Investor briefing. Daniel Agostinelli, Group CEO, and Matthew Durbin, Finance Director, followed by a Q&A session. If you would like to ask a question, please select the raise hand button to be placed in the virtual queue. The raise hand button can be found at the bottom of the Zoom interface. Daniel, over to you. Thank you.
Thank you, Ronnie. Good morning, everyone, and thank you for taking the time to attend the call today. Joining me on the call is our Finance Director, Matthew Durbin. We will now take you through the results for the 52 weeks, ended 28th June 2026, and a trading update for the first seven weeks of FY 2027. There will be an opportunity to ask questions at the end. FY 2026 was a year of significant strategic progress for the Accent Group. We delivered against challenging macroeconomic backdrops. The consumer environment remained difficult throughout the year. The fourth quarter in particular was materially impacted by the escalation of geopolitical tensions and a significant deterioration in consumer confidence. Notwithstanding that backdrop, our performance brands continued to grow. The Athlete's Foot, Hoka, Merrell, and Saucony all grew.
We saw year-on-year growth for Skechers, Stylerunner, and UGG. Nude Lucy delivered another record year of sales and profit. If I can now refer you to the operational highlights on page five of our investor presentation, which was released to the ASX this morning. The key highlights include total sales, including franchisees, of AUD 1.6 billion, up 0.9%, with total owned sales of AUD 1.53 billion, up 4.7% on FY 2025. Owned retail sales of AUD 1.4 billion, were up 4%. Wholesale sales of AUD 172 million are up 10.8%. Vertical owned brand sales of AUD 137 million, approximately 9% of total sales, with improving margins year-on-year. 876 stores across Australia and New Zealand, with 43 new stores opened during the year. Sports Direct opened at Fountain Gate and Chatswood Chase during FY 2026. 17 Athlete's Foot franchise buybacks were completed.
Turning to the overview on page six. FY 2026 was a year of significant strategic progress. I am pleased to report that the business delivered underlying EBIT of AUD 105.3 million in a challenging macroeconomic environment. Under the portfolio simplification, we closed the loss-making Glue and OzSale businesses and exited the low-performing Herschel, Superga, and Dickies distribution brands, removing approximately AUD 17.8 million of losses on an annual basis. On the growth investment, we launched an expanded Sports Direct with three stores plus online now currently trading and continued The Athlete's Foot franchise reacquisition program with 17 franchisees acquired. On the cost and efficiency, we improved underlying Cost of Doing Business by 80 basis points on FY 2025 and completed a material support office restructure, reducing over 100 roles.
On the strategic direction, we released the 2030 strategic growth plan and developed a material cost-out plan for benefit in FY 2027 and beyond. The 2030 strategic growth plan is progressing well. I will now hand you over to Matthew Durbin to talk you through the details of the result. Thanks, Matt.
Thanks, Daniel. Total sales, including The Athlete's Foot franchisees, were AUD 1.63 billion, compared to AUD 1.62 billion in FY 2025. EBITDA was AUD 278.9 million, compared to AUD 288.8 million in the prior year. EBIT before the non-cash goodwill impairment was AUD 82.6 million, above the midpoint of the guidance range of AUD 79.5 million - AUD 84.5 million, provided in our trading update on the 4th of May. Before the AUD 2.1 million of advisor costs relating to the Frasers Group takeover proposal, operating EBIT would have been AUD 84.7 million, just above the top end of the guidance range. Underlying EBIT was AUD 105.3 million.
This is reported EBIT adjusted for AUD 71.2 million of significant items, those being AUD 17.8 million of losses from closed businesses, AUD 2.8 million of restructuring costs relating to the cost-out program, AUD 2.1 million of advisor costs, and the AUD 48.6 million non-cash goodwill impairment. Underlying net profit after tax was AUD 51 million, with underlying EPS of AUD 0.085 per share. Statutory EPS was AUD -0.023 per share. Reported EBIT post the goodwill impairment was AUD 34 million. The statutory profit result was a net loss after tax of AUD 13.8 million. The AUD 48.6 million goodwill impairment is a non-cash charge and the technical outcome of the company's annual goodwill impairment assessment, which involves forward-looking assumptions and the exercise of judgment.
Importantly, the impairment does not of itself affect the company's cash flows, banking covenants, its ability to pay dividends or its day-to-day operations. Turning now to the operating review. Owned retail sales were AUD 1.4 billion, up 4.4% on FY 2025. LFL retail sales for the full year were down 0.5%, with half one up 0.9% and half two down 2%. The group added 43 new stores and closed 59 stores. The closures comprised of 22 Glue stores, Herschel and Superga stores, together with 37 stores across other Accent banners where sustainable rental outcomes could not be achieved. That 37 included 17 Vans stores as part of the brand's optimization program. So 20 stores closed in the normal course based on those sustainable rent outcomes. There was a strong retail performance across The Athlete's Foot, Hoka, Stylerunner and others.
