Ladies and gentlemen, thank you for standing by, and welcome to the Lavita Holdings Limited FY 'twenty Full Year Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I must advise you that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Managing Director of LaVisa, Shane Forcher.
Thank you. Please go ahead.
Thank you, and good morning, everyone, and thanks for taking the time to dial in. On the call today, you have myself, Shane Forcher, Managing Director and Chris Lauder, our CFO. As you're aware, we published our full year results for the ASX this morning, so we'd like to talk you through them. I'll now do a page turn through the presentation, and we're happy to take any questions at the end. If we turn to Page four, I thought we would start with a recap on our business and strategy for those of you that are familiar with LOVISTA.
Ten years ago, we created the LOVISTA brand, which is a fast fashion jewelry concept, and the benefits of this concept is we can operate generating high margins while operating in a small store footprint. In May, we celebrated our tenth anniversary with four thirty five stores across 15 markets, delivering significant sales and profit growth over that period with a compound annual growth rate of 30% at the sales line. And we now employ over 3,000 team members around the world. As we stand today, like most businesses, we have some challenges brought upon us in the COVID pandemic. However, we intend to stay true to what has made Lavista a great company.
We are continuing to develop over 100 new lines of product for our customers every week. We are continuing to invest in our people and structures to support our future growth. And we are pleased with the progress we are making in the digital space. And with continued cost control, we have a strong balance sheet and no debt to pay attention to the future. So to that end, we have done significant work through the current period of disruption to ensure our business is fit and ready to take on the advantages of opportunities that we are confident will arise, and we will continue to invest in the growth of the business, including new market opportunities as they present themselves, and we remain excited about the future.
If we now turn to Page five, we will talk through some of the details of FY 'twenty. After delivering a solid first half of the financial year, with strong growth in our store network and sales growth of 22.2% in the first half, the impact of temporary store closures due to COVID in the second half and in particular Q4, meant that our full year EBIT was down 42% to $30,600,000 That is excluding the impact of the new lease accounting standard and impairment expenses. 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 standard so that they are comparable with the prior year numbers, which has not been restated, and also excludes the one off impact of impairment expenses primarily from the exit of the Spanish market. We continued our global rollout strategy during FY 'twenty with 66 new stores opened for the year and a net increase of 45 stores. With The U.
S. Rollout gaining momentum, we added 29 new stores, and we're now trading across 13 states as of today. Our execution and geographic coverage in the digital space improved and has now begun to become an important part of our model. Cash flow from operations was $51,700,000 and cash conversion at 115% despite the impact of COVID. So via tight cash flow management and inventory control at year end, we held $20,400,000 and no debt.
As a result, the Board has confirmed the payment of the $0.15 interim dividend that was deferred back in April until end September, with the only change being a reduction in the franking percentage to 50% as a result of lower tax payments made during the year. If we turn to the financial overview on Page six. As I noted earlier, revenue for the period was up 22.2% with comparable store sales up 2.1% for the first half of the year, and we were happy with where we were tracking. However, unfortunately, due to COVID, we were forced to close down our store network to varying degrees around the world through April, May and part of June. As each market was able to reopen, we generally saw sales recover more slowly than we would have liked as the category was impacted by the continued enforcement of social distancing and most major event opportunities unable to occur.
This resulted in our comparable store sales for the period since reopening to the end of the financial year trading down 32.5% on the year prior. The new store rollout and increasing CapEx spend prior to the slowdown from COVID resulted in increased depreciation expense for the year. And combined with the impact of the lower sales through the second half, this resulted in EBIT decreasing 41.6% to thirty point six million dollars The effective tax rate for the year was negatively impacted by the drop in profitability for the year, particularly in newer markets where we have taken a conservative approach to the recognition of tax losses. In particular, those losses have increased as a direct result of government tax concessions. The statutory results for the year was also impacted by the recognition of impairment provisions in relation to the exit of the Spanish business as well as provisions against a small number of stores in other markets.
Pleasingly, despite the disruption we've experienced throughout the second half of the financial year, we were able to finish the year with a very strong balance sheet position. Turning to Page seven. We have tried to make the impact of COVID on our store network clearer for you. As you can see, almost all of our store network was closed from the March, with stores gradually reopening from mid April through to the June. We were able to get our Australian and New Zealand stores back up and running relatively quickly.
