Thank you for standing by. Good morning. Welcome to the analyst and investor call for Myer's 2022 half-year results with Myer's Chief Executive Officer, John King and Chief Financial Officer, Nigel Chadwick. All participants are in a listen only mode. There will be a presentation followed by a question and answer session for analysts and investors. If you wish to ask a question, please press the star key followed by the number one on your telephone keypad. I would now like to hand over to Mr. John King.
Thank you, and good morning to everyone, to investors, to analysts, and to media who joined on a listen-only basis. I'm John King, CEO of Myer. I'm joined here today by Nigel Chadwick, our CFO. Please note that this call is being recorded. Before going any further, I would like to take a moment to recognize the various traditional lands on which we do our business today, as well as acknowledging elders past, present, and emerging. To the agenda today, I'll begin with an overview of the first half 2022 results, then I'll hand over to Nigel, who will provide you with more details on these financial results. Then I'll speak further on our Customer First Plan, which is the strategy we outlined in September 2018, which continues to gain momentum and underpin everything we do. After that, there'll be an opportunity to ask questions.
Let me take you through the key financial takeouts from today on slide four, page four. Our results today show the resilience of our business to deliver despite the ongoing impacts from lockdowns and Omicron, which affected approximately a quarter of our trading days in this half. In spite of this, we have delivered strong sales growth up 8.5%. The comparable sales up 17.8%, demonstrating growth in a non-lockdown environment. Online continues to outperform, delivering outstanding 47.5% growth and importantly outperforming our competitors. This has led to a strong rise in profit growth, which is up 55% when adjusted for the impact of JobKeeper payments from the previous year. Our balance sheet continues to strengthen with AUD 217 million in net cash, an increase of AUD 16 million on the same period last year.
Given the strength of the business and the results, we now believe it's appropriate to recommence dividend payments. The board has declared a AUD 0.015 per share dividend for the first half, which is a payout ratio of nearly 40% on NPAT. Based on yesterday's closing price of AUD 0.41, a dividend yield of 3.7%. These results demonstrate that our Customer First Plan continues to deliver. It was the right plan when we started, and today's results show it's still the right plan, going forward. Our unrelenting focus on profitable sales, growing the online business, strengthening our balance sheet, and reducing space remains the focus of every one of Myer's team members going forward. Now to page five. I'll talk on this slide on how we've seen strong growth despite headwinds.
Despite the impacts of the lockdowns and Omicron, which saw 23% of in-store trading days lost, we have seen total sales grow 8.5%. Comp sales were up 17.8%. This growth demonstrates that when our network is not impacted from lockdowns, the underlying growth is strong, with the business generating growth in nearly every single merchandise category and across all channels. Our pre-Christmas execution was strong, and it paid off with sales more than 17% in the two months ended January 1st, 2022, compared to the two months ended December 26, 2020. This showed our Christmas marketing was strong, our offer was strong, we were well-planned and well-stocked. Importantly, we had both stores and online firing at the same time.
Our team members across the board have done an outstanding job in navigating the lockdowns and handling this huge increase in volume. However, immediately post-Christmas, the impact of Omicron was seen across the economy, and this did impact the Boxing Day sales materially. Pleasingly, from mid to late January, we have seen market conditions improve and have again returned to a growth trajectory. Now to page six. As I've mentioned many times before, we are supercharging online, and it keeps delivering strong results to the business. The facts behind our online business are sometimes lost in the coverage of the day, but the growth we are seeing means we are outpacing our peers and competitors. Given most of our competitors are actually on a financial half July to December, we have readjusted the numbers in the chart here to reflect that period.
On a comparable basis, we actually grew 58.3% for the six months, July to December. This obviously includes an extra month of lockdown in July, which I think demonstrates the considerable strength we had online during this period. If you compare at a total level, our 58% has outpaced brands like David Jones at 44%, Kmart Target at 44%, and Catch at 1%. When you look at the growth at the category level, take our homeware category as an example, which has grown at 80% in that period. This has well surpassed the growth of a pure play like Temple & Webster at 45% and homeware retailer Adairs at 8%. For the beauty category, our 44% increase for the category has over doubled the growth of the Adore Beauty business, for instance, who grew only 18%.
This is why we'll continue to aggressively drive our online business. On to page seven. As previously mentioned, our Customer First Plan continues to deliver. It has been the key to unlocking value in the Myer business since its inception. As I've said, our online continues to grow, deliver scale and growth, delivering a four-fold increase since the beginning of the plan back in 2018. Our MYER one program, arguably one of the country's leading retail loyalty programs, has seen strong growth to reach more than 3.5 million members shopping during the last 12 months, at an increasing tag rate of over 70% of sales. This shows the power and the reach of this program. It is why we are making this program bigger, better, and more rewarding for our most loyal customers, and the results over the last year highlight this work.