48 Nude Lucy stores are now open, with another record year of sales and profit for Nude Lucy. Wholesale sales were AUD 172 million, up 10.8%, driven by Hoka, UGG, and the addition of Lacoste. Vertical- owned brand sales grew to AUD 137 million, representing approximately 9% of total owned sales, with improving gross margins year-on-year. Turning to the growth plan update. The key initiatives under the 2030 strategic growth plan, released to the ASX on 13th of May, are progressing well. The plan targets at least AUD 1.9 billion in sales and a 9%+ EBIT margin, and 950 stores by 2030, built around three pillars of efficiency, evolution and expansion. On operating efficiencies, the approximately AUD 40 million in gross cost savings program identified through to 2028, representing a net benefit of AUD 15 million -AUD 20 million, is on track.
Of this, there is AUD 30 million of gross savings and a net benefit of AUD 10 million -AUD 15 million that has been actioned for FY 2027. Savings are being realized across support office teams, occupancy, retail teams, IT and marketing. We have a significant number of AI-oriented projects that are being deployed to support further efficiencies into FY 2028. These savings are structural in nature and are expected to persist and compound through FY 2027 and FY 2028. Looking at store portfolio optimization, we flagged that 102 stores are under review as they come up for lease renewal. With these renewals, this should support an EBIT uplift of at least AUD 7 million by 2030, with a targeted FY 2027 benefit of at least AUD 2 million. The Athlete's Foot reacquisition program remains on track and is delivering incremental EBIT as corporate ownership increases.
This program is expected to contribute around AUD 14 million of incremental EBIT by 2030, including AUD 6 million in the FY 2027 . The longest dated franchise agreement expires in August 2029. On customer and digital, the company has more than 10 million contactable customers and 29 websites across the portfolio, w ith continued investment in CRM, personalization, and digital experience, along with AI tools being deployed to support customer engagement and marketing efficiency. Turning to Sports Direct. Sports Direct continues to expand, with eight stores plus online expected to be operating by December 2026, and the continued rollout across ANZ in line with the retail agreement. Store rollout is on track with the plan laid out in the retail agreement with Frasers Group. The Sports Direct online channel continues to grow, and the business traded well during the FIFA Men's World Cup period, providing a tailwind into FY 2027.
Management has continued to work constructively with Frasers' operational teams in building the Sports Direct business in ANZ, in accordance with the strategic partnership agreement. Turning to new store expansion and brand growth. 43 stores opened in FY 2026 were led by Hoka, Skechers, Nude Lucy, Lacoste and Sports Direct. The strong performance in brand portfolio and growing vertical brands position Accent well for FY 2027. Note that in the May strategic plan, we called out a target of around 20 + new stores, excluding Sports Direct, to continue to open each year, and that remains in place. The Frasers Group strategic retail agreement, turning to slide 12, continues to provide access to global brands, product, and supply chain benefits. Online sales have outperformed our expectations, and week-on-week sales in all stores have continued to grow as customers engage with the brand.
Fourth store at Miranda was opened since year end, and eight stores plus online are expected to be operating by December 2026. For The Athlete's Foot, 17 buybacks were completed in FY 2026, with 28 franchise stores remaining. The TAF network is around 160 stores, comprising 132 corporate stores and 28 franchise stores. This is against 146 stores in FY 2017. Results achieved from the reacquired franchise stores are bang in line with expectations. Dividends and trading update. The board has declared a fully- franked final dividend of AUD 0.0125 per share to be paid on the 14th of September 2026. Total dividends for FY 2026 are AUD 0.045 per share, and this compares to AUD 0.07 per share in FY 2025.
Compared to reported EPS before the goodwill impairment, the dividend represents a payout ratio of 78%, which is at the top end of the board's target range of 60%-80% of net profit after tax, excluding the non-cash impairment, goodwill impairment. It remains the board's intention to continue to pay fully- franked dividends out of available cash flow with a target ratio subject to circumstances at the relevant time. Turning to the trading update outlook. Total owned sales, excluding the loss-making businesses we have exited, are up 3.2% for the first seven weeks of FY 2027. LFL sales for the first seven weeks are down 2% on the prior year. Pleasingly, gross margin percentage for July was up on prior year. We are encouraged with trade in the first seven weeks, which has improved compared to the fourth quarter in respect of both sales and margin tracking.
The trading environment continues to be volatile in the opening weeks of the year, noting that sales into August showed further improvement over July. The performance sports category, including The Athlete's Foot, remains resilient and has achieved positive LFL sales, as has Nude Lucy. Sports Direct has performed well, leveraging the World Cup, and week-on-week sales tracking continues to improve. Continued strength in sport provides high conviction with respect to the ongoing strategy to complete The Athlete's Foot's re-acquisitions and to drive the Sports Direct rollout. For FY 2027, the company has a range of high-conviction initiatives to drive EBIT growth. Leveraging off the FY 2026 underlying EBIT of AUD 105.3 million, the initiatives already underway as part of the 2030 strategic growth plan include AUD 10 million-AUD 15 million of net cost savings, this being approximately AUD 30 million of gross cost savings net of inflationary increases.
These savings have already been actioned for FY 2027. There is an estimated AUD 10 million-AUD 20 million in gross margin upside from FX hedging, noting that the Australian dollar to the U.S. dollar is currently sitting around $0.71 . An estimated AUD 10 million benefit from The Athlete's Foot franchise re-acquisitions, store portfolio optimization, and new stores. These growth initiatives for FY 2027 were put in place to ensure the business could maintain an acceptable level of profit in a trading environment where LFL retail sales were up to low single-digit negative. Now, taking to the financials. Underlying gross margin, excluding the closed businesses, was 54.1% compared to 54.9% in the prior year. The currency movement year-on-year impacted the result by a further 40 basis points.
