Thank you for standing by, and welcome to the Lovisa Holdings Limited FY 'nineteen Half Year Results Conference Call. All participants are in a listen only mode. There will be
a
presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Shane Forshed, Managing Director. Please go ahead.
Good morning, everyone, and thanks for taking the time to dial in. On the call today, you have myself, Shane Falshier, Managing Director and Chris Ladder, our CFO. As you're aware, we published our half year results to the ASX this morning, and we would like to talk you through them.
I will now do
a Page 10 through the presentation, and we are happy to take any questions at the end. If we now turn to Page five, we will talk through some of the details. We've had a solid result in a more difficult trading period than we have experienced in recent times, with EBIT up 5.1% to $36,500,000 Total sales were 12.3% as a result of the continued new store rollout, however, same store sales growth continued to be challenging, finishing the half at minus 1.8%, impacted by a softening comparable store sales from the previous year of positive 7.4% for the first half of FY 'eighteen and particularly strong comps through last year's Christmas and Boxing Day trading period. Our gross margin increased 31% as a result of the benefits of higher USD hedge rates continuing through the period, combined with disciplined inventory management. We continued our global rollout strategy with a net 40 store openings, and I'm very pleased to announce today that following successful trading in The USA and France of recent months, we now have the confidence to move to full rollout in these territories with The U.
Rollout to move outside of California in the near future. We continue to invest in the structure of the business to support our global growth profile as we roll out new territories, including investment into global support structures and expansion of the global property team in overseas markets as well as the upfront investment into e commerce, which we launched in October. When combined with negative comp store sales for the period, this resulted in an increase in cost of doing business percentage compared to prior year. Increasingly, flow from operations was again strong, rising 9.4% to $49,100,000 for the period, with operating cash conversion of 121%. And with that, the Board has declared a fully franked interim dividend of $0.18 and a lift of $05 on the prior year.
If we turn to the financial overview on Page six. Revenue for the year is up 12.3%, with comparable store sales down 1.8%. Just to talk to that for a moment, whilst we're generally happy with our execution on meeting our customers' product needs, we're not seeing the same major trends in the fashion jewelry sector as we've seen in recent years. That said, we are happy that we have been able to deliver strong growth for the new stores and are well positioned to react and deliver to whichever trends prevail within the market. We continue to make important investments in both people and process to drive the growth of the store network and to support what is increasingly a globalized business, which when combined with negative comp store sales has resulted in a CADB percentage being higher than last year.
Our EBIT increased 5% to $36,500,000 with earnings of $0.02 $42 per share, Our continued strong balance sheet and cash flow generation has supported an increased interim dividend of $0.18 per share. If we turn to Page seven, we've spoken to the increase in sales of 12.3% to $133,200,000 and the factors behind it. This chart shows the progression of the company's sales over the past five years. Very pleasing to be able to present a sales growth chart showing such consistent increase. Importantly, we remain focused during the half on preserving our strong gross margins and have not changed sales at the expense of margin.
On Page eight, you will see that we have had growth in total sales across all regions. While still delivering top line growth in the AustraliaNew Zealand market, Australia, in particular, was impacted by generally softer trading conditions. And as this market has historically outperformed over a number of years, it has led to a result of negative comps for the half. Asia was again solid with another strong sales performance in Malaysia offsetting four store closures in Singapore. The growth in the European and U.
S. Markets accelerated in the period with 12 new stores in The UK, eight stores now in Spain, seven in France and eight in The U. S. South Africa again performed well with sales up 10.5% for the period, aided by both strong comp sales growth and the benefit of additional stores opened. Turning to Page nine.
Gross profit of 107,800,000 was up 13% at an 81% margin, a 60 basis point improvement from last year as we continued to benefit from higher USD hedge rates in this period. We have maintained our focus on margins rather than chasing sales with continued focus on inventory management and promotional effectiveness, resulting in a small improvement in margin on a constant currency basis in spite of the more challenging trading conditions. Whilst we have again been able to deliver strong margin, as you can see from the chart at the bottom of the page, we are a fashion business and therefore our margins can experience some degree of volatility. We turn to Page 10, we'll talk to our CADB. As we said previously, we've continued to reinvest in the growth trajectory of our business, which has put pressure on our CADB percentage throughout the year.
We've invested in our senior executive team, and so we have the capability to execute and grow in our new markets, invested for the future in the relocation of our Asian logistics function from Hong Kong to Qingdao and also had the impact of the launch of Ecom in October. The rollout of stores in new regions has also had an impact on the CODB with opening costs and higher than normal wage, store wage costs throughout the opening period having an impact on the overall cost of operating in new markets. We continue to invest ahead of the growth curve to lay the foundations for future growth, while still remain focused on keeping tight control of the underlying cost structure of the business. I'll now hand over to Chris Boehler, our CFO, to talk through cash flow and the balance sheet. Thanks, Shane.
