Thank you. Good morning, everyone, and thanks for taking the time to dial in. On the call today, you have myself, Shane Fallscheer, Managing Director, and Chris Lauder, our CFO. As you're aware, we published our half year results to the ASX this morning. We would like to talk you through those results. I'll now do a page turn through the presentation. We're happy to take any questions at the end. If we turn to page four, we will talk through some of the details of the first half of FY21. After a challenging start to the financial year, with markets going through various stages of closure due to the impact of COVID, we saw an improvement in sales through the second quarter to deliver comparable store sales for the half year of 4.5% in minus, with total sales down 9.8% for the half.
Our cost of doing business was well managed, finishing at 50% for the half, delivering a half-year EBIT which was down 24% on the year prior to AUD 30.9 million. This is excluding the impact of the new lease accounting standards. For the sake of clarity, all of the numbers we will talk to today and included in our presentation are after removing the effect of the new accounting standards, so that they are more easily comparable with prior years. Our global rollout remains a key focus, with a net 25 new stores opening for the half year. In the U.S., we now trade from 62 stores across 15 states. Our European expansion has been fast-tracked with the acquisition of Beeline's European retail business, and we are ready to start to take on these stores commencing the 1st of March, with the first market being Luxembourg.
Cash flow from operations was AUD 52 million, and cash conversion at 131%, reflecting tight cash flow management and inventory control, as well as the impact of rent deferral. At half year-end, we held AUD 42 million of cash and no debt. As a result, the board have announced the resumption of dividend payments after no final dividend was paid for FY 2020. We are pleased to be paying an interim dividend of AUD 0.20 to be paid in April. If we turn to the financial overview on page five, as I noted earlier, revenue for the period was down 9.8%, with comparable store sales also down 4.5% for the half. Gross margins were lower, with CODB well managed to come in flat on last year at 50% sales, and this resulted in our EBITDA being down 15% to AUD 39.6 million.
Depreciation was higher as a result of the CapEx spend in prior years on new store openings, and as a result, EBIT finished the half down 24% to AUD 30.9 million. Pleasingly, despite the continued disruption to our business throughout the period, we were able to finish the year with a very strong balance sheet position. Turning to page six, we have tried to make the impact of COVID on our store network clearer for you. As you can see, our store network was impacted by a number of temporary closures throughout the period, with the Victorian market closed for approximately three months from August to October, followed by closure periods in the U.K. and France in November and December.
If we turn to page seven, we've spoken to the sales impact from COVID, and while our sales for the half were down overall, we did see an improvement in our sales trends through the second quarter, delivering positive comparable store sales for the quarter off the back of a strong Christmas trading period. As we've said previously, the store closures we have had to deal with over the past year have given us a strong impetus to drive online, and the investment made in our digital platform has helped us to offset some of the lost sales from our physical stores, with total online sales up 335% on last year to the half. On page eight, you will see our sales by region.
Whilst our sales are still down on last year as a result of COVID, the Australian and New Zealand markets have been our strongest performers in the period, with a faster recovery than other markets as a result of less restrictions in place. This allowed these two markets combined to deliver strong positive comps for the half. Our Asian markets were the first to face disruption from COVID, and have continued to be the slowest to recover as tourism levels and the overall restrictions on retail trading impact heavily on mall foot traffic. Europe has again been impacted by COVID, with the bulk of the U.K. stores closing again in December, impacting our Christmas trading period. In the U.S., our stores continue to be disrupted. However, total sales are continuing to grow as a result of continued new store openings.
Turning to page nine, gross profit was AUD 113.4 million at 77.2% gross margin. If we looked at our margin on a constant currency basis, it would be tracking at 77.8%, and this reflects the impact from a lower USD hedge rate in this period. The remaining decrease in margin is a result of our decision to maintain higher levels of inventory provisioning at the end of the half as a result of the lockdowns experienced across a number of markets late in the half, and these lockdowns are continuing. Gross margin was also negatively impacted by an increase in freight costs due to COVID and the general shortages in freight availability. If we turn to page 10, we'll talk to our cost of doing business.