And with less restrictions at that time than other markets, we were, therefore, able to achieve better results coming out of the closure period. Unfortunately, more recently, you can see that we've again been impacted by store closures through orders across a number of markets. We are also grateful for the support provided by governments around the world in the way of wage subsidies, which helped us retain our team through the lockdown period and made it easier for us to get back up and running as quickly as possible. If we turn to Page eight, we've spoken to the sales impact from COVID already. And whilst this chart shows our sales declining for the first time since we started the business, we see this impact as temporary.
With 50 new company owned stores opened during FY 'twenty, we built a strong store base to build as the global economy begins to normalize. It has also given us a strong impetus to drive online, and the investment made in our digital platform helped us to offset some of the lost sales from our physical stores. On Page nine, you will see our sales by region. While still down on last year, the Australian and New Zealand markets have been our strongest performers in the period since reopening, with a faster recovery than other markets as a result of less restrictions in place until more recently. Those markets were also trading well prior to COVID with strong first half performance.
Our Asian markets were the first to face disruption from COVID-nineteen and have been the slowest to recover. And whilst our European and U. S. Stores continue to see disruption to normal sales levels, the total sales have increased strongly as a result of new store openings. Turning to Page 10.
Gross profit of $187,300,000 was down 7% at a 77% gross margin, which was impacted by the lowest U. S. Dollar hedge rates for the period, with constant currency margin tracking at 79%. The remaining decrease in margin is the result of most stores reopening post lockdown into our June sale period, along with our decision to take higher levels of inventory provisioning required at the end of the financial year based on our normal inventory provisioning policy. If we turn to Page 11, we'll talk to our cost of doing business.
As we've said previously, we continue to reinvest into the growth trajectory of our business, which has put pressure on our CODB percentage over recent periods. We have, however, been able to deliver on some efficiencies in this area, which helped us to keep our CODB in line with last year through the first half. We expect these newer markets to continue to operate at a slightly higher CADB than our more mature markets, however, remain focused on delivering further efficiencies to manage this. With the impact of the fall in sales due to COVID in the second half of our CODD, we're not able to be reduced efficiently to offset this, which resulted in our CODD for the year increasing to 59% compared to 56% in the prior year. Various government wide subsidies and rental abatements, where they've been provided to date by landlords, helped to support our CIBB through the closure period and to ensure we were able to keep our team employed.
Whilst we have been able to agree some rental assistance to date, in particular working closely with our larger Australian landlords, Centre Group and Vicinity, among others, we continue to engage in productive discussions with our landlords on both abatements as well as future deals. I'll now hand you over to Chris Warder, our CFO, to talk through cash flow and the balance sheet.
Thanks, Jack. Turning to Page twelve. You can see that despite the disruption to Q4, cash flow was again strong with cash from operations before interest and tax of $51,700,000 and operating cash conversion of 115% as a result of tight working capital management during the period of COVID-nineteen impacts and net payment deferrals. Inventory was well managed through Q4 despite the disruption to our supply chain and temporary store closures, with lower closing stock levels in prior year even with a net 45 more store trading in prior year. Capital expenditure for the period was $25,600,000 predominantly from new store fit outs and refurbishments on existing stores upon lease renewal, with 66 new company owned stores opened for the year, resulting in a further increase in depreciation expense of $14,100,000 Lower profit levels and the one off benefit deductions related to share options exercised during the year resulted in a $17,000,000 reduction in tax paid for the financial year.
This action taken to protect our cash flow early in the COVID shutdown period helped to deliver closing cash of $20,400,000 and no debt at the end of the period. Turning to the balance sheet on Page 13. Believe that it remains strong. Importantly, we were able to refinance our existing debt facilities during the second half of the financial year with the overall facility limit increasing $50,000,000 with maturity of the term debt component extended for three years. At financial year end, there was no cash drawings on those facilities, with an available limit of $45,000,000 after taking account of $5,000,000 of bank balances that currently held on issue.
A continued strong balance sheet position has enabled the Board to confirm the intention to pay the previously deferred $0.15 interim dividend on thirtieth September twenty twenty, as planned. However, the franking percentage of this dividend will be reduced to 50% from the originally announced 100% franking as a result of lower tax paid during FY 'twenty. Also, given the ongoing uncertainty and the global market presence, the Board has elected not to pay a final dividend in relation to FY 'twenty. 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 does 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 Sean.
Thanks, Chris. If we turn to Page 14, a quick update on store numbers. The key driver of future growth for LOVISTA continues to be the international store rollout, with 55% of our store network now trading outside of Australia. We finished the year with four thirty five stores trading, with a net 45 stores opening during the financial year, which comprised of 66 new stores opening and 21 stores closing as we continually optimize the store network, reminding you that nine of the store closures related to the exit of Spain. The rollouts in The U.
