Thank you all for standing by, and welcome to the Baby Bunting Group Limited FY 'twenty one Results. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I'd now like to hand the conference over to your first speaker, Mr. Matt Spencer, thank you.
Please go ahead.
Thank you, Tara, and good morning, everyone, and welcome to the Baby Bunting's results presentation for the full year ended 27 June 2021. Joining me on the call today is Darren Hookman, our Chief Financial Officer, and good morning to you, Darren. Good morning, everyone. Before we begin, I'd like to acknowledge the traditional owners of the land upon which we meet today, and we pay our respects to the elders past, present and emerging. As Tara said, we will be taking questions at the end of the presentation.
If we turn to Slide 4, our financial highlights. We present the numbers on this page on a pro form a basis. Our long term goal has been to achieve an EBITDA margin of 10% of sales On a pre AAASB 16 lease accounting basis. I am extremely proud to say that we achieved this in the second half of FY twenty twenty one. I'm delighted by the performance of the business, and I'd like to take the opportunity to thank and acknowledge all the members of the Baby Bunting team who have contributed to this result in what can only be described as a very difficult and unsettling trading period.
Thank you all. Sales of $468,000,000 a growth of 15.6% in the prior year reflected the strength of our brand and the preference of shoppers to shop with baby bunting. Comparable or same store sales growth for the period of 11.3% was outstanding. In fact, On a 2 year basis, we've grown sales by 29.2 percent or $106,000,000 and this is reflected in the return on invested capital of our mature stores, which is now on average greater than 100%. Mature stores or stores over 4 years old On average doing $8,200,000 in sales with a store EBITDA margin of around 19%.
Online sales of $91,000,000 were up 54.2%, making up 19.4% of sales for the year. Interestingly, Click and Collect sales grew 110% for the period and now make up 57% of all online sales where Baby Bunting has a store presence. We continue to see gross margin improvement up 83 basis points to 37.1%. This has been achieved while still ensuring that we offer great value to consumers every day in every visit, backed by our 5% price beat guarantee. Contributing to the gross margin expansion has been the building of our private label brands and exclusive brands and products.
This differentiated product Now makes up 41.4 percent of sales. We've also made significant headway on our supply chain strategy, which all adds to our gross margin improvement. We have achieved cost of doing business leverage impressively 94 basis points at a store level. Of note is our labor to sales rate improvements in store and the weighting of marketing spend away from traditional mediums such as printed catalogs. This is now trending down to the extent that on a year on year basis for the last promotion is down 50% in number with a switch to a greater investment in digital mediums.
Overhead costs included around $2,200,000 relating to COVID expenses and expenses relating to our biosecurity event response. There's also been a significant investment in capability within the organization across IT, cybersecurity, digital, supply chain and operations. In summary, sales up, gross profit up and cost of doing business leverage achieved, resulting in a pro form a EBITDA uplift of 29.2 percent to $43,500,000 and a pro form a NPAT growth of 34.8 percent to $26,000,000 EPS growth of 33.2 percent and a full year dividend of $0.1401 per share, The result of an $0.083 final dividend, an extremely pleasing set of numbers achieved in difficult times. If you could just turn to Slide 5, please, our operating highlights. Our number one focus in the business is to keep our teams and our customers safe.
I'm pleased to say that we've continued to progress this with further improvements in our safety performance. Throughout FY 2021, all our stores have remained open As we provide essential goods and services to parents to be and new parents, sales patterns do get affected during lockdown periods. As a business, during this difficult training period, we did not receive any JobKeeper payments and nor did we receive any rent relief from landlords. We continue to grow our private label inclusive brands and products which now make up 41.4% of sales. It was tremendously exciting to launch our private label Hartford's brand Jengo, which has performed very, very well.
We're also excited to announce our exclusive access to the Steelcraft, Baby Love and Joy brands. Steelcraft in particular is a well known trusted Australian household brand that has served and supported the needs of parents for over 50 years. These brands deliver differentiation and gross margin benefits and were previously sold through many other retailers. We have a store network plan of over 100 stores in Australia. And through the year, we opened 4 new stores to end the year with 60 stores.
We open between 4 8 stores per year and for the year ahead we have a strong pipeline of new store opportunities. We continue to sell from our website to New Zealand and have recently launched babybunting.co.nz, employing our headless architecture, the forerunner to the Australian website We have a store network plan for 10 plus stores in New Zealand. While the project is progressing well in terms of consumer offer, Supply discussions and resource planning, the securing of property and the opening of new stores is delayed, largely due to the impact of COVID our inability to spend time in the market. At this stage, it is more likely that our first physical store will be opened in Q4 FY 2022. We will continue to grow our digital footprint and representation online ahead of physical stores opening.