A strong focus on store wages during the half enabled us to deliver a lower store wage percentage than prior year, which was a pleasing outcome, especially given the lower sales over the period. A refocus on our support cost structures implemented in FY20 to combat COVID also helped to keep our cost of doing business under control and helped offset some of the one-off costs associated with the Beeline acquisition. Additional to this, we have been able to negotiate improved rent terms as well as abatements across a number of stores during this period. That also contributed to our strong cost of doing business management. I'll now hand you over to Chris Lauder, our CFO, to talk through cash flow and the balance sheet.
Thanks, Shane. Turning to page 11, you'll see that despite the ongoing disruption to our business and associated lower profits during the period, cash flow was again strong, with cash from operations before interest and tax of AUD 52 million for the half and operating cash conversion of 131%. We were able to, again, keep tight control over our working capital with inventory well managed and continued rent payment deferral also assisted in delivering this position, arising from situations where we have agreed such deferrals with our landlords, as well as where rent has been withheld pending finalization of abatements, both of which we expect to reverse in the second half. Inventory continued to be well managed through the first half with lower closing stock levels than prior years, even with a net 21 more stores trading than the same time last year.
Capital expenditure for the period was AUD 6.8 million, predominantly from new store fit-outs and refurbishments on existing stores upon lease renewal. This represents a reduction on prior year CapEx spend, with 29 new stores built for the period compared to 55 stores built in the first half last year, as well as a reduction in the number of store refurbishments undertaken as we temporarily pulled back in this area to conserve cash and focus our energy on trading our stores through the period of disruption. Whilst CapEx for the half was lower than prior years, we still saw a large increase in depreciation expense as the impact of prior year CapEx spend flowing through. These items combined helped to deliver closing net cash of AUD 42.5 million, a net AUD 22 million increase on the position at June 2020, 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 AUD 0.20 per share, payable in April, franked at 50%. You'll recall that in the prior year, the board elected to defer the payment of the interim dividend, which was ultimately paid in September, with no final dividend paid in relation to FY 2020. It's pleasing that our strong balance sheet position has allowed us to return to the payment of dividends, with interim dividend representing an AUD 0.05 increase on the interim dividend from the prior year. As we've said previously, the board will continue to assess dividend levels each half year and determine the appropriate level of dividends 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 needs of the company and the structure of the balance sheet. I'll now hand back to Shane.
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 our international store rollout, with 66% of our store network now trading outside of Australia. We finished the period with 460 stores trading with a net 25 new stores opening during the half year, which comprised of 29 new stores opening and four stores closing as we continually optimize our store network. The rollouts in the U.S. and France continued through the first half, and whilst this slowed as a result of the COVID disruption, we now have 25 stores trading in France and 62 in the U.S. across 15 different states.
Our negotiations for new sites have been slowed both by having to negotiate rent abatements and reductions due to COVID across numerous markets, and the landlords' reluctance to agree new long-term deals that both parties would be comfortable for with new locations. That said, we remain confident in our expansion plans, and we continue our diligent approach in the selection of new store locations at appropriate rent economics. Turning to page 14, I'll talk to the progress we have made in recent times in the relation to digital. Our focus on our digital capabilities accelerated during the initial COVID lockdown period in FY 2020, and this has continued with a sales growth of 335% for the first half. The digital channel remains an important part of our global strategy, critical to providing our customers with the full range of shopping options that they were looking for.
We continue to invest in support structures to drive ongoing growth in this area and remain focused on maintaining the profitability levels of our online sales. We'll continue to enhance our digital capability with current initiatives, including a new dedicated European warehouse and increasing our digital storefront to six new European markets aligned to our acquisition of the retail stores in those markets. Turning to page 15, I will now talk in more detail around the Beeline acquisition we announced in November. As previously discussed in November, we signed a deal to acquire the European retail business of German accessories and fashion jewelry wholesaler Beeline, consisting of retail stores across seven European countries, six of them new to Lovisa, as well as adding additional stores to our existing French footprint.