Turning to Page eleven, you will see that the company's cash flow was again strong with cash from operations before interest and tax of $49,100,000 supported by operating cash conversion of 121% as we continue to manage our working capital well in the face of the ongoing investment into stocking out new stores. Capital expenditure for the half was $12,500,000 predominantly from new store fit outs and and refurbishments on existing stores upon lease renewal. Overall, this represents a $5,000,000 increase on the prior year as we build scale and grow the store network in new markets. Cash dividends in the period were $7,000,000 higher than the prior year at $14,800,000 as a result of the increased final dividend from FY 'eighteen, leaving us with net cash flow for the period of $10,000,000 and closing cash on hand of $32,000,000 Turning to the balance sheet on Page 12. You can see that the cash generated for the period has further strengthened what was already a strong balance sheet position.
Inventories are up on the same time last year, growing in line with the new store rollout, e commerce launch and in preparation for coming store openings, with disciplined inventory management an important part of our business model. As of June 2018, we finished the period with no debt, significant headroom in our covenants and $25,000,000 of undrawn financing facilities available to fund the future growth of the business, which is all combined to allow us to increase the interim dividend by $05 per share to $0.18 to distribute cash that is currently surplus to requirements and more closely align dividend payments with the profit and cash generation profile of the business. As we accelerate the store rollout in our growth territory, we will continue to assess on an ongoing basis the cash flow requirements of the store opening schedule and make future decisions on both dividends and capital structure of the business as required, reminding everyone that we do not target a specific dividend payout ratio. I'll now hand back to Shane.
Thanks, Chris. If we turn to Page 13, a quick update on store numbers. Solvista finished the half with three sixty six stores trading with a net 40 stores opening during the period, which comprised 51 new stores opened and 11 closed we continually optimize the store network. We now have 58% of the store network offshore. The UK store rollout has continued with 12 new stores added in the region for the period to take the test to 36 stores.
The pilot programs in France, The U. And Spain continued in the half, with the business trading seven stores in France, eight in The U. S. And eight in Spain through Christmas. The U.
And French markets, in particular, performed seasonally through this period, and we will now move to full rollout in these territories, which I will discuss later in the presentation. As we have said previously, sourcing quality of sites is key, and we will take a measured and diligent approach to moving forward in any market we enter. As we enter larger new markets, a key learning has been to get leasing people on the ground in those markets right from the start to build a pipeline of sites as quickly as possible. We are pleased that now we have these resources in place, we've been able to drive more momentum in store rollout through quarter two. We've listed our view of each market estimated store capacity on the right hand side of the table.
As you can see in Australia and South Africa, we are already ahead of our estimated store capacity. This is because these stores may ebb and flow based on renewals. However, this does not mean we will stop considering new store opportunities in these markets and will take them on their merit. Again, taking back to our investment metrics, these estimates are general guide only. We will also note that we have not provided a guide in relation to where we see the store capacity of The U.
S. And French market, as we feel it is still too early to determine if with any degree of accuracy. Turning to Page 14, I will now talk in more detail in relation to the opportunity in The U. S. We have now traded in The U.
S. Since November 2017, And with the pleasing performance of the eight stores trading in the California market, we are now confident to continue our store rollout with the knowledge that the Lovisa offer is resonating with the American consumer. 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 confident that with scale and more experienced teams on the ground that this market will over time deliver returns consistent with what we are used to from our existing markets. Whilst we have started our journey in The U. S.
In California, we have now expanded our attention to other states and expect to be additionally trading from at least Texas and Florida by the end of the financial year. We've also recently appointed a second leasing manager for The U. S. Who will service the East Coast market. We obviously see The U.
S. As a significant opportunity and continue to invest in the structures to support this. However, the eventual size and timing of the store rollout is dependent as always on being able to deliver quality stores that meet our internal criteria rather than hitting ambitious store number targets. Turning now to Page 15, I will talk to the European market, and in particular, the France and Spain pilots. We've now traded in France in eighteen, February.
And whilst the delivery of stores have been slower than we would have liked, we were able to go through the Christmas trading period with seven stores trading. Consistent with The U. S, performance of these stores have been pleasing. And whilst we still have a lot to learn to optimize our operations in this market, we have enough confidence to move this region out of pilot and progress the store rollout. As with The U.