A key element of our strategy to grow market share It's our investment in digital. This encompasses the improvement of our customer experience online. We have a long term ambition of being able to leverage our store network fulfill 90% of online orders in metro areas same day. In this respect, we have continued to grow significantly. For the full year, around 41% of online orders have been processed through our store network.
Digital investment and the move to ahead of its online architecture It's part of our broader transformation program. This will lay the platform for long term sustainable growth. I'll elaborate a little further, But I'm pleased to say that despite substantial impact as a result of COVID-nineteen, we have made significant inroads this year to our transformation agenda. Another key part of the transformation program is our supply chain strategy. And in the second half, we moved into a new 22,000 square meter distribution center And co located store support office.
This project has enabled us to streamline our storage and handling costs by Removing the need for 2 additional 3PL warehouses in Melbourne. The new DC has also facilitated a 60% increase in container volume And supported our private label and exclusive product strategy. The business has certainly developed and we have progressed our environmental, social and governance or ESG agenda through the development of our ESG roadmap. This roadmap focuses on our people, our community, where we operate and our environmental impact. Our plan is to release our 1st sustainability report later this year.
If you could please turn to Slide 6. What brings me great pride and confidence in our future market share growth is the way we have grown as a brand and the great relationships we enjoy with our customers. Our core purpose is to support new and expected parents in their parenting journey. And we do this in many ways, in particularly through our multichannel approach to providing a customer with support they need At a very special time in their lives. Since 2015, we've been tracking our brand health every 2 years through an independent survey of mothers Various stages of early parenthood and gift givers.
What we have seen over time is the growth and recognition of baby bundling brand The preference of new and expected parents if their baby bunting is their preferred physical store to shop. We track a number of measures, but most pleasing is that virtually 9 out of 10 people Recall with no prompting that Baby Bunting is a place to shop for essential products such as car seats, trams and nursery furniture. 71% of people surveyed who have shopped for these types of products rate us as their preferred physical store to shop. In our stores surveys sorry, in our surveys, these numbers are far superior to any other retailers who stock baby bunting products or baby products. Having such a great brand awareness provides us with great confidence when we have plans to roll out new stores into new catchments, reinforcing Our vision of being the most loved baby retailer for every family everywhere.
With around 300,000 births per year, our loyalty program plays a Significant role in customer retention and frequency of visits across all channels. We have around 1,100,000 loyalty members, Of which around 600,000 have been active in the last 12 months. What we do see is that our customers have a high frequency to visit and spend in the early part of their journey, Being pregnancy through 12 months of age. Our customers then reengage with us when they reach the next milestone such as toilet training on moving from a convertible car seat To a forward facing car seat or when a subsequent child comes along. This customer lifecycle management through our Loyalty program is significant and I've been delighted by the success of the Phase 1 launch of our new loyalty program called Baby Bunting Family.
I'll elaborate further if you can please turn to Slide 7. We launched Baby Bunting Family, new loyalty program early in the financial year and we've seen some really promising results. Today, the conversion rate from non loyalty members to becoming a loyalty member is extraordinarily high, And this is translating to around an additional 25,000 new baby bunting family members per month. Impressively on average, loyalty members are spending around 36 More per transaction than non loyalty members through the higher item average item values and increased average items per transaction. Leveraging our marketing automation tools, we have around about 90 customer journeys that we can personalize that keeps customer engagement levels high.
We're now looking forward to the launch of Phase 2 of the loyalty program, which will go live with our new website and will leverage our headless digital architecture. This phase is expected to transform the program, delivering greater benefits and rewards to those members who shop with us. Phase 2 will also unlock greater personalization and will be omni channel design supported by a new loyalty management system. This transformation program is expected to be implemented in the first half of the financial year. I'd like to now provide you with a brief summary of where we're at in the On Slide 8.
Our transformation program has continued through the year And although there has been some impact to timing as a result of COVID-nineteen, our transformation program is a series of significant one off large scale investments that will underpin future growth. We're well progressed with the program work. Over the past year, we've seen a number of these transformation projects completed. As highlighted, COVID-nineteen has an impact to our transformation agenda and I'd like to give a brief summary of other areas affected by the COVID-nineteen pandemic. If we could turn to Slide 9.