Under this deal, we will convert the existing Beeline retail stores, currently branded as either SIX or I.AM, to Lovisa and trade them in line with our Lovisa stores globally. Whilst there were 114 stores in the Beeline retail network, after rationalizing the portfolio of stores, we currently anticipate trading from around 90 of these stores, with the remaining stores either having a lease expiry or lease break having already taken place or to come in the near future. We've also added to our leasing capability in the European market with a new leasing executive joining us in Germany to complement our leasing team in France in order to continue to source new locations. We will initially focus on the markets that we are soon to have stores operating in and hope to add to our portfolio of stores in these markets in the near future.
We take possession of all of the Beeline stores from March to May this year, with the Luxembourg stores being refitted at the start of March. As previously announced, the purchase price for this business is EUR 70 for the shares. We wanted to clarify this as there seemed to be some confusion when we announced this deal. Further to this, it was negotiated that at the time of takeover of the stores, that there is a requirement that the business contains EUR 11.8 million of cash at handover and no debt, resulting in Beeline effectively paying us EUR 11.8 million to take on their store network. We expect to incur approximately EUR 6 million in cash outflow to fit out and stock out these stores with the transaction therefore cash flow positive immediately.
As a result of the much larger European business following completion of this transaction, we are also investing in additional support team in both our global support office in Melbourne as well as in Cologne, Germany, which will provide the platform to drive continued growth in these important markets for us. With this transaction giving us the opportunity to drive a number of new markets at pace. On page 17, I will talk to the trading update and outlook for the coming financial year. Trading for the first seven weeks of the second half has seen continued strong performance from the southern hemisphere market and challenging trading conditions in the northern hemisphere, with comparable store sales for this period of +12% like-for-like overall, a continuation of the improvement in the comparable store sales in Q2 with Australia and New Zealand leading the way with strong comp sales.
The acquisition of the Beeline retail business is expected to be completed as planned from March to May this year. We continue to focus on opportunities for expanding our store network. However, aside from the addition of the circa 90 Beeline stores, our store opening progress is expected to be slower in the short term, as discussed previously. The store network is currently at 460 stores globally, excluding the Beeline stores that are about to come into the portfolio. Our balance sheet remains strong with available cash and debt facilities supporting continued investment in growth. We currently have 42 stores in the U.K. and 23 stores in France closed temporarily due to the continued government lockdowns, with stores in Malaysia now back open after being closed for a period of four weeks. We've also experienced the impact of short lockdowns in Australia and New Zealand over the past seven weeks.
However, all stores are now currently back trading in those markets. As a result of the current uncertainty in the global economic environment, we are not in a position to provide any further information in relation to our outlook of the business. In summary, on page 18, our sales levels have shown a solid recovery through Q2 after the challenges faced through the first quarter. However, some markets continue to remain heavily impacted by COVID. We are pleased with the progress we've made in digital with increasing our contribution from online sales, and we're also able to control our CODB very well during the period, which has enabled us to continue to invest in building the platform for future growth.
Our international expansion continued through the period with 25 net new stores opened and the opportunity to accelerate our European expansion with the Beeline acquisition, bringing us 60 markets all at once. Our continuing strong balance sheet position has allowed for the announcement of an interim dividend of AUD 0.20 per share and leaves us in a strong position to again move forward with our global growth plans. With that, I want to thank you for your time today, and we're happy to open that up to any questions. Thank you.
Yes, ladies and gentlemen, we'll now begin that Q&A session. Once again, if you wish to ask a question, just please press star one on your telephone and then just wait for your name to be announced. If at any time you need to cancel your request, it's just by pressing the pound or hash key. Your first question today comes from Jo Little from Morgans. Please ask your question, Jo.
Morning, Shane, Chris. Thanks for your time. Just firstly, you mentioned that inventory provisioning. It sounds like you went pretty hard there, particularly in the northern hemisphere, I suspect, as we went into further lockdowns. I guess how much did that contribute to the GM step down in the period? How hard do you think you've gone on that?
Thanks, Jo. Chris here. I think from memory, the constant currency margin was down around 100 basis points. Probably around half of that was the provisioning impact. As you said, with those markets closing just after the end of the half, we thought it was prudent to provide a little bit extra to make sure that we covered for that stock that's sitting there and aging, unable to be sold at the moment.