S, our experience in this market to date has been that operating costs have been higher than our average. The store rollout is slower than we used to. Again, however, we expect that with increased sales, we will be able to deliver returns more in line with our existing mature markets. We now have a leasing manager in place in France to support the growth of this market. And again, we will not sacrifice quality of stores by our operating metrics to deliver on a store on the target.
In relation to Spain, we went into the Christmas period trading from eight stores, having opened our first store in June 2017. Our performance in this region has been inconsistent to date. As a result, we have elected to slow any further store openings until we can deliver on the key metrics required to expand in this market. As a result, we will continue to take a cautious approach on taking on any new sites in Spain and will continue to focus on the stores we are already trading in. Turning to Page 16.
Operationally, we continue to focus on improving the structure of the business and the way each department operates to best support our growth strategy. And key areas we've invested in during the period are supply chain and IT systems, including some of the following: We've moved our third party logistics hub from Hong Kong to Qingdao, China to find economies in the picking and packing of orders and to be closer to our suppliers We've changed our logistics provider in order to deliver a more efficient supply chain. We've upgraded our in store point of sale hardware and software to ensure that we can cater to the global languages and integrated FCOS and banking facilities in all regions. And we have changed our global labor management and rostering systems to ensure that we can effectively manage the growing workforce we have across our nine company owned territories in three different languages. In addition to the projects I've just noted, we've launched the lavissa.com e commerce website in October in the Australian and New Zealand market and continued to refine our omnichannel operating model before launching globally.
Turning to Page 17. On the people front, we have made some significant senior appointments during the period to drive the growth of the business, with the appointment in November of Mark Tripsi as Chief Operating Officer James Shefford to lead our European and African businesses Beatrice Vincent to lead The U. S. Each of these appointments bring with them significant long term retail experience and quality global companies and are already adding a lot of value. As I've already mentioned, have also made some key changes in our leasing team with the appointment of leasing manager for France and the second leasing manager in The U.
S. To support the East Coast market as well as the relocation of Tony Frigoff, our Global Property Director from Australia to London to bring him closer to our growth market. We're also very pleased to announce today the appointment of Staigion Alf, Board of Directors, as an independent non executive director. Adjin has spent her career in product and merchandising roles across the fashion retail industry, in particular fashion jewelry and some very large U. S.
Retailers and will be a fantastic addition to the Board. We also announced today the appointment of Nico Vandermeva to the Board as an Alternate Director to Brett Lundy. Nico has been Chief Financial Officer of BBRC for the past twelve years, including significant retail investment and financial management experience to the Board. On Page 18, we will talk to the trading outlook for the new financial year. We continue to cycle four years of particularly strong comparables for sales, as in recent years, we've had some strong tailwinds in the Facultory sector that we've discussed previously.
Trading since the end of the half has seen improvement across all markets with positive comp sales for the period, as we still believe however, they're still below our target comparable store sales range of 3% to 5%. We continue to focus on ensuring that our strong gross margins are maintained and costs remain well controlled as we invest in the future growth of the business. We do expect currency headwinds to begin as we have an impact later in the financial year and into FY 'twenty as our average USD hedge rate reduces. We continue our focus on expanding our store network and expect the increasing number of stores in the second half of FY 'nineteen to be higher than FY 'eighteen. We will continue to invest in our support structures ahead of the growth curve to drive store network expansion and support the larger business.
So in summary, on Page 19, We've achieved an EBIT of $36,500,000 for the half year at 81% gross margin, being a solid result, driven primarily from continued new store rollout, offset by declining comparable store sales of 1.8% for the period. We've again been able to deliver increased margins. We've invested in resources to support our global expansion and disciplined approach to working capital management has resulted in strong cash conversion of 121%. We've opened net 40 stores and closed the half year with three sixty six stores trading across 15 countries. 58% of our stores are now trading outside of Australia.
The UK rollout is continuing, and we are now moving into the rollout phase in The U. S. And France. The business has continued to generate cash, and we are pleased to be able to again return some of this to shareholders by increasing our fully franked interim dividend to $0.18 per share. So thank you, everyone, for dialing in, and we're now available to take any questions.
The first question comes from Sam Tighe with Citi.
Congratulations on managing profits so well in a tough sales environment. In terms of the first question, just on gross margins. In terms of your comments flagging currency headwinds to impact later in FY 'nineteen, can you talk about what you can do to offset these pressures? And also just conscious about how much gross margin has swung around, as you can see on Slide nine of the presentation, how long could how low could gross margin actually fall, assuming the dollar doesn't get much worse from here?
