Thank you for standing by. Good morning, and welcome to the analyst and investor call for Myer's 2025 half-year results with Myer's Executive Chair, Olivia Wirth , and Chief Transformation Officer, Andrew Taylor, who are joined by Group Chief Financial Officer, Kathy Karabatsas . 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 would like to ask a question, you'll need to press the star key followed by the number one on your telephone keypad. I would now like to hand the call over to Olivia.
Hey, Thanks, and good morning, and thank you for joining us today for the Myer first half 2025 results briefing. Presenting with me today is our Chief Transformation Officer, Andrew Taylor, and we're also joined by our new Group CFO, Kathy Karabatsas, who many of you will meet over coming days. On the agenda for today's presentation, I'll start with an overview of our business performance in the first half 2025 before handing over to Andrew, who will take you through the financials in more detail and provide a second half 2025 update. I'll then cover our strategic review and the significant progress we've made in implementing strategic initiatives in the first half, keeping in mind that we'll be providing a comprehensive briefing on the Myer Group growth strategy at our Investor Day on the 28th of May. We'll then conclude and open up to questions.
Starting with the business overview, Myer is at the beginning of a significant turnaround journey as we look to establish a retail powerhouse. To get where we need to be, significant change is required. Given the need to get the basics right, we have been focused during the first half 2025, implementing a range of strategic initiatives to reset the business. While we recognize we have much to do, we have made real progress in the past six months and remained focused on maintaining the momentum as we embed a comprehensive plan for sustainable growth. All of this activity in the first half 2025 is taking place in a challenging macroeconomic environment across Australia and New Zealand. Against this backdrop, consumers remain cautious. This is understandable. For Myer, we've not been immune to this consumer sentiment, and we continue to see volatility in discretionary spend across the broader retail sector.
The cyclical nature of retail reinforces the value of our strategy reset and the importance of the changes we are making. Our ambition is to position the Myer Group as a leading retail platform that delivers for shareholders throughout economic cycles. Let's look at our first half performance. Total sales were up 0.1% on first half 2024 at AUD 1.831 billion, with the flat result reflecting the challenging trading conditions highlighted at our trading update in January. Pleasingly, our comparable sales were up 0.8%, and our online sales were up 4.8% on the prior corresponding period. Online sales represented 22.3% of total sales. Our EBIT for the half at AUD 102 million was down 14.3% on the prior period, but it is important to note that this includes AUD 12 million of adverse impact that the challenges at our new National Distribution Center, or NDC, had on our performance.
We'll talk about this in greater detail shortly. NPAT was down 18.5% at AUD 42 million. Again, this includes AUD 8 million of adverse impact relating to the NDC. It's worth noting that when you remove the impact of the NDC, the underlying business has been solid in the current environment. Importantly, during the half, we completed our strategic review and have developed a comprehensive growth strategy for the Myer Group. We are now well underway in implementing this strategy.
I'll talk later about our strategic deliverables, but at a high level, the main callouts during the first half are: one, completing the Apparel Brands transaction and establishing the Myer Group; two, announcing our leadership team and capabilities, aligning organization structure to strategic priorities; three, strengthening the balance sheet by arranging a debt refinancing, which is expected to deliver significant savings to the business; and four, commencing our restructure of Sass & Bide, Marcs, and David Lawrence. If we look at the half and take stock of what worked well on slide five, it was pleasing to see our in-store customer satisfaction levels improve by 100 basis points, reflecting the efficiency in customer service achieved from the rollout of our new POS system and our proprietary M-Metrics app. This is a great result for our store teams.
Our MYER one tag rate at 79.1% of total sales was also up 290 basis points and is our strongest ever result. This is a terrific outcome for the team. We attracted 453 new MYER one members in the half, with 54% age 35 and under. At our Investor Day, we will talk in greater detail about the importance of our loyalty program and MYER one in driving the future growth. For context, MYER one customers spend 148% more than non-MYER one members. This demonstrates the value for us if we can get this right. In an uncertain economic environment, this underscores the power of a strong loyalty program. Ensuring we have the right product offering is critical to our future success, and we made good progress during the half in introducing a high level of newness and decreasing our aged inventory.
The team also completed a comprehensive category review during the half to ensure our merchandise offering will remain aligned with the evolving requirements of our customers. This review will put us in a better position in time. Separately, we've continued to assess the best ways to optimize productivity in our floor space and have upgraded the high-margin beauty halls in our Melbourne CBD and Sydney Bondi Junction stores. Operational discipline remained a focus in the first half, with shrinkage down 12.9% on the prior period, and we reopened our refurbished Werribee store . Our weighted average lease expiry is now eight years, down from 8.5 years at the end of July 2024. Whilst there are many things that worked well during the half, we also faced challenges. Issues encountered at our new NDC and its fulfillment capabilities continue to be the major challenge.
We initially indicated the NDC has had significant operating challenges at my first financial results presentation, the full year results in September 2024. During the half, we commenced an extensive diagnostic to determine the key issues and root causes. The review, which was led by external supply chain experts, identified critical issues with automation and integration. The impact of these issues in the first half was significant. Firstly, stock was trapped in the NDC, requiring manual work before it could be released. This impacted my exclusive brand stock in particular. Stock replenishment in stores was also impacted, particularly in Victoria and Tasmania. This resulted in lost sales. Finally, online fulfillment stopped ahead of the peak Black Friday and Christmas trading periods during the half. As a temporary measure, it was handled via stores.