As I mentioned since I started here, we have focused on our balance sheet, deleveraging the business from a position of debt to now delivering more than AUD 217 million in net cash, which couples with the new asset-based loan arrangement to provide a stable and flexible platform to execute our growth agenda. I will now hand over to Nigel to go over the results in more detail.
Thanks, John, and good morning, everybody. Now we'll do a quick run through the financials starting on slide nine. As a reminder, all numbers are now on a post AASB 16 basis. On this slide, the first column on the left is the current period result, and we've not made any adjustments to that. The next column to the right is last year's result, adjusted to remove the impact of JobKeeper, but that's the only adjustment we've made. Just as a reminder, JobKeeper ceased for Myer in September 2020 in the first half last financial year, and there's no government support in this current half year, despite the loss of over 2,400 trading days. On the far right, we have last year's results as reported.
Starting with sales, total sales including concession sales were up 8.5% for the half year, despite being heavily impacted by COVID-19 closures with over 2,400 trading days lost compared to 940 days in 1H 2021. Comparative sales, which exclude periods where stores are closed, were up significantly by 17.8%, reflecting the strong demand for our products when stores were open, as well as the continuing growth of our online business. Operating gross profit was up nearly 8% to AUD 582 million for the period, and the OGP margin was down slightly by 24 basis points, which we'll touch on a bit later.
CODB was AUD 375 million, which was 5% up year-on-year after adjusting JobKeeper from the prior year numbers, and we'll delve into that a bit deeper shortly. Overall, EBITDA for the period was AUD 207 million, down just AUD 8 million or 3.6% from last year on a reported basis. Importantly, EBITDA is up over 13% or AUD 24 million once JobKeeper is excluded from the prior comparative period. Depreciation was up AUD 5 million, reflecting changes to our right of use lease assets, offset in part by lower depreciation on software and other assets as a result of the lower capital spend over the last three years.
EBIT was AUD 97 million, which again was down 11% on a reported basis, but up 25% when the prior first half is adjusted for JobKeeper, with EBIT margin sitting at 6.4% compared to 5.5% in 1H 2021, again on an adjusted basis. NPAT was AUD 32.3 million compared to adjusted NPAT of AUD 20.8 million in 1H 2021, so up 55%, and there were no individually significant items or restructuring costs in this half year. Statutory reported profits after tax was AUD 32.3 million, down AUD 10.7 million from last year. Overall, this was a pleasing result considering the extent of the lost trading days being 2.5x Those lost last year, as well as supply chain disruptions.
As we signaled in our recent market update, the softening consumer sentiment we experienced after Christmas Day due to Omicron. Moving on to slide 10, operating gross profit. As we mentioned earlier, total sales were up 8.5% during the half. When we break that down further, we can see in dollar terms, the growth was pretty even across MEBs, national brands, and concessions, with each growing approximately AUD 40 million from the prior year. Pleasingly, while menswear, childrenswear, and home and entertainment all continued their strong growth trajectory, we saw a return to growth in women's apparel, both in store and online.
As I mentioned, comp sales, which exclude periods where stores were closed in both periods, were up significantly over 17%, driven by our improved product offering and availability this year compared to last, and also the strength of our diverse store network, combined with our multichannel capabilities, meaning customers can switch between CBD or suburban or regional stores, or between physical shopping or online shopping. While OGP increased by AUD 42 million off the back of the increase in sales, margin was slightly down from the first half last year at 38.37%. As you can see from the chart, clearly the major year-on-year movement has been from the higher volume of sales.
In terms of margin rate, with the shutdowns at the back end of last financial year and earlier this year, we were left with some seasonal inventory that needed to be cleared in the current half, and so we discounted that stock to move it through and make way for new season stock. In addition, higher supply chain costs negatively impacted margin, margins on our Myer Exclusive Brands. These factors were partially mitigated by favorable FX movement, higher supplier support in the form of deals, advertising subsidies, and cash discount on purchases as volumes went up, and lower redemption of gift cards. In terms of shrinkage, as we've improved our range and expanded more desirable brands, unfortunately, this has also attracted higher theft, so shrinkage expense was up AUD 3 million on the prior year.
However, it continues to represent just 1% of wholesale sales compared to 1.2%-1.3% pre-COVID, and we've got action plans in place to redouble our efforts in this area. Finally, in terms of mix, there were changes in mix as we discussed earlier. National brands, MEBs, and concessions all moved, but these largely netted out from a year-on-year comparison perspective in OGP. Moving on to costs on slide 11 and CODB. Here we can see the major items influencing CODB year-on-year. Just as a reminder, this slide is pre-JobKeeper support received in 1H 2021 of AUD 32 million before tax or AUD 22 million after tax.