Okay. So the Combat margin, I think we've spoken in previous trading periods when we come to market that our margins in the sort of high 70s into the 80s is where it's going to sit and we sort of flagged that there's going to be some volatility and that's due to the sort of fashionability and ranges. I think what you're seeing through this period, because we haven't sort of cycled any big fashion trends, we're really just allowing our core ranges to drive our sales. And there's probably a high level of predictability in the margins from our core ranges, which is why you've seen the margin land revenue. As we obviously, the drive into Europe and The US, we have a larger drive in the future where our margins will land.
And part of a pilot program is obviously ensuring all of the metrics or all of the input going into a new market sort of kick the box. The benefit of having people like James and Beatrice in their market respectively is that we can probably get more of an insight and better quality intelligence about where our prices can land. So what I'm going with that is we are in the process of doing a study of work as we've got through Christmas and got more senior people on the ground to sort of really drill down on that price point in the market. And it's just the right price point being that typically when we enter a market, we'll have a good look at what we think we can achieve. But as a general rule of thumb, we basically, you know, direct currency convert out retail prices and if they look and feel like that's where we're into the market.
But to answer your question moving forward, we are doing a body of work about whether we're too cheap, too expensive, or just right. Yet to make any decisions there. But that as we expand those markets that those two, you know, pivot, I suppose, will will sort of be higher margin in the future. At the moment, what we're seeing is we're holding our margins consistently across those regions, and we're not having a negative pull on our margins for the market we're trading in. So assuming people remain equal, then we'll be able to extend that signal margin and hopefully, it's an upside, but probably a bit early to tell.
And getting through Christmas, obviously, in America, especially the open sort of leading into Christmas, through Black Friday and then Christmas and then Boxing Day sales. So we're sort of trying to get into some sort of normalized trade pattern to ensure that we can get a preview of our retail pricing. As far as currency, I'll just maybe get Chris to talk to that. Thanks, Sean.
So as we said, we expect the hedge rate drops off a bit in the second half towards the back end. So year on year, second half will probably be pretty flat in terms of hedge rates. So we're around 75% level last year in the second half. So we probably look to be around that level this year and maybe dropping off a little in the back end of the half. And then into FY 2020, we start getting down towards where the current spot rate is in that 72 region.
Obviously, you can see what the impact has been on margin when you look at the constant currency numbers we put in the pack. So we had a CAD0.02 improvement in the hedge rate in the first half, and that was about 50 basis points of margin. So we expect in the absence of all things that Shane was just talking about, we'll see a similar sort of impact.
Got it. And second question, just in terms of like for like sales. To what extent is Australia dragging on the group like for likes? And can this be resolved with just a few closures of underperforming stores? Or is it more difficult for that?
Is it more difficult than that? I mean is there a big difference in state by state performance in Australia?
Look, Because I mean, we do if we talk at a global scale, we do customize our ranges to each market. But as a general rule, I think part of what this is success is we've been able to to take a concept around the world. Global trends are just that big global trend. And typically, when you get a tailwind, which we've had over the last few years with the trend above the norm, then we do we do drive those around the world together. In Australia, Australia has always been one of our strongest markets for a long time, but it's really range related and product related more than store related.
So our store operational standards, I'd like to think, you know, high. So therefore, it's not a case that we walk into a store or a market that's, you know, trading badly from operational standard. It's really products driven and offer driven. So, basically, when we win, we all win. When we lose, we all lose.
And it's usually quite a narrow band between the the outperformer. There are some markets that are still going through, you know, strong growth. You know, we have a lot of stuff that's been good for us. So there are markets that are, you know, at the top end of the curve, but it's not a it's not a case of what we've got five stores that are trading down 20% and close those and the average comes back. Probably in my mind pleasingly, there's a constant trend, which if we move the trend line, then everyone comes up the trend line.
Got it. And then do you think that like for like should improve as we move into the fourth quarter given comps become easier to cycle? Or are you concerned about things like the upcoming election in Australia and the macro being weak?
Look. I've said before that I don't think our customer base is largely affected by the sort of macroeconomics. Obviously, if footfall in shopping centers declined, then, obviously, that's going to have an impact. I mean, things like elections and that's obviously historically, but really going to have an impact on our customer and market. You know, as far as our view moving forward on like for likes, I can tell you we're working very hard to ensure we get positive like for likes back on track.
But, yes, I probably don't want to pass judgment of where we think like for likes are going to land.
Your
next question comes from Joe Little with Morgans.
A couple of questions. Just following up on Sam's, just FX and a question there. Do you envisage putting through price increases to combat this at all? Or is it not the right environment to be doing that?