Whilst the team did a great job, this clearly is not optimal, and it is more expensive. We have provided an estimate of the financial impact of the NDC challenges on our first half 2025 performance. As I mentioned, we estimate that there was an adverse impact of approximately AUD 12 million on our EBIT. This figure includes a loss of profit or trade of AUD 7 million from MEB stock being unavailable, a store replenishment functionality delayed movement to stores, approximately AUD 3 million of dual-site run costs as a transition to the new site was delayed, and approximately AUD 2 million in additional online fulfillment costs year on year due to store fulfillment. Where are we today? We have provisional initiatives in place to mitigate the problems with store replenishment and online fulfillment, and we know this is not a permanent solution.
We've employed a new Chief Supply Chain Officer, Darren Wedding, who commenced earlier this month. He's an experienced retail and supply chain executive who joined from the Super Retail Group. Darren and his team are working through a number of options, both in the short term and the longer term, to optimize the NDC. Initial remediation has improved cross-dock operations with 60% of the volume now cross-docked at the NDC. While we acknowledge the challenges with the NDC, we still expect the facility will realize the projected benefits of AUD 5 million-AUD 10 million a year, albeit this is delayed. A more detailed view of the remediation and path to unlocking future value will be discussed at our upcoming Investor Day. I'll now hand over to Andrew, who will take you through the financials and the trading update in more detail. Thanks, Andrew.
Thanks, Olivia. Good morning. FY25 is a transition year for Myer, resetting the base and fixing the basics. The Apparel Brands transaction completed on 26th of January 2025, and from second half 2025, the Myer Group will include Apparel Brands. Today's presentation is solely focused on Myer's first half 2025 results, excluding Apparel Brands. The income statement has been prepared on a post-AASB 16 basis, and a reconciliation to pre-AASB 16 is included in the appendices. Total sales for the half were flat on the prior corresponding period at AUD 1.8 billion. Our sales performance was mixed and primarily reflects strong online sales, which grew by 4.8% compared to the prior corresponding period. Online sales now represent 22.3% of total sales. Sales headwinds included challenging macroeconomic conditions, in particular in Victoria, which experienced the lowest consumer sentiment during the period.
Performance of our CBD stores was challenged compared to metro and regional stores. Store closures during the half included closure of Werribee for refurbishment and 10 Sass & Bide stores. Store disruption was experienced in the Melbourne CBD and Bondi Junction stores as beauty halls were refurbished. The NDC challenges, which Olivia spoke to earlier, had a significant impact on the first half operations. Sales performance was impacted by inventory traps within the DC during the peak trading period. The estimated adverse sales impact resulting from the NDC was AUD 12 million. Store replenishment in Victorian and Tasmanian stores was particularly impacted. Excluding the NDC impact, comparable sales would have increased by 0.8% in the half. At a category level, growth was achieved in beauty and hard goods, including tabletop, bedroom, and appliances. We continue to focus on growing our share in these categories. The apparel categories were challenged.
Women's wear and children's wear were impacted by the stock availability issues. Operating gross profit was AUD 656 million, down 1% on the prior corresponding period due to our sales mix skewing to concessions. Cost of doing business was up 2% on the prior corresponding period. Cost of doing business increased due to higher EBA costs and higher support office costs, which included costs associated with new marketing and transformation capabilities. EBITDA declined by 8.1% to AUD 198 million. Depreciation was flat at AUD 96 million. Net finance costs were AUD 3 million lower, reflecting lower interest on the leases. Net profit after tax, but before implementation costs and individually significant items was AUD 42.4 million, which compares to AUD 52 million in the prior corresponding period. As Olivia outlined earlier, a significant contributor to the profit decline was the NDC impact.
Implementation costs and significant items included transaction costs associated with the Apparel Brands combination of AUD 11.7 million and strategic review costs of AUD 2.5 million. Statutory net profit after tax was AUD 30 million. The graph on the left-hand side shows the bridge of sales from first half 2024 to first half 2025. AUD 12 million relates to closure of 10 Sass & Bide stores and a temporary closure of Werribee for refurbishment. Sales were impacted by NDC challenges resulting in stock trapped within the NDC. The NDC challenges were estimated to have caused a AUD 12 million adverse impact on sales. Concession sales were higher, which diluted margins and operating gross profit. On the right-hand side is the bridge of operating gross profit.
Key callouts are a AUD 10 million impact related to the NDC on stock availability of Myer's exclusive brands at AUD 7 million and AUD 3 million of duplicate costs as DC operations transitioned from the old DC at Altona to the new NDC. Sales volume growth of AUD 8 million offset the NDC impact. Mixed shift to concessions and marketplace, which impacted operating gross profit by AUD 7 million, is due to the lower margin in these channels. It's important to note that whilst concessions attract a lower gross margin, Myer has reduced staffing costs and lower fulfillment costs, as I said with concessions. Net margin impact relates to MYER one program costs, promotional activity, supplier discount funding, and FX movements, net of hedging. Shrinkage in stock adjustment declined to 1.6% of sales as a result of investment in retail loss teams, cosmetic fixturing, and anti-theft product protection.
Cost of doing business increased by 1.9%, mainly due to EBA changes. Support office costs increased by AUD 5 million with investment in new marketing and transformation capabilities. These capabilities will be essential to deliver future earnings growth. The NDC impact had a AUD 2 million adverse impact due to higher online fulfillment costs. As previously mentioned, we have commenced remediation and anticipate additional costs will be incurred in the second half of 2025. Offsetting these increases were operational cost reductions, including savings from the Altona DC exit and closure of 10 Sass & Bide stores. Operating cash flows declined by AUD 6 million due to lower earnings and individually significant items. This was partially offset by working capital benefits. CapEx net of landlord contributions was AUD 16 million lower. During the first half, there was less store refurbishment activity compared to the prior corresponding period. Overall net cash flows were AUD 13 million higher.