S. And France continued their momentum through the first half. And whilst we've slowed as a result of the COVID disruption, we now have 21 stores trading in France at the end of the year and 48 in The U. S. Across multiple states.
As we have said previously, sourcing quality of sites is key, and we will take a measured and diligent approach to moving forward in both our current market and any new market we may enter. And with the uncertainty introduced as a result of COVID, we need to ensure that we remain true to this focus while still taking advantage of growth opportunities as they arise. Turning to Page 15. I will talk to the progress we've made in recent times in relation to digital. The focus on our digital capabilities accelerated leading into lockdown, and we now service all eight of our major markets via digital storefronts across the globe, with new sites rolled out in South Africa and The U.
S. A. During the second half. As a result, we were able to grow our online sales by 311% for FY 'twenty, with growth of 382% during Q4, and that trend has continued since financial year end, albeit off a low base. In addition to increasing the geographical coverage of the year over year, we've also been able to deliver a number of other key digital initiatives, including fulfillment from store, live chat and multi warehouse fulfillment to improve our supply chain capacity.
We've also recently appointed Head of Digital Marketing to maximize the results in this area with a further pipeline of digital developments in progress for FY 'twenty one. Turning to Page sixteen. I'll now talk in more detail in relation to The U. S. Market.
As I mentioned earlier, we were trading from 48 stores in The U. S. At the end of the financial year across 10 states. Since then, we have been able to get started on store openings following the lockdown and have opened a further five stores in The U. S, including our first stores in Louisiana, Missouri and Connecticut, taking us to 53 stores in 13 states in total.
Results to date indicate that the Vista offer is resonating well with our American customers, and operating metrics are in line with our expectations. Whilst operating costs in this market have been higher than some of our other markets so far, in particular, new store build costs. We are happy with the progress and outcomes to date in The U. S. Even though the expansion continues to put upward pressure on overall GMV and depreciation.
Despite the short term COVID challenges of the past few months, we continue to see The U. A. Market as a significant long term opportunity and continue to invest in the structures to support this. Turning now to Page 17. I will talk to the European market.
At financial year end, we were trading from 42 stores in The U. K. And 21 in France. Talking to Spain, we were disappointed in the response we received from landlords in relation to rental support. And as a result of that, combined with uncertainty of our future return level in this market, we made the decision to exit and not reopen our nine stores exiting the Spanish market.
In The UK, store rollout progress has continued to be slow as a result of the site availability and then COVID taking landlords' focus away from doing new deals. However, we are pleased with the progress we've made with the existing store network in relation to sales and cost management. In relation to France, we continue to be pleased with the performance of the stores we have opened to date and are focused on sourcing appropriate sites to grow this market. We have a leasing manager in place in France to support this growth. And again, we will not sacrifice quality of stores or our operating metrics to deliver on a store number target.
As with The U. S, our experience in this market to date has been that operating costs have been higher than our average. However, we continue to see the European market as a strong growth opportunity for us. On Page 18, I will talk to the trading update and outlook for the coming financial year. Trading for the first eight weeks of FY 'twenty one has continued challenging trading conditions as most markets continue to experience economic disruption, with comparable store sales for this period of minus 19%, being an improvement from comparable store sales of Q4 of minus 32.5%.
We continue to see positive signs across our markets. However, this has been tempered somewhat by recent government imposed lockdowns in a number of locations, with 30 stores currently closed in Metropolitan Melbourne, 19 in California, two in New York and eight stores in New Zealand. We continue to focus on opportunities for expanding our store network, and as I mentioned earlier, have opened eight new stores since the end of the financial year. Our strategic plans remain in place, and we are ready to continue our store rollout as we continue growth discussions with our landlords globally. We also continue to build our global executive team with the recent addition of a senior leasing executive based in the Northern Hemisphere and Head of Digital and Marketing.
Our balance sheet remains strong with continued net cash position above $20,000,000 and undrawn cash debt facilities supporting investment in growth. However, 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 the outlook for our business. So in summary, on Page 19, After a strong start to FY 'twenty with 22% sales growth and strong momentum in our store rollout, unfortunately, COVID related closures and impacts on our category has a major impact on our sales and profitability in the second half, resulting in EBIT for the year of $30,600,000 We are pleased with the progress we've made in digital with increasing contribution from online sales, and we were also able to control our CIBB well during the year, and in particular, through the Q4 disruption, and as a result, have been able to continue to invest in building the platform for future growth. Our international expansion continued prior to COVID lockdown, with a further 66 new stores opened during the year and a total network of four thirty five stores at year end, with 65% of our store network now outside of Australia and the rollout continuing to gain momentum in The U.
