As you are aware, we published our half year results to the ASX this morning, so we would like to talk you through them. I will now do a page turn through the presentation, and we are happy to take any questions at the end. Before we get to the discussions on the results, I would like to start by talking to the strategy of the business. I'm thrilled to join Lovisa at a time where the business is performing well and is very well-positioned to move to its next phase of global growth. The slide 4 sets out the keys of our success to date and our focus for the future.
Our strategy continues to be focused on the continued global expansion for our physical and digital store network, and ensuring that we are investing ahead of the curve to be able to execute on our growth objectives in both existing as well as new markets. My focus in the first few months I've been here has been getting to know the business and ensuring the structures are in place to ensure we are positioned to grow. I look forward to being able to begin to put that into action. If we turn to page 5, we will talk through some of the details of the first half of fiscal year 2022.
After a challenging start to the financial year, with markets going through various stages of temporary closure due to the impact of increasing COVID case number, we saw most markets trading well when we were able to open, and this resulted in comparable store sales for the period, up 21.5% on prior year. This, combined with the benefit of 126 more stores than the same time last year, resulted in total sales for the half year being 48.3% up on the first half of fiscal year 2021. Our cost of doing business was well managed in the face of the continued disruptions to the business during the half, finishing at 51.8% of sales and delivering EBIT of $ 49.1 million, up 59% on the prior year.
For sake of clarity, all the profit numbers we will talk today and included in our presentation are after removing the effect of the new lease accounting standard, so that we are more easily comparable with prior years. Our global rollout remains a key focus with a net 42 new stores open on the period, and 126 more stores trading compared to December 2020, following the Beeline store acquisition in Europe in FY 2021. Further, U.S. store rollout with U.S. market trading 81 stores at half-year end. Cash flow from operations was AUD 54 million and cash conversion at 93%, reflecting investment in inventory and settlement of deferred rent payments from prior years. At the end of the period, we held $ 52.7 million of cash and no debt.
As a result, the board have announced an interim dividend of 0.37 to be paid in April. If we now turn to the financial overview on page 6. As I noted earlier, revenue for the period was up 48.3%, with comparable store sales up 21.5% on the same period last year. Gross margins were higher, benefiting from favorable currency movements, with the CODB well managed despite trading disruption during the period and continued investment in team structures, which resulted with our EBIT being up 59% to AUD 49.1 million. The strong performance for the period meant that we were able to finish the half once again with a very strong balance sheet position.
If we turn to page seven, we can see the strong sales performance for the half year that shows a return to the sales growth trajectory we had been on pre-COVID, with benefits of a stores network expansion, combined with a strong comparable store sales, driving the overall sales growth of 48.3% on prior year, and 44% above the first half of FY 2020, which we achieved despite temporary store closure during the period. On page eight, you will see our sales by region. The first quarter was heavily impacted by temporary store closures in Victoria and New South Wales in Australia, as well as in New Zealand and in Malaysia.
Pleasantly, Australia and New Zealand markets were able to recover well after stores reopened and deliver strong comparable store sales growth to offset the impact of the sales disruptions. This was also the case in South Africa, with the market recovering well from disruption early in the half to deliver a growth of 37% on prior year. Sales of our Asian markets continue to be slow to recover as a result of low tourism and continued local movement restrictions, resulting in lower mall foot traffic. This, combined with the impact of temporary store closures in Malaysia, resulted in sales from our Asian regions being down 11.6% on prior year.
Our European business grew substantially comparing to prior year, with the addition of 87 stores acquired in the fiscal year 2021 as part of the Beeline acquisition, and further stores opened in France and Belgium, taking sales for the region to 68.5 million, over 13% of the total group sales. The strong sales performance in this market was achieved despite trading conditions in parts of mainland China continuing to be disrupted by COVID restrictions throughout the period. The increased store network in the U.S. and good comparable store sales growth helped to deliver a 108% increase in sales in that market as trading conditions improved.