The first half ended with cash of AUD 282 million. Inventory at the half year was AUD 31 million higher than the corresponding period due to Chinese New Year being earlier, in addition to purchase of hard goods to take advantage of strong trade performance in these categories. Aged and clearance inventory have declined to improve the inventory position. Creditors are higher due to these inventory purchases. Payables to concession partners have also increased. Right-of-use assets and corresponding lease liabilities are low with the weighted average lease expiry now at eight years. AUD 21 million relates to the pre-completion dividend, which is payable on 20th of March 2025, and accrued transaction costs of AUD 12 million, which will be paid in the second half. From second half 2025, the Myer Group will include Apparel Brands.
The outlook for the second half 2025 sales is a trading environment that remains choppy, in particular in the apparel category. Myer Group sales for the first five weeks of second half 2025 were down 2.6% versus prior corresponding period. However, this reflects cycling major events last year. For example, stadium concerts, key promotional activity, and the extra day of sales in the leap year last year. Adjusting for these events means comparable sales will be flat versus prior corresponding period. A key priority in second half 2025 is addressing the NDC issues to fix the problems and limit any further financial impact. AUD 10 million of the NDC impact experienced in the first half will not recur. However, higher operating ongoing fulfillment costs will likely be ongoing, with additional remediation costs to be incurred.
Subject to remediation, we continue to believe material cost benefits will be achieved through a centralized online distribution capability. In time, the restructure of Sass & Bide, Marcs, David Lawrence will reduce costs of doing business. In the second half, the benefits after restructuring costs are not expected to be material. However, savings are expected to be AUD 10 million a year from FY2026. Refinancing Myer's existing debt has resulted in funding cost savings with AUD 3 million to be realized in the second half and AUD 11 million annually thereafter. To summarize the financial position of Myer, significant progress has been made in first half 2025. The ongoing effort to fix the basics during the second half of 2025 and the Apparel Brands combination has strengthened the financial outlook for the Myer Group.
The Myer Group is poised for significant growth beyond financial year 2026, with the execution of growth opportunities identified in the strategic review. I'll now pass back to Olivia.
Thanks, Andrew. We're now going to turn to our strategic review. As you know, on 24th of June last year, we announced that we were undertaking a comprehensive strategic review of the business. I'm pleased to report that review has been completed, and we've developed a detailed Myer Group strategic growth plan. We've started to implement this plan and will provide greater detail about our plan, including work streams, timing, cost, and return on investment benchmarks at our Investor Day in May. It is, however, important to note that we have commenced executing our strategy and that we are very much focused on positioning the business for growth. In our reset of the business, we have focused on fixing the basics to provide a foundation for future growth.
The process of undertaking a comprehensive strategic review has been invaluable for the business in building a better understanding of what is required. Off the back of the review, we have developed the Myer Group growth strategy and moved quickly on implementation. We have delivered a number of strategic initiatives in the first half that are worth calling out. First and foremost, on the 28th of January 2025, we completed the Apparel Brands transaction, enabling us to create the new Myer Group with Just Jeans, Jay Jays, Portmans, Dotti, and Jacqui E as part of our apparel offering. This expands our exclusive and private label portfolio and strengthens our brand management capability. The Apparel Brands transaction accelerates our key strategic objective of creating a leading Australian retail platform. It delivers enhanced scale and capabilities to drive growth as well as operating leverage.
Importantly, it allows us to expand MYER one and our e-commerce platform across an enlarged customer base, which is a highly complementary customer base that addresses key Myer target customer demographics and will also drive cross-shop. It also allows us to capitalize on Apparel Brands sourcing, design, and distribution capabilities to drive efficiencies and improve margins. We expect the transaction to generate combination benefits of at least AUD 30 million of earnings annually over the short to medium term and drive significant EPS accretion on a pro forma FY2024 basis. The transaction also provides the group with an enhanced balance sheet and greater capacity to invest in growth across the combined businesses. Of course, it's one thing to have a good strategic plan, but the real test is having the right capabilities to implement it. This is why our announcement of our new executive management team last week is so important.
We now have in place a reshaped and bolstered leadership team with the capabilities, experience, and track record to deliver our strategic priorities and position the business for growth. The changes we announced reflect the Myer Group's commitment to building a leading Australian retail platform. Practically, the move also aligns our organizational structure to our strategic priorities. We have created centers of excellence in key areas, including supply chain, e-commerce, loyalty and data, sourcing, operations, and customer engagement. You will get a chance to meet the new team at our Investor Day in May. An integral part of our strategic plan is to ensure that we have the appropriate financing in place to support our future growth. As the new, expanded Myer Group, we have arranged refinancing for an AUD 150 million debt facility with two leading Australian major banks, Commonwealth Bank of Australia and National Australia Bank.
The refinancing is expected to provide AUD 11 million annual saving on interest costs in the existing debt facility. Our private label strategy will be a focus in our growth strategy, focusing us not only on the opportunity to differentiate our offering, but also the ability to enhance our margins. Sass & Bide and Marcs and David Lawrence are well-known Australian fashion labels with strong brand equity. Historically, these brands have operated as an independent business with a head office located in Sydney. You can see the financial performance of these brands on the right-hand side of the slide. What you will notice is the cost of doing business compared to the sales generated is high. Consolidating Sass & Bide and Marcs and David Lawrence within the Myer portfolio allows for focused investment at a lower cost of doing business. Our restructure is well underway.