S. A. And France markets despite the COVID disruption. Our continuing strong balance sheet position has allowed for the deferred interim dividend of $0.15 per share to be paid on the 09/30/2020 as planned and leaves us in a strong position to again move forward with our growth plan. So with that, I want to thank you for your time today, and we're happy to open it up for any questions.
Thank you.
Thank you,
Your
first question comes from Jo Little from Morgan. Please ask your question.
Good morning, Shane, Chris. Thanks for your time. Just firstly, on the $20,000,000 net cash position, which is great, and you said that's still intact today. Is there anything we just need to consider in terms of deferrals or inventory rebuild? I guess that's going to be reliant on sales performance.
But just trying to pro form a bit. Any any make good into the first half of the new financial year?
Yes. Hi, Jake. I'll talk inventory now for the quick for the hard one. The as far as inventory goes, we basically just run our inventory straight through. In in running into the March period, we obviously reassessed our stock position.
But then that we can get in and out of stock in that sort of six to seven week time frame, we've been fortunate that we could sort of manage our inventory through without some of the other challenges. So from an inventory position, we're comfortable with our position with no big ramp up of stock to come. And I'll get
Chris to answer the other half. Yes. And just to that there's a little bit of catch up in terms of payment terms with the inventory supplies, but not much. So that's largely already reflected in that update. As of now, that we've still got more than $20,000,000 of cash.
We have been paying some rent through the last couple of months. So we have caught up some of that rent deferral already, but there's obviously still a catch up to do there. So if you think about it, we've got the dividend to pay, which is about $16,000,000 coming out of that. And then probably a couple of months' worth of rent to pay on top of what we're incurring at the moment. So a
little bit
of that's dependent on what we can negotiate in terms of abatements that we haven't done already.
Okay, great. That's helpful. And just on the store, Shane, obviously, you've opened eight post balance, I think five in The U. S. Despite sales being sort of a material deficit, I guess, reflects your long term focus.
But can you just talk about the psychology behind that and maybe a bit more color on where you're at with rental negotiations and the shape of some of those outcomes offshore? I'm sounding that a lot of that will be unconfidential, but some kind of color would be great. Sure.
So the way to look at
the store that was opened since July 1 was really that deals were already in play. So working on it. I mean, we can turn our stores reasonably quick, but there's still sort of a three or four month lag. So those stores will probably deal with McCann coming into sort of January, February, March this year, and we really sort of came off-site and came back on-site. So that's the sort of stores that we've opened since July 1.
As far as landlord negotiations, on rent issues through COVID, it's just an ongoing issue. Some markets have been more cooperative than others, but we're confident that we'll find a position that works for us across the world. And as far as new deals moving forward, there has been clearly disruption to our ability to keep doing new deals, being that we're we're still here and ready to go. But, obviously, the landlords have been well documented and got other challenges that they're sort of prioritizing. So in simple terms, we're ready to keep moving, but it's probably only been the last three or four weeks that the landlords have been ready to reengage in new deals moving forward, being that sort of everyone has to sort of pause and regroup.
So we're confident those discussions are starting again, and we're confident we'll get to a position that we're all happy with on new deals. But it's it's been slow going over the last three or four months, so, therefore, that's gonna see a lag effect on our store openings as you sort of mirror that down the calendar.
Yeah. Got it. And I'm not sure if you're willing to do this, but just any idea of how many stores are in the pipe if the right deals were actually done from your perspective or, you know, from a return perspective?
Yeah. Not not willing to go there.
It's it's just there's a lot
of moving parts. As I said, we just we just appointed a Northern Hemisphere senior leasing executive to basically because up until now, we've had we've got leasing executives in most markets, but really, we've had one head of leasing, which split that in two. So we've now got a head of leasing Southern Hemisphere and a head of leasing Northern Hemisphere. And we've got that in place to sort of keep those discussions going, especially with travel being more compromised moving forward in the short to midterm. So there's too many moving parts when we put a number on it.
No worries. And just lastly for me, I'll jump back in the queue. Just on the gross margin, I understand impact when you do open into a sales period and demand is tough. But just thinking about trajectory in FY 'twenty one hedge rate versus how you're thinking promotionally while demand is impacted? Just any idea there would be great.