The result reflects the trading conditions and the heightened promotional activity, a disciplined approach to inventory management in a low sales environment, and the lower Australian dollar. Underlying cost of doing business was 45.6% compared to 46.6% in the prior year. Meaningful cost savings were achieved in the year across support team, occupancy, IT, and marketing, reflecting the company's focus on operating efficiency as part of the 2030 strategic growth plan. Turning to the balance sheet on page 17. Inventory of AUD 334.8 million was up on the prior year of AUD 308.5 million. The increase reflects the timing of goods in transit, AUD 5.8 million, The Athlete's Foot reacquisition program of AUD 5.1 million—t hat is the inventory associated with that program— Hoka inventory increase of AUD 2 million, Sports Direct of AUD 9 million, and Lacoste of AUD 10.3 million. The remaining increase relates to wholesale expansion and the timing of new stock purchases.
Age inventory is clean and inventory remains well managed. Turning now to net debt and cash flow. The underlying business improved net debt by AUD 8.6 million over the year to AUD 91.4 million. The closed businesses has a net debt or a cash flow impact of AUD 10.2 million, reflecting the losses associated with OzSale, Glue, Herschel, Superga, and Dickies. Strategic growth investment accounted for AUD 39.5 million of investment, being AUD 12.3 million for Sports Direct, continuing to utilize the AUD 60 million in subscription funds received in May 2025, and AUD 27.2 million for the reacquisition of 17 earnings- accretive The Athlete's Foot franchise stores. This has been our biggest year of acquisition of The Athlete's Foot franchise stores to date. Net debt implies a leverage ratio of 1.18 x, which is well within the board's tolerance range for gearing and the company's banking covenants.
As at 30 June 2026, the company had AUD 60.9 million of undrawn committed facilities and a further AUD 64.2 million of at-call funds within its funding agreements. During the year, we completed our debt refinancing, increasing the total facilities by AUD 102 million to AUD 372 million on improved terms, including an improved margin and tenure out to December 2028. This provides a robust capital structure and the flexibility to pursue additional growth opportunities, including potential new distributed brands. Coming to capital investment on page 19. BAU CapEx on new stores refurbishments and IT was AUD 32 million in FY 2026, down from AUD 42.2 million in FY 2025. This reflected the reduction in the number of new stores that were opened between 2025 and 2026. BAU capital for FY 2027 is forecast to be about AUD 30 million. That will be ultimately dependent on the number of new stores opened.
The Athlete's Foot reacquisition investment was AUD 27.2 million in FY 2026. It is forecast at around half that level based on the acquisitions, the reacquisitions, that we believe will occur in FY 2027. There are more than five reacquisitions planned, and as we get into the remaining franchise stores, they tend to be the better performing ones. Sports Direct investment was AUD 12.3 million in 2026. That comprised of the CapEx, the working capital, and the investment in operating the business. That amount is estimated to be AUD 15 million-AUD 20 million in FY 2027. Combined growth and investment in Sports Direct and The Athlete's Foot remains at about 50% of the investment mix in 2027, with the BAU expenditure broadly constant. I will now hand back to Daniel to wrap up.
Thanks, Matt. Before we take questions, I want to acknowledge the resilience that the Accent team has shown in navigating a challenging year. The business has made and executed a number of difficult but necessary decisions, closing loss-making businesses, tightening costs, and articulating the 2030 strategic plan. The benefits of those actions should start to show through in FY 2027 and beyond. We are encouraged by the early trade from Sports Direct, including the opening of Miranda, since year end, and the strong performance of the online channel. Our hedging position is expected to provide gross margin support into FY 2027. Finally, I'm proud of the team who remain focused on driving profitable sales, tightly managing costs, and executing our key growth initiatives. That concludes our presentation today, and we'd be happy to take any questions. Thank you.
We will now begin the Q&A session. As a reminder, to ask your question, please select the raise hand button on the bottom of your screen to be placed in the queue. Thank you. Your first question comes from Sam Teeger with Citi. Your line is open. You may ask your question.
Hi, Daniel. Hi, Matt. Can you guys hear me okay?
Yep.
We can. Thanks, Sam.
Great. Just look, given how difficult industry conditions have become after you provided guidance in May following the federal budget, well done on this result. It is pretty good.
Thank you, Sam.
Thank you.
There is a unique situation here. On one hand, you have Frasers trying to take over Accent, and their bidder statement contains some pretty critical things about Accent and the board. But on the other hand, Accent still has to work in partnership with Frasers to roll out and execute Sports Direct in Australia. Can you give us your perspective and insight as to how the relationship is going and what you need from Frasers for Sports Direct to be a success?
Sam, we have Dave Forsey on our board, and the relationship with Dave is good. He is currently in the country and visiting stores, and obviously attended our board meeting. As per our agreement, we channel everything through Dave that I need to channel, and primarily my team with Dave and Dave's team are working very collaboratively in regards to all things Sports Direct. Whatever else the Frasers Group wants to do is going to be a question for them. But from my point of view, personally, and this is the drive I have got with my team, w e are focused on seven or eight different items that hopefully will deliver what, or at least I am confident, they will deliver of what we are setting out to do in what we have advised the market. I would like to give you a couple of those, Sam. We have got Vans trending up.
