to call out where we think that's going to lead.
Yeah. And in terms of your discussions, I think there's 40, sorry, 62 franchises remaining. Can you give us a sense of how many franchisees own the 62? How many people do you need to discuss with?
Yeah, it's still quite a big number. There's a number of owners that have multiple stores. I think it's in the range of about 45 people that we're going to have to have discussions with. So it's a significant number of discussions, and we have to treat each of them individually and with respect.
Yeah. Then just on, I think there's an earlier question on M&A, but it was kind of more relating to sort of brands. But are you at all thinking about M&A from a sort of distribution opportunity perspective?
Perhaps just give us a bit more color on the question. Sorry, Wei-Wern.
Oh, just opportunities to sort of acquire further sort of distribution opportunities rather than develop sort of internal brands.
Yep. Get more distributed brands into the portfolio.
Correct. Yeah, yeah. Got it.
Well, that's just as I mentioned earlier, that's ongoing. HOKA and UGG are very new to us. We will do a review of some of the smaller brands we have in the business that potentially are profitable but not really enough to move any dial. We would probably consider some review of all that and indeed put much more effort and focus into the brands that we think will move the dial, i.e., HOKA and UGG are very new to us. So we are continuously reviewing our brand portfolio. And you may know of a brand called Merrell. It's been a bit of a sleeper over the years. It's now trending worldwide. We're having a good time with that all of a sudden. So it's a timing thing as well with what we do with all brands.
In terms of the apparel space, as I mentioned earlier, I mean, there's one you can just pick up the local directory with businesses for sale, and you'll find one of 20 or 30 brands on there. But we think we can do it better without having to put goodwill on our balance sheet, and simply, we've got the funds to keep growing brands should we decide to go that way.
Cool. Thanks. That's all from me.
Thank you.
Thank you. That now brings our Q&A session to a close. Daniel, I'll hand it back to you for any closing remarks.
No, I think all points have been discussed. We really appreciate your time. Thank you, and we'll be out there making the next half strong, we hope. Thank you.
Thanks, guys.