We tend to have standalone store closures in the first half of 2025, leaving four remaining standalone stores. Integration of these brands in Myer stores is well progressed, and we are planning to close the Sass & Bide and Marcs and David Lawrence head office by the 30th of June 2025 to consolidate the support functions within the Myer Group, which we will anticipate will deliver an annual benefit of AUD 10 million. Turning now to Myer’s Tomorrow and the Myer Group growth strategy. Our vision is to build a leading Australian retail engine powered by a deep understanding of our customers. Our strategy to achieve this is based on five strategic pillars. The first of these is rewarding loyalty ecosystems. By this, we mean creating a world-class data-led loyalty and partnership ecosystem that delivers greater insight-led decision-making for the business and a more connected and valuable customer.
The second pillar is offering unique products and iconic brands. This involves creating a collective of Australia's most loved and in-demand products and brands curated to meet customer demand. The third pillar is smart sourcing, which enables fast, scalable, and efficient sourcing that delivers quality products at great margins, meeting customer demand quickly and sustainably. The fourth pillar is an inspiring omnichannel network, which delivers a compelling and seamless shopping experience that connects customers whenever and wherever they choose to shop. The last pillar is strong financial discipline. We are focused on creating a new and disciplined financial framework that reflects a strong balance sheet profile, growth settings, and disciplined capital allocation. We will be talking in greater detail to each of these pillars at our Investor Day.
However, our key strategic objectives will be to grow our active loyalty members and increase their shopping frequency and spend, increase our proportion of full-price sales, and reduce reliance on discounting and promotions to drive these sales, decrease our COGS and increase our stock turn, increase our sales per square metre and grow online sales, and implement a new capital management framework and ROIC targets to drive disciplined capital management. Before we turn to questions, I'd like to wrap up with the following. This is a year of transition as we reset the business and established the Myer Group. The first half of 2025 financial year has been a busy but productive and focused six months. We completed a comprehensive strategic review and developed the Myer Group growth strategy, which we've commenced implementing.
We are working at pace to achieve our ambition of building a retail engine with the customer at its core. As the second half progresses, we continue to face a challenging external landscape. With the cost of living pressures persisting in the second half, our customers continue to demonstrate caution in their discretionary spending. While our comparable sales are flat, the fundamentals of the business remain solid. The macro uncertainty reinforces the importance of the work we are doing to reset the business. Our strategy to grow the Myer Group and the actions we've taken in the past six months will put us in a stronger position to navigate inevitable cyclical challenges in the future. We want the business to be in a position to deliver sustainable earnings growth and attractive shareholder returns throughout the economic cycle.
While we have significant work to do, I'm genuinely excited about the potential of the Myer Group. I look forward to sharing details of our strategic plan at our Investor Day in May, and we'll now open the lines to questions. Thank you.
Thank you, Olivia. If you would like to ask a question, please press star one on your telephone and wait for your name to be announced. If you would like 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 Allan Franklin from Canaccord Genuity. Please go ahead.
Yeah, morning all. Thank you for your time. Yeah, great to see the detail within the result and certainly looking forward to the Investor Day in a couple of months. If I could please kick off just to get a bit of detail on what worked well through January, and I appreciate what you said about the February period, but to what extent did sort of January performance perhaps surprise to the upside?
Yeah, look, I think what we've said in January is obviously that was the tail end of the peak period that we had off the back of Christmas and Boxing Day, and obviously that the sales have continued there. The team were very focused on trading through what is a peak retail period. We've called out, though, that there are a number of factors that we were cycling over the previous period. We obviously had some major concert activity in Taylor Swift and Pink, which is not insignificant to both the Myer business and the Apparel Brands business. There's some promotional timings as well. For example, some beauty Ready Set Glow , as it's called, some beauty activity that we had last year compared to this year, which it's delayed until April.
Obviously, last year was a leap year, which we had additional promotional activity there, and you also have an additional day. There are a number of factors at play both in January and February, which is why we sort of outlined that if you do adjust for these reoccurring events, that we've traded flat compared to the prior period, noting that the prior period was obviously a strong one for Myer. It was up about 5% last year. All in all, there are a number of factors there that are driving those first five weeks.
Yeah, no, fair. Thank you. It might be—correct me if I'm wrong, I guess—but it looks like the remaining periods, 33-52 weeks, are slightly negative in terms of a comp.
Look, what we've said is that we've indicated that it's going to be tough on consumers' conditions. We've said that conditions and trade are mixed, volatile. We've got consumers considering to be cautious from the Australian context of obviously leading into an election period as well, which always has an impact on discretionary spend. We're cautious. We're cautious. We'll be very much focused on how we can best trade in these conditions and making sure that both from an apparel brand and from a Myer perspective, that we'll just continue to trade the day as best we can. However, we do believe that trading conditions are going to be mixed and challenging.
Thank you. Just to sort of clarify a couple of things on the SBMDL side, just to clarify, to get that turnaround through FY 2026, to what extent is that cost out or any sort of sales growth or turnaround required from FY 2027?
The 10 million is just cost out, just to be clear. That's just cost out. We are going through a restructuring process, as we indicated. It's been run as a standalone business, and we are just looking at operating the business in a different way. That means the support functions are being centralized within the Myer Group. They will form part of these centers of excellence that we are establishing. If you think about finance, you think about marketing, you think about e-com, these centers of excellence, that business will be served from Myer, and therefore there is a reduction in costs. Obviously, that cost includes property as well.
