Ladies and gentlemen, welcome to Shaver Shop's results presentation and investor conference call for the half-year ended 31st December 2023. Please note that today's call is being recorded. There will be a presentation followed by a Q&A session. Presenting today will be Cameron Fox, Shaver Shop's CEO and Managing Director, and Larry Hamson, Shaver Shop's CFO and Company Secretary. If you wish to follow along with the slides, Shaver Shop's presentation has been lodged with the ASX and is also available from Shaver Shop's Investor Centre website. I will now hand over to Cameron Fox. Please go ahead.
Good morning all, and thank you for joining us today. Larry and I are pleased to be presenting Shaver Shop's results for the first half. There will be a short Q&A session at the end of our presentation to respond to any questions. Moving on to slide two on our agenda, I will quickly run through our first half highlights, then Larry will go into our financial results in more detail before handing back to me to outline our second half priorities and trading update. There are also some appendices at the end of the presentation which provide some additional detail for those interested. Okay, with that, let's move on to our highlights on slide four. Our first half sales declined by 3.7% to AUD 127.0 million as we dealt with a more discerning and price-conscious consumer.
Pleasingly, our quarterly trend improved between quarter one and quarter two, and this has continued into quarter three, and more on that later. We had expected the softer trading environment and implemented a multi-pronged approach to mitigate the risk we saw to sales volumes. One of our focus areas was maximizing gross profit margin in dollars, something we were successful at doing with a 10 basis point increase in gross profit percentage to 44.4%. We also focused on maximizing sales conversion within our stores. The average across the first half was 44.8%, and while this was down on our elevated result of the prior year, it was still above our internal targets. With costs well controlled, our net profit after tax was AUD 12.5 million, down 8.6% on the comparative FY2023 result. Net cash came in at AUD 31.9 million, supported by operating cash flow of AUD 34.9 million.
So in short, while demand was more subdued this half, we delivered a very healthy net profit outcome and continue to maintain a sound financial position evidenced by our ending net cash balance. This has led the board to declare a AUD 0.047 per share interim dividend, fully franked. Now, this is flat on last year but represents an increase in our payout ratio. Let's look at the first half sales drivers in a bit more detail on slide five. One of our key drivers of in-store sales is the level of foot passing our stores, our foot traffic passing our stores. What we've seen based on the sensors we have in our stores is that foot traffic was down around 13% compared to the first half of 2023 and is down significantly more than this compared to pre-COVID levels.
We were able to partially offset the decline in foot traffic versus the prior comparative period with an increase in shopfront conversion. Now, this metric is the proportion of passers-by that actually choose to enter our store, so it's a measure of Shaver Shop's relevance to the customer. Once in our store, the next factor we measure is the percentage of shoppers that actually make a purchase, a critical KPI known as sales conversion that is influenced by shoppers' propensity to spend as well as our sales capability. Pleasingly, sales conversion remains materially higher than pre-COVID levels, standing at 44.8% for the first half. This is roughly 120 basis points below the prior comparative period but still a very solid measure and reinforces our belief that despite the pressure on household budgets, we are increasingly seen as the shopping destination for his and hers personal grooming.
Also important drivers of sales success is our ability to deliver relevant and compelling promotional campaigns. Coming into quarter two, we worked closely with our suppliers to secure attractive promotional pricing and adequate stock in key categories where we expected stronger relative consumer demand. This strategy worked well and ultimately also supported higher average transaction values. We also worked aggressively to drive strong online traffic to our websites by increasing online ad spend and continuing to improve our social media presence. Now, this is still a work in progress, but we are pleased that online sales were flat compared to the first half of FY2023 at AUD 31.1 million.
This is lower than the online sales achieved during the lockdown period of FY2021 and FY2022 when many of our stores were closed but is more than 53% higher than the online sales generated in the first half of FY20 financial year, which is obviously prior to COVID. As a percentage of total sales, online has steadied at around 23%-25%. Now, this may creep up slightly over time, but as was said before, given the nature of the categories we sell, we expect in-store shopping will remain the dominant sales channel for Shaver Shop. Now, onto slide 6 and how it performed in each quarter. After a stronger than expected performance in June, quarter one started softly with almost all of our key trading metrics trending in red.
We ended quarter one with sales down 6.2% on the prior corresponding period with both outside and inside foot traffic down. Despite foot traffic being even softer in quarter two, we entered the quarter with a very strong promotional plan, and we were ready to execute. In-store sales conversion was almost flat in quarter two compared to the prior year, and the strategy that focused on a few key areas with high price points helped drive a significant increase in average transaction values. This, together with online sales returning to growth, mitigated most of the foot traffic decline in shopping centers, leading to our sales ending the quarter 1.9% down, a notable improvement on quarter one trend. Compared to pre-COVID, sales in quarter one were up 25% or so, with quarter two being up almost 14%.