The essential nature of the products we supply and the customers we served was around 6,000 beds per week meant that all our stores remained open Throughout the year, despite the challenges associated with many lockdowns experienced across the nation, our priority is the health and well-being of our team and our customers And our large format destination stores has meant that we can operate safely, providing our customers a safe place to shop for their potential needs. To support our team, we have introduced the following: 2 weeks paid COVID leave Appreciation lead to say thank you for going above and beyond and the great efforts by our team. 8 hours vaccination lead to support the national vaccination effort. To complement this, we've also provided financial gifts to all team members in recognition of the efforts in a difficult period and a chance to enter into $10,000 worth of prizes for our team members who are fully vaccinated by the end of November. COVID lockdowns of which there have been 15 across Do impact the flow of sales.
Given the less discretionary nature of our category, we're seeing historically that sales are not lost. They are just burdensome and become absolutely essential. When a customer is in the final trimester of the period of pregnancy or when they have just had the baby The requirements post birth become a necessity. For example, breast pumps or feeding aids, sleeping aids or car seats and capsules. We have communicated all the different ways for the consumer to shop with baby bunting.
However, the predominant response has been to shop in store for essential items Our stores are also place customers come to get their car seats fitted. In the last year alone, we have fitted over 130,000 car seats for our customers. Just another example of the importance of our stores being opened. Our financials, which Stan will talk to in a month, reflect the fact that we do not receive any job keeper support Nor did we receive any rental support from our landlords and the cost of doing business includes around $1,100,000 in COVID related expenses. I might pause here to hand over to Darren, who will run through the FY 'twenty one financial results in more detail.
Thanks, Darren. Thanks, Matt. If I can get everyone to turn to Slide 17, the profit and loss statement. We are presenting the income statement on a pro form a basis To clearly demonstrate the underlying trading performance of the business, there is a reconciliation explaining the differences between the pro form a profit And the statutory profit on Slide 26 of this presentation and also in the annual report. But in summary, The current and prior year differences relate to the exclusion of employee equity expenses, significant business transformation project costs And the $2,400,000 payment received from a former digital technology vendor.
The key call outs for profit performance are again, sales, 15.6% sales growth driven by 11.3% comp store sales growth, 4 new stores and annualizing stores opened last year. Gross margin, 83 basis points Increasing gross margin delivered year on year with 119 basis points in the second half and 41 in the first half. Retail costs, a 94 basis point improvement in our retail cost to sales ratio and overheads, Investment in our overhead cost base to support future growth. It is worth emphasizing here that as a business just over halfway through its network rollout, We will continue to invest in our cost base over time and ahead of the growth curve. Our overheads We're impacted by 3 items in FY 'twenty one that weren't calling out.
The first is the $1,100,000 The biosecurity costs that we incurred in the first half. The total cost to manage the biosecurity event was $2,200,000 But at this stage, dollars 1,100,000 of those costs will be covered by our insurance and sit as a receivable in our balance sheet. The remaining $1,100,000 sits within cost of doing business, and we do not expect these will reoccur going forward. The second call out is our COVID cost of $1,100,000 The majority of these costs were incurred in the first half And should reduce significantly going forward with some residual and ongoing minor costs pertaining to PP and E purchases and COVID leave for team members The final call out is that we accrued $2,000,000 in staff incentive payments in FY 'twenty one Relative to nil in the prior year, these financial bonuses to award our staff for the outstanding results they have delivered for the FY 2021 financial year. To summarize earnings, EBITDA of $43,500,000 was 29.2% up on the prior year, Delivered with 100 basis point improvement in EBITDA margin from 8.3% up to 9.3%, Noting EBITDA margin got to 10% in the second half.
And finally, it was great to see the sales and margin gains flowing all the way down the P and L to to deliver pro form a impact growth of 34.8% year on year. Slide 18. Looking to the balance sheet, we have again finished in net cash position despite a significant investment in transformation we are making on the business. The net cash position gives us significant headroom to further progress our transformation and growth agendas in the coming years. The primary call out on the balance sheet is the $15,000,000 investment we made in our inventory, now $80,000,000 Of this, around $10,000,000 is recovering our in stock position from the prior year, which was depleted below our planned holding levels Due to the extraordinary growth we saw in May June 2020 after the initial national COVID lockdown in April 2020.
In addition to recovering our base inventory position, we also added $3,000,000 for the 4 new stores we opened and a further $2,000,000 to maintain appropriate weeks inventory relative to our higher sales profile. Looking forward, We will build our inventory levels further in the first half of FY 'twenty two, which is similar to the Just go on. We held $92,000,000 of inventory at the half. This will further mitigate risk in relation to potential COVID related supply chain impacts To ensure sufficient inventory coverage for post Christmas sales and Chinese New Year shutdown. With capacity in our new DC And low financing costs, the benefits of protecting future sales outweigh the associated holding cost of higher inventory.