We have got Hoka absolutely firing. We have got Lacoste making good noises. Our cost control should see a significant amount of cost dropping to the bottom line. We have got FX going our way. We have closed Glue and OzSale, both drags on our earnings. Our TAF buybacks are positive, and our TAF business being in that sports space, is very positive, with the team just doing some amazing things there. Our wholesale business is positive. At the end of the day, the Sports Direct, we have got another four or five stores to open by December 1st. If you go into those stores and if you ask yourself a question, have we shown up? We certainly have. As soon as we get more of those stores on ground, the marketing engine will be turned on, and that is why I feel confident with what is going on.
Every other question to do with Frasers, I think has to go to our chairman or Frasers itself.
Thank you. Can we unpack the outlook in a bit more detail? Appreciate there is language in there referring to an acceptable level of profit. To help us understand it better, if like- for- likes continue at, say, a negative low single- digit, is meaningful EBIT growth possible? What are you planning in FY 2027 around like- for- likes?
Sam, I think it's difficult to provide more color than what we've put in the announcement. There's a couple of factual things. Underlying EBIT was AUD 105 million, and we've put that on purpose in the outlook statement because that's clearly a number which is last year. In the absence of giving guidance, which we're not intending to do and haven't done, that's a benchmark which is considered to be a reasonable benchmark. It's clear that we've got a range of valuable initiatives that have largely already been implemented or have a high level of certainty. It's also clear that trade for the first seven weeks at - 2% comps remains challenging. We're pleased that margin's up. We've said that we can deliver an acceptable level with slightly negative comps.
Whether that's less or more than last year, I think we've got a long, long way to trade. Let's see how margin and comp sales progress as we get towards November. Clearly, November, December, and January are the biggest and most critical months, and I think it will be difficult to provide much more color until we get through those months.
That's clear. Last one. Assuming there's no change in the consumer, based on what you've seen to start FY 2027, how much of the AUD 10 million-AUD 20 million FX benefit do you think you will bank and won't need to be reinvested?
Look, I think that's a similar answer to one previously. What we know is that the Australian dollar's trading at $0.71. We also know that, because we've put it in the slide, that our average achieved currency rate last year was AUD 0.65, and our average hedge book going forward is AUD 0.69. What's in place today already is a hedge book that's a AUD 0.04 improvement over prior year. I've previously called out, as a very general rule of thumb, every 1% is about AUD 5 million of gross margin benefit. If we get to keep all AUD 0.04 of that, that's AUD 20 million. If we have to trade some of that away or more of it away, then that's what we don't know at the moment, which is why we've put a range of AUD 10 million-AUD 20 million.
The other thing we have said is that we did achieve an increase in July in gross margin, which is positive, but that was inclusive as well of the currency benefits that we had available for July. The promotional environment remains intense, and the trading environment remains volatile, and the macro remains challenging.
Great. Thanks, guys.
Thank you, Sam.
Your next question will come from Sam Haddad with Petra Capital. Please unmute your audio and ask your question.
Good morning. Hi, Matt and Daniel.
Hi, Sam.
Hi.
Just following on that from the last comment. The gross margin uplift in the trade update is all FX. Can you give us a measure in terms of the basis point benefit you are seeing from that? I know it is only one month.
Look, Sam, it is too early to tell, is the answer. Mathematically, an AUD 20 million improvement from currency is more than 100 basis points of improvement, and AUD 10 million is less than 100 basis points. But I think that is as much as I can say on that at this point.
And just in terms of your outlook commentary, can you talk about the level of investment you will need in Sports Direct? Because that I would think would still be a net negative in terms of level of investment versus where the platform is sitting at the moment in terms of profitability.
So, in respect of Sports Direct, we have called out a range of total investment in Sports Direct in the FY 2027 year of AUD 15 million- AUD 20 million. We are investing heavily in marketing in Sports Direct, and indeed have some commitments in the retail agreement in regards to marketing. And as we are building the store base, with that marketing investment ahead of the curve, I expect there will be a net cash outflow, net operating outflow associated with Sports Direct in this coming financial year, which is why we flagged that AUD 15 million- AUD 20 million cash investment.
On an EBIT, would it be a net detraction of what, AUD 4 million - AUD 6 million or something like that? Is that fair in terms of-
Sam, that is a reasonable estimate.
On TAF , just to clarify that, you called out AUD 10 million benefit for the outlook there. But I remember it was AUD 6 million in your Strategy Day . So I am just a bit confused there. What is the difference there? Which is correct?
So the AUD 10 million is correct, and that comprises of three elements, Sam. So AUD 6 million in relation to TAF, AUD 2 million in relation to the store optimization program, which for fear of throwing around a gazillion numbers, that store optimization program was a total of AUD 7 million out till 2030. The FY 2027 component of that is around AUD 2 million. We are hoping at least AUD 2 million, which bridges to AUD 8 million, and the other AUD 2 million then coming in from new stores. Hopefully that clarifies for you.
