Good morning, everyone, and welcome to Michael Hill's full year 2022 results call. If you would like to ask a question at today's meeting, please follow the link on the homepage under Asking a Live Audio Question. I would now like to hand over to Daniel Bracken for his presentation.
Good morning, and thank you for joining Michael Hill International's FY 2022 full year results update. I'm Daniel Bracken, CEO, and I'm here today with Andrew Lowe, our CFO. Today, we will be taking you through a review of our 2022 results, an update on our first eight weeks of trade of FY 2023, and providing you with a strategy update before ending with a Q&A session. Before the presentation, I would like to share an example of our current bridal campaign taken from a short film we have recently released about the history of our brand.
I'm absolutely delighted by our outstanding results, delivering record sales, gross margin, and profit, especially considering the considerable disruptions we faced across Australia and New Zealand in the first half. For the year, our revenue was up 7%, gross profit up 10%, and comparable EBIT up 11%. A key highlight was our ability to grow profit faster than sales, underpinned by continued gross margin expansion. All facets of the business came together to drive this result, but I would particularly like to highlight the evolution of our product, the outstanding performance from our stores, the continued acceleration of our digital channels, and the key role that our loyalty program now plays in driving sales and margin growth. These results demonstrate that we have successfully shifted the emphasis from transformation to growth as we continue to elevate and modernize the Michael Hill brand.
I'm particularly proud of our people and the culture that we continue to build at Michael Hill. A high-performance team across all levels with an energy and passion that underpins our growth agenda. This culture is best evidenced by the sensational performance from our Canadian team, delivering huge lifts in productivity, sales, and margin. Now I will hand over to our CFO, Andrew Lowe, to update you on our financial results.
Thank you, Daniel. Turning now to slide five, FY 2022 group results. The group reported comparable EBIT of AUD 62.9 million for the year ended 26th of June 2022, against AUD 56.6 million. An increase of AUD 6.3 million year on year, driven by a combination of strong sales growth and margin expansion. For the year, the company delivered same store sales growth of 8% and gross margin increased by 200 basis points to 64.7% for the group. Since FY 2019, Q3, the company has achieved 12 quarters of same store sales growth. These continued strong results demonstrate the success of the company's strategic transformation and increasing strength of the brand during more than two years of significant global disruption.
During the year, the Michael Hill global store network suffered 10,020 lost store trading days against 10,447 days in the prior year due to a combination of government-mandated lockdowns and COVID impacting store teams. Despite these disruptions to trading conditions in the global store network, total revenue grew by 7% to AUD 595.2 million as the company continues to elevate and modernize the brand and transform the customer journey. From a cost perspective, prior to the key Christmas trading period, the business opened its Canadian 3PL distribution center in Ontario, creating a cost-efficient flow of inventory from vendors, improving speed of delivery to customers, and ensuring reliable continuity of supply and optimal stock levels.
Supporting the company's ongoing growth agenda, our strategic increase in ATV and elevated product offerings, the company made considered investments in core inventory, which saw year-end stock holdings of AUD 181.5 million. The company's balance sheet has benefited from strong operating cash flows, delivering year-end cash position of AUD 95.8 million and nil debt. During the year, the company successfully sold its in-house Canadian credit book, delivering cash proceeds of AUD 14.2 million, while also launching a long-term partnership with Flexiti Financial Inc. to provide a new enhanced consumer credit proposition. Taking into consideration the company's performance and strength of the balance sheet, the board has decided to declare a final dividend of AUD 0.04 per share. Unfranked, fully imputed with conduit foreign income. This takes total dividends for the year to AUD 0.075 per share.
During the year, the company opened one new store in Australia and closed six underperforming stores across the network, resulting in 280 stores at year-end. In terms of key performance insights, it is noted that both revenue and gross margin have lifted significantly following initial 2020 COVID-disrupted trade. Even with approximately the same lost till trading days in FY 2021 and FY 2022, comparably, that has lifted in FY 2022 against FY 2021 and is also well up on pre-COVID FY 2019. As shown on the bottom left of the slide, pleasingly, the strong lift in both revenue and EBIT has been underpinned by increased store productivity, which is borne out by the lifted average revenue per store. The company's digital business delivered another record year with sales of AUD 42 million, now representing 7.1% of total sales.