As you can see, if we also exclude the year-on-year delta in rent waivers as well as the JobKeeper out of last year, then CODB increased just AUD 14 million or 4% compared to the AUD 43 million or 7.8% increase in OGP. Within the AUD 14 million increase, we spent an additional AUD 23 million of variable costs in relation to our online sales, which is primarily volume driven, but also includes additional fulfillment costs as a result of higher split consignments and incremental costs associated with staff availability during the Omicron wave, which resulted in us bringing in additional agency staff to support in-store fulfillment to cover for staff who were in isolation. The additional split orders meant that while fulfillment cost per unit was down year-on-year, the unit cost per customer order was up marginally as there were higher consignments per order.
Occupancy costs were down, reflecting previous space reduction initiatives and associated reductions in outgoings. In addition, we had a number of stores which were in holdover or on a percentage rent basis flowing through EBITDA, which were renewed or extended during the period. Under AASB 16, those costs are now reflected within depreciation and interest. We also incurred incremental COVID-19 costs, predominantly in the form of COVID marshaling when stores were reopened, which obviously we would not expect to incur moving forward. These were more than offset by savings in store costs, including wages and rent outgoings when stores were closed in Q1. Lastly, on the far right, rent and outgoings waivers agreed and recorded in this half year amounted to AUD 14 million compared to AUD 18 million in 1H 2021. Moving on to cash flow on slide 12.
As you can see from this slide, our operating cash flow before interest and tax has declined to AUD 252 million from AUD 326 million in the first half of last year. This was largely driven by AUD 58 million of JobKeeper receipts in the first half of last year. Adjusting for that, operating cash flows were down just AUD 16 million. The prior period working capital movement also benefited from a significantly lower inventory at half year end as a result of us curtailing intake during 2020 in the early stages of the pandemic, and I'll say a little more on that shortly. In terms of taxation, we paid AUD 16 million in tax during the first half compared to a refund of AUD 7 million in tax last year as a result of the statutory loss in 2020.
Cash CapEx was just AUD 15.5 million, reflecting our continued discipline over projects during a time of uncertainty. As you can see from the table on the right, we continue to direct the bulk of this towards our online business and fulfillment operations. That results in free cash flow before financing activities of AUD 173 million. Lease principal payments were down year-on-year, mainly reflecting incremental outflows last year from rent deferrals at the end of 2020. Net cash flow after lease principal payments was AUD 109 million, which is AUD 84 million lower than last year, almost all of which is explainable by the JobKeeper receipts of AUD 58 million in the prior period, and the differential in taxation of AUD 23.4 million across the two periods.
Clearly, cash continues to be a key focus for us, and we will continue to be disciplined in our approach to both OpEx and CapEx moving forward. Having said that, we've got a number of potential investment opportunities in the pipeline, including continuing to improve our online presence, moving further into a centralized distribution model, modest upgrades to physical stores, and core system upgrades. In terms of the full year, we have a number of projects in execution at the moment, including our NDC fit-out, our new POS development and rollout, and of course, the continuing enhancements of our online presence and fulfillment capability. Year-end CapEx is still expected to be in the region of AUD 60 million-AUD 80 million. Moving on to slide 13 and the balance sheet.
As I mentioned earlier, inventory is up from this time last year, but last year we went into peak with abnormally low inventory as a result of us reducing intake when the pandemic hit in the first half of calendar 2020. If anything, our inventory position was too low, and we believe that we missed sales last year as a result. This year we went into peak with a much healthier level of inventory, which supported the strong sales performance leading into Christmas. While the slowdown we saw in January left us with a little more inventory than planned, we are not concerned about that. As you can see from the chart on the right, the aging of inventory at this time of year is the healthiest it's been for a number of years.
In addition, sales have rebounded in February, so that inventory is now selling through at healthy margins. Creditors are up AUD 45 million from the same time last year, reflecting the higher inventory purchasing. The ROU asset and lease liability movements are a function of lease renewals at Sydney City, Caringbah, Chermside, and the new store support office, and of course, offset by depreciation of the ROU asset. Lastly, but most importantly, our net cash position. As you can see, we've improved our net cash position from this time last year. At the half year we were AUD 217 million net cash positive, and I'll say a little bit more on that on the next slide. Moving to slide 14.