Thank you. Just the last one, just on CODB. Appreciate some of it is drawn out there, but just to sort of think through, do we continue to allow for growth in the EBA through second half and beyond? I guess, do we add back a little bit of cost for Werribee being closed in the prior period?
Yeah, obviously, Werribee is one factor. I mean, look, there's an unfortunate reality of operating here in Australia. Look, the EBA costs remain high. We'll continue to operate as best we can in these sorts of conditions, but there has been a cost to employees. We're very much focused on making sure that we can have obviously the lowest cost of doing business as possible, but there's a number of headwinds that we're dealing with here.
Thank you.
Thank you. Your next question comes from James Tracey from Blue Ocean. Please go ahead.
Hi, Olivia. Thanks for taking my question. Two questions for me. First of all, at the trading update in January, you provided an indication that P&L post-AASB 16 would be AUD 48 million, and I think it's come in at AUD 59 million on the same basis. Could you talk to where, I guess, you've done better there? The second question is around the cost savings. You've talked to a AUD 30 million synergy target. Could you, I guess, break down the buckets in which they fall and also talk about the cost savings that you've announced with Sass & Bide, AUD 10 million, and then also the debt refinancing of AUD 11 million? Are they inclusive within that AUD 30 million, or are they additional? Thank you.
Yeah. Look, I'll take the last question first, and we'll circle back to that one. From a synergy perspective, we've indicated that there is a minimum of AUD 30 million from the combination, and we've been clear around where those buckets are, but we haven't specified the value of each of the buckets. As we've indicated previously, the first focus for us was really around four key focus areas. One, which was on MYER one being extended across Apparel Brands, because that gives us great access to new information about our customers. Two was around e-com and putting the Apparel Brands inventory onto myer.com because it's got high traffic, high volume in the Australian market. We think there's opportunity there. Third was on sourcing and working with two teams working collectively so we can benefit from the scale and also capabilities within the Apparel Brands. Four was refinancing.
The refinancing, obviously, we've announced today, and there's savings there, and they're part of that 30 million. You should consider that as part of that overall combination benefit, and that's an AUD 11 million saving annually from here on in. Come to Investor Day, we'll give you a little bit more detail about how we're thinking about these combinations, the different buckets, the different phasing, and how, in fact, we're going to track synergies and making sure that we're clear to our investors about how we're performing in the short to medium term on that 30 million. It's fair to say that we're only a couple of weeks in, so to speak. We believe that we need to move fast. We need to be focused, and that's why we've been very much focused on the refinancing. The Sass & Bide is out.
This is obviously possible, but due to the combination, but it's separate. That is not all included in that AUD 30 million. We'll now come to your first question, which was the differentiation between the trading update and what we've released today. Five months versus six months, I think, is probably where we've landed. AT, did you have anything else for that?
No, James. Yeah, the trading update was the actual sort of five months to December, and this is obviously the six months to the half.
Yeah, got it. Just one quick thing. Could you just clarify what your sort of overall, I guess, pro forma rent charge is currently? You didn't really talk about opportunities around sort of property optimisation and so on. Is there an opportunity to improve, I guess, the rent-to-sales ratio and therefore the margins longer term, possibly around AUD 30 million?
Yeah, look, there's always an opportunity. I think you're talking here about Apparel Brands, possibly, but there's always an opportunity. It's an always-on for us about how do we optimize our property portfolio. Obviously, that portfolio is now far larger, given that we have the 56 stores in the Myer fleet, and we've got the additional over 700 in Apparel Brands. This is an opportunity for us. It's something that Josh and his team, as part of the new executives, are going to be focused on. We think there's opportunity across the Myer portfolio and equally with Apparel Brands in the combined portfolio. I look forward to you meeting Josh come Investor Day to provide a little bit more detail about how we're thinking about the property portfolio.
Thank you, Olivia.
Thank you. Your next question comes from Aryan Norozi from Barrenjoey. Please go ahead.
Hi, team thank you all. Hope you're well. Just the first one from me. On the trading update, total sales down 2.6%, and then like-for-likes adjusted for temporary impacts flat. What would the 2.6% be if you adjusted for those impacts? I'm just looking for an apples-for-apples number for the total sales update. Basically, if you update the total sales number for those temporary impacts, would it be flat as well?
Yeah, that's the right way to think about it. It is flat, which is why we've, I guess, called out what we're saying one-offs that we're cycling over. Whether it be the concert, because that drives additional sales across the board. Yeah, underlying, it's flat. That'd be the right way to think about it.
Okay. Just to confirm, if your total sales are down 3%, your comps are down 3%, and then if you adjust for it, your total sales are flat, and your comps are also flat. There is very little movement from sort of stock growth between the two brands overall. Is that fair? Is that right?
Yeah, that's fair. That's fair to say that.
Yeah, perfect. Great. And then just on the AUD 10 million EBIT benefit from Sass & Bide, I'll just shorten it. That's not a run rate, right? FY2026 EBIT will be AUD 10 million higher from that initiative. Is that correct? Or is it something that's throughout the course of the?
Yes.
Yeah. Okay. Cool. The second half, you mentioned the cost savings will be offset from restructuring. Once you take the restructuring cost bill over the line?
Yes. We haven't decided, but yes, that's the way of thinking about it, that the restructuring costs will offset the half-year benefits of doing that.