Well, from a promotional schedule, obviously, we lost a lot of trade through April, May, which are traditional full price trading months. Then we reopened in June, and we opted to open into sales to make sure that we could clear down any issues that we may have had a buildup on. And now we're back into a normal schedule. And, again, the benefits of of short lead times with our suppliers is is probably beneficial for our business in the current environment. So we're anticipating just rolling into a traditional promotional schedule moving forward.
Last time, I guess, it's basically stabilized consistent with where it closed or what we did for FY 'twenty. So I think the number that we've put out there is about zero seven one dollars on average for FY 'twenty, and that's pretty much where our hedge book is at the moment with the spot a little bit higher than that. This year, the math that isn't hedged in the second half. At the moment, we're in pretty good price. So we're not expecting that to be a big issue for this year as it has been in the past.
Your next question comes from Sam Kiger from Citi.
When you guys say like for like sales are down 19% in the trading update, can you please confirm whether that includes or excludes the stores that are closed? I guess if it excludes store closures and kind of true like for like sales, it would be down by a larger amount. Yes. I mean, that's that is a true like for like in the like for like sales based on stores that are actually trading. So it excludes the stores that's been closed because of government closure orders, if that makes sense.
I think they could tell you what the trading performance is in stores that are actually trading. Does that make sense? Okay. Yes. Got you.
And then I think you recognized $11,800,000 of wage subsidies in FY 'twenty. Based on required for the job keeper in Australia, but based on all the different kind of wage subsidies around the world, At this point in time, how much would you be anticipating to recognize in FY 'twenty one? And when do they start tapering off?
Yes. It would be less than that because that was
certainly a lot of countries other than Australia with wide subsidy programs that aren't necessarily in place anymore. So it's really just JobKeeper at the moment to Australia and a couple of other countries to a small degree. We're not planning on going through detail of what we expect job keeping to be for the year because it's a number that includes a big component of top up where we're having to pay people faster than normal local wage. A little bit misleading, that number. Yes.
Got it. Makes sense. And then just wondering, you guys seem like you've been doing a really good job around face masks, well done for adapting to the current trends. Just kind of keen to get a sense of right now what proportion of sales face masks represent. And without going to the specifics, is it fair to assume that face masks are lower gross margin?
Similar margin, however, a very small percentage of our business. So we basically brought them in to ensure that we could sort of, as a recognized brand, I would, you know, supply them to their customers, but a a very small percentage of our business. We basically my question, we saw a spike in Melbourne as we went to phase four. But most people, depending on where they live, if they had to live through wearing masks, what happened very quickly is we end up with five different ones on the end of the kitchen bench. So but, yeah, to to answer your question, it's a it's a very small bit.
Yeah. It's not nowhere near a material amount of our business. It's a small part of our business.
Okay. Alright. Thank you.
Thank you. Your next question comes from Colin Sinclair from Macquarie. Please ask your question.
Hi, guys. Thank you for taking a couple of questions. So few quick ones. Maybe if you can just provide, I guess, a bit of color in terms of the trading since we're opening globally versus Australia. I understand that Angus is doing better, but I guess how wide should we expect this difference to be at the moment?
Yes. Look, prior to COVID, I think I've always been recently consistent in saying that the the span of like for like numbers is usually quite a quite a tight bracket, being that we pre add all of our own products and distribute it around the world. And ultimately, typically, product drives our success. So typically, we say no bracket of like for like sales, a reasonably tight band between the high outliers and the low outliers, I suppose. In in this case, we are getting large variables.
We're not really in a position to talk to sort of like for like for individual market. But we are seeing a a wider scope of like for likes really coming down to everything from, you know, basically infection rates and how each society is doing COVID, how its government is enforcing COVID restrictions and so on. Asia has been the only thing I would say is Asia has probably been a low layer. It was affected early, and it's a harder recovery out of Asia that we're seeing from Malaysian schools. But other than that, I think if you were to sort of overlay how each government and how each society is dealing with COVID, and it's probably fair to say that it's going to be representative than others.
Yes. That helps. And maybe just, I guess, give you that anger being better. Does that give you confidence, I guess, that eventually, those other markets will follow suits just
in
their own time frame according to I guess government restrictions and how people keep going back out again?
Yeah. It's a good question. I mean, if if you overlay it's you know, you just take a look at the infection rates around the world. And, you know, if you overlay sort of I've lost track of the numbers in the last week or two, but, you know, Florida were at ten thousand cases a day and trading through. And then, you know, Melbourne got to four hundred cases a day and went into full lockdown.