You'll also note our right of use assets balance and the associated lease liabilities provisions have increased by around $20,000,000 year on year. This is primarily due to the addition of our new DC, where we have taken out a 12 year lease. Moving now to the cash flow statement on Slide 19. We had free cash flow of $4,000,000 well down the prior year of $23,000,000 We've benefited from a significant short term working capital benefit as we came out of lockdown in the prior year, which I just described when talking about the balance sheet. Our operating cash flows after this working capital investment were $22,800,000 of which we invested $18,800,000 into our capital transformation program as well as paying out $15,700,000 in dividends.
Adding the $0.083 dividend We have announced today, along with the interim dividend of $0.058 paid back in March, we will pay out 70% of our pro form a impact to shareholders. Turning now to Slide 20, which presents our updated store economic slide. When we first presented this slide back in 2016, our average mature store return on invested capital metric was 70%. This is now above 100%, delivered through continued expansion of market share in the markets that we operate Plus higher gross margins and strong management of our store cost base. And the Chua store cohort is now up to 36 stores, 33 of those are metro and 3 regional.
For our mature metro stores, 23 of the 33 are delivering Over plus 100% return on invested capital with the lowest being around 70%. Regarding our regional stores, of which there are 6 that have now completed more than 2 full years of trade, these stores are delivering capital returns of 2017 and up to 100%. Virtually all of our stores are performing incredibly well, with the one outlier probably being Chadstone, Which after a sensational 1st year really felt the effects of the COVID lockdown and shopping center avoidance more than any of our other stores. We are expecting this store, which is in a great location and has a terrific team to recover quickly when we return to a more normalized trading environment, Notwithstanding, all that one of the shopping center stores, of which we now have 4, showed encouraging signs in their 1st year of trade, We will continue to look for the right opportunity in these centers as well as our traditional large format center locations. That concludes the financial update.
So I will now hand back to you, Ben. Thank you, Darren. And I'll reiterate a very pleasing set of numbers Turning to Slide 21. Speaking of looking ahead, we have I think apart from an exciting transformational agenda, Including the new website and Phase 2 of the loyalty program, we also have some other exciting things ahead of us. We look to roll out new stores, Probably at the top end of our range of 4 to 8 with a number of leases already signed.
We look forward to opening up first stores in New Zealand continue to focus on margin improvement through the strengthening of our supply chain and logistics capability. We will continue with our focus on our private label and exclusive brands With the aim of this being 50% of sales in the medium term. And finally, we hope to see vaccination rates improve and see fewer lockdowns and disruption to our lives As a result of COVID-nineteen. Slide 22. Over the page, we track the Medicare 12 week scan data, Which is highlighting a potential uptick in birds through the first half FY twenty twenty two, which I believe sets us up well given our high brand awareness and brand preference.
Before talking about the outlook, I might take a moment to provide some detailed context about the impact of lockdown on our business and the flow of sales. So turning to Slide 23. As highlighted, the baby goods category is essential and a nondiscretionary category. People who are having babies in the next few months are already well progressed in their pregnancy and the needs are established. What may not have occurred as yet It's the act of actually purchasing product.
In lockdowns, we are mainly seeing those customers in our stores when the need becomes essential. It's important to emphasize that in our category in store service and tailored device is critical. Things like checking the car seat, fit the car having it installed correctly. In addition to this product for feeding and baby and mother's health and the technical items that need tailoring for the customers' needs. We also stock a range of items specifically focused on premature babies and parents of premature babies who are working through unexpected circumstances And need the help and guidance of in store service.
To help break this down a bit further, we have provided a table which highlights that consumers in the 3rd trimester And those that have just given birth are actively purchasing products predominantly installed when they can experience the product And get the service and advice they require. Customers in TriNet-one and 2 and gift givers are more likely researching online, Purchasing online and deferring their store visits to post lockdown or when the need becomes essential as in the case of long lockdowns. It is our view and experience that these sales are not lost, they are deferred. The graphs below reflect the impact of comparable store sales When we have a 3 day lockdown, a 5 day lockdown, a medium term lockdown of around 12 days and then a long lockdown. In all cases, we see comparable store sales recover quickly.
This gives us confidence in relation to the current impact of lockdown on a year to date sales performance. Now let's turn to the outlook on Slide 24. Year to date, comparable sales have been affected by lockdowns Across most states and significantly Victoria and New South Wales. As of 12th August, comparable store sales were negative 6.4% impacted by the current stay at home orders. I would remind you that this time last year, the only stores in lockdown were 12 Metro Melbourne stores and comp store sales were running at around 20%.