Just as a reminder, our new four-year facility has two tranches, a fully drawn term loan of AUD 65 million and a working capital facility of AUD 150 million, where we draw down and repay depending on our working capital and guarantee needs. The facility fluctuates according to monthly borrowing base calculations. At times when we need to build inventory for key trading periods, the facility also increases. At times when we have seasonally lower sales and therefore lower inventory, the facility contracts to match that. The primary covenant is a liquidity measure, and we can manage that through altering purchasing patterns or simply just depositing funds so they are captured in the borrowing base. I would say that the new facility is working really well for us. A big thank you to our new banking partners.
The chart at the top of this slide shows you the progress we've made since 1H 2018 on de-leveraging the business, and this has certainly been one of the key factors to the board's decision to recommence the payment of dividends announced today. The chart at the bottom shows the net cash or debt across the first half year, both this year and last. As you can see, there's a very similar pattern across both periods, with differences generally caused by the timing of major events such as Black Friday or Super Weekends. As we articulate on the right of the chart, we were net cash positive for all but 17 business days in the first half. Even in those periods, the amount of debt was small. We've got ample liquidity within our business.
In summary, the first half was really one of three distinct periods. A first quarter heavily influenced by enforced store closures. A really strong pre-Christmas trading period where we performed really well and which gives us confidence about the future in a COVID normal environment. Then an Omicron affected January, where consumer confidence declined but has quickly rebounded after our half year end. Throughout, we've continued to manage the business tightly and are focused on cost control and cash. The hard work we've put in over the last four years is now starting to come together and is showing through in our improved profitability when our stores are open. Our strong balance sheet and our more suitable financing now gives us improved flexibility to continue our investment in online supply chain and selective modest reinvestment in the store network.
Finally, all of these things combined and how they collectively position us for the future have contributed to the board's decision to recommence dividend payments. Now I'll pass you back to John.
Thank you, Nigel. If you could all turn to page 16, to touch on why the progress that our Customer First Plan has made has been well placed for us to drive significant value creation to all shareholders. As Nigel says, over the last four years, this has provided a strong foundation for the business. We've delivered outstanding online growth. We've accelerated our fulfillment and supply chain capability over that period, which will culminate in the opening of our national distribution center later this calendar year, which will be fully operational in the middle of next calendar year. We've improved our customer experience in store and online.
The refocus we've had on merchandise delivered new brands, and we continue to make the big brands bigger, with particularly strong growth in women's apparel in the first half, which is up 17% and men's up 12%, as well as the numbers that Nigel talked about on homeware and kidswear, etc. A strong focus on the reduction in space, so floors and stores. Of course, as Nigel just said, disciplined management of costs and cash, providing us with the strongest balance sheet in recent times.
The delivery of this program will continue to underpin the future growth of this business, and it should allow us to unlock further greater shareholder value, particularly as we continue to look to scale and deliver a market-leading online business and continue to build our loyalty offer and seek more opportunities to commercialize, this program, which we believe we can do in the next year or two. Turning to page 17, I just wanna touch on our online business here. It's increased share significantly and profitably since FY 2018. We continue to build on its success, and we're well on our way towards our aspiration for it to be a billion-dollar business over the next couple of years. In addition to this, our team have been focused on improving the customer experience across our digital channels and also our crossover experiences into stores.
The teams have dedicated every part of the customer journey with a focus on delivering an elevated experience for our MYER one customers. Our net promoter score and our conversion rates once again improved, showing this investment is resonating with our customers. We've continued to make inroads with our centralized fulfillment model with our third-party logistics partner, increasing range breadth and depth to support increased throughput. This is reflected in the first half results of 1.8 million units of product fulfilled versus 2.2 million units for the whole of the previous financial year. We've improved our range online. We still have a long way to go. We continue to integrate brands through our dropship vendor marketplace offering and introducing more options with a data-led ranging of brands and products in response to the performance, and customer feedback.
In addition, as I said, our NDC is on track to open in Q3 of this calendar year, improving the way we fulfill orders to our customers online and also replenish stock to our stores. This will ensure we're getting products to our customers in the quickest and most efficient way with cost efficiencies to the business. We will ensure we can accommodate the growth in our online business and provide even better service levels that our customers have come to expect from Myer. Moving to page 18, the MYER one program is and has always been a key feature of our business and an area where we continue to focus. As we said before, getting closer to our customers, being data-driven in our approach with them, and rewarding their loyalty is at the heart of what we do.