During the year, the company successfully launched Click and Collect in all three markets and rolled out Ship from Store across our global network, further enhancing the company's omni-channel ecosystem. The company's marketplace strategy has progressed in all its existing markets with activation in Australia on THE ICONIC and with Westfield Direct. In New Zealand, also with THE ICONIC and in Canada with The Bay. Moving on now to our segment results on slide 7. FY 2022 was another year of COVID disruption for our retail network, with significant first half store closures in both Australia and New Zealand and the impacts of Omicron across all countries in the second half. Despite these disruptions, all markets delivered strong results. In Australia, same-store sales increased by 4.2%.
However, significant temporary store closures and the closure of four underperforming stores led to a decline in retail segment revenue by 2.8% to AUD 303.4 million for the year. This result is a testament to the resilience of the Australian team, new leadership, and the company's strategic initiatives. The government-mandated store closures this year across Victoria, South Australia, Australian Capital Territory, and New South Wales resulted in 7,551 lost store trading days versus 3,458 during the prior year. As well as a strong sales performance, the segment also delivered expanded gross margin for the year to 64.8%, the country's highest margin in the last five years. During the year, one store opened and four underperforming stores closed, resulting in 147 stores at year-end.
In New Zealand, same-store sales increased by 8.9%, which was a particularly strong result. Temporary store closures through the year did see a decline in retail segment revenue of 1.6% to NZD 125.1 million for the year. This result was underpinned by strong retail metrics, omni-channel initiatives, and the company's strategic agenda. The government-mandated store closures, predominantly in the Auckland region, resulted in 2,241 lost store trading days versus 464 during the prior year. Gross margin for the year was 63.4%, a strong year-on-year performance and significant improvement above FY 2019 and FY 2020. During the year, one store closed, resulting in 48 stores at year-end.
For Canada, same-store sales increased by 11.3%, and retail segment revenue increased by an impressive 34.8% to CAD 159.7 million for the year. This is a record result for Canada, supported by a number of strategic initiatives along with reinvigorated leadership, driving a significant lift in productivity and team engagement. There was minimal temporary store disruption during the year, with only 228 lost store trading days compared to extensive closures of 6,525 days in FY 2021. In addition to a record sales result, the segment also achieved a record gross margin for the year of 64.9%, underpinned by an absolute focus on retail fundamentals and productivity metrics. During the year, one underperforming store was closed, resulting in 85 stores at year-end.
Quite clearly, the significant lost trading days, coupled with a reset of the cost base to normalized levels post-COVID across leasing, wages, and marketing, impacted segment results for both Australia and New Zealand. Pleasingly, in response to the successful deployment of strategic initiatives and refreshed retail leadership, Canadian productivity has lifted to Australia and New Zealand levels. I'll now hand back to Daniel to provide an update on the first eight weeks of trade in FY 2023 and more importantly, an update on our strategy.
Thank you, Andrew, for your insights on the full-year financial results. Moving on to slide eight, current trading update. Pleasingly, the first eight weeks of FY 2023 have delivered strong early performance. With group all store sales up 18.5% against FY 2022. As this period in FY 2022 was impacted by store closures in Australia, a more meaningful reflection of the FY 2023 performance is that we have increased sales by 13.4% against the same period in FY 2021, even with nine less stores. In addition, gross margin has also remained strong in the first eight weeks of trade. Given the trading conditions have now somewhat normalized, the company has decided to move to half-yearly trading updates. This is consistent with market practice and is in line with the company's statutory requirements.
As such, the next trading update will be at our AGM in late October. Much of the company's strong performance can be attributed to the strategic transformation and the elevation of the brand, along with overarching emphasis on sales and margin growth. The strategic framework underpins the future growth of the business, is customer-led, and continually evolving, which is best demonstrated by the introduction of a new strategy pillar dedicated to sustainability. The strategy to elevate and modernize the Michael Hill brand underpins the overarching vision for the business. Highly engaging and emotive marketing campaigns with an emphasis on product, quality, and craft are leading the transition away from price and promotion towards emotional, long-term customer relationships. The success of this strategy is best evidenced by the continued expansion of average transaction value, up 15% over the last three years.