Turning to page 9, gross profit was AUD 171 million at a 78% gross margin, up on last year by 110 basis points, with the impact of continuing high freight costs being offset by the benefits of favorable U.S. dollar exchange rate in the half compared to prior year. If we turn to page 10, we will talk to our cost of doing business. Cost of doing business for the half year was slightly higher than prior year, at 51.8% to sales, impacted by continued higher logistic costs and general cost inflation, in particular in relationship to labor, as well as the impact of temporary store closures during the period with significantly less wage subsidy and rental abatements available globally than the prior year.
The outcome also includes further investment in team structures to help drive future growth opportunity. I will now hand over to Chris Lauder, our CFO, to talk through cash flow and the balance sheet.
Thanks, Victor. Turning to page 11, you will see that the cash generated by the business has again been strong, with cash from operations before interest and tax of $54 million for the half year. Operating cash conversion was 93% for the half, lower than prior periods due to the catch-up on some of the rent payments that had previously been deferred and additional investment into inventory to help mitigate supply chain risks. Capital expenditure for the period was $ 14 million, predominantly from new store fit-outs, which represents double the spend in the prior period as the store rollout resumed after being delayed through the first half of FY 2021, with 41 new company-owned stores built for the period.
Cash tax payments were down on prior year at $ 3 million, with installment rates lower due to the lower taxable profits in prior year and final tax installments for FY 2021 due to be paid in the second half. Cash taxes are also lower relative to profit as a result of the increased share of profit being generated by newer markets where historical tax losses and therefore exist and therefore no cash tax payable. These factors combined to deliver closing net cash of $ 52.7 million, a $10 million increase on the position at December 2020, and a $17 million increase on June 2021, with no debt at the end of the period.
Turning to the balance sheet on page 12, you can see that it remains strong, which has allowed the board to announce an interim dividend of 0.37 per share payable in April, franked at 30% as a result of the lower Australian taxes being paid at present. We have said previously, the board will continue to assess dividend levels each half year and determine the appropriate level of dividend based on profitability, cash flows, and future growth CapEx requirements in the context of prevailing economic conditions. The board do not currently have a specific dividend payout ratio and will continue to base dividends on the cash flow primarily, and the structure of the company's balance sheet. I will now hand back to Victor.
Thanks, Chris. If we turn to page 13, a quick update on store numbers. The key driver of future growth for Lovisa continues to be in our global store rollout, with 73% of our store network now trading outside Australia. We finished the period with 586 stores trading with a net 42 new stores open for the year, and 126 stores, 26 more stores than December 2020, including the 87 European stores acquired and converted to Lovisa in FY 2021 as part of the Beeline acquisition. The pace of organic rollout increased during the period, however, remains constrained by labor shortages and logistical challenges, in particular in the U.S., which has also impacted on stores' build costs.
We now have 165 stores trading across Europe and 81 in the U.S. across 19 different states as at the end of the half year. Acceleration of the global store rollouts remains our priority, and we are investing in the right team to deliver this. Turning to page 14, I will talk to the progress we have made in recent times in relation to digital. Our focus on our digital capabilities accelerate over the past 2 years as COVID impact restricted our ability to trade from physical stores, which drove very strong sales growth in this channel. With website servicing all of the company-owned markets we operate in local currency and local language.
We have a solid platform from which to grow this part of the business, with online sales continuing to improve and up 36% on prior year while cycling two years of a strong growth through fiscal year 2020 and 2021. We believe we have made good progress here. Our online business is still in its infancy, and we continue to invest in our digital platforms, team, and fulfillment capability to deliver in this space while it remains focused on maintaining the profitability levels of our online sales. On page 15, I will talk to the trading update and outlook for the coming financial year.
Trading for the first eight weeks of the second half has seen a continuation of the strong performance of the first half, with comparable store sales for this period up 12.51% on FY 2021, and total sales up 61.7%. Cost pressures in global logistics as a result of worldwide shipping capacity constraints have continued, and we continue to focus on opportunity for expanding both physical and digital store network with structures in place to drive this growth in existing and new markets. Our balance sheet remains strong, and available cash and debt facilities support continued investment in growth and have added a further three stores since the end of the half, taking the store network to 589.