Yeah, we're just working through it. I mean, look, at daily days is what I'd say. This is literally weeks into the restructuring. When you think about, well, what are the component parts of how we think about costs? You've got obviously people considerations, you've got property, you've also got systems. We're just working through that. Obviously, we'll provide an update when we're further through the process.
Gotcha. Very quick one. Just gross margins. Am I correct in saying FX headwinds from a stronger US dollar? That's going to bite more in fiscal, potentially if it does bite in fiscal 2026. Fiscal year 2025 didn't include a lot of headwinds from FX. Is that a fair comment?
Yes. That's a fair comment. Yes.
There is an impact, though, in the half of around AUD 2 million, which we've indicated. You'll see that in the results. There's AUD 2 million in the half.
Just the NDC. The AUD 12 million headwind in first half goes to AUD 2 million in the second half. In addition to the AUD 2 million, there will be some remediation costs. Is a good way of thinking about those costs that it is obviously going to be less than what you incurred in the first half total, but more than zero. Like, I do not know, AUD 5 million or AUD 6 million of total headwinds from NDC versus 12.
Yeah, the way I would think about it, let's break it down. What we've identified and what we've indicated that you can see in the deck, I think it's on page six, is you clearly map out what the component parts of that AUD 12 million are. There's a number of factors driving that, whether that is the loss of MEBs and the impact that that has on gross profit, whether there's the impact relating to the transition of the sites, because we had two sites operating at the same time. That obviously is not replicated. There's the additional costs in relation to the online fulfillment. You're right in saying the track stock is no longer an issue. There's that. The second piece is the transition costs. We don't obviously have the two sites operating.
However, what we do have is the additional costs that will be for online fulfillment. That is one aspect. Secondly is just remediation. We are just working through. We are still working through what that cost will be from a remediation perspective. That is the way you should be. I guess that they are the costs that you should be thinking about: online fulfillment, remediation, and during that process, how do we remediate and what else there is. It is clearly for us, this is a very important component of our business. We are working through that remediation. When we have an update, particularly at Investor Day, we will be in a position to detail about what the pathway forward is and where we think the cost situation is.
Gotcha. The timing of the other synergies, so you've had AUD 30 million plus as the aim, you've automatically done AUD 11 million through the refinance, which I suspect that's a pro forma fiscal 2026 saving. The other AUD 20 million plus of synergies, is that more going to be weighted to fiscal 2027 now, or is that more of a 2026 story? How do we just think about the phasing of those cost savings?
Yeah. Yeah. It's a good call out. As I said, I'll refer you to what I said earlier around there's different buckets where we're focusing at the moment. Obviously, we're going to continue to be really focused on executing on the key areas around MYER one rollout, around e-commerce, around sourcing. There are other buckets that we'll be focused on, whether that's distribution, whether that's looking at synergies from how we operate. There's a bunch of different opportunities for us, which we have a program of work underway to realize as quickly as possible. Come Investor Day, we will provide a more detailed outlook and sequencing, because I hear what you're saying. You're after sequencing. We will provide more information on that. Clearly, we are going to be really focused on delivering those AUD 30 million.
I think you can see the fact that we've delivered on the refinancing shows the focus and shows that we're looking at moving at this pace.
Yeah. How come the refinancing is a AUD 3 million saving when the debt in the second, so AUD 3 million is a saving first half versus second half, right? The AUD 7 million finance cost becomes AUD 4 million. Given you have not refinanced, you have refinanced, but the existing facility has not expired yet. What is going on there?
We're finalizing docs to refine in the next few weeks. That will obviously be when the debt is refinanced. The material interest rate reduction from the refinance will be a benefit for part of the year. That's so.
Yeah. The annual interest expense that Myer will pay from fiscal 2026 onwards will be about AUD 7 million. Is that right?
No. 11.
Oh, sorry. Yes. Sorry. It'll be lower. We will be net interest positive. The cost of the new facility on an undrawn basis is around AUD 2 million.
Okay. Sorry, your first half 2025 interest cost was AUD 7 million.
Correct.
That's gross interest cost. The second half is AUD 3 million lower. It is AUD 4 million in the second half.
Correct.
There is an AUD 11 million saving in general. If your first half annual finance cost is AUD 14 million, so AUD 7 million times two, and it falls to AUD 3 million per annum.
It falls to AUD 2 million per annum.
2 million. Okay. Perfect. Really appreciate it, guys. Thank you.
No worries.
Thank you. Your next question comes from Joseph Michael from Morgan Stanley. Please go ahead.
Morning, Olivia. Morning, Andrew. Thanks for taking my questions. Just had a few. Just on the gross margins, so it looks like shrinkage is normalizing a little bit down 13%. Can you remind us of how much shrinkage expense is above sort of more normalized levels? Just trying to understand as that unwinds what the gross margin benefit will be.
Yeah. I mean, obviously, there's been a focus on shrinkage by the team over the last six months. We've indicated that we've made a number of investments there to try and bring that down. Look, I would say that it has been at heightened levels. You've heard that from all retailers. There's no surprise there. Obviously, it's going to continue to be a focus for us. We're making some headway. We've got a way to go. Just from a normalised perspective, I think in FY2024, we had around, it was around AUD 40 million cost to the business. Obviously, we're looking at making some headway around that. Yeah, it's about AUD 40 million last year. If you, I guess, consider that percentage improvement, then we can see where it normalises for the year. There will be some ups and downs.
You can maybe see it coming around AUD 32 million-AUD 35 million, 1% of sales, I guess, thereabouts.