Yes. Look, in simple terms, Joe and Liz, we see unless we see opportunities in the new market that we've entered market with the wrong price point, which we're not we're not seeing, we might be able to take a few things. We we don't intend to chase. We don't think we're in the right market to chase up the dollar prices up to to support margin. I I can't see that.
You know, again, there might be some little tweaks and, you know, consciously followed us from the start. There's been opportunities for the two to three years ago where we were probably, you know, undercooked in maximizing our outcomes there. But we're we're not seeing any sort of material move in our pricing that will combat the FX.
Okay, great. And just looking at The U. S. A bit. Now you're not getting rollout targets for obvious reasons, landlords, etcetera.
I mean can you give us a bit of feel on, I guess, the ease of which you're getting sites perhaps versus other markets or just any other general observations for us to hold on to?
Sure. Look, it's a bigger market. So the benefit if you look at The UK, where the guidance we've given in the past is, I believe, is 100 store business there. I think whatever numbers were up to in The UK now in the 30s, so theoretically, it's sort of fishing for in a smaller pond, I suppose, is the simplest way of looking at it. In The US, we've now got a leasing manager on the East Coast, a leasing manager on the West Coast.
And that seems to be because the market's too big to sort of pound the pavement in every shopping mall and look for opportunities. One of the upsides in America is that, you know, it's quite a we've been trying it over, four to six landlords that basically sit across the bulk of them all across The US. So from a relationship point of view, it's probably easier to sit down in one place and sort of work through a a number of opportunities. And the American malls are physically large and therefore probably easier than we found in, say, UK to come across opportunities. For us, again, it's just the stringent criteria that we have internally to ensure that we hit hit our internal metrics.
And we sort of shotgun approach America and sort of end up with ones and twos across right across America to make them very hard to manage. So the next step, you know, we have got deals agreed in Texas and we've got deals agreed in Florida. And that's just the natural sort of run along the bottom, follow the sun. And go to some of the big states with big economies and larger saturation of stores. And then the work continues as we said in the call.
Our Head of Leasing has moved to Europe rather than The US. That's really just the location based at least he's only six or eight hours away rather than twenty four from most of actions. But to answer your question, Joe, because the because the opportunities are more, as long as we don't sort of set ourselves to see any or over the state, sort of say the the pipeline of schools should be larger.
Yes. Great. And it looks like you're advertising for staff in a further 11 odd locations. So I guess depending on timing chance, have kind of 20 by the year end, giving us your initial first year kind of run rate?
Yeah. Look. It's I I I don't end up in a conversation on store numbers because it is again, because they're dealing with small group of landlords with opportunities, it really just comes down to what roll through that, yeah, you know, job ads and all that sort of stuff gonna be a reasonable guide. It's the leading to get stores down there. Yeah.
The learning down there, which we've touched on is the store costing us more than what we'd like them to cost the bill. They're taking longer to get open. It's just the bureaucracy over here to get through. So, yeah, we're probably not gonna startle the sort of group of stores opening in a very short window. You know, we're in Australia and Asia in particular.
You know, we can do deals and get open six weeks later, but, you know, the the red tape to get those open over there probably slows us down and therefore, it's probably gonna be less surprises that aren't fully acceptable by people sort of farming around what we're up to.
Understood. And Chris, I guess, just trying to understand the operating cost base going forward. Now you're going to have to support these offshore operations for probably a couple of years yet. Is it reasonable to suggest we probably won't see any OpEx leverage for a couple of years just as you build this scale in two very big markets?
Yes. Well, that's obviously, we'd like to deliver some operating leverage coming through there. But in reality, we'll continue to invest as we grow. And Chang has said, some of these markets are more expensive for us at the moment until we get to some scale. So definitely over the next couple of years, it will be a challenge.
So, Joe, the, you know, the way to look at it is we've got we've just dialed in theoretically, a COO, head of Europe, head of America. A lot of these guys would have started in October, November, December. So the full weight of senior guys, it even sort of all in in the first half, so to speak. So the full weight of that will trickle through in the second half. And leasing leasing team, store build team.
So there is a structure that you know, it's a chicken and egg situation. And in the past, we've been, I think, pretty good at managing reasonably tightly the structure to get going, but there's there's an inevitable tipping point, especially in places like France and The US where high levels of bureaucracy but you do just need to dial in otherwise, the stores are sort of yeah. The key for us is to open cleanly and keep moving and not not have a bit of playing catch up, I suppose. So, yeah, I'd I'd like to think that leverage is gonna come down, but I think the full weight of it will roll into the half that we're seeing now. It will give you a preview of what it looks like going forward.