As a result of the current uncertainty in the global economic environment, we are not in position to provide any further information in relation to outlook of the business. In summary, on page 16, our sales recovery has been strong across most markets, which helped to offset the impact of temporary store closure earlier in the half, with comparable store sales up 21.5% for the period and total sales up 48.3%. Progress continued to be made in digital, with increasing contributions from online sales and opportunity for further improvement to be made. Cost of doing business remain under control despite cost headwinds from inflationary pressures on wages and logistics and the impact of temporary store closures, allowing for continued investment in team structure to support building the platform for future growth.
Our global expansion accelerated in FY on prior year with a further net 42 new stores opened during the period and a total network of 586 stores at half-year end. All this combined to deliver EBIT of 49.1 million, up 59% on prior year. With our strong cash flow and balance sheet position, allowing the board to announce an interim dividend of 37 cents per share to be paid in April. An increase of 17 cents per share on prior year, and leave us with a strong position to accelerate our growth plan. With that, I want to thank you for your time today, and we are happy to take any questions.
Thank you. If you wish to ask a question, please press *1 on your telephone and wait for your name to be announced. If you to cancel your request, please press *2. If you're on a speakerphone, please pick up headset to ask your question. The first question comes from Marni Lysaght with Macquarie Capital. Please go ahead.
Good morning. Just two questions from me. My first one just relates to, I guess, putting your foot on the accelerator in terms of driving store rollout. You speak about having leasing teams in various jurisdictions. How well-versed are these leasing teams in terms of, I guess, breaking into new territories? Like, could you really be thinking seriously about, say, markets like China and India in the next 12 months?
We don't disclose. Thank you for your question. We don't disclose kind of a new market, but at the same time, what I can tell you here is that yes, we have some experts on real estate across the world and, as a global company, you know, and some people are more specialist in America, some other in Europe and some other in Australia or Southeast Asia. Definitely I think we'll continue with this strategy on putting experts in every region.
Okay. My second question is just around, I guess, what's a sensible way of thinking about new store count? I'm sorry if you've addressed this already on the call. You know, I've been in and out of the call. Just in terms of, is it sensible to think that there could be upside to, I guess, how we've traditionally thought about your business in terms of annual store rollout, and you mean you've got the debt facilities there to use should you really need to accelerate your growth?
Well, I mentioned that our priority will be, one of our priority will be digital, and the second one as well. I mean, in order one and two will be the rollout of the stores, you know? Definitely, as we mentioned to you, we opened 42 stores in the first half of the year and 126 stores it will be counted for a year, you know. Like this, you can see, well, that, I mean, we are rolling out stores significantly, and it will be one of our priority for the future.
Okay. That's all for me. I'll jump back in the queue.
Thank you.
Our next question comes from Alexander Mees with Morgans. Please go ahead.
Good morning, Chris. Good morning, Victor. Congratulations to you both. Great result. Three questions, please. Firstly, just on gross margins. They obviously benefited from a favorable hedging position in the first half. I just wonder if you can articulate what that hedging position looks like in the second half. I guess related to that, you said the constant currency gross margins were flat. I'm just wondering how you managed to offset the impact of higher freight costs, and was that a surprise?
Just from a hedge rate for the second half, it'll be pretty consistent with the first half. From memory, it's around that same level, around 74 cents. And I think from memory last year it was relatively flat in the second half compared to the first half. We should see similar sorts of tailwinds from that aspect in the second half. In terms of the freight costs, the constant currency margin was slightly down. And obviously there's a lot goes into margin. I think we probably did a little bit better than what we were expecting to from that perspective , there's still plenty of pressure there on gross margin for the second half.
You know, there's a little bit of price upside in the first half, but not a huge amount. You know, we'll get a little bit more of that coming through in the second half. We'd expect to see a similar sort of pattern for half two.