As we said earlier, over 70% of our sales are through MYER one program. We have delivered a strong growth program that's seen us grow to 3.5 million active members shopping with us once, at least once in the year, acquiring over 1.1 million since FY 2019. Importantly, the growth of these customers has over-indexed in the under 35 demographic, providing a great future foundation for our business. We know the program is a highly valuable differentiator in the market. Our increased focus on driving MYER one in-store and online experiences and process more relevant and exclusive promotions and greater rewards has seen customer spend per member grow faster. They've become more engaged and will deliver greater customer lifetime value to Myer. We also know it's attractive reason for brands to align with Myer.
Our customer base is loyal and distinctive, and we've been doing even more work to provide suppliers access to this data the like they haven't seen before with a new proof of concept underway with key suppliers currently. The focus is paying off even when we look at the returns internally. Our incremental revenue from channels like email, SMS, and the app have increased considerably, providing us greater efficiency in how we communicate with our customer, allowing us to leverage more insight to deliver a more relevant message and offer to those consumers. In short, MYER one is one of the country's leading retail loyalty rewards programs. Our aim is to make it bigger, better, and more rewarding, and our future plans will deliver on that aim. Moving to 2019, space reductions have been and are continuing to contribute to optimizing profitability as part of our multi-channel strategy.
We continue to reduce space across our store network. In total, we've exited or agreed to exit over 100,000 sq m, which is 9.7% of space since 1H 2018. Including 45,000 sq m this year to date, which includes the closure of the Blacktown store and agreed reductions at [Chermside], Toowoomba, Tea Tree Plaza, and Eastland. We have a further 83,000 sq m currently in the pipeline under active discussion. Excuse me. We have seen success from work to date, highlighted by the handbacks at Morley and High Point, which you can see on the chart, which have both delivered improved sales productivity, which we think is the key to unlocking value in our space.
We've also just moved to a more appropriately sized store support office at 1,000 La Trobe Street in Docklands, ensuring the best office environment for our team members while reducing costs to the business. Our approach still remains to have the appropriate balance between physical stores and online to serve our customers in a better way with a more curated offer, allowing them to shop if they want to shop. If we move on to page 21. Before we conclude and open up the questions, we want to provide some context on the current performance, given the earlier challenges with Omicron post Boxing Day. Trading for the first five weeks of the second half has seen our sales rebound and continue a strong growth trajectory across our stores and online. Sales over this period were up 15.2% on the same period last year.
Online has delivered 48.6% growth. As expected, a strong result, and importantly, our bricks and mortar stores have seen a solid return to growth of 9.3%, despite the slower return of the workforce into major cities. This gives us confidence leading into the second half with online firing and importantly store growth continuing, which will hopefully see greater tailwinds as workers, students and tourists start to return to the CBDs as well. Underpinning this, we also have a significant pipeline of deliverables to land as part of the Customer First Plan, which will allow us to continue the momentum that we have been building. In conclusion, on slide 22, we will continue to deliver against our Customer First Plan. We've delivered strong sales growth at 8.5%.
When not in lockdown, we hit 17.1% in those two months at the end of December, and importantly, we are seeing strong growth for stores and online. Our online channel continues to build, and importantly, we will scale this as we close in on a billion-dollar a year business. Our profit for the half was up 55% on last year after adjusting for the JobKeeper payment in 2020. Our balance sheet's never been better, and we continue to aggressively optimize space. This result and the confidence in our plan has allowed us to reinstate the dividend for the first time in four years. Our MYER one program progress, online trajectory and even the growth in our stores network suggests there is significant value in this business to be realized.
Finally, sum it up to say we're a far more resilient business despite the impacts over the last few years. Pleasingly, despite Omicron, we've seen current trade delivering growth from last year. We've achieved a lot over the past four years, but we know there is a hell of a lot more to be done, and we have the right plan in place to capitalize on the growth opportunities of the future and unlock greater value for all our shareholders. Finally, I want to thank all our shareholders, our team members, brand partners and suppliers, but above all, our customers for their ongoing loyalty to this great business. Thank you. We will now open up for questions.
Thank you, John. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Mark Wade from CLSA. Please go ahead.
Good morning, John. Two questions for you today. Picking up on your points at the end there around the significant value still to be had in the business and more to be done, I mean, almost four years into the turnaround, you know, what are the signals of success that the board and yourself are really looking at as we look out over the next couple of years?
I think it's the continued strength of the balance sheet. It'll be growth both in stores and online, achieving some of those milestone numbers in online. I think it will be, you know, to continue, you know, the dividend payment plan. For us, it's, you know, focused on cash, focused on sales, keep driving the business, looking at how we can use MYER one even more effectively than it currently is, driving the tag rate up, and continuing to optimize our supply chain. You know, we can't wait to get this NDC, and this is something I wanted from day one. So once that is in, that will just further add cost efficiencies and profit opportunities across both store replenishment and online fulfillment.