Okay, thanks. That's great. I'm assuming you accrued full rent in the northern hemisphere.
Yes.
where you haven't finalized any abatements.
Yeah.
Therefore, should we assume we get some reprieve this half or into FY 2022 as those deals are concluded, should you execute on them?
Jo, Shane here. Yeah, look, if we haven't finalized deals with landlords, then we've accrued the full rent. Obviously working towards locking down those negotiations. We're fortunate enough to get, with our strength in Australia and good relationships with landlords, we managed to get those locked down in prior periods. We're working through the U.S. and the U.K. in particular. Any discounts or abatements we achieve in those markets, would then see a reversal of the difference back onto the P&L in the next six months.
Yeah, great. Thank you. Just, Shane, look, you said the store rollout will slow and understandable over the balance of the calendar year. I guess you did 25 in the first half, 19 Beeline, and maybe we get another few in this half, so maybe say 120 new stores, including Beeline and FY 2022. I know you're not giving guidance, how much should we assume that kind of slows down from an organic perspective? I mean, would you be happy if you got half that number in FY 2022, is it just too early to say?
Yeah, it's probably too early to say because the lag time on new stores in the northern hemisphere is probably longer than we're used to in previous reporting periods with Asia and Australia. Where we sit today is the landlords are probably more distracted than the retailers, or in our case, I can only talk for ourselves, at sorting out abatements, rental discounts, lease expiries, because of course, any retailers that got lease expiries at the moment are sort of renegotiating their rents.
We do believe that as the sun comes out, so to speak, that everyone has to start looking further down the road at vacancies in centers, and we're a willing negotiator of new locations, all being that we need to be prudent at the moment with what we're negotiating because we're in a bit of a bubble in Australia, of course, with the challenges that the rest of the world are facing. As the weeks go by, months definitely, but as the weeks go by and there's a bit more clarity about what everything's going to look like, and hopefully that COVID is in decline in the northern hemisphere, then it really turns our mind to getting more deals done.
As we discussed earlier, we've got leasing execs about to start on the ground in Germany, on the ground in France, on the ground in America, and the landlords are aware that we want to get deals done. We do think it's probably going to take another three months for us to have a clear view on how fast we can get back into our rhythm. We know we'll get back into our rhythm, but it's the willingness of landlords to come to the tables and acknowledge there's some short-term issues to getting deals done that's preventing us moving faster.
Okay, thanks. Just lastly, I'll hand over to somebody else. Just on Beeline, incredible terms to that acquisition, I guess your chance, Shane. Any further insights or thoughts on the quality of the deal you've done a few months down the track? How meaningful is this business for you?
Yeah, look, we'll know soon enough because we step into these stores in the next few weeks. The positive is these stores were already trading with 60% of their offer was fashion jewelry and 40% was other products. The benefit we have is we're taking over stores that don't need full refits, because of course, the raw cost of building 100 stores from scratch is a huge number in itself. We're budgeting not to have to spend that much money on each store to get them transformed into a Lovisa store that will take us from the short to the midterm, and then as we find our feet, we'll go back to the landlords and renegotiate new terms and do full fit-outs in their stores.
For those of you that have followed our stock for a period of time, the hard part for us has been to get that foothold of the first three to five stores in each market, and that can take years. To fast track the sort of footstep into these markets with a considerable number of stores, I think it's going to prove to be a big benefit in the long run. Again, we're already talking to the landlords about filling in the gaps in those markets. Yeah, it's in front of us to get this done now because we now have to transform 90 stores in two months into Lovisa and get them up and trading. We've got aggressive targets, internal targets on how quickly we can turn those stores around to Lovisa stores.
Yeah, the next few months are going to be interesting for us. But the pleasing thing is we've got a very capable team in Europe. Obviously, in normal times, half of our crew would be up there to help, but we're pleased with the quality of crew we've got on the ground in Europe to get this transformation of stores done.
Thanks very much for your time.
Thanks, Josephine.
Okay. Your next question comes from Callum Sinclair from Macquarie. Please ask your question, Callum.