Simultaneously, the Brilliance by Michael Hill loyalty program is proving to be a key lever for growth and customer engagement. The program has increased by more than 600,000 members in the year and provides the business with essential data to drive more frequent and more profitable customers. Pleasingly, 80% of our sales are now made by members of the Brilliance loyalty program. Both brand and loyalty are key to driving medium to long-term sustainable growth in both sales and margin for the group. Michael Hill's digital transformation continues to gather pace, delivering another record year in FY 2022. Strong performances on the company's direct-to-consumer websites were driven by improved customer experience, higher traffic, and increased conversion rates. Digital now represents over 7% of company sales and is our highest margin channel.
The successful deployment of Click and Collect and Ship from Store, now available in all stores globally, enhanced our omni-channel capabilities as the company continues its customer-led digital transformation journey. Bricks and mortar retail is at the core of the Michael Hill business, driving more than 90% of the company's sales. Elevating the in-store experience across visual presentation and customer engagement have delivered considerable increases in gross margins, conversion rates, and ATV. An unwavering focus on people and performance, operational excellence, and effective labor management underpin our retail productivity, which has seen significant lifts in all markets. A new senior leadership structure is now firmly in place across all countries and delivering strong results. Additionally, the company has now ramped up its CapEx program across the store network to ensure stores are aligned to the elevated brand journey.
Product evolution is at the center of a customer-led retail strategy and is critical to achieve sales and margin growth and maintaining our leading market position as the House of Diamonds. Laboratory-grown diamonds are gaining momentum in the business, delivering increased quality and higher margins while providing customers with a certified, sustainable, and climate neutral choice. Elevated quality and craftsmanship are essential to our aspirational brand journey, and this will be delivered through the evolution of our supply chain and further investments in the artisanal capabilities of our Australian manufacturing facility. During the year, the business commenced a phased deployment of a new comprehensive merchandise planning platform to improve buying processes, margin optimization, product ranging, and inventory management. The company's ongoing focus on product mix continues to be a key enabler for sustained margin expansion.
Product newness is critical to achieving higher inventory turns and frequency of purchase. As the company pivots from transformation to growth, the opportunity to stretch the brand into new territories and services is a key focus. I was delighted that our new pure play brand, Medley, delivered more than AUD 1 million of sales in its first full year and has a very bright future in the group. Through the course of the year, Michael Hill has executed its marketplace strategy across its three core segments, partnering with THE ICONIC in Australia and New Zealand, The Bay in Canada, and Westfield Direct in Australia. Additionally, the company is now focused on extending its Canadian website to the currently untapped Quebec market, and in the near future, launching international shipping to all countries from our websites.
The business is also well underway in developing a new digital ecosystem with a number of new revenue-driving service offerings across bespoke design, sustainability, and financial services. Michael Hill is elevating its strategic focus on ESG, launching our 2030 vision centered around people, product, and planet. Underpinned with detailed goals and milestones, the Michael Hill 2030 ESG vision aims to transform how we source and manufacture our products, how we impact our planet, and how we improve people's lives across our entire value chain. We are committed to bringing change in how we operate in order to drive forward sustainable practices that benefit our customers, our planet, and future generations, and aim to move our business and influence the broader jewelry industry towards a more sustainable, innovative, and responsible future.
A clear ESG strategy aligns perfectly to our aspirational brand journey and assists in elevating our brand and acquiring new customer segments. We see this strategy as an integral part of our future to acquire a new generation of consumer while genuinely improving how we operate our business. Finally, taking into consideration the company's performance and strength of the balance sheet, the board has decided to declare a final dividend of AUD 0.04 per share, delivering a record total dividend for the year of AUD 0.075 per share. This represents 67% of adjusted annual impact and is at the high end of the company's dividend policy range of 50%-75%. Subject to the company's ongoing trading performance and growth plans, the board's intention is for dividends to remain at the higher end of the target range.
Furthermore, the company has announced the launch of an on-market share buyback of up to 5% of issued capital, funded from existing cash reserves, and this is expected to commence in the coming weeks. In addition to the above, the company still retains sufficient balance sheet strength and cash reserves for deployment into new earnings accretive organic growth initiatives and to also pursue acquisition opportunities in the jewelry sector which meet our strict strategic and investment criteria. That brings us to the end of our presentation. I would like to thank you again for your continued interest in Michael Hill, and we are now happy to take any questions.