Thank you. On MYER one itself and the online business, is there still mutterings either internally or outside the business about what you might do with those operations, and vis-à-vis a spinoff?
I think we've got to look at, I think for us, you know, our point is that, you know, the value in them is not reflected in the share price today. We think our job is to show what value they should be and therefore what value the total company should be. It's the sum of the parts is bigger than the whole, so to speak. It's very fashionable to spin off online at the moment. We've seen it with Saks and the Bay were in the process of doing that in Canada. It's not something that's high on our agenda.
We've got to focus on the Customer First Plan, and we have a pretty big to-do list over the next 18 months with delivering the NDC, you know, getting to that AUD 1 billion target online. You know, I think just watch and see.
Okay, will do. Lastly, just trying to unpack what you've seen on the ground in January as you've gone into February. Sales in January. Can you quantify that one for us? How does the first five weeks of the second half compare with a couple of years ago?
Yeah, well, as we said in the trading update that we gave sort of in January, sort of, it was soft and sales were down year-on-year single-digit percentages. You know, as John said before, February's rebounded really quite strongly, and that started to kick in towards the sort of last week of January. You know, 15% for February is a terrific outcome. Obviously we're not giving forecasts on sort of, you know, where we might land sort of full year, and there's lots of track to go before we get there.
I think with January, Mark, we certainly saw from Boxing Day, if you remember the media were all talking Omicron up, and there was lots of cases everywhere and people were self-isolating.
No. Yeah.
Basically that's what people did, people stayed at home for several weeks and didn't shop. Then once they realized that it was, you know, just a bit like the flu and everyone had been vaccinated and so on, then t he confidence came back. I think that's what gives us the confidence going forward is that, you know, every state premier and most presidents and prime ministers around the world have kind of turned their back on lockdowns going forward as a measure. That's good. Secondly, you know, Omicron was about self-isolation really more for the consumer than it was, you know, government imposed or anything else. I think with those two, we've got through those two things, and I think everyone's learning to live with all of this situation.
For us, you know, we've got a lot on our to-do list, and we've got a lot of things to deliver over the next few months, and we're quite focused and confident on that.
Yeah, I agree. I mean, it does seem like we're through the worst of it, so all the best for the coming year.
Thanks, Mark.
Thank you. Your next question comes from Johannes Faul from Morningstar. Please go ahead.
Hi, good morning, John and Nigel. I had a question on-
Good morning.
Hi. I had a question on the inflation. Basically the inflation that you're seeing coming through on your shelf pricing and how far that perhaps has been a bit of a tailwind for the sales growth performance in the first five weeks of the second half.
It's not something that we measure in the purest sense. You know, we're not like a supermarket where, you know, the price of beef or the price of milk, you know, is directly relevant. If you think of our business, over 80% of our sales are recommended retail prices from the brands. So those are the prices that we see. You know, the only area that we've seen, you know, some supply chain and raw material issues might be in the MEBs, but it's negligible at the moment, but we are keeping an eye on that just to see what happens.
It's fair to say that inflation didn't have a big impact on that sales growth performance so far in February?
No, not in February. Not currently, no.
Okay, great. Then you made a comment on that the board is looking at, you know, both sales growth online and in store, but at the same time, you're still looking at potentially shuttering more floor space. Is that sales growth number that you're referring to in store, is that on a like-for-like, on a comparable basis or on an absolute basis?
No, it's absolute because in most cases, when we do a refurb and we take square meterage out by, say, going from three floors to two, we generally are able to sell the equivalent, if not more, off the lower square meters than what we have historically. It's absolute.
If you take the cases in point there, Morley or High Point, the thing we do as well, it's not a very linear exercise. You know, if we're doing AUD 100 million out of a box and there's four floors and we take one floor out, we don't drop AUD 25 million as sales. We will still take the AUD 100 million in, on the three remaining floors because what we do, Johannes, is these are all linked with refurbs. The stores are downsized, then they're fully refurbished, which means then concessions put in shop fits, we get new beauty halls, and we get much more efficient use of the space. That's where the sales productivity goes through the roof. That's what we've seen so.
Great. Thank you.
Sorry, just on that, but clearly, if we close an entire store as opposed to do-
Yes.
A productivity exercise where we're changing square meterage, I mean, that will take, you know, the entire sales for that store, less any sales transfer that we get sort of out of the total numbers.
Got it. Thanks.
Thanks.
Thank you. Your next question comes from Simon Conn from IML. Please go ahead.
Yeah, John and Nigel, can you hear me?
Yeah, hi, Simon.