And then the key for us is that the smaller stuff is, you know, managing the day to day cost of running more markets. Again, if we can get some saturation of stores trading well, then that's going to be the fastest thing that will sort of correct that back.
Okay. Great. Just lastly, sorry, conscious of time. Just just on your pay, but you still have all paybacks in US France. Is there anything you can share with us in the early stages?
Obviously, it's costing a bit more, etcetera, but, you know, compared to probably your best markets in Malaysia, etcetera, doing a six month old payback?
Probably too early to book on paybacks.
Your next question comes from Sean Wick with Macquarie.
First one would just be around current trading. Can you just talk about the extent to which the improvement has been driven by, I guess, starting with softer comps versus the improved product trend? And also,
the something that can you
just talk about the performance in Australia versus the offshore market?
Look, Australia is still from a like for like Australia is 42% of trade, still probably around 50% of like for like performance, give or take. So, of course, if Australia is up, then it helps pull everyone up. Australia is down and sort of get part of the cycle of those numbers. So again, because product is driven globally, trend driven globally and our product base is distributed and developed from one place and distributed, typically, you can try and get over the comps. There's a there's a there's not a great variance between you know, we don't have outliers of plus 20 and then minus 30 or anything like that.
It's pretty usually pretty tight managing our comps. As far as January, I mean, we don't like getting sort of month to month sales results, you know, history says that we give you an update of where we stand when we come to marketing. So we So we're six weeks in, obviously, Boxing Day sale, January trade, even before which on his new year is all of those things can have a factor on on trading patterns. So typically, we had a very strong for those of you that were following us through last year, we came into Christmas into the last few weeks of Christmas. And then we, I think, last spoke to the market a year ago at the AGM and then came out with a stronger result.
We had a very strong final week of Christmas and so on. So we've cycled that. We'd like to get more back into some sort of consistent training pattern. But Okay. Yep.
The guide on where we're gonna go.
Yeah. No worries. And then, I mean, you're you're adding about 80 stores this year or a minimum of 80 stores. Mean, what level do you think it becomes more difficult or challenging, you know, for
the business to manage the store rollout?
Sorry. Where where did the added stores come from?
Oh, so just speaking about you've added 40 stores in the first half, you know, now you're looking to add more in the second half. And that that's implying a fairly material uplift in the pace of rollout. I'm just trying to I just wasn't sure that I've getting your thoughts in terms of what level do you think it becomes, you know, more difficult to manage, you know, and scale the rollout.
Yeah. So just for clarity, the guidance we've given is working more for in this half than we did the same time last year in this half. So we're not saying that we'll Alright. No. Yeah.
We're not we're not saying second half will be bigger than first half. We're saying second half will be bigger than last year's second half. So, yeah, so we're not saying 84. As to your question, if there's another question there about what what can we manage
Yeah.
We can all we've got, you know, again, the the downside from a sort of approach from a financial point of view, the downside is higher fair value, the higher fair value, and therefore, it affects your profitability. The upside is getting a structure right if you can move at reasonable pace.
So
again, if you if you just sort of looking if you look at Europe, we've got James Shepherd. James' background is he used to he's one of the senior executives at Sarovski. He's got across 3,000 stores across Europe. So we clearly got the capabilities of running as many stores as we've tried it. And then we've got quality things that's filled out, placing and so on.
In America, you know, it's basically bigger market. As I said earlier, we've got senior executives leading the way. They think that you're in both coasts, still build guys on both coasts, recruitment team, HR team. So we've got that resource back in. I mean, we opened 50 stores in New Brunswick.
We were paying about six. So I wish we could do it with six. We see a lot of people for everyone, but we don't think we gotta pull that off anymore. The answer to your question, I don't think there'd be a capacity issue of operational ability. I think the capacity issue will be about how stringent we are on ensuring that the right deals are presented and signed off, meeting our metrics will be the determining criteria of how many we open.
Okay, great. Maybe I'll just squeeze in one more. Just your thoughts on trading through the e commerce or online store to date and then also just on the men's ranging too.
Sure. So ecom, I mean, we've said in the past, ecom is a pillar of our business moving forward. Mark Prixy comes out of that space as COO, so he's adding a lot of value there. At the same time, I flagged that fashion jewelry is a category online due to the low transaction value, high freight costs and so on. We're not seeing it being a material driver of our business in the short to mid term.
So that's ecom. What so what was the second part of
your question again? Just on the the men's range.
I mean, yes. So, look, we trial stuff. Men's, we put into a group of stores to see whether that would move the dial. Lastly, our research today shows that the girls are still buying it to wear it for themselves, and that they still make the more masculine range that some girls are wearing. But it's it's pleasingly doing its numbers.