Our business is still in great shape with a brand and category proposition that clearly resonates strongly with consumers of all ages and demographics. In terms of gross profits, slide seven illustrates our gross margin trend in the first half compared to the last four comparative periods. As you can see in the top right graph, our gross profit margins have been very resilient since FY2021, being up at around the 44% level. Exclusive products continue to be a driver of the margin result, particularly across our core men's and women's hair removal categories. As I mentioned earlier, we also work collaboratively with suppliers to lock in one of our strongest promotional plans leading into Black Friday and Christmas that I can remember.
We back this up with staff training, adequate stock cover, as well as over and above marketing spend to maximize the sales and gross profit of key lines in the lead-up to both Christmas and through Boxing Day. We remain fiercely competitive on pricing in our core categories and chose to take a more opportunistic and pragmatic approach to promotional pricing across select trade-wide models. We believe this resulted in a solid balance in supporting sales and customer conversion opportunities in a fiscally responsible manner. So overall, I'm proud of the result that we delivered in a more challenging retail environment. Certainly, we are never comfortable posting a decline in sales, but in terms of the factors that we control, we executed well and mitigated as much of the environmental headwinds as possible. I'll now hand over to Larry, who will take you through our financial results in more detail.
Thanks, Cameron. Slide nine shows a higher-level view of our P&L. As mentioned earlier, sales were down around 3.7% to AUD 127 million. We continue to see Christmas shopping patterns extending across November and December, with Black Friday promotions starting around mid-November and increasingly pulling forward spending at the expense of the first two weeks of December. This is causing us to change the way that we roster our stores and promote our products in the lead-up to Christmas. We see this as a structural change that's here to stay, with Black Friday becoming bigger and bigger each year. With gross margin being up 10 basis points to 44.4%, we were able to offset a portion of the sales variance, leading to gross profit dollars coming in at AUD 56.4 million, down 3.5%.
One of the key highlights of the first half result was our ability to control operating costs, with our cost of doing business only increasing 0.3% or around AUD 100,000. We'll dig into this in a bit more detail on the next slide. When you look at our depreciation and interest, there are some trends that are worth calling out. The first is on lease depreciation and lease interest. We've talked in previous presentations about our strategies to reduce the average lease term across our portfolio of stores. This was first and foremost to mitigate some of the risk of tenancy mix changes in many of the shopping centers around Australia, particularly around the time of the pandemic. As lease tenor has declined, this has led to an increasing proportion of our lease expense being recognized as depreciation compared to lease interest. We don't see this changing in the near term.
We also had a higher number of leases in holdover this half compared to the same time last year. Both of these influencing factors explain the movements in depreciation and interest, as well as the decline in the Right-of-Use Asset and lease liability values on our balance sheet. With cash on deposit now also generating a meaningful yield, we invested our Net Cash across the half to generate incremental interest income. All of these factors led to Net Profit After Tax declining 8.6% to AUD 12.5 million and generating basic EPS of AUD 0.097 per share. Our cash EPS, which adjusts for the tax benefit we receive on the franchise buybacks that we completed, was AUD 0.101 per share, down 9%. Let's now move on to slide 10, which further explains the movements across our Cost of Doing Business.
As mentioned on the last slide, costs of doing business were effectively flat year-over-year despite the inflationary cost pressures felt across the business. Employment costs increased AUD 1.0 million or 5.8%, which reflects the 5.75% increase mandated under the General Retail Industry Award. The key area where we were able to offset this cost increase was in marketing and advertising, where we reduced our free-to-air TV spend and invested a portion of the savings back into digital advertising. This is a strategy we've been tweaking over several years but was a much more aggressive approach this half. We probably reduce marketing spend as far as we can without impacting sales, as we'll likely see diminishing returns if we cut marketing expenditure too much further.
We saw inflationary cost pressures also coming through our operational expenses and corporate overheads, but we were able to reduce expenditure in some of the lines in these areas to offset it. As a percentage of sales, and excluding lease depreciation and lease interest, our costs of doing business increased to 23.9%, up 90 basis points on the prior comparative period. Overall, we think this is a credible result given the current inflationary environment. Moving on to our balance sheet on slide 11. As mentioned on prior presentations, we are a seasonal business, and therefore it's important to compare our balance sheet to the prior comparative period, not just to our June year-end.