So it's really just, again, the impacts and that's not a political statement, by the way, but it's just the impact of different governments and how that's affecting trading patterns in each market. We do see blips when you get sort of something happens in the new hotspot or whatever you want to call it. And you do see blips of sales come off sort of reasonably quickly and then a few good days of lower infection rates around the world, then you see results come back. And then you've got markets such as WA that have probably, unfortunately, that would sort of avoided a lot of the issues that other states and countries have got, and then they're trading very strongly. So it really sort of at a macro level, it really follows the sort of level of infections and how the governments are choosing to deal with in each market.
Although I can't answer any more details on that, but it really is a bit of a moving phase.
No, that helps a lot. Guess people can get to that, but it helps that that's what we're actually seeing. Maybe just a follow-up to the gross margin question. Can I just confirm that the inventory provisioning that you've mentioned in the slide deck has actually been included in the result and so the gross margins at FY 'twenty and the second half includes that provision being put through?
Yes, that's right.
Are you able to share, I guess, how much you that is and what the gross margin I mean, you've done it on a constant currency basis, but I imagine there's still double digit basis points impacts on that provision as well.
Yes. It's pretty much the half of that reported movement in gross margins from currency. So when you look at the constant currency, you can see that. And then the rest of it, a big chunk of that is from provisioning and then the rest of it's from the opening in the June sale. So probably a bigger part of it is the provisioning component.
Great. That helps. And maybe just one last a final one around the materiality of online sales. Obviously, it's growing quite fast. But if you could just help pacing margins here and some of the initiatives to drive sales in stores, really to help you give delivery costs and actually delivering a sort of, I guess, underlying margins below those costs.
Yes. So I guess the process we've taken with the online business today has been not to push volume hard at the expense of profit. So that in a lot of respect is limited to growth so far because we want
to make it profitable make sure it's
a profitable business as it grows, and we've been able to maintain that. So what we look for is that the online business to be as profitable as our stores. And obviously, we've got the whole volume going through there now. So if could question, do we expect to see a degradation in our overall EBIT margin because of that? And the answer is
Your
next question comes from Sam Haddad from Bell Potter.
Hi, Shane. Hi, Chris. Just on the ANZ, just wanted to clarify that all rents have now been agreed on on on new terms with the COVID environment?
No. We've
agreed a number of terms, and we've agreed the majority of sites and current locations in Australia, we'd agree the deals that they're comfortable with, but not all.
Although the majority, is that right? Majority, yes. Okay. And on those, is that can you sort of give color on the structure of those deals? Is it more shifting percentage of sales?
Or is it just a reduction in fixed cost?
No. It's just not in position to talk to the deals we've agreed.
Because I'm just wondering, what, with renewed restrictions and the fact that you've closed stores again, are you still paying rent on the stores that you've closed now in Melbourne and Auckland?
Same answer, unfortunately. We're comfortable with what we've achieved with our landlords, but we're not in a position to talk to the detail.
Okay. Sure. Just back in The U. S, just wondering, given that negotiations are starting to you reengaged in the last few weeks and given the lag to open up stores from when you start engaging, should we then assume that store openings will in terms of the pipeline in The U. S.
In short term, it's fair to assume that there won't be material number of stores in the first half, given engagements are going to start to reengage with landlords on that in that respect?
Yes. It's a fair assumption globally that the first half will be quieter. And that's really up to base. I mean, as much as we can do deals very quickly, it's off the base that different markets. Again, it's globally documented.
Different markets are going to lock in a different period, but it's fair to say that March, April, May, June, sort of hard to get any sort of proactive activity and probably even into July. Ironically, now in Europe, we're dealing with people going off on holidays and having trouble to get all the people to get the right deals done. But yeah. So that's it. It's it's gonna be a slower first half due to the fact that the deals the the lag effect of the closure.
We we were open and ready to go through business right through, but unfortunately, to get landlords' attention in the middle of the crisis.
Yeah. Understood. And just in terms of DD on protective new on perspective new sites, how do you guide out that with restrictions between states and and part restrictions? Just, obviously, you wanna get a feel for the food traffic. I know food traffic is hard to measure, but just the the general feel of the store location.
Yeah. We've we've got I mean, you if we
go in the different markets, we've never very senior leasing executive based in LA to cover the Northern Hemisphere. We've got a senior management team that have been in place for a couple of years now. So we're comfortable we're comfortable with both desktop analysis and ability for the team on the ground to visit these locations. We're comfortable that that that won't compromise our site selection in the short to midterm.