Just on the brand owners, are they starting to put prices up, as they launch new products in terms of the starting price point, on the back of the old price inflation backdrop? What are you doing in terms of that, in terms of managing your gross margin? Are you passing that on to consumers? What has the customer response been to those price increases?
Sam, there has been some of that. Where we have had to increase prices, resistance is not obvious. I dare say that we will see some prices going up, yes. But right now, it is minimal silhouettes that we have seen go up.
Just finally on your lifestyle banners, what is the sort of delta between like-for-like on your performance versus your lifestyle? Are your lifestyles still the major predominant drag? Any color around the level of drag from lifestyle? Thank you.
Look, I am not going to sort of go into detail on that, Sam. You can read through that our, again, our comps for the first seven weeks are down 2%, and we have said that the sports category is positive. Mathematically, the lifestyle category is going to be worse than 2%. I just think that reflects the challenging environment in that sector at the moment.
Thanks for your time.
Thanks, Sam.
Your next question will come from Chris Wootton with Frasers Group. Please unmute your audio and ask your question.
Chaps, can you hear us?
We can. Hi, Chris.
Hi, Chris.
Hi, chaps. Thanks for taking my questions. I do have quite a few but obviously in the interest of time, I will just stick to three. First one is probably for Matt. Why do you think holding your discount rate flat on the goodwill impairment assumptions is correct when market conditions, including rising inflation and base rate, are deteriorating? Following on from that, your EBITDA growth is also increased year-on-year when, again, the same point, market conditions are deteriorating.
Thanks for that, Chris, and reasonable questions. We feel as though the discount rate that we've had historically has been at the conservative end of the range. We have in-depth discussion with our auditors about a reasonable range, and they take an independent view of that range as well. Given historically we feel that that range has been at the more conservative end, we didn't feel that there was any need to change that this time around. In respect of the five-year growth rate that we've applied for impairment testing, we feel as though the business is at the bottom of the cycle. There are also a number of initiatives, I'm going to call them, in our control and not requiring capital investment, including the cost-out initiatives, including the improved currency rate in particular, that we feel it is reasonable to have a growth rate.
I'll say for those of you who've delved into the depths of the notes, that growth rate is 2.2%, and previously it was 1.6%, and we feel as though 2.2% is still a very reasonable position given all of those initiatives.
I suppose on the discount rate, that seems like moving the goalpost to suit, potentially. On the EBITDA, again, it's the classic hockey stick, which we all know and love in the accounting world. I still think those assumptions are quite punchy, and I guess we will see what happens. My next question is EBIT margin-related. We talk about an EBIT margin of 9%+ in your 2030 plan, but it's actually gone backwards this year. How do you reconcile still getting to that 9%?
Thanks for that question. Again, there's a couple of elements, and the most significant of those is the currency. We put a chart in the back of the pack that shows what's happened to margin and currency over the last three or four years, and you can see there is a strong correlation. I think, again, going back to some of those numbers I referenced with Sam earlier, with the Australian dollar sitting at $0.70, in fact, its very long-term average, by the way, is about $0.70. That's a straight-out benefit, assuming we don't have to trade it away, of more than 100 basis points at the gross margin level.
On the other side of the coin, we have taken out AUD 30 million in gross cost savings in FY 2027, and we have targeted for a net benefit of AUD 10 million- AUD 15 million after inflation, and we have targeted a further AUD 10 million for a net benefit of AUD 5 million in 2028. I will add that we are well progressed identifying where that next AUD 10 million is going to come from, and we are going to get amongst implementing that between now and May next year. Frankly, if conditions remain where they are, we may well need to go harder into the cost base. We are not ruling that out. If we need to, we will do that. So, if I look at those elements and then I look at the underlying margin without the loss-making businesses, you can relatively easily bridge to a number that is high AUD 8 million or early AUD 9 million . I hope that makes sense.
Again, that remains to be seen, but we are doing our very best to make that happen.
I suppose, let me pick up, you started with talking about the currency, and if you can predict the currency rates, Matt, you are in the wrong job, and you can pick my lottery numbers, frankly. So I would be more conservative on them personally. T hank you for that. Then I have got one final question. Free cash flow. As far as I can tell, free cash flow is negative, and net debt has increased. So wondering how you can justify continuing to pay dividends when that is the case.
So, if I exclude our loss-making businesses and then look at the investment that we have made in The Athlete's Foot and in Sports Direct ahead of the curve, I acknowledge in this year, with those investments, operating cash flow was negative. That is a fact. There are three things moving forward that we feel as though are going to be very supportive of the dividend. Those are the cost-out, again, that we have taken and the impact that that is going to have on earnings. So the operating cash flow in the coming year. As you can see in next year, lower investment required in The Athlete's Foot, and we will start to get benefit coming in from that. So look, the dividend consideration is an important one. We have also said at the board that we are going to pay out 60%-80% of profit after tax.
Over time, that is a very sustainable ratio.
That is all the questions I have for today, Matt. We will catch up later on the others. Thank you.
Appreciate it. Thank you, Chris.
Your next question comes from Chami Ratnapala with Bell Potter. Please unmute your audio and ask your question.
Hi, guys. Hopefully you can hear me.
Yep, we can.
We can.
Thanks, Chami.