We've seen a recovery of comparable store sales during the period in line with expectations and historical lockdown trends. About 80% of trading year to date has been impacted by various state lockdowns. Online sales were up 32.6%, cycling 123% PCB. This period is our lowest sales period for the year following our largest trading month of the year in June. And we're confident based on historical sales performance and patterns post lockdowns The sales will recover.
The Medicare 12 week standout and the strength of our brand underpins our confidence in the future. We anticipate opening 3 stores in the first half With a strong pipeline of stores in the second half, plus 2 stores in New Zealand. Given the uncertainty caused by the pandemic and consistent with last year, we're unable to provide guidance On behalf of Darren and myself, we'd like to thank you for your support and attendance today. We'll now take any questions you may have.
We will now commence the question and answer session. Our first question comes from Joe Little at Morgan's. Please go ahead.
Good morning, Matt and Darren.
Can you hear me?
Yes, Joanne. Good morning. Yes, great. Congratulations, guys, another strong year of growth. Just a couple of questions.
Just firstly on the DC, so that's all up and running. I think at the last result, you said you'd be in a better position to provide some clarity The benefits we should expect. So just wondering, can you confirm the immediate benefit to the gross margin maybe in FY22? I think from memory, you said around 20 basis points? And then perhaps some color beyond that now that we're through that kind of project.
Yes. Hi, Joe. I'll take that one. Yes, that is correct from a margin perspective. That will flow in Over time, as we transition our direct to store vendors into fulfilling they'll be Going direct into our DC.
The other benefit that, that DC will give us is we will be able to add Additional stores and then leverage our leverage the cost base of that DC. In the FY 'twenty one financial year, we did incur around $1,000,000 worth of variable warehousing 3PL costs in Victoria to sort of hold inventory because we just ran out of space in the DC. And so that will go away in the new financial year as well. Okay. So not willing to kind of talk about the benefits longer term?
Is it just too early? Can I quantify, I mean? Well, I think that, I mean, very quickly, we'll transition Those suppliers through FY 'twenty two from a margin perspective and then we'll hold that. And then beyond that, You've been looking at sort of leveraging because your variable costs, which were increasing as we're adding stores into the network, That won't be the case. And so we that will be flat relative to the addition of new stores and additional inventory as we roll those stores out.
Okay. Thank you. And it sounds like you're going to get about 8 stores this year there or there in valves. Where are they kind of located? I mean, should we expect much cannibalization?
Or are they in new markets? It will be a blend of regional and metro. So there'll be 4 regional, 4 metro, 3 in the first half, Of which one will be in Metro Sydney. And then In the second half, it will be 3 and 1, so the reverse, so 3 and 2. So 3 And 2 regionals.
Okay. Thank you. And then from our end, okay. Thank you. And just New Zealand, obviously, you said when you initially signed the 4 stores, you said obviously we're assuming we can There are travel, which has not been the case.
So 2 in the back end of the next financial year. I think we kind of, on the last conference call, talked about kind of modest losses from that region. Would that still be intact, Yes. We're still investing in scanning the business up until there'll be cost of around $1,500,000 To actually get the business stood up, then what was what we're anticipating occurring is we rolled out Which we're planning to roll out 4 stores in FY 'twenty two, that the margin and the profit from those stores would defray those opening those So the stand up costs, obviously, that will be lower now that we're having to defer the opening of the stores. Yes, understood.
Thank you. And sorry, just lastly, great to see that mature store margin up at 19%. I guess the next Question is, is 12% the new long term EBITDA margin if we assume that your overhead of 20% to sales is about right? I think that looking ahead, we see more opportunities to margin growth, And we see opportunities for to deliver efficiency gains. That's what our transformation agenda is all about.
And we know that there are things that we could do more efficiently today. And so we've got our eye on So driving those costs out of the business and also we see sort of more opportunities in the supply chain and Getting those costs down, which will help our margin over the long term. Yes. And growing our market share and absolutely growing our market share, which will also Sort of help deliver leverage through the overhead bag. All right.
Thanks so much guys. Appreciate it. Thanks, Jon.
Our next question comes from Marni Leiser at Macquarie Capital. Please go ahead.
Good morning. Good morning.
My question is just around I understand the gross margin Improvements that have been recorded, and particularly that's the second half, as a result of various initiatives. But is there any I mean, are you seeing any kind of Cost inflation coming through, particularly from the likes of logistics. And you're confident that, I guess, the move to private label and other initiatives will help you offset that?