Hi, guys. Just one or two from me. Just on the gross margin side of things, just the hedge rates when they roll off in the full year. Could you just provide some clarity on that?
Sorry, Callum, say that last bit again. When they roll off, you're saying the full year?
Obviously the hedge rate in the first half was obviously lower than spot. Just when those hedges roll off, and you start to get a bit of a benefit from the high Australian dollar.
Yeah. The current spot is up in the 77 range, and it's only really just pushed up there. Obviously, we take hedging over time, and that gradually increases as we average up. For the remainder of the second half, our average hedge rate will be a little bit higher than what it was in the first half, but it won't be up at those sort of 77 levels. We won't see that until FY 2022.
That's starting to come through. Obviously, it has to stay there for a little bit of time to average out up to that sort of level.
Yeah. There's only a small benefit in the second half of FY 2022 if we stay there.
That's right.
Yep. Thanks. Then just on the tight cost controls during the period, I'm just wondering how much of the support cost side of things is permanent or whether you add some of the savings back as things recover in the Northern Hemisphere?
Yeah. I think that's probably a good way to look at it, Callum. Obviously, we took a lot of action through FY20 to reduce the cost base, when COVID really hit. We have reinvested a fair bit of that in support structures to run the much larger European business. Shane mentioned earlier that we've put a lot of heads on here in Melbourne as well as in Cologne, in Germany, to make sure that we bed that down effectively. I guess we're running the business to try and hold that cost of doing business percentage consistent with where it was pre-COVID. Obviously, we'll start to get that down, if we can. There's obviously a lot of investment we have to make to deliver this sort of thing.
You there, Callum?
Sorry, I was on mute. I know Jo already asked on the store rollout, but just with the store rollout, ex the Beeline acquisition, if landlords do come to terms and reduce their rents down to what you see is appropriate, would you be happy to step into that and grow stores or roll out stores faster than what you're indicating?
Yeah. To give clarity there, the landlords are acutely aware of what we're looking for, as any retailer would be looking for to open in this environment. In simple terms, what Lovisa is looking for is some understanding that we're not out of the woods in the Northern Hemisphere, especially, and there needs to be some protections around entering and opening stores in the middle of COVID. That's a new thing for everyone to come to terms with. The landlords are aware of what we want. We're ready to go. I think over time, the landlords will come to terms with what we're looking for. Probably not what we're looking for, but what most retailers, especially in the Northern Hemisphere, would be looking for to expand in this market. I don't think it will take years, but I don't think it'll take weeks.
Somewhere in between there where the meeting of the minds will take place, because if there's vacancies in shopping centers, it's no good for anyone. It's just probably obviously doing deals outside of the norm have an effect on valuations of shopping centers and so on. Sometimes bigger than getting a deal done that works for Lovisa and works for the landlord. I think that's just going to take a bit of time to wash through.
Great. That's it from me, guys. Thanks.
Thanks, Callum.
Your next question comes from Mark Wade from CLSA. Please ask your question, Mark.
Good morning, guys. Just starting with the second half to date figure you've put out of 12% like-for-like. That's an outstanding number. What would it be, Chris, unfortunately, if you included the stores that are closed in there, so the so-called unadjusted number? Would it be more like zero?
Well, we don't call out those numbers specifically. Someone can probably work backwards and work it out using some averages of average store sales. Down.
Okay. Moving on. Maybe one for Shane. When you're thinking about the brand's longevity, what are some of the real critical factors in there, given the brand's now what, 10 years old or so? Just what's going through your mind as you think about the next 10 years?
It's an interesting question because there was a similar question that we got asked when we actually went to market to become a public company. We're fixated on our brand. We only do fashion jewelry, and that's all we do. That's all we worry about. It's all about quality of product, quality of offer to our customers and not letting them down. Every experience they have in Lovisa store, be it a physical store or online, being a good one. Our simple belief is if we can stay true to our product offering and be first in market with great pricing to our customers, that we'll continually grow our customer base. We really just try and keep it as simple as that. Keep the store economics in each store tight. We expand where we see appropriate opportunities, and we don't expand.