Okay. Got it. The next question I had is just around the balance sheet, net cash really strong, well above AUD 200 million. How should we think about the priorities from a capital management point of view between sort of organic growth, inorganic, returning some of that cash to shareholders? How do we think about the priorities there?
Yeah. I think, and I'll hand to AT, I think what we are focused on and where we will talk to the investor day is having a really clear financial framework. It is very clear around what the priorities are, where we're allocating capital, what the hurdles will be, and what the return on that invested capital will be. That is something that we've been talking to our shareholders about, the need for this financial framework. We'll present that come Investor Day. AT, do you have anything else?
Yeah. Just to add on that, our focus will be on maintaining a balance sheet that is strong because we believe that is in the best interests of both our shareholders and lenders. Produces the lowest cost of capital. That will set our hurdle that we require for investment. We will be extremely disciplined in terms of investing such that the balance sheet remains strong but also delivers in excess returns for the shareholders.
Okay. Great. The last question I had is just around the trading update. I know there's already been a few questions there. Is it a fair comment to say that things are stabilizing? It looks like things slightly improved from the January trading update. If you normalize the one-offs into the second half, then comps are flat and total sales are flat. I know it's still tough out there, but is it a fair comment to say that things are stabilizing in a tough backdrop?
Unfortunately, I would think that's not the case. I think it is still unstable. I think it is tough trade. We are not seeing it stabilizing as yet. There is some volatility. There is definitely uncertainty in consumers. There is some disparity between states as well. We remain cautious. The trading conditions remain mixed.
Got it. Thank you.
Thank you.
Thank you. Your next question comes from Chami Ratnapala from Bell Potter Securities. Please go ahead.
Thank you. Good morning, Olivia, Andrew, and Kathy as well. Welcome, Kathy. A few questions from me first. I think quite a few on the trading update, so I might not go there. Maybe on the active customer side, nice to see sort of a growth in that active customers. And you've called out some new MYER one customers as well. I believe that the tiers in the loyalty program that's been started towards the end of last calendar year, has there been any sort of early signs associated? Maybe you talk to us if there has been any changes in the underlying sort of MYER one customer base as well.
Yeah. I think you're right to call out. It's a great result from a MYER one perspective. There's over 4.6 million active customers. The tag rate is really high at 79%, which demonstrates that our customers see value in the program. It clearly works as a driver of sales, both online and in store. It shows actually that our in-store teams are very much focused on engaging our customers with MYER one . It's a great result. Importantly, we're very focused on making sure that we continue to expand our membership, obviously driving engagement and driving engagement of the younger customer as well. What you can see from this result is the percentage of growth. It's overall about 54% under the age of 35, which is really encouraging.
It demonstrates not only the breadth and the size of MYER one , but also the different attractiveness it has to various age groups. It is part of our strategy going forward to how do we continue to drive diversity across our MYER one program? How do we continue to drive repeat visitation? I think you can see from the value that we are creating, I mentioned earlier, that our MYER one customers, they are 148% up compared to the spend of a non-MYER one customer. This is a strong base. It is great data. We are very excited when we roll out MYER one across Apparel Brands about the opportunity there that is further going to strengthen this ecosystem. We have indicated before that we are going to relaunch the program towards the end of the year.
That will all be about providing a program that is attractive to all our customers, improving the stride effect with new tiers, and making sure that the program delivers not only for customers, but for our business. This is all about driving across shop and making sure that the customer today that's buying apparel will buy cosmetics and home tomorrow. Great performance, signs of strength, but more to do and more opportunity.
Perfect. Thanks, Olivia. The next one would be on sourcing. I think with Apparel Brands coming over, there will be an even larger penetration to China. What are you seeing among the current sort of factory partners? I mean, quite a bit of volatility at the moment. I think I'm sure there are lots of negotiations going on as well. Maybe firstly to Australia as well, and then to you guys, how do you all think about the impact positively or negatively out of this?
Yeah. I mean, look, what I would say is that you're right. We have talked about sourcing being an opportunity and it is. We will be Australia's second largest producer of apparel. That obviously gives us scale. Scale is a very important factor when you think about the opportunities that it brings with working direct to factories and developing a new model within the Myer Group. Clearly, there are opportunities to streamline how Apparel Brands currently work along with the Myer Group. We have our Myer exclusive brands. We have our private label brands, which you talked about there before, around Marcs and David Lawrence and Sass & Bide, and equally, obviously, the five brands within Apparel Brands. Yes, we have scale opportunity, and we have an opportunity to work from a group perspective.
There is an opportunity to change the way that Myer, as in the Myer exclusive brands, design, produce, and develop products to make sure that they're increasingly efficient and have greater flexibility in turn time. That is work underway and an opportunity there. In terms of China, you're absolutely right. There is opportunity there. There is always opportunity. It's an opportunity across Asia as well, not just China. That is a space that we believe that there is potential upside for us given the changing nature of manufacturing in China. We look forward to updating you on that process in due course.
Yeah. Sorry. I should have actually said there. I mean, I was more referring to the current tariff environment for China.
Yeah. No, I understand where you're coming from.
Exactly. Yeah. There is opportunity there. I think we've indicated before, obviously, it's a changing market. Obviously, with the tariff situation with the US, we've seen companies in some instances already move their manufacturing out of China. Obviously, that provides opportunity for those that are currently there, including the Myer Group. Yes, there's obviously opportunity in a post-tariff or US tariff environment. We intend to seize on that opportunity.
Perfect. Yeah. My last question is, I understand that some more, what do you call it, leases are coming up for expiry. What's the view and what's the thinking on renewals and also new stores as well? Just staying in Myer for the moment.