The second half included so our international freight rates did increase. And we saw that cut. So the margin that you see in the second half, which was up over 110 basis points in the second half, includes The increased international freight cost, it also includes the addition so very late in FY 'twenty, we added our 5 Price speed, and that's actually had a decreeing 15 basis point margin on the result in both the first half and the second half. And So you're actually seeing a very strong gross margin performance when you are casting in that in the line of those 2 downward elements, too.
Okay. And have you seen any other changes in, say, the next like early Yes. Since the end of the 30th June, any other changes coming through in that? And you're quite confident that the initiatives that you have underway or continue to observe that?
Well, as I sort of pointed out to Joe, I think there's plenty of initiatives we've got coming out of the pipeline. I mean, from an FOB perspective, I mean, it's still the smaller proportion of our cost of goods Sales base. And so around 15% of our purchases are in U. S. Dollars.
So it's still not a significant component Of our the profile of our sales. So we are confident that we can Continue to grow our gross margin. Yes. No, that's fair. Notwithstanding
You go?
I was just going to say, notwithstanding that, I mean, I think we're facing the same challenges as everybody else With regards to the international freight, but we've got contracted rates locked in at the moment.
No, that's all clear. And that's that was we picked that up on the slide. So those are my questions. I'll jump back in the queue. Thank you for your time.
Thanks, Bonnie.
Our next question comes from Tim Lawson at Macquarie. Please go ahead.
Hi, guys. Thanks for taking my question. Just on Slide 8, you provided a good profile of CapEx and OpEx out FY 'twenty two and 'twenty three. Just the profile of that, you've got sort of OpEx slowing initially and then accelerating again. Just talk through the rest of the shift there What the investment is?
Well, what we've got coming up is we're finalizing The Australian digital architecture is occurring. Then in addition to that, we've got People systems occurring, we're bringing in an advanced order management system. We're I'm standing at the 2nd phase of our loyalty program. We'll commence work on ERP point of sale and a number of other elements. I mean, when we sort of originally forecast out this program, we had estimates around CapEx And OpEx, but that evolves over time.
And because the majority of the systems that we are introducing as software as a service, What you find is the stand up costs of the system are actually items of OpEx as opposed to CapEx. There's nothing to write, but I think that OpEx versus CapEx trend margin should improve More strongly from CapEx versus OpEx or vice versa? These are so we had a defined transformation agenda, Tim, which you see on that page. And so all of these items, those OpEx items will be pro form a out of that result. And that is because they are not operating costs.
They are costs associated with the establishment of all of these systems Then you cannot capitalize under accounting standards. Going forward, once these systems are introduced, For example, in FY 'twenty two, we'll see we'll have annual OpEx cost in relation Our people systems are around $300,000 per annum, which is the licensing to run that and also maintaining that. The capital cost and the OpEx cost is actually one off operating cost to stand that steeps amount in the first instance is a lot more than that. Then they do have ongoing costs. It's like renting a store.
Yes. Yes. Got it. Thanks.
Cheers. Our next question comes from Sam Tighe at Citi. Please go ahead.
Hi, Matt. Hi, Darren. Hi, Matt. Just wanted to know if you can talk about In terms of the high inventory that you're carrying now, what categories and brands is this primarily related to? Well, I wouldn't call it high inventory.
If you look at our stock terms, we've actually improved our stock terms. And what we got depleted on and so you will recall, if we really need to go back to F 'twenty To sort of explain why our first of all, our inventory profile matches our sales profile. But we do have so when you look back to F 2020, what did we do? We had A national lockdown coming up in April 2020, no one in the Australian landscape really understood what COVID was going to mean So their businesses. And so what you do in that situation is we started to defer orders in anticipation of a significant fall away in sales And to sort of manage and preserve cash.
The lockdown finished and then very quickly after that, Then there was our sales in May June jumped over plus 20% comp sales growth in both of those months, And then that continued into the new financial year. At that point, we were then playing catch up. And so whilst customers continue to take lay by, we're actually experiencing out of stocks, and that continued Right through the Q1 and into the Q2 of last financial year. Where we are now is we've Very strong in stock position, so it's around 95%. We're very happy with that.