But, again, you know, at any one time, we do do sort of test positive maybe a certain range in 20 stores. And obviously, if it performs well, it rolls out to more. And if it doesn't perform well, we sort of flush it out a little bit.
Your next question comes from Julien Mulcahy with Evans and Partners.
Just a question on France. And why do you think it's not really working yet? What sort
of metrics are you looking to sort
of hit before you get more confident in that market? So I think you meant Spain. So France is working well for us, and we're rolling out. But Spain, it was we've been in Spain for a year and a half now. And, look, we're a high margin business.
So, typically, if you if you get your sales line right, then typically most of the costs fall into line. So if you look at the Spanish market, it's not really a rental issue. It's really just a sales a sales to other cost issue. But by the time you roll in the cost of opening the store, trading the store, wages, If we can't get the sales line right, then it's fair to say that it's sort of get hard. We use the word inconsistent in our presentation largely because we, you know, we get great shoes in good stores, and then we get other stores that just don't seem to get their numbers.
James, again, James on the ground is the senior exec leading into Christmas. You know, the discussion we've had with James is get closer to it, figure out what we're doing right or wrong. So it's not to be, you know, giving us the confidence to roll out as we are in other market. So over time, I think we'll just chip away at that and we'll figure figure out the ingredients. Again, I've communicated in the past that typically when we open new market, we sort of we have ranges catered to the Northern Hemisphere and Southern Hemisphere.
We typically choose the range that we think will fit the market the best, and we roll that through. And then once that range hits the ground, we sort of manipulate and change the range to to maximize our sales density. And we're continuing that value of working in Spain. We're the rest pleasingly sort of we're often running in two of the bigger markets with big opportunities. So we feel like some Spain, we haven't given up on Spain, but we're also not ready to start rolling out of pace.
So again, thank you for sharing that at a top line level. It's really about sales levels and getting some consistency of top line sales to give us the confidence to roll out. And and just on The US, I'm just doing a sort of simple cap, the average sales for store running at sort of 350,000 in the half, which is still well below Australia, yet the store is much larger. Do you do you see that average revenue per store jumping above Australia in the near future? Again, they they your son is not mine, but I'm so I don't I don't wanna talk to average sales desk or all that sort of stuff.
But, again, I think the guidance we've given is we're happy with where America's at. We're achieving our metrics. As time goes on, we'll just learn more. But, again, we've I suppose the positive sign is we've had Glendale open for over a year, and we'll all be able to sort again for the last sort of half, and we're we're happy with where they're at. Long term sales entities sort of yet to be sort of rationalized as far as where we think that'll end up.
Historically, with the sheer volume of shopping malls across America, historically, it's been harder to achieve the same sales entity as some of the other markets, and that's just one general market overview. Not less about La Vista, but historically, when you research the American malls, the average sales per foot typically lower than some of the other markets in the world just because we've achieved massive shopping centers and achieved sizes of shops.
Okay. Thanks, guys.
Thank you.
Your next question comes from Sam Haddad with Bell Potter Securities.
Previously showing you've sort of given sort of a new turn outlook as to what you've seen in fashion trends, I think you've pretty specifically see a window of three to six months as to what you're seeing. And you mentioned a normalization over the last six to twelve months. Is that still more much of the same? Or is there anything interesting in the mix to look forward to in terms of sales and gross margin and so forth?
Sure. Yes. So there's nothing on the horizon that we're sort of jumping on. We'd love it to be there and these things can pop up pretty quickly. But at the moment, I think we're still in that normalized trade pattern.
So it's about, you know, it's about trialing that trial and error basically and and creating ranges and putting them in and maximizing the ones that perform and and moving past the ones that don't perform. So they're sort of keeping an eye on the horizon, but at the same time being the bulk of our work sort of working on what we think what we can control within our four walls.
Okay. And just back on spine, it sounds like it's more of a function of location of stores rather than the general appetite of the consumer for the the lease or up offer. Is that sort of fair conclusion?
No. Look, we're in we're
in good shopping centers and good locations with the the sales entities the sales entities and then rolling that through, know, how that affects some of the key metrics to the store. It's just again, we sort of been just inconsistent in getting a clear outcome. So, you know, we like consistency because if one store opens and pretty quickly even start predicting where it's going to land, then that gives us the confidence that we know enough about the market to keep moving. And we get that inconsistency. It sort of tells us that we don't know enough about the market to sort of pursue that market, which is what we're still working on.
So we may have gone into some of the wrong shopping centers. I don't think that's the case. Largely, it's just about sales entity more than anything.
And will you consider other pilot territories given Spain's division at the moment? Or you've got enough on your plate?