Okay. And just on the online channel, just curious how profitable is that channel and who's paying for the fulfillment? And I know you get some over a certain basket, there is some reductions. Just curious as to the profitability of that on margin? Yes.
Well, that's better than what said. But we target that, that channel should be as profitable as our stores. So we as you said, we have a threshold for delivery. So to make sure we can recover the cost of performance given the low average unit cost of our sell. So yeah.
And that that's really all set at moment. It's no. I think it's the the same question as before. It's it's not the credit for our EBITDA margin. Okay.
Right. That's that's helpful. Thanks thanks, guys.
Your next question comes from Mike Wade from CLSA. The
The question is a little bit of an overlap on what you touched me before, but I'm thinking, you know, with the travel restrictions in place, I can't
have affected your your product development. From a price perspective, we've got I mean, we developed our product is basically developed internally. Obviously, we like to see what's going on around the world for aspiration. Our buyers are traveling, I would say, less, but at the moment, they're not traveling. But we do have senior design orientated individuals in America and The UK that basically has pivoted into a role, basically fashion product type scenario where we're getting, you know, weekly feedback of what's happening on the high streets around the world.
So we're reasonably comfortable we're not missing I mean, of course, it would be better for us to be in and out of China every four weeks like we were. And in and out of, you know, like, with the world every eight or 10 weeks, we're comfortable that the senior senior executives in our business that have been in our business for a long period of time and understand what to look for and now sort of move into some of those roles to keep the feedback flowing into our into our support center.
Mhmm. And just pivoting to the franchisee opportunity. I mean, it's something, as an outsider, we think would be marvelous, but I guess internally, it's pretty hard to manage it. Which you, you know, which you're kind of pulling us around that. I mean, can that can that be a big opportunity for franchising?
Yes.
Our simple belief is that we like to control our own destiny wherever possible. So our third priority is to open company owned markets around the world and have further control of our expansion plans, etcetera. The franchise market that we've operated in or we operate in at the moment are the markets that either government ownership rules restrict us from owning our own business or complexities, levels of corruption, all the different variables that we look at before we open into a market. So we're not proactively distributing those at the moment. And really, if someone approaches us in a market that we're not currently looking at from a company perspective, and we do some work on it and make a decision, It's fair to say at the moment, no one's really in that space looking for new opportunities.
I wouldn't imagine that we might be living in that space over the
next twelve months. Okay. That's really prefer the company owned stores, basically. And and lastly, just on on margins, I mean, you also it's been an extraordinary year you've been through, and then you your margins come almost halved. I mean, is there any reason that seems they won't just snap back in time once you really get your sales velocity returning to the business?
Or is there something more structural in place that will mean it's going be harder? I know you touched on the same U. S. And the prices, all our cost of doing business. But in general, should one think margins are permanently going to have a step down?
Or are they due to snap back in time?
And when you say margins, are you talking EBIT?
Yes, we should take into account of both, think, consequence and cost and business.
Obviously, the EBIT margin is heavily impacted at
the moment by the drop in sales.
We haven't been able to
pull some of the fixed costs down
as fast. So I guess
getting back to EBIT margins where
we were previously is generally depending on how quickly we can get sales back to where they were pre COVID. I think gross margins in general will, we should be able to maintain at least at the level, exploring the impact of currency, in the mind of the $0.76 hedge rate last year and it's $0.71 now. Yes, does that answer your question? Yes. So that's top line.
Anything else we can do about in the cost of doing business, which could be a permanent change there? I mean, we've talked a bit over the last eighteen months around the newer markets and the higher costs that we've had going with us. So there is still a little
bit of that flowing through
as we roll out more and more stores in those markets. And obviously, the depreciation side of that with the higher CapEx spend is building type as you can see in the numbers. But we're making some progress on that, I think, in the first half of the year, so we would expect to be getting back to that sort of level of sales in the year. Sorry. Can I just put a fourth one there?
I mean, do you ever see any competitors coming down the road at you? I mean, given those margins have started this so attractive, and that's something as an outside of the contract and really ponder and definitely puts in this. How can you guys maintain margins that are they're not there in the top handful of the whole jewelry operators in the world? Like, what doesn't attract more competition?
I think to answer that question, over the last decade, we've had numerous competitors in our space. Off the top of my head, we've had South Africa, a major competitor that we absorbed some of their stores. In Australia, we've had Colette, which is still in The. Trying to find a buyer at a quick with a 150 stores or a 130 stores. I think, to answer your question, our business looks simplistic from that outside looking at the complexity of the operator business and all the all the ingredients that go into running successful business, but we restricted.