Our weeks on hand is consistent with what we've Historically, in fact, it's improved than what we were sitting at in F 'eighteen, F 'nineteen and pre COVID F 'twenty. And so really, it was just recovering inventories that we deferred and then Followed by a very sharp increase in our sales profile. And I think also, so Dan, I think the investment in the The replenishment tools and the financial planning tools have meant that we've right sized the inventory and we've got total visibility to that, which Historically, it's been a challenge for us because we've had a lot of store based ordering and direct store vendor refill. Got it. Yes, that makes sense.
And then you talked about investing in additional inventory over the first half 'twenty two. You're able to provide any color in terms of in terms of millions, how much more you think you need to get when you want to be given the uncertainties we are seeing around freight and supply chains? Yes. Well, look, we're still sort of working through that, but I wouldn't be surprised if we I mean, mostly, it's cyclical, right? So We got up to $92,000,000 at the half in the prior year, and I'd expect us to be pushing up around that number.
But I think very much to your point is that security of supply and having that inventory available for sale It's very important. Good news is we started the year in a net cash position with borrowings capacity After $70,000,000 we won't need anywhere near that, but we've got plenty of capacity to invest. Got it. And then just given what we're seeing with shopping center foot traffic more generally, how does this make you think about Looking with new stores in shopping centers compared to how you're thinking about it maybe 1 to 2 years ago? No change, really.
I think that the thing that we've all got to look forward to is Everybody getting Ignatian up to a 70% vaccinated state. And then at that point, then we know or we've been told that there'll be change From that point onwards, that gives us confidence. Our 3 shopping center stores, Castle Towers, Knox, Belconnen started very well. It all performed very well. Certainly, Chadstone's bounced back in the second half.
But there's things to note, like, they were using that as a testing center for a while, the car parks there. So it just wasn't a desirable place for people to come and shop and feel safe at the same time. So we're very relaxed about Our program and what shopping centers has done for us is we'll always look at all opportunities and catchment and then make a With regards to what we think is the opportunity that will maximize our market share within the catchment.
Our next question comes from James Bales at Morgan Stanley. Please go ahead.
Thanks guys for taking my questions. I wanted to understand a little bit about how you're thinking about comps Given the 1st 6 weeks, the 2 year stack still looks pretty good, and we've been in lockdown. Is it fair to extrapolate that sort of performance on a 2 year DAC basis in terms of How we're tracking for the rest of the year? Can you just play that one back to us again? Yes.
So this time last year, your comps were 20%. You're down 6 Point 4, so your 2 year stack still looks pretty strong. Is there anything what is The inflow and the logic in sort of suggesting that if you've got a cycle 11 to 12 for the rest of the year that The trajectory you're on puts you still in pretty good stead? No, I think we're looking at 2 very different scenarios. And what we're dealing with now is in the prior year, We had Victoria with 12 stores in lockdown.
And what you've seen, if you look at the Slide, what you're looking at at the moment is we've had between 70% 50% to 75% of our Stores have basically been in lockdown for the 1st 6 weeks of trade. The 1st 6 weeks of trade is very short. People can defer their buying decisions for a short amount of time, That's really what we're seeing, but we're starting to see a bounce back in the comparable store sales growth from week 4. Mean, I think the other thing we need to sort of tie in here is that the scan data from Q3 It was plus 6% year on year and Q4 was plus 4% year on year. That is the births That are coming through the first half of FY 'twenty two are locked in.
People will the people that will have babies the first half of this year, we're prudent at the start of the financial year. And so really, you're seeing a short term deferral of purchasing as and where people can. But Matt, is there anything else you'd like to add there? I think you've got the most points. As the vaccination rates go up, That creates more COVID on the state as well.
So is it fair to think when You look at that scan data that if they're 12 week scans and you've got A deadline on making a purchase around the time of birth, the lag is maximum 6 months? I would suggest that You are starting to you can certainly defer through the 1st trimester and the 2nd trimester If you need to, but you're really starting to think about your purchasing at that point. Yes. And you get your health professional gives some advice that says get So ready around week 35. So that's That's the I guess the trigger point that you need to be in store, you need to get your car seats, You've got your brands, those sort of things all set up.
And then obviously, when you have the baby, there's those immediate needs that once you've had the baby, Feeding aids, etcetera, they come into play as well. Okay. And then the other element that might really impact comp sales over the next sort of 6 to 12 months is Last time you changed your website, it really changed behavior in terms of traffic and conversion. You've talked about this migration to headless ecommerce in 'twenty two plus the loyalty Phase 2. How should we think about the impact and timing of each of those elements?
The headless architecture is going to give a great experience to the customer. We've got Well, it's multiple pieces of software that are tied together. They're all best of breed. You're going to have a great search component, a great checkout component. And then so we're really expecting that that's going to reduce friction on the website and it's going to drive up conversion.