Well done getting through that tough year, and seems like reasonably a good start to the year, irrelevant of the trading conditions at the moment. Maybe two questions from me. You did talk to a level of improvement in August. For a few retailers, we have seen this, and that's even as GP margins are getting that benefit from FX. Could you talk to the key drivers here and maybe as a bit of an outlook into the key trading period, which categories are showing a bit of the improvement?
Chami, w e started to feel a little bit of momentum in July in some banners, particularly in anything to do with sport. As we've been calling out for a while, it continues to be very resilient. August, again, was, whilst challenging, positive. I think a lot of it's got to do with just simply some new products that have come to market, although I maintain that innovation still seems a little bit weak. Certainly there's been an uptick, particularly with two brands for us. One was ASICS, one was New Balance, and that's been quite solid for us. I guess, I tend to wait for the P&L to make any decision. That's when decisions are made. This cost control and cost reviews that we've done are really starting to show benefits for us, in terms of earnings.
There certainly has been some sort of momentum shift, and I can't go as far as saying it's fantastic and we're punching the air, because we're not. There has been a bit of an uplift in just a little bit of momentum across the businesses. But The Athlete's Foot continues to be very resilient.
Thanks for that, Daniel. Just on an underlying level, excluding FX, how has the promo impact on the GMs been versus last year for the start of the FY 2027?
Thanks, Chami. When you can see that promo certainly had an impact last year. I would say that that's sort of continued at a similar level of intensity. As we get further and further into this year, that's already in the base. The unknown is whether it ramps up more as we get towards November, December, and January. With tight macro, that's certainly a possibility. I wouldn't say the promotional intensity has abated at all at this point. Hopefully that helps. I think the consumer's still chasing value. There's no doubt of that.
Perfect. If I can squeeze in one more just on Nude Lucy. I think verticals are growing at 7%. Assuming that Nude Lucy must be growing much faster, could you talk to basically the performance in that division?
Look, Nude Lucy's been really, really strong, in terms of its performance. Mathematically, you're absolutely right. We had a lot of stores annualizing this year, which was great. Comps were positive, both last year and into the first seven weeks in Nude Lucy. We've also got some other things going on, which I'll throw to Daniel to talk about.
Further to that, we've certainly learned a lot through the journey of Nude Lucy, and we've got an amazing team that run that business. The product innovation has been great, and obviously the most important people being our customers are voting positively. On other good news that I'm certainly excited about and my team are, we've got a few stores open with a new business called ODE, which is O-D-E, and we will very shortly launch a website. The brand is performing exceptionally well within the Stylerunner business, and it's the same story as Nude Lucy. We trialed a couple of stores just as pop-ups, and they've been solid. We officially will open at Warringah Mall and Miranda, and potentially a third store, all before December 1.
The new product pipeline looks terrific, and it is obviously enjoying what others in that vertical space enjoy, which is the much higher margins. Very exciting for us.
Perfect. That is great. Thanks for that, Matt and Dan. Thanks for taking my questions.
Thanks, Chami.
Your next question comes from James Leigh with Goldman Sachs. Please unmute your audio and ask your question.
Hey, Daniel and Matt. Thank you for taking my question. Just a point of clarification on the July trading update and your commentary around gross margins. I think at the half year, the wording we used around gross margins is continuing business. Gross margins is up for July year-over-year. Just to clarify, is that when comparing to the underlying business that still continues into FY 2027? Is the PCP artificially lower because you had OzSale and Glue?
No, that's a like number, James. You've really got to exclude those from the base, otherwise it's not a fair comparison because you're going to get a lift straight off the back of that. So it was improvement with those out of the base, if that makes sense.
That's very clear. Then maybe just a follow-up. By my numbers, if you back out kind of the trading, particularly into May and June. I note June last year didn't hit expectations either, and against that, this May/June also looked pretty negative and clearly the macro environment's pretty tough. I've heard that from a number of retailers. Do you mind giving us a little bit of color on May and the June promotional periods, and what you think didn't work, what consumers were telling you?
Look, I will deal with a couple of bits of that, and then I might throw to Daniel to talk about promotions through that period. We were trading pretty well actually up until the end of March last year. The macroeconomic environment and the geopolitical events that started to ramp up in April, I feel impacted us right through that April, May, and June period. What you say is correct. It was a poor period over a poor period the prior year. We cannot back away from that. I am attributing a fair bit of that to that macro and geopolitical environment. We certainly went hard on promotion through that period to make sure we got our share. T he question is, what would have happened if not for that? There was a lot of volatility in petrol prices and many other things through that period.
That is a little bit of a crystal ball. We cannot back away from it. It was a tough environment over a tough environment.
James, you are right. Of course, June is a really strong period for us. Or supposed to be a strong period with the all-important mid-year or June sale, as we call it. Both last year and this year, they just have not fired to, I guess, many retailers' expectations. Thankfully, from our point of view, I am really proud of how the team managed our inventory. Our inventory is clean. As you are aware, we have got the best part of AUD 250 million or a bit more of inventory, so any mistakes there really cause issues. But we are very well controlled and all our sights are on what are we going to do in November with cyber. That is going to be a very, I guess, telling story. But I am very excited about what the team has put together.
Great. Thank you very much, guys.
Your next question will come from Aryan Norozi with Jarden. Please unmute your audio and ask your question.
Hi, guys. Can you hear me?
We can. Hey, Aryan.