Thank you, Chris. Secondly, you opened 18 stores in the U.S. in the first half. I'm wondering, can we expect at least that number again in the second half? Obviously there is constraints there, but presumably the pace is picking up.
Hopefully, you know, I mean, we did 18 stores in the first half and, I mean, we don't say how many stores we'll do in the second half, but I mean, it will be a disappointment if we don't get at least 18 stores in the second half in the U.S. market.
Thank you. That's very clear. Just finally, Victor, I wonder if there's been any changes to your senior leadership team since you joined and if so, who they are?
Well, yes. I mean, we hired some people in the senior leadership and basically more in the regions, you know, in Europe and in the U.S. in order to cope with the significant growth that we are going to try to achieve now over the next few quarters or few years, you know.
Thank you. No country manager in China just yet?
Not so far.
Thanks so much.
Our next question comes from Wilson Wong with Jarden. Please go ahead.
Morning, Victor and Chris. Can you just provide some detail just around the first half comp sales growth in the U.S. and Europe?
No, we don't disclose comps by market. I mean, you can try and back solve it from the total sales growth, and, you know, growth in number of stores, but we avoid going to that level of granularity other than to say that, you know, particularly the U.S. came out of lockdown, you know, pretty strongly and, you know, the market's traded well for us, as you can see by the market breakdown that we put in the announcement. Europe was also trading strongly on a comp perspective. Mainland Europe, which I think Victor may have said mainland Europe when he was reading it out. Just in case anybody got excited by that, he actually meant to say mainland Europe.
We had a you know a lot more disruption in mainland Europe through the period than, say, some of the other markets with lockdowns and trade and restrictions on the number of customers in stores in some markets. It's probably a little bit harder to get a read on trade there. Still we have very strong numbers out of Europe.
Sure. That's helpful. Just on your cost of doing business, I guess excluding the higher than usual logistics costs, so what do you sort of see as a normalized cost of doing business as a percentage of sales?
That's. We don't give guidance on what we actually expect that to be because at the moment it's very difficult to actually land on that. I guess the things that impact on that number or I guess maybe just to start with, our objective is always to keep that number either flat or going down as a percent of sales. That's what we do try to target. Obviously, the last couple of years have been a bit unusual because of the impact of closures and you know, temporary closures because of COVID and the various impacts on cost structures with logistics and the like, as you just mentioned.
There are a few things that are going to impact or one in particular will impact on the second half that didn't really impact on the first half. That's the cost of Victor's package. He was only with the business for a bit over a month in the first half, whereas we'll get the full impact of that in the second half. We did call out that there was an impact in the first half of the reversal of Shane's LTI when he exited the business. That largely offsets the cost of Victor's package in the first half.
I guess when you're thinking about cost of doing business in the second half of the financial year, just need to maybe have a look at the structure of that LTI arrangement and the fact that will have an impact. Outside of that, there's not much else to cover.
Sure, sure. Just on inventory, just that 90 million increase, that's about 25% increase in the half. How much of that was due to increasing stock intentionally, I guess, in response to the supply chain risks?
A bit of it. Obviously, you know, we wanna make sure that we've got enough stock available to sell because the sales are in good shape. With just the risk of disruption more so than the necessarily actual disruption, we've just made sure that we're in stock a little bit heavier than what we otherwise would be. , we think that's a prudent approach to take. Obviously, you know, more stores trading means we're holding more stock around the world and we've got a warehouse in Poland now, which we didn't have a year ago. That just means we're holding more from that perspective as well. Probably
Sure. Just my last question. I know you haven't disclosed in the past, but I guess the percentage of group sales that are now online?
We'll not disclose that.
Sure. Okay. No worries. Thanks for taking my questions.
Thank you.
Our next question comes from Shaun Cousins with UBS. Please go ahead.