Thank you, Daniel. We currently have no one waiting to ask a question, so we might just give it a minute for everyone to join the questions queue. Just as a reminder, if you'd like to ask a question at today's meeting, please follow the link on the homepage, ask under asking a live audio question.
David, I think we've got most of the people on the call lined up for one-on-ones over the coming days. We'll give it another 30 seconds if anyone wants to pop a question in. We'll wait 30 seconds before I say I think.
Whereas, Daniel, we do have a couple of callers joining now. Just one moment. Okay, Daniel, we do have a question here. Daniel Cini, please go ahead after the beep. Hi there, Daniel, can you hear us?
Daniel Bracken can hear you. Don't know about Daniel Cini.
We have a Daniel Cini online. Daniel's question is, what is the strategic target for gross margin percentage? How resilient do you think that this current gross margin profile should be in downturn in retail conditions?
Well, it's a great question, Daniel. Andrew and I have that question regularly asked to us. I think we have shown our ability through very challenging trading environments during COVID to continue our journey to elevate the brand and as such, elevate our margin along the way. First eight weeks of trade in this financial year, some would argue could be more challenging environment that we're now operating, certainly one or two of the markets. Thus far, we are able to confidently say margin is holding up. We did a lot of work over the last two or three years to lift margin.
I think the underlying message around the levers we've previously talked about, which, you know, there's four or five key ones, is that those levers are sustainable levers to maintaining a healthy margin. Just as a reminder for those that haven't heard that commentary, our digital business delivers a higher margin than our store business because of a different mix of product. We generally get a couple of hundred basis points higher margin in digital. As that business continues to take share of the overall business, that helps the overall company margin. Our loyalty program, as demonstrated in the slide pack in the presentation today, is absolutely a key enabler, driving a more profitable customer, a more frequent and more profitable customer, I should say.
We've done a lot of work on margin mix, which has also helped underpin the margin growth. We've done a lot of work in our store network, retail fundamentals, and how we manage our incentive scheme to drive the right behaviors in our stores. All of those initiatives are not one-trick ponies. They're all designed for long-term sustainable margins. We remain broadly optimistic that the margins we've achieved are sustainable. What we're probably not saying right now is that we can get further margin expansion. We lifted margin a couple of hundred basis points over each of the last couple of years. I think that our view would be to maintain margin in the current environment would be a good outcome, and that's certainly our goal, and we remain broadly confident in that.
Thank you for that question, Daniel.
Daniel, our next question comes from Andrew Steele. Andrew, please go ahead after the beep.
Good morning, guys. The first one for me is just on a strategy update. I just want to clarify that, you know, within this, you're not anticipating any fundamental change to approach, and that this is more, I guess, an evolution of your, or next steps in your, current strategy.
Absolutely, that's the case. You know, we do not have any deviations planned, Andrew, from the strategy we've talked about. I hope it all felt very familiar to you. Six of the seven pillars are the same six pillars of our strategy that have been in play now for probably two and a half years. As we continue to elevate the brand, which has been the journey for the last two and a half years, the results have come along with that journey. No major deviation. Absolutely laser-sharp focus on the strategy that we've previously shared and shared again today.
Great. Thanks. The next one for me is just on the buyback. Could you indicate if there's a, I guess, a constraint in terms of total quantum and dollars that you intend to spend? Is there an upper limit as to any sort of where the share price might be before you would stop the buyback?
Great question again, Andrew. I will hand to Andrew Lowe. I mean, we have announced 5% is our goal and that is our limit. That is the buyback plan. Andrew, do you wanna add any further thoughts on that and the process and the procedures we're gonna be putting in place around this?
Yes, certainly. Thanks, Andrew, for your question. As Daniel mentioned, we have set 5% as an upper limit, which is circa 20 million shares, so that probably gives an idea of quantum. We will need to understand in the coming weeks what the appetite is from shareholders to participate. Under the buyback rules, we don't actually operate for two weeks, so we do have a period to enable the market to settle after this announcement. Naturally, we'll be assessing day by day how the share price moves and how shareholders respond. But looking at that cap, if you like, of circa 20 million shares.