Hi. Hope you are well. Just a few quick ones from me, please. Just on the AUD 10 million-AUD 15 million on net cost-out, is that assuming 0%-2% like- for- like growth per the Strategy Day? Is that the first part of it?
Sorry, you just broke up there, mate. Would you want me to answer that one, and then we will move on to the numbers?
Yes, please.
I get the question, no problem. Yes. In the S trategy Day, we put that that was in an environment of 0%-2% growth, that there would be AUD 10 million-AUD 15 million. Clearly, comps for the first seven weeks are below that 0%-2% range. So yes, we will not bank AUD 10 million-AUD 15 million of those into the EBIT if comps continue to go at 2% for the rest of the year. Does that answer the question you are asking?
Yeah. The second part of that is just on my numbers, very roughly, the fixed cost inflation assumed within the net number is only about 2%-3%, w hich seems relatively low considering EBAs are running at 5% and rent inflation. So what explains that, please?
Look, we assumed a high 4% inflation in that number. In terms of the frontline team costs, we worked very hard in all other areas of our business to keep costs under control just in the normal course. So, I acknowledge that there is a couple of percent in it. It probably goes a little bit to the range of 0% - 2%. If you are at the upper end of that range of 2%, it offsets a lot more inflation. If you are at 0%, it does not. So I think that is the best explanation I can give to that.
Got you. Then just to clarify the high question. You mentioned, is it reasonable to assume Sports Direct is an incremental AUD 4 million- AUD 6 million EBIT dragging in FY 2027 on FY 2026? From Sports Direct will be AUD 4 million- AUD 6 million lower than FY 2026.
Similar to the answer I gave to Sam's question there, we haven't put out a specific number, but AUD 4 million- AUD 6 million is a reasonable estimate.
Incremental. That's not absolute.
Yeah.
Can I just clarify, Danny, I think you mentioned August [audio distortion] positive. Were you actually meaning that up year-on-year or just saying positive momentum?
Positive momentum.
Positive momentum.
That is fair. Sorry, very last one. Just the new Fair Work employment rates for the youth wage rates. Can you give us an idea, please, on just, because that starts from the 1st of December this year, what the impact will be to EBIT this year and then 2028 and 2029, and whether that is factored into the net cost-out as well ?
We have previously called out our best estimate of that cost over the duration of the increase, which is three years from memory, is AUD 5 million or just over AUD 5 million. It is just over AUD 1 million a year, AUD 1.3 million each year. That is factored in to our plans.
Perfect. Really appreciate it, guys. Thank you.
Thanks, Aryan.
Your next question will come from Garth Francis with MST Marquee. Please unmute your audio and ask your question.
Morning, Daniel and Matt. Thanks for taking my questions. You just called out 102 stores that are still under rent review. You closed 37 and 26, so there is obviously fewer stores in the base. Are you comfortable that is that 102 net of the closures that you called out, or is that another 102 that we could potentially see closed over the next few years? How are those going? If you could give an indication of how many you expect to close on a net basis would be helpful.
I will have the first go on that, then I will let Daniel talk to market conditions on that, Garth. The 102 is what is coming up for lease expiry between now and 2030. It does not really include what we closed this year because we have only set that out in May. There might be a couple of those that closed in the May-June period, but largely it is 102 over the next period out till 2030. Look, I would hope that we do not have to close 102 stores or anything like it, and indeed we have pretty good success and we get to a pretty good commercial outcome with most of our negotiations with landlords.
Having said that, if you look at the, I'm going to say, the net closures that we would have preferred probably to have come to some deal with the landlords on, there were 20 of those that closed in the 2026 year. In fact, that was not a dissimilar number to what closed in 2025. So, if we talked about 20 closures a year, 20 - 25 closures a year over the next three years, that would not be an unreasonable place to think that that's where we might be. Mathematically, I'm going to say that's 60 or 70 of those 102.
Garth, we've been quite disciplined here. If the stores are just not showing the right returns, even if they're profitable, we're having a real good look at these stores and simply not renewing. Or indeed, we have the ability to convert to a different banner, and in some cases that's worked very well. An example of that is we've closed or converted a heap of Vans stores that simply haven't been working over the past few years with that brand. Because of that work, particularly into July, August, we're starting to see great benefits. So much so that the Vans retail business is currently no longer a drag.
Terrific. Thanks. The seasonality of the business just with the trading that has been difficult has shifted. When is your expectation that it reaches something that is more normal? Are you expecting that sort of very big accentuated first half to continue?
I don't know, Garth, is the answer. I would hope that we'd start to get back to a more normal, I'm going to say, trading and EBIT pattern. If you look historically, it's been sort of 55% first half, 45% second half. That hasn't been the case for a couple of years. It's a little bit like how long's a piece of string, I think.
Fair enough. Just the inventory build, you guys seem to be quite happy with that. It is well up on last year. There are obviously store rollout initiatives, but highlighted that the store base is smaller. What gives you confidence that that inventory will remain clean and you are not going to have to be promotional just to clear those levels?
Look, again, that is a good question. No doubt where comps were challenging last year, there were pockets of inventory that emerged that we had to deal with through May and June. We called out that part of the impact in gross margin last year was that impact of having to clear through inventory in a low margin environment. We have planned for this year at a much more conservative level of inventory than we have in fact ever before. So, let us see how we go. But the aged inventory is clean. We have got a pretty good track record over many years of managing this, and I feel as though we are in okay shape.