Thanks. Good morning, Victor and Chris. Just a little bit more of a question on store growth, maybe further to Alex's sort of question. Should we infer in terms of the looking into the second half 2022, does Victor believe that you can better the 42 stores that you opened in the last six months, noting you've only done 3? So far into calendar 2022, but that can be lumpy. How do we think about store growth in fiscal 2023? Can it actually sort of accelerate, particularly as some of the issues in the United States moderate then, please?
Thank you for your call, for your question. Yes. Once again, no, I will be disappointed if we don't do during this second half at least 42 store openings, no? Regarding fiscal year 2023, we don't disclose, no. I mean, as I mentioned, we have two priorities, no? Digital and the rollout of the stores. Definitely, I think we will open stores on fiscal year 2023. I think also at least we will try to open as many as on the second half of fiscal year 2022 on first half of fiscal year 2023.
Understood. Okay. Maybe just specifically around the United States, how are you seeing growth in stores skew between existing states, new states, the broader landlord appetite for the Lovisa format? Could you maybe talk a little bit about the labor and logistics issues? Are those issues getting worse, deteriorating, or are they just challenged, and any sort of visibility on when those issues may be resolved, please.
What can I tell you is that at this moment we have 83 stores in the U.S., as we mentioned, and basically huge potential. We are already in 19 states, so our product is resonating with customers in every state or at least in 19 states, and I think has a tremendous potential for us. Our product is really engaging with customers. Also we are building a strong digital capability over there. Definitely it's a great potential, and I think we will continue betting on the U.S. market.
Great. Just finally from me, could you just talk a little bit about, you obviously started quite strongly, 12% up for the first seven weeks. I think you did 12%, in the first seven weeks last period, sorry, second half 2021 as well. Can you maybe talk a little bit about maybe call out what regions or countries were doing better than the others, please.
I'll pitch in, Shaun. I think I covered this on the last question a little bit, but I think generally if you look at the splits of the markets that we've already published, you can see that U.S. is obviously trading strongly. Australia is trading well on a comp basis. It doesn't look like it when you look at the headline numbers because we had, you know, a bit more lockdown in the first quarter of this financial year compared to last year. So that's that Australia/New Zealand region. The headline numbers don't look as strong. But the...
I guess the one market or region that is probably dragging us back a little bit or a lot at the moment is Asia. If you look at their numbers, they're well down on the prior year. As Victor said on the presentation that with the lower tourism and you know some of the restrictions on numbers in stores and that sort of thing is holding that market back. Outside of that, you know, we're seeing solid trading around most of the other markets.
Sorry, Chris, just to be clear, sorry. We could infer that the broader trends that you saw in the first half 2022, countries and regions that are doing well, they have continued on for the first eight weeks of the second half 2022. Is that right?
We haven't seen any major shift in trends in stores.
Okay. No. Fantastic. Thanks so much, Chris. Thanks, Victor.
Thank you.
Our next question comes from Mark Wade with CLSA. Please go ahead.
Good morning, guys. I wanted to pick up on a phrase, Victor, you used when you were talking about putting the right structures in place to drive the growth in those new and existing markets. Can you just elaborate on what you have in mind there and how that'll potentially avert any constraints that otherwise would be in place on the business?
You know, being a global company, you need some resources on every aspect of the business. This is something important, no? We are in Australia, but I think as I mentioned before, we are hiring several people in Europe and in Americas in order to cope with our expecting growth over the next years. What I can tell you is that I think, for example, as we were mentioning, we were hiring some specialists or local specialists on real estate and also some management people who are going to help us to cope with that growth in every region.
Okay. Do you think, , is there a breaking point under the current structure as it stands today, store count-wise, hypothetically?
No. I don't think so. You know?
You know, one thing that I want to tell is that, I mean, it's a very exciting story and basically we are trying to define how I mean, the potential of the company is unbelievable, and I think we have to continue doing whatever we are doing, focusing particularly on the rollout of the stores and the digital, and this is how we are going to continue over the next few quarters or few fiscal years, no? I think it's very exciting. Once we open any stores, customers are happy. They like our product and I think we have a strong product, you know. This is something which I believe is very important for the future.