I think, Andrew, it's a further indication that we talked about for some time that many people, including our board and executive management, have a view that the share price is undervalued. You know, it's appropriate steps for us. As Andrew says, you know, we will monitor and update the market as that process and program of works continues.
Thanks. Given the announcement of the buyback and the commentary regarding where you expect dividend payout to be versus the target range, could you provide an update on acquisition activity?
Well, we alluded to it. We are retaining, in our view, ample balance sheet strength. We are continuing to review a number of opportunities. We won't obviously give any update on those opportunities until something firms up. We are very active in that space, and we've deliberately retained ample balance sheet strength in order to be able to make an acquisition if the right acquisition that meets the right criteria comes our way.
Thanks, Daniel. In terms of the trading update for the first eight-week period, is there much divergence between the three key markets, or is it roughly uniform strength across all three?
Yeah, it's roughly uniform. You know, we've been pleased with the momentum broadly from last year continuing. You know, Canada is now comping that amazing year, but we're really happy they're comping a huge level of bounce back. If you recall, half of Canada was closed for the second half of FY 2020. They had a big bounce back, a big surge in the first sort of two or three months of last year. We're very happy with the way we're performing in Canada, and likewise continued strong results in Australia and New Zealand.
Thanks. Just one on gross margin dynamics. Could you comment as to the level, I guess, margin pressure you saw from heightened input cost pressures in the period, on I guess on a like-for-like basis? Because I appreciate there's, you know, reasonable level of positive mix benefit coming through from a number of your initiatives. Just in terms of the input cost pressure in isolation, could you comment on that?
Yeah. It's a great question because as you know. Andrew, I'm just wondering if you mute, so that we can hear people.
Yeah.
It's a great question. You know, there's certainly been a fair amount of moving parts in our costs over the last couple of years. Certainly isn't new news to us. Gold has been at sort of record price levels ever since the start of COVID. Safe haven, commodity stock, as we all know, and that doesn't show any signs of dissipating. We've got used to gold at those higher levels now in our supply chain for a couple of years. We have managed to absorb those cost increases through the raft of initiatives that we've talked about. Diamond prices, as you know, Andrew, have also gone up in the last six to twelve months. Again, our continued demonstration of sustained margin is a demonstration that we're managing that through our supply chain.
I guess the final point that we've often talked about in this space, we don't have the highest stock turn or the fastest moving inventory in the retail sector for good reasons, 'cause we also don't have the perishability of it that other retail businesses have. As such, these things do take quite some time to bleed into our supply chain. That's always been a help as we see movements in FX or gold or diamond prices. We've been broadly able to manage and mitigate some of that through increasing prices, some of that through our ability to manage other initiatives in the business to protect margin.
Beyond your current footprint, is there any meaningful investment that's required for this, I guess, online expansion to new markets? Or is it just simply a case of inventory build with minimal OpEx requirements or CapEx requirements?
Yeah. Look, we have carved out AUD 30 million of organic capital investment over this year. A big chunk of that's going back to stores 'cause we've not invested in our store network over the last couple of years. There's an appropriate fund in play for our digital continued digital transformation. Within that, we're certainly managing the initiatives that we've touched on today around further marketplaces, global shipping, moving into the Quebec market, managing dual languages for the first time. They're all in play within our current budgeted CapEx for the requirements. Will we require a little bit more inventory? Probably.
you know, you'll note this year our inventory has crept up very slightly, but not beyond the sales. In fact, at about half of the rate of the sales growth. As our sales grow, we certainly acknowledge we will have to increase our inventory, but not at the same rate of sales. Our inventory will continue to be more productive year-on-year. If you like, our ROI will continue to improve and our stock turns will continue to improve even with new channels being added.
Excellent. That's all from me. Thanks, guys.
Thanks, Andrew.
Andrew, there are no further questions today.
All right, David. Thank you. Final thank you to everyone for tuning in to our results and following Michael Hill. We were very happy to provide this morning's presentation to those that we'll be seeing over the coming days. Look forward to catching up. For those that are not, you know how to get in touch with us. Thanks again everyone, and chat soon.
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