Then once we've locked that in and we're at this stage, we're still looking around August, September, then we are Then move on to sort of standing up the loyalty software in the business. And what that will deliver is that's going to have a lot of personalization associated with it, and it's going to Yes. The reason we're investing in this system is that we've identified through our customer data analysis We still a lot of our customers are still only buying once or twice with us. And so we're going to sort of lift up the Lifetime spend with our customers by getting them back in the store and buying repeat purchases. And you talked about the trade off between that loyalty sales growth And gross margin earlier.
How should we think about that impact of Phase II? Will that have a Decorative impact on the gross margin? We no, I don't think that's how we're looking at it from a margin perspective. So we what we'll do is we'll actually at the moment, we've got a 5% discount card. So that will turn off and then that will fundamentally fund the offers that we'll have for the new loyalty program.
Got it. Okay. Thanks guys. I appreciate the help. Thanks James.
Our next question comes from James Casey at Autonet. Please go ahead.
Good morning, gentlemen. Just a question with regards to your cost base. The overhead expenses have increased 200 basis points over the last few years, up to 7.1%. And Darren, you called out a number of One off costs that impacted that number this year. Is the 7.1% overhead expense, Is it going to decline over the next couple of years and get back to A sort of 5% number as you bring more stores on?
Or is 7% kind of the new normal? We will continue to invest in our overheads, James. But as we as you rightly point out, as we add stores, we will see leverage on that. I'm not going to sort of do a sales forecast out that sort of suggested we're going to see a significant sort of decline in our Overhead sales ratio, I mean, I've been a very important point to note with regards to your overhead is that Historically, your systems and your systems and your software and apps There's a significant component of your investment profile. They were historically an amortized or depreciated Investment.
What you see now is actually you've got much lower CapEx investment in these systems, But they become a part of your operating cost base, and so they're included in your overhead cost base. And so as we continue to Yes, transition to those software as a service, then they'll stick within the OpEx line they were previously sitting in the depreciation line.
Our next question comes from Divik Nigam at Macro Capital. Please go ahead.
Good morning, Dan. Good morning, Matt. Great results and congratulations for the past fiscal year. Just had a quick question regarding the improvement in margins and whether you could provide some color as to why there's a skewed improvement towards the second half? Duncan, despite I think what was mentioned earlier about the freight cost inflation that you experienced in that second half?
We had a number of our flex increase over the course of the year. And so we had the manualizing benefits coming through on the second half. And in particular, we launched our Jingo Hardware product in the second half. And we also had some additional exclusives come through in the second half as well.
Our next question comes from Arianne Rosy at Berenjawi. Please go ahead.
All right, I'll take you well. Just a quick one for me. The Medicare data obviously bodes quite well for you guys moving forward. Are you going to strategically step up marketing and sort of other Shorter term cost investment to capture a larger share of that most potential customers. Are you comfortable with the current number of investments?
Look, I think we're comfortable with the level of investment we're making. We certainly have seen the brand health Grows substantially. What we do see though is how do we get the reach and more benefit from our spend. And so the digital medium and That will assist us through that. And so a lot of the work that we've been doing around socials, Our investment in capability around SEO and SEM in our business is certainly paying dividends.
Look, I think it's just about how we leverage that spend in a digital way. I think also very important is the call out that we make is The programs we associate ourselves with certainly over the coming period, we do work with Life School Precious Foundations, Which is a very high profile and also Tanda where we raised funds. And I guess that all sort of Our big fundraising drives occur basically in the second in the first half or the second half of the calendar year. And so that also lifts our profile Quite enormously, but for a really good reason that we're out there supporting parents at that critical time that this The people in that scan data will be engaged with. I mean, it's also Arian, it's worth noting that we got a very Strong digital presence already with over 30,000,000 visits to our website per That's perfect.
Thanks, guys.
Our final question in queue comes from Sam Tighe at Citi. Please go ahead.
Just one very quick follow-up. I think Darren made a comment before about I was starting to bounce back from week 4 in first half 'twenty two. Just wanted to understand, did I hear that correctly and Sales are positive after week 4? Certainly, you can see the On our outlook slide, that the trend from week 4 has been that We sort of dropped down to around a negative 12% comp and went back up around 6%. So you can see from that that we are in positive territory Thanks, Dan.
Thank you. That was our final question. So I'll hand back to Matt and Darren for closing comments.
Just like to say thank you once again for your support and for your time this morning. Much appreciated.
Thank you both very much. This does conclude our conference today. Thank you so much for joining. You may now