Go, Chris.
Mark. I think what we've been at pains to say over the journey is we'll continue to invest in the support structures to drive the growth and do that ahead of the curve. Again, I'm not sure if your question was more directed at, you know, the existing resources that we have and how far can we grow with those. We don't look at the business that way. That's what Victor's trying to say, that we go, "What investment do we need to make to achieve the growth we wanna get?
I think it's two sides of the same coin and I, you know, I'm really trying to get comfort here that, you know, you've got a whole lot of fashion brands out there which have struggled for one reason or another when they've expanded aggressively overseas and just really what makes Lovisa so different. That's where really I'm coming from there.
It's a good point.
All right. Thanks so much.
Go, Victor. I mean, you've got a lot of global experience, so it's interesting to hear what you think is different.
. What I'm saying is that we will continue. I think it's not an aggressive expansion, no. It's a very calculated expansion, you know, more than a very aggressive, no? We know that, I mean, we resonate to customers in the U.S., so we'll continue opening stores in the U.S. You know, that's the whole point, no? It's very calculated growth, no? In order to continue being profitable, no? This is how I am seeing the globalization or speeding up the globalization of the company.
Okay. All the best. Thanks so much. Appreciate this insight.
Thank you.
Our next question comes from Sam Teeger. Sam Teeger with Citi, please go ahead.
Victor. Hi, Chris.
Hey, Sam.
Does the establishment of 2 franchise networks in Cyprus and Lebanon indicate the company now has a greater willingness to franchising, and should we expect more going forward?
No, not necessarily. I think we will evaluate any new markets whenever we believe we need to go direct or we need to go with franchise. You know, but definitely, I mean, we believe it's an opportunistic market and we have the right franchisee partner and why not try and see how we are doing over there.
Right.
The franchise partner there for those two markets was beeline's ex franchise partners. That was more an opportunity, just picking up those markets separate to that deal as a complement to it.
I see. Right. Victor, right now, you know, what proportion of your focus is on Lovisa's existing markets? What proportion of your focus is on, you know, assessing new pilots, and maybe even acquisitions and just the appetite towards the two latter?
Well, my focus is almost on everything, no? Particularly as I mentioned, I think definitely product is very important for us. Actually, we are a product company, and we will continue being a product company. At the same time, my focus is on existing markets because, I mean, we, as you see, we are growing significantly on number of stores, on digital, et cetera, on those markets, and also evaluating the potential markets that we are going to open in the future.
Right. In terms of potential new markets in the future, is there a criteria in terms of, you know, what ticks the box for you guys to put down a pilot and how might that have changed, under you compared to Shane?
We don't disclose that. Having said that, I mean, I think we will evaluate every market and when is the right time to enter that market, you know. Afterwards, we'll disclose whenever we open the market, and we will let you know. I mean, definitely, knowing my strategy in previous companies, at the end of the day, you will see some new markets that make sense and how we are going to open new markets. It will be case by case, and we will really think about how to open those markets. No, I think what we have to do right now is focus as well on the existing market, where I think we are performing significantly well or better than in the past.
I think that's a great thing to continue focusing on.
Right. In terms of existing markets, in Germany, no new stores were added in that market during the half. Can you talk to us about how Germany's going versus your expectations? Should we expect more stores in Germany? Or based on Beeline performance to date, would you prefer to focus your store rollout in other markets such as the U.S., where the product really appears to be resonating more strongly with consumers?
Well, as you can see by our growth in Europe, you know, I mean, we continue growing significantly also in the U.S. I mean, we don't get specific on market by market. No, but I mean, as you can see, it's a nice story what is happening with us and our growth, our growth data in Europe. The same as in the U.S. We opened many stores over the last year in Europe and we continue opening some stores. At the end, I think European market has a lot of potential for us, the same as the U.S. market.
Sam, I mean, it's the same strategy that we have in any other market. There'll be stores there that we close because we're not happy with them, and we'll open more stores, store by store, case by case basis.