We probably don't build the pressure that sometimes comes upon us from the market or others to expand at a rapid pace or any pace that anyone else wants, that every deal has to stand up for itself. We've got tight disciplines in our leasing and then tight disciplines in our buying and product selection. Those two things, combined with some strong operational discipline in the field, has allowed us to achieve what we've achieved to date. If we stick to those basics, we should continue to achieve a good outcome in the future.
Okay, fantastic. Thanks so much.
Your next question comes from Sam Teeger from Citi. Please ask your question, Sam.
Hi. Hey, guys. Good morning.
Yeah.
Can you talk about your ability to get product out of China now, given some of the freight delays going on? I guess, how many weeks at the moment is it from design to getting a product on a shelf in-store to sell?
Sam, we had some recent challenges around the Chinese New Year and just getting freight out. At one stage, there was a massive shortage of shipping containers ex-China. Really what we've seen over the last six months in particular is freight costs going up, supply and demand issues of getting freight out of China. It's probably not the timing as much as the cost of getting it uplifted out of China and getting it around the world. In simple terms, because we air freight the bulk of our product, because there's so few passenger flights going around the world, the cargo haulers are basically in a good position for basically monopolizing the market of freight around the world.
From that point of view, we have seen our freight costs increase, and we assume they'll come back down as the supply and demand of getting freight around the world sorts itself out. As far as from design to shop floor, we're probably still in that six to eight-week turnaround from getting stock ordered to getting it into our stores. As we expand into Europe, those timelines, depending whether we air freight or sea freight, may change slightly. The timing hasn't changed much. It's the cost of getting it around is probably where we've seen the impact.
All right, cool. What would be the key lesson that Lovisa has taken from Spain to ensure some of these new Beeline markets will be successful, and they don't follow the same path as Spain?
Spain, we were making progress in Spain. Landlords took a hard response. If you go back to March, April last year, when those stores were closed, and again, don't quote me on the exact dates, but early last year, calendar year. The response or the support from landlords was poor, we closed those stores. That's probably one of the main drivers of exiting that market. The ranging across each individual European market, we've got the team structure in place to manage. At the moment, we manage three or four main buckets of product, Asia, Australia, America, and Europe. We'll have to adapt to the market changes and the nuances that we see in those European markets.
Ultimately, we've got to get up and trading and start selling product and start taking a read of what the customers are buying for us to react to that. I think we're in a slightly better position with a bigger structure to, if there are nuances that we need to adapt to, that we will.
Yeah.
One of the main drivers we got from Spain was just a lack of support from landlords at the start of COVID.
Got it. Okay. There's nothing structurally wrong with Spain. If the landlords came back and said, "We want to be more supportive," you could go back there again?
Yeah. We're probably not going to hurry back to Spain. Our sales were at the lower end of the spectrum from other markets, which is why we hadn't expanded at pace. The catalyst was COVID, not performance.
Okay, cool. Just in terms of Beeline, the 24 closures, which countries are these concentrated in, and what's the risk of more closures than 24 if you look out in the 6- 12 months?
I'll talk to the macro, and then Chris can work through the numbers or talk to the numbers. Basically, we've taken over a portfolio of stores, and the average lease tenure with lease breaks is somewhere between three to five years. At any one time, you've got roughly 20 or 25 leases in each year, giving us the option to either break a lease, end a lease, et cetera. Some of the bottom dwellers in those markets we've looked at, either duplication in France, because we're already there, or some bottom dwellers in other markets that we took a view to cut the tail off somewhat to ensure the rest of the stores perform strongly. The stores that we're moving into are the ones that we believe have got a strong future for us. We'll get in and trade those stores.
Again, once we get a trading pattern on those stores, we'll have a better view of what the long-term future looks like for each of those stores.
Sam, I think if you have a look at the table in the presentation, compare that back to what we put out when we announced the deal, you can see where the changes are, mostly in Germany and France, from memory. The bigger markets, but obviously, Germany, there's a lot of stores there and lower trading ones where the leases are up, so we decided to not go ahead.
Okay, cool. Last question. Appreciate that you guys have indicated it's really the landlords which are delaying the speed of the underlying rollout. Given this year's going to be a big year of Beeline integration, are you comfortable you could roll out a lot of stores excluding Beeline if the landlords came to the party and executed on that and the Beeline execution? The Beeline integration, sorry.