No. We're still so what we're acutely aware of is it probably takes them up to about two years to research the market, get the first deal done, get a handful of deals done so we can learn about the market. So as we stand today, we're not we don't have anyone out there sort of knocking on doors in new markets, but we're also not afraid of to keep moving, so to speak. So much as if it's a question of is America or France enough for now, the answer is in the short term, yes. But in the midterm, no.
And we'll sort of keep us doing other pilot opportunities because, again, reminding everyone the cost of the pilot, the cost of putting a few stores on the ground and someone there to run them versus the potential upside of getting those right is huge. So so we'll continue the pilot, but we'll let the dust settle and get some traction on what we're doing before we sort of go back to that.
Yes. And just back in Australia, in the soft trading environment from in the second quarter, did you notice any change in competitive behavior in the market? Because my observation is one of your largest competitors had a sort of promotion that extended for almost two months. And I just wondered if that was any different than prior years and how you responded to that. Obviously, you did a great job in
understanding that.
If we if if I talk wider than our industry, you know, typically, when you walk the malls in the December, you know, people are, you know, going on sale early than, you know, there's a lot of sort of when you go on sale and sort of Black Friday that weekend, was November now, we've changed trading patterns slightly. So look, the retailers can sort of
go early for whatever their reasons.
But we try and hold on to that period and maintain margin again because you know, sometimes it can just end up with worth of dollars that you're swapping out promotions to margin and chasing sales and so on. But we believe for our long term brand integrity that we need to deliver the customer a consistent offer and not confuse them. Day that we're 30% off storewide and the next day that we're back at full price and so on. I think that's just sort of long term damage and confuses the customer.
The
next question comes from Angie Ellis with eight thousand twenty Investment. Well done on managing the global expansion so well, and congratulations on an excellent result. I understand that it's not a material driver of the business at the moment. Are you able to add some color to the e commerce sales, particularly at looking at offering online sales outside of Australia and New Zealand?
Yes. Look, we're not going to talk to actual sales in that other than to say that it's not we're not planning for it to be a material driver of our top line or profit in the coming years. Probably the easiest way to answer that question is obviously the COO, Mark Christie, comes from that space. And this is what he does. He's been part of some large rollout in the e com space.
The next step for us is to get some sort of representation in the European and US markets for obvious reasons. And but we don't have a time frame on that. So the focus is getting an offer. At the moment, our focus is on trading outside, refining our offer within the market to where we're best known and then looking for opportunities of how we get our product in a cost effective manner to our customers around our other key markets. So that's one of the key drivers of where we are at the moment.
And so you're not you don't have a time frame for, you US customers being able to buy online? No. No. Okay. That's fine.
And I just wanted to say that I've been doing my best with my own purchases to get those Australian sales up, so I have to continue that for the next year. Your next question comes from David Weil with Gray Capital Securities.
Hi. Good day, Shannon. Chris, congratulations. See at the December 2018, you had about, you know, not about 15% more stores than at the end of the TCP, but your inventory was up around 30%. Can you just explain why?
So that's the envelope math. We're saying what stocks up by x percent per store?
Well, just looking at the end of end of this half, the '19 half to the '18 half, the stock's up 30%. I understand there's some timing differences with store openings, but the store numbers were up about 15%. So I'm just looking at the increase in stock versus the increase in stores, yes?
So there's a little bit of an impact there. So it's Chris here. Bit of an impact there with the timing when stores are opening and how much stock sitting in the supply chain to be able to do that. Also, holding a little bit more stock in the warehouse for e commerce. And
they're probably the
key things. Currency is obviously having an impact on it as well. But yes, I mean, it's really just mainly around timing of when stuff's hitting the warehouse. I think we're not concerned about the level of stuff that we've got in the business at the end of the half.
Okay. And the one off relocation cost of your logistics to Chindel, Have you got a number around that you can talk to?
Or was it there? I mean, again, we we been on stage. We don't sort of strip that out and say what it cost us next, but full capacity at 300 Aussie Yep. 300,000 Aussie, and just sort of one off cost. Because we basically there's a point in time where you've got to uplift everything, you sort of replenishing out of Hong Kong and then over a weekend, we get the stuff to or, you know, over a five day period, get the stuff to another warehouse and
establish it. So you're
still looking into Ballpark Of 300.
Okay. Great. Thanks, guys. Cheers.
100 There are no further questions at this time. I'll now hand back to Mr. Forshare for closing remarks.
Well, thanks, everyone, and I hope that the day for announcement. I'm sorry. Look forward to meeting us in the next few days. So thanks again. Talk soon.