Okay.
By city, no, in a way. In Europe as well, it's kind of a little bit of a rollout of per city and per country, no.
Right. Chris, before you mentioned the price rises you took in the first half. Roughly when in the half did you take the price rises? Do you think more price rises are needed in the current half?
There wasn't a lot in the first half. That was kind of towards the back end, so didn't really have much of an impact on the first half. The majority were done literally in the last month. Again, , it's too early to tell what impact that will have because it's, you know, increased prices that can impact volumes and, you know, it's a net gain. , we're not really calling out any impacts that we expect from that. It's really designed to offset some of the cost pressures, , in the business and make sure that we're driving the profitability of the business.
Understand. Thank you.
Thank you.
Our next question comes from Sam Haddad with Bell Potter. Please go ahead.
Hi, Victor and Chris, and congratulations on the strong result. My question's regarding your discussions with landlords. Would you say across all your geographies that discussions are productive in terms of new site locations and that landlords have got a strong appetite for the Lovisa offer, and that the primary constraint at this point is more on the supply side in terms of store fit-outs reaching destinations in time?
I think what we are trying to do is partnering with the major landlords in every region, you know, in order to see and oversee any opportunities for our rollout in every market, no? So definitely it's kind of a strategy, you know. I think there are big landlords there with a lot of shopping malls, and yes, we try to partner with them, you know. I think that is the strategy for anyone who wants to roll out the stores in any particular market.
Right. It's fair to assume there's a sort of a backlog of stores that you wanna open, and once supply chain delays alleviate, then we'll see quite a rapid ramp-up?
I think that's what Victor's saying, Sam. We're not giving any guidance on what the store rollout's gonna look like. , there's been constraints on getting deals done, on getting stores open in the last, you know, year or two years, to be honest. You know, we're hoping we're, you know, from a process perspective, we're better at managing some of the logistical challenges and cost pressures and things. Ultimately the speed will be what it will be. I think as Victor said before, we'll be disappointed if we don't open more stores in the second half than we did in the first half. Outside of that, there's not really much more we can tell you.
Just for our education, can you talk about the landlord structure in some of the potential new markets such as China? Would it be like a fragmented landlord structure, or is it more like with three or four dominant players in that market, which would make it more scalable?
No, it's a good question. No, it's not. It's very fragmented, you know. It's not like in the U.S. where you have big landlords and there you have more fragmented. Of course, there are several major landlords, maybe top five, but later on it's quite fragmented. Yes.
Right. My final question is just on the rent outlook. What are you seeing in terms of leases? Is there any opportunities to improve on, you know, rent as a percentage of sales? That could help offset any inflationary pressures on labor?
I t's a good question, Sam, but probably not one that we can really answer with any degree of or give you any clarity on, because it's a, you know, store-by-store negotiation in every case. , and we don't go down to that level of detail. We're getting some good deals done, but, you know, other sites, landlords are wanting more. It's, you know, it's a, I think it's a difficult environment at the moment for everybody to negotiate because nobody really knows where the world's gonna go. Can't really answer.
Okay. Thanks for your time.
Thank you.
Our next question comes from Joseph Michael with Morgan Stanley. Please go ahead.
Morning, Victor. Morning, Chris. Just one question from me just around, I guess your headquarters here in Australia now that more than 70% of your stores are outside of Australia. Just wondering, is there any merit to shifting headquarters to North America or Europe to sort of help reduce execution risk?
No, not really. No. We are going to put some people in Europe and in the U.S., but definitely our headquarters will remain in Australia. I believe it's an important thing to say, you know, that we believe that Australia is our home country and definitely all the knowledge, all the DNA is kept here, and I think it's very important to continue having the headquarters over here.
Okay, great. That's all from me. Thank you.
There are no further questions at this time. I'll now hand back to Mr. Herrero for closing remarks.
Okay. Thank you very much for your time and looking forward to our one-on-one with all of you. Thank you.