Yeah, look, the Beeline integration, we've been working on it since last year, calendar year. The pressure points on the business get closer to handover and then handover. Theoretically, our store leasing team, our store build-out team, once the stores actually get transformed to Lovisa, theoretically their job's done, and then the operational team at store level, their function starts, which is, in my mind, the most important one to take. We're taking on a lot of the Beeline team in the stores, so their job then becomes the re-education of how we do things around here at Lovisa and so on. The capacity with our build-out teams in our store, fit-out teams and so on around the world, is there to take on more stores.
As I said earlier, I think it's going to take a bit of time for retailers and landlords to find the new norm in getting deals done, especially in the northern hemisphere, as hopefully COVID starts winding back.
Cool. Thanks, guys.
Okay, your next question comes from Wilson Wong from Jarden. Please ask your question, Wilson.
Hi, Shane and Chris. Can you just clarify how much of the decline in employee expenses in the first half was due to temporary store closures?
You broke up a bit there. What was the question again?
The decline in the employee expenses in the first half, how much of that was due to temporary store closures?
Yeah. We could call out a specific number on that. Obviously, there was a component of that because we stood team down and weren't paying them while they were furloughed or governments were paying them around the world. Yeah, as we call out, we managed store wages well during the half in holding that percent to sales in spite of lower turnover. Yeah, I'm not sure exactly how to answer that question for you because we don't generally break out that level of detail. Our focus is on managing the store wage costs relative to what's happening in sales, and that's what we were able to achieve.
Sure. Thanks for that. Just on Beeline, can you talk to the expected payback period of the range of Beeline stores upon conversion?
The structure of that deal is such that they paid us to take on that store network. Obviously in doing that, some of the rents are higher than what we would normally pay. In their own right, before that amount of money, that payback period is longer. As that basically releases back against the P&L over the lease term, we would expect to see the same sort of metrics that we see in our other more similar markets. The U.S., U.K., France. You're really talking in a normal store with a normal store fit-out cost should be in that sort of two- to three-year range at most. In this case, we're not really paying much to fit out the stores, so it could be a bit shorter than that.
Sure. Just in terms of how it compared to the rest of the group, would you sort of be expecting in a normal state, less than 12 months?
Sorry, can you say that again? I didn't quite understand the question.
Yeah, sure. How it compares to the rest of the store base. Would you expect these stores to essentially have a payback period of less than 12 months as well?
Yep. Payback periods vary around the world, so it's not less than 12 months everywhere that we operate. Some of the markets that are lower cost obviously pay back a lot quicker or where we've got lower cost of goods stores. The Beeline stores are more likely to be in line with what we've been saying about the other northern hemisphere markets, longer than that one year, so probably more around the two years, two to three years.
Sure. Just my last question is just around the online sales mix. Are you able to just provide a sense of what percent of sales were conducted online in the first half and where you sort of see it over the medium to long term?
We don't call out the contribution of online sales.
Sure. Thanks for that.
Okay. Once again, star one to ask your question. We have a question in queue from Julian from EAP. Please ask your question, Julian.
Hi, guys. Just a couple of questions from me. Firstly, on that wages bill, I see that you've received JobKeeper payments of AUD 10 million. Would it be fair to assume probably AUD 3 million in the current half to come through?
That's the number for the current half, Julian.
No, for the second half.
Oh, second.
Would you expect another three, given it ends in March?
Well, we stopped getting JobKeeper in.
Right. Okay, cool. Second question, with the, clearly the delays in getting some new stores because of the rent negotiations and whatever, can you confirm that it hasn't changed at all your enthusiasm for the U.S. market and even the U.K. as well?
No, we're watching closely with what's happening with COVID. We're going to be diligent in what we do. Obviously, the U.K.'s been closed since middle of December and still is closed. We're also confident that this will sooner or later move behind us, and the world will resume to some sort of normality. At the moment, for us to do a deal today, there has to be a lot of protections around trade and what happens if the stores go through a closure and what level of trade's going to be running through the malls in the short to midterm, which is why it's been hard for us to achieve deals because there's a lot of things that we want that the landlord probably has to come to terms with. That's just going to take a bit of time to flush through.