Yeah, great result, guys. Well done. Thank you for the return of dividends. It's really pleasing on behalf of all shareholders, so really congratulations on that. I just had two questions. First of all, could you elaborate on the use of the data that's coming from Myer? You alluded in the presentation t hat it's useful to the brands and that you're offering data to them. I think, there's been a perception that, you know, department stores are a dying breed, but obviously, the value that you're adding to brands, I'd just be interested to elaborate on that and how that helps you attract, market-leading brands to the business. Secondly, the engagement with the shopping centers. I know you've been talking about, handbacks for some time, but the momentum sure seems to have picked up in the last six months through that.
I was just wondering if you could elaborate on the discussions with the shopping centers. What's driving their willingness to negotiate on space, give you the ref, you know, the ability to do these refurbs at good rates, and, you know, what's driving that discussion? Because obviously, you're a big tenant to them, sorry, and, yeah, it'd be a two-way discussion. Just trying to understand, you know, you'd elaborate on that.
Okay. I'll touch on the data piece first. What it allows us to do with the brands is give them much more relevant insights into the people that are buying their brands within Myer, MYER one. For example, if they're a Chanel customer, they'll have a high penetration of MYER one, and we're able to share that data with them. It gives them insights into how much they're spending, what types of product they're spending. Then it allows them, with us, to create specific messages for those customers that are Chanel customers. I'm using Chanel as a simple example. What it does do is give them much greater insight into who's buying, when they're buying, how often they're buying.
It allows them to actually market to them in a way that's more relevant to what that customer's shopping. That's the key thing. It helps with space planning for store in terms of when we look at the penetration in certain demographics. You know, whether they need to put a shop fit in or whether they just need a counter because the customer's only buying fragrance as opposed to wants to buy lipstick or makeup or whatever. It allows them to help with their range planning and space planning in store. 'Cause obviously, you know, there's no walls on the online store, but it does help them with planning on a local basis, which then helps them with their CapEx, their OpEx, et cetera. It's an efficient way for them to work.
Those brands, as I mentioned in the slides, we have a number of key brands in each category that we're doing a drill-down detail work with them on this to allow them to look at right-sizing their business with us and absolutely growing it in absolute terms. Then in terms of the space piece, I think it's fair to say that we were fairly well down the rabbit hole before COVID, and then COVID came along, and the discussions with landlords were all about how do we get through this together. I think what's happened is we've pretty much finished off all of those sort of COVID discussions, et cetera. Over the last six months, it's really been about the go-forward situation with these stores.
Where landlords, you know, want a top floor back so they can put two other retailers in there on a higher rent and get better productivity, working with us to come up with a new lease at a lower cost per foot and also some capital contribution for us to refurbish the stores. Those are the conversations that we've been having with with landlords and, you know, we've really got traction on that second tranche as well of 80,000-odd sq m that we talked about in the presentation. We're quite well on our way. You know, our target is just under 20% to reduce in space from that 9.7.
We're well on our way with that, and we would, you know, hope to be providing much further detail at the full year on that second tranche because we're in discussions with landlords now.
Excellent. John, just one last question. The MYER one card, like, in terms of the scale of that loyalty membership, how big is it in terms of other loyalty schemes in Australia? I mean, how does it compare to Flybuys or Qantas and the like?
I think it's up there in the top five, I would say. I think you've probably got the airlines, you know, obviously pre-COVID. Our active numbers is where we excel in terms of 3.5 million shopping within 12 months. I think that's the key number because a lot of people will have millions and millions, but it's how many people are actually spending. I think as well, you know, the tag rate's very high, I mean, certainly in other businesses that I've run, our tag rate's never been higher than 50%. I think at a 70% tag rate, that's pretty outstanding because, you know.
I'm not trying to pat ourselves on the back here, but I think it's outstanding in the sense that it shows the loyalty of those customers and the opportunity that we have in terms of, you know, using that data, driving our buying decisions, driving our space decisions, and improving our productivity both in store and online.
Thanks, John. Thanks, Nigel.
Thanks, Simon.
Thank you. Your next question comes from Shaun Cousins from UBS. Please go ahead.
Thanks. Good morning, John and Nigel. Just some questions maybe.
Hi, Shaun.
On online, obviously. Good day. Again, just around online, it seems quite clear that the omni-channel players are doing rather well and you guys are doing quite well within that. Do you mind me just sort of talk through just the growth rate you're enjoying? How much of that is it faster for your own product? Not so much from their perspective, effectively product that's in store versus third-party product that's not sold in stores.