That probably looks easier than I did.
Mhmm. Least I tell myself that. Will just make it harder. It must be about the the KFC secret merchandise and Well, thanks, guys. A tough year and, you know, all the best in, you know, seeing the ship and and getting moving again.
Thank you.
The next question comes from Julien Malkahi from Evans and Partners. Please ask your question.
Hi guys, just a few questions. Firstly, the inventory write off of 6,900,000.0 in COGS, much higher than previously. Is that mainly just writing off Spanish stock? Or is it a line discontinued that you took such an aggressive hit? That's part of that's the Spanish stuff.
Part of it's just the the increase in the number of stores during the year. It looks like overall stock level didn't go up. We had an increase in stores from the the number in the prior year. And then we took extra provisioning at the end of the year and we came out of out of the shutdown. Yeah.
And with the the rent subsidies that you got, 1,800,000.0, Does that give you use to any in this half or that was just last quarter only? Right. So in terms of do we expect to continue to get rent probably into the second half into the financial year? Yeah. Yeah.
Well, I mean, as I said before, we're still talking to landlord with that abatement and trying to negotiate that. So, yeah, there'll there'll be some there, it's the number that we're not talking to. But but, basically, you've your rent, if you were paying it less that subsidy, but in terms of the cash you have to, you haven't necessarily paid that completely in final quarter. That's correct. From a cash flow perspective, so with the expense of rent, if there's still time we've obviously reflected that in F 'twenty.
We might not have paid the net rent by that point or some cash flow flowing into 'twenty one. Okay. So within The U. S. And you're back to the two landlords, I mean, you didn't do too many retailers, you didn't that looking to roll out hundreds of stores.
Does that just really put you off the sort of priorities in terms of being able to sign you and and offering you, you know, baskets of, you know, good locations?
It's Shane here. Yeah. Look, we the easiest way I can answer that question is
we're ready to
go, but everything takes longer than everyone would like, especially when we're sort of a young, aggressive business that wants to keep moving through. So so there's no doubt there's gonna be distressed retailers. Probably too early to see any sort of macro opportunity. And being that the American landlord, again, we we will document it at this time. It takes a different performance, but there's one for the public.
I think the short answer is it's just gonna take a bit more time than we would like to get to get the traction that we think will be there. Because I don't think there's any question that there'll be but find those opportunities down and getting those deals away. There's a lot of landlords still worrying about who's paid rent in the last three months and who's capable of paying rent in the future and so on. And to be there, I'm not proud of the moment. So but as as I said earlier that with Avenue Lake, basically, based on the ground there now and we'll know the business, the different landlords.
It's fair to say we sort of the audience the ability to get an audience and the ability to sort of work through some of those opportunities is starting to get more and therefore, some more traction.
Well, there's no bottleneck from the other half in terms of really giving the two apps really as soon as you've got the opportunity to do that. Yes. Okay. Okay. And just finally, you mentioned the WA performed the best.
Is that in positive like for like territory?
Yes. Again, we're not really getting into the details. WA is one of
the stronger ones, and I really just use that as an example of the market that has had very little impact from COVID, fortunately, then we're seeing very strong results.
Your next question comes from private investor, Greg Hoffman.
Hi, guys. I might have missed it, but have you given a dollar figure for online sale? I know you called out the huge percentage increases, but just without putting those in context, it's hard for us to gauge, you know, is this the equivalent of one store, 10 stores, you know, what kind of people are talking? Yes. So no, we haven't, and we don't intend to.
So we've talked about the percentage increases year on year because everybody is very interested in it, but we don't plan to talk to what percentage of our business it is at the moment. So it's small part of our overall turnover. Okay. And could you just talk a little bit maybe about Vietnam? You haven't sort of
called that out at all.
What are you seeing there? Have you learned anything of interest in that market?
No. I mean, look, again, every market has been affected differently through COVID. So there's there's nothing really different there than we've learned from Malaysia or Singapore, anything like that again. I mean, some of those Asian markets have had a bigger impact. I'm with Vietnam by the franchise partner.
So we're going along at the moment. Obviously, every business is pretty strict through lockdown and and dusting themselves off, and that's probably the same with our franchise partners.
Okay. Thanks.
There are no further questions at this time. I would like to hand the conference back to Shane. Please continue.
So thank you for your time this morning, and I look forward to probably talking to most of
you again over the next two to three days. Thanks for your time.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.