We do believe that these big powerhouse economies are going to continue to be powerhouse economies in the future. At the moment, in the middle of COVID, it's just hard for us to find a way through and commit to a deal without a lot of protections. The landlords, they understand the protections we're looking for, but everyone's busy at the moment, again, working through the crisis management, so to speak. It's probably hard to get a good audience to get some new deals done. We think that as the crisis management slows down, then things will start finding their feet again and get back to normal.
Right. In terms of in the U.S., where the less restricted stores have been, just the resonance with the customers, it's at least as good as you were hoping for?
Look, this is not a political statement, but they're quite resilient over there because most stores have stayed open right through COVID. I've lost track of the infection rates, like probably most of us as stores slow down from looking at exactly what's happening in each market, as much as we stay close to it for obvious reasons with our business over there. Yeah, we think it's just going to take a bit of time to come good. There's not many pockets of America that haven't been severely affected, and therefore, it's hard to say, well, we can't sit here today and say, well, if every store continues to trade like they do in Florida, we'll be fine, because America's just been affected across the board.
Our position today is trade the stores we have and continue to talk to landlords about what we need to open in the short to midterm, and then we'll see ourselves resume back to normal.
Okay, cool. Thanks, Lauder.
Okay. Your next question comes from Sam Haddad from Bell Potter Securities. Please ask your question, Sam.
Hi, Shane and Chris. Around the 14 stores that were open in the second half, sorry, in the first half in the U.S., were they on previous deals done? Or were there any new deals?
Yeah, basically, the bulk of those were on deals agreed prior to COVID that we delayed through the openings. There was a couple of deals done with the sort of terms I've just spoken to, that they're probably harder to get through. The bulk of those deals were deals that were already in play prior to COVID.
It sounds like the immediate future in the U.S., there won't be much at all opening in this current half, given that negotiations across the four major landlords are still ongoing.
Yeah. Our focus in the half that we're sitting in today, our focus is getting Beeline executed well, and there'll be small numbers of other stores.
Those other stores will be mostly in other territories outside the U.S. and the U.K. by the sounds of it.
There'll just be a scattering of stores across the world with ones and twos.
Yeah. My last question is just on the acquisition opportunities and competitive environment that you're seeing. Would you be happy to execute on acquisition even though you're in the midst of integrating Beeline?
Yeah, we would, but we're not actively looking. I've said that consistently. Beeline, however that deal got done, it's yesterday's news now, I suppose. If anything rolls around, yes, we look at it. Again, for the people that have followed our stock for a period of time, in previous results, I've talked to SIX I AM Group in Germany being one of the larger European operators in our space. This deal worked for us because we could step into their stores, and as much as we have to invest a certain amount of money per store, it's not far from a new store build-out. That's what's made this deal workable for all parties.
Again, the founders and the owners of Beeline were keen to see the continuation of the employment of 100 stores worth of team, that are excited and pleased to come over to Lovisa and continue their career in the industry. That's been one of the main drivers of getting that deal done. The short answer is yes. When deals present themselves, we have a look at them, but that's not in our equation in the near future.
Yeah. Just briefly on a competitive environment, are you seeing your close peers continuing to look for new store openings? What's the dynamics across different markets there?
Look, it's probably the same with everyone else. There's not a lot of activity going on because everyone's in the same boat. Yeah. We haven't seen a lot of aggressive activity anywhere, largely because everyone's sitting in exactly the same position.
Okay. Thank you.
Thank you.
Okay, just a final reminder, if you wish to ask a question, it's just by pressing star one on your telephone. Okay, appears we have no further questions at this stage, so I'll hand back to your presenters for any concluding remarks.
Great. Thank you. Thanks everyone for your time this morning. I know it's a busy time of year, and look forward to talking with some of you individually over the next few days. Thanks again. Bye-bye.
Ladies and gentlemen, that does conclude our conference today. Again, thank you all for participating today, but you may now all disconnect.