Yeah. Look, there's no immediate leases that are up for expiring. As I mentioned before, property, we do believe there's a big opportunity. With Josh and his team to look at the broader portfolio and work with our landlords, we see there's opportunity for us there. We do have significant assets Australia-wide. Again, we'll look forward to talking to shareholders around where opportunities in coming months and indeed at Investor Day. There's nothing immediate from our perspective on that front.
Perfect. Thank you very much for taking my questions. All the best.
Anytime, Chami. Talk to you later.
Thank you. Your next question comes from Shaun Cousins from UBS. Please go ahead.
Great. Good morning. I'm Olivia and Andrew. Maybe just regarding NDC, can you just talk a bit about the 5-10 million benefits? Is that really around lower-cost online fulfillment, or is it also the benefit of potentially pushing in product in a little bit of a lighter fashion and then chasing winners such that you get less markdown in the store? Just a question on the five to 10, the composition. Then just the timing, given the challenges that have been experienced in the first half, 2025, and what will flow to the second half, should we expect the five to 10 really be a fiscal 2027, or could it actually be realized in fiscal 2026, please?
I think you answered your own question. In the first instance, you're spot on. Obviously, it's cheaper fulfillment from an online perspective, and there's opportunity there. E-commerce plays a really important role for Myer, and it will for the Myer Group. Obviously, making sure that we have the most cost-effective way for fulfilling those online orders. Yes, online fulfillment was one piece. Secondly, you're spot on as well in terms of your replen model and having centralised stock and pushing out to stores and allocating stock based on performance. Yes, you're spot on in terms of the five to 10. In terms of timing, we're just working through that at the moment. As I mentioned, the team are really focused on working out what the remediation plan is. We're currently just working out from a timing perspective.
When we have more clarity on what the short and longer-term future is of NDC and how quickly we can remediate the challenges, then obviously, we'll provide an update on the timing of that expected benefit.
Great. Thank you. My second question is just around the variation by state. You called that out. Was there any—and I'm conscious it's a very small time period—but was there any impact in Queensland from Cyclone Alfred and the floods and the disruption that went on there?
You won't see that. You won't see that yet in the numbers. That obviously was later. Remember, this is only five weeks. We'll talk later about that. Obviously, there's a disruption to business in Queensland with the floods. Yeah, that's not captured within that first five weeks.
The variation by state is that the state that gets called out by many retailers as having a tougher time is Victoria. Is that what you're—are you seeing that in your business as well?
Yes, we are. You're right. You're right. You're spot on there. Obviously, there's some additional complications because of the NDC. Remember that NDC actually plays a key role in terms of providing stock to Tasmania and also Victoria. There's a complicated factor there as well.
Great. Finally, just regarding the shrinkage comment, does that include shrinkage and theft of concession brand product, or is that AUD 40 million you referenced, 32-35 states?
Yeah. That's only out. We don't include that in the numbers. That's not incorporated. No.
Understood. No. Thank you for the clarification. Thanks, Olivia.
Pleasure. Anytime.
Thank you. Your next question comes from Garth Francis from MST Marquee. Please go ahead.
Hi. G'day, Olivia, Andrew, and Kathy. Thanks for taking my questions. If I may turn back to the trading updates, can you spit out how Apparel Brands has performed in those first five weeks, or is this the number that you provided? Is that exclusive of the Apparel Brands' performance?
No, it includes it in the—you'll see it in the—can you see it in the graph? We've included it there.
All right. Then.
Yeah. I should say that that so includes Apparel Brands. In terms of cycling major events, they're obviously with Taylor Swift and Pink. That also has an impact on both Myer and also Apparel Brands, given the way that a brand like Jay Jays, for example, participates in concert merchandising.
Right. Terrific. Okay. Just on the category performance, you called out apparel. Can you give us a sense of whether beauty had also been impacted with there's a large entity up for sale and whether they were more promotional just to?
Yeah. I mean, what we do see is we said obviously apparel is one of the more challenging components, which is one of the benefits of Myer, given its breadth of offering. However, what we've seen is that they're really leaning into homewares. So home has performed well for Myer, and also beauty has continued to perform well. Obviously, promotion impacts on all of them. If you're looking at comparable, how different TPCs are performing, then beauty and home are in a stronger position than apparel at this stage.
All right. Terrific. And then the CapEx, I understand this is probably more for the strategy day, but CapEx down and focus on the NDC for this half. Could you just give us a sense of whether this is the sort of level of CapEx just for the second half, given the disruptions that are still being bedded down , or if we should expect that to pick up again closer to what was paid in the first half of last year?
Yeah. There's no material CapEx planned in the second half. Obviously, going forward, the CapEx will be subject to the financial framework that we've alluded to and the returns that we require on any investment of capital. Of course, as we execute the growth strategy, CapEx will be required, and obviously, the investment and returns on that will be also required.
Thanks. Maybe on the working capital side, you mentioned the Chinese New Year and the pull forward for winter inventory as part of the reason for the inventory build. Payables was also up quite significantly. Is that partly through that, but were there any other timing issues around the payables increase that we should be aware of?
No. No.
None that we'll be none worth pulling out.
All right. Terrific. Thanks very much.
Thank you.
Thank you. Once again, if you would like to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question is a follow-up from Allan Franklin from Canaccord Genuity. Please go ahead.
Thank you. Sorry. I will bite my tongue just noting the time has passed. I'll hold the question for later. Thank you.
Many thanks. Thanks, everyone, for joining the call today. We really appreciate your time.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.