It's still primarily the majority of it is what we sell in stores. I'll give an example of myself as a customer. You know, as a Ralph Lauren customer, you know, I know what size I am in a Ralph Lauren work shirt and a Ralph Lauren T-shirt, so I will tend to buy my repeat purchases online. If I wanna buy something new, I'll go and try it on, but then the repeat I'll buy online. So it's largely the same. I mean, the marketplace piece, the drop ship vendor piece is growing quite dramatically. It gives us an opportunity to extend the ranges that we don't necessarily want to give space in stores to, because it goes hand in hand with the space reduction piece.
We wanna improve the productivity in store by putting more range in the same space and driving sales and EBIT per foot or per meter. At the same time, what we want to do is offer things like nursery products and cots and pushchairs and buggies and prams, but we don't necessarily want to have a whole range of that taking up a lot of space in stores. We'll tend to do that through drop ship.
Great. Maybe just in terms of the supply chain, and this is sort of looking forward around once you get your supply chain sort of optimized there, just how are you picking product now in terms of store versus sort of centrally? Then, maybe sort of what does that mean then maybe for the online margins that you generate relative to store generated sales, please?
Yes. Yeah, there are two parts to the NDC. Part one is online fulfillment. Our plan at the moment currently, you know, the majority goes through stores and our third party provider. What we will do, and, you know, our 3P at the moment is about 20%-30%. What we'll end up with is 70% of our online fulfillment picked centrally, which is the most efficient way to do it. This will be a semi-automated warehouse as well. We'll see efficiencies come through there. We haven't given you numbers yet because we haven't started operating, but we know there are cost savings to online fulfillment there. We'll continue to do online fulfillment from stores. That will largely be click and collect, you know, one-hour pickup.
We're looking at a range of options then for our customers to allow them to have greater flexibility. You know, if you're buying pots and pans, it'll come from the NDC, but if you want like a dress for a function tomorrow, you might pick it up from a store. The online fulfillment, that's what we'll do. We'll end up with 70% out of the NDC and 30% from stores. With regard to how we currently replenish our stores, we tend to fully allocate and then drop to the stores either in one or two batches, depending on how we bought it, and then we cross stock.
What we will do is hold much more replenishment stock, both on core lines and on fashion, which allows the merchants to actually send the stock to the right place rather than push it out. For us, you know, if we look at, you know, distribution at the moment, we see that as a massive opportunity. We really do.
John, does that also sort of help manage markdowns because you can chase product that sells?
Exactly.
Really well from the NDC as opposed to saying, "Guys, I'm stuck with it in product in store X that we have to markdown.
Yes. I think, Shaun, you know, over the few years we've talked, you know, I think I've used the example of, you know, we send 10 to Brisbane and 10 to Adelaide or something, and it sells out in Brisbane, and they don't sell any, but they sell one in Adelaide, but the stock's gone. There's no central stock. So therefore it means we've lost sales and margin in Brisbane, and we probably have to mark it down in Adelaide because it's too costly to ship it. So what would happen, and the new NDC scenario is you might send four to each of them. Then you realize Adelaide's only gonna sell one or two, so don't send them any more. Brisbane sells out, so you send them the balance and sell it. So exactly.
There's an opportunity to reduce markdown and actually improve sales and profitability and sell through and know that we factor into the business case because the business case was purely based on the online business.
Great.
On top of that.
Sorry. Pardon me, John. Please, John.
I was just gonna say, on top of that, it gives us the capacity to more than accommodate an AUD 1 billion+ online business. We've sort of future-proofed it over the next few years.
Got it. That's helpful. Just finally, fuel prices are going up for consumers. Just how do you see more generally consumers that shop at department stores react to rising sort of costs such as essential items such as fuel there? Just curious around in your experience, how you've seen that sort of play out and even any comment how you've seen as fuel prices hit AUD 2 a liter, any sort of impact. Is there a sticker shock or anything that you're seeing, please?
Not yet. I imagine people will probably start to tighten their belts at some point down the road. I think we will keep a close eye on it. You know, it's down to discretionary spend. You know, customers will still want to spend on stuff, and they're still gonna go to weddings, and they're still gonna go away, go on holiday, and stuff like that. I think that it's important for us to make sure that we maintain a strong value proposition and an exciting offer of merchandise for customers to shop. I think the other thing for us is that our MYER one program provides great rewards.
I think that is also a good sticking point for customers, in the sense that their loyalty will really help us through anything like that with regards to discretionary spend.
Fantastic. Thanks, John. Thanks, Nigel.
Sure, Shaun.
Thank you. There are no further questions at this time. I'll now hand back to Mr. King for closing remarks.
Thank you, everybody, for listening in this morning, and I'm sure we'll see many of you over the coming days and weeks. Thank you for joining us today and have a great day. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.