Garth, some of the increases in that area in terms of inventory, keep in mind we have now opened the three Sports Direct stores, we have a further two or three stores worth of stock in our DC for the stores that are coming. We have also put on the Lacoste brand.
Great. Just in terms of the wages, where are those savings coming from? Are you cutting at store level? Because it feels like there should not be a lot to go there. If it is, have you called out IT and back office? I mean, is that impacting the business internally from a cultural perspective, and how are you managing that?
Let me just answer that front line, then we can talk about the cultural impact. Look, it is a matter of record. We have taken 100 heads out of support office. If I think about the stores teams and what we have done there, that has been a very, very detailed benchmarking exercise. To put some color around that, we have some stores that are, I am going to say, very similar size, very similar turnover in the same banner. For argument's sake, one might have been running on a wage percent sales of 14%, and the other one 16%. What we have identified is that there is no good reason where one can run on 14% and another one that has exactly the same profile should be running on 16%.
All of the benefits in the store wages have come from that benchmarking exercise, then just being more disciplined on rosters. That is a big part of the AUD 30 million that we have called out for this coming financial year. We think there is probably a bit more in that in FY 2028, because as everyone gets a bit better, then you take the best and you try and roll that practice through. Let us call it a continuous improvement exercise. That has led to a big chunk of change for FY 2027.
And, of course, Garth, we—
Y ou go.
Garth, when you actioned 100 people, they weren't bad people, they were good people. We've simply got to make necessary decisions of how to ensure we move forward. When you do this stuff, of course, morale and culture and stuff takes a bit of a hit. I'm surprised that it's been okay. We just move on and everyone's doing a little bit more and it's okay. On top of that, we've now got 50- odd people in Vietnam, offshore, and it's been quite amazing what we're seeing in terms of their ability and the value they're bringing. It's just a changing world in all that area.
Terrific. Maybe just, sorry, if I could squeeze in one last one just on the wage front and store productivity. A re you measuring conversion and are you worried that what you're doing in the store level is what's contributing somewhat to the negative like-for-like sales, or do you attribute that mostly just to the product that's not worked that well in the lifestyle banners?
That's a really open question, mate. We don't think what we've done with store wages in stores is impacting our LFL sales. We're tracking that like a hawk store by store as we make changes to rosters, and we haven't seen anything that would suggest that what we've done has impacted it. I think you'd have to put that down to the broader macro. Yes, we have talked about right now there's not the innovation in lifestyle product globally that we would like.
These conversations are daily with our brands. We are looking for innovation. We have seen some great green shoots come from ASICS and New Balance, which I think are going to be great for right up into this December. You just got to take a look at Nike. The innovation is pretty weak. Once that comes back to where it will, and it will in my view, these things are cyclical, particularly in the fashion space. I think we should see upside soon as we get four or five shoes that are different and the customer wants.
Terrific. Thank you.
Thanks, Garth.
We have got time for one more question, guys, in the interest of time. So we will take one more and then we will wrap up. Thanks.
Your last question will come from Alex McLean with Evans & Partners. Please unmute your audio and ask your question.
Morning, team. Thanks for taking my questions.
Thanks.
Just two quickly. Sports Direct run rates, I think you put some slides in the strategy day. Just wondering if you could give us some insight and an update on that.
I can. We had two stores and a website trading in May, and I think we called out there was an annual run rate off that of AUD 15 million. I am pleased to say that that annual run rate has continued to lift, as we would expect it to, as we have opened the Miranda store, and we talked about online continuing to run. Look, given we had only put that chart in the pack two months ago, I just felt it was too early to update that. I feel like as we get to November, we will have a few more stores open. That will be a good opportunity to update on that as we get to that point. We are pleased with how things are going there.
Then just maybe a question around your largest distributed brand, Skechers. How is that brand, from a product proposition and value proposition, placed in what I guess you would characterize as a challenging macro?
Skechers, as per usual, has always been resilient. Last year around about this time, or into May, June, July, we had a very, very strong silhouette called the slip-ins, which was very, very strong worldwide. It is certainly not as strong this year, but those guys just continue to innovate. There is a new one called the Cozy Fit, I think it is, which is starting to show some great signs. Hopefully that takes up the slack, and we will move forward. But the Skechers stores are very resilient. Online is strong within that banner, and what has been super strong for us in that banner has been our DFO network.
That is helpful. Then just one final one. A lot of questions around the macro, what gross margins are doing. You have made the comment around promotional intensity being high. Can you just clarify, promotional intensity is high, but it has not actually changed that much? Or are you calling out that it has gotten worse, I guess, across the last, call it quarter or six months?
No, I think it has been high now for a while. This i s how I'd characterize that, Alex. We're not trying to indicate that there's been a step up. It just continues. And who knows, this might be a new norm. But if it is, I think we're well positioned to tackle it. But certainly the customers are chasing value. Every other week, someone in our segment's having a sale or promoting product, and we're making sure we compete.
That's helpful. Thanks for your time, guys.
Thanks, mate. Thank you, everyone.
Thank you.
Appreciate your time.
Thank you.