Our cash balance is at a seasonal high point at the end of December, reflecting the fact that we've just been through our peak sales period but have not yet had to pay for much of the stock that we've already sold through. Net cash was AUD 31.9 million at 31 December with no debt, and we had an undrawn AUD 29.5 million debt facility. We didn't need to call upon that facility at any time in the first half. Inventory remains exceptionally clean. It was up AUD 1.6 million on the comparative period last year, reflecting changes in supplier and stock mix as well as having one more store in the network at period end. We're continuing to invest in our store refresh program to bring our stores up to our latest brand and merchandising standards.
We're also upgrading one of our core software platforms to improve operational efficiency as well as customer experience. We expect this to go live in the second half of this financial year. These investments are leading to slightly higher PP&E and software intangibles balances. The change in supplier mix also led to a slight change in payment profiles, with our trade payables decreasing AUD 2.7 million compared to the same time last year. Lastly on this slide, Shaver Shop's net asset balance was AUD 90.4 million at the end of the half, up AUD 3.9 million on the prior comparative period. Now onto cash flow on slide 12. We started the period with AUD 13.5 million net cash on the 1st of July. Operating cash flow was AUD 34.9 million in the first half.
This was down on last year due to two primary factors, the first being the need to increase stock levels back to a more optimal level in Q1 after much stronger sales than expected in June 2023. We highlighted in our 2023 results presentation that we thought stock levels were already around AUD 2 million lower than optimal at the 30th of June, and that we had already replenished that at the beginning of Q1. The second reason was due to the change in supplier mix and associated payment terms as referenced on the prior slide. This resulted in AUD 2.7 million lower trade payables than the same time last year despite the AUD 1.6 million increase in stock across the network. We used a strong operating cash flow to invest AUD 1.8 million in upgrading four of our stores, including reopening our flagship Chadstone location just before Christmas.
We also continued to invest in our IT network security hardware and core software platforms. Finally, we returned just shy of AUD 7 million to shareholders by way of the AUD 0.055 fully franked final dividend for 2023. Overall, the business remains highly cash-generative, something we don't expect to change. We ended the period with almost AUD 32 million in cash, but as mentioned on the last slide, this unwinds considerably in January and February when we pay suppliers for Christmas stock purchases and then pay the interim dividend that was announced today later in March. Speaking of dividends, slide 13 shows the trend in Shaver Shop's dividends over the last five years. As Cameron mentioned, the board today declared a AUD 0.047 fully franked interim dividend, which matches last year's interim dividend.
This is another increase in the payout ratio of net profit that's being returned to shareholders by way of dividend payments. The board continues to consider various capital management alternatives. Having regard to the current retail environment, there's a desire to maintain a strong and liquid balance sheet as well as have the flexibility to pursue and invest in accretive growth opportunities should they arise. Finally, and importantly, Shaver Shop's annualized return on capital employed remains a very strong 26.1%. That concludes my presentation. I'll now hand you back to Cameron to go through our second half priorities and trading update.
Thank you, Larry. I'm now on slide 15. We are very clear on the priorities that will drive Shaver Shop's success. First and foremost, we must continue offering our customers a unique and enjoyable shopping experience defined by exceptional customer service and compelling value-for-money offers across our entire range of products. Now, to do this, we need to continue investing in our store teams to ensure they have the latest insights on the products we sell and how to explain these benefits to our customers in a simple and easy-to-understand manner. Many of the products we sell are quite technical in nature, so it's important we engage at an appropriate level for the customer. We are confident this leads to increased customer satisfaction as well as a higher likelihood of selling our products and creating brand loyalty for Shaver Shop.
We will continue to balance top-line demand with gross profit dollar growth, something that's worked very well for us over the last few years. We have several stores lined up for full-store refits over the coming 12 months, with Woden, ACT and Chapel Street, Victoria, occurring this quarter. Our technology investment program also continues with the expected launch of a core software program in the second half. We've been investing in this system over the last 12 months and are now entering the key UAT phase. We will continue to look to expand the contribution from our exclusive only at Shaver Shop ranges, and finally, we will seek to identify between one and three new site opportunities over the next 12 months. Now, that said, we'll only open these new stores if we are confident they will drive a commercially acceptable return on capital.
Equally important at the moment is ensuring that our existing stores are located in the right areas, are the right size, and have the right commercials so they maximize their potential. This is obviously an ongoing process with our landlords that will continue to influence our success. Now onto our trading update on slide 17. Pleasingly, the improving sales trend that we saw across quarter one and quarter two has continued into quarter three, with sales being up 0.9% between 1st of January and the 22nd of February of this year. Like-for-like sales over the same period were down 0.7%. We're encouraged by this improvement compared to quarter one and quarter two, but are conscious that the retail environment remains fickle, with consumers having less disposable income and being more influenced to shop at the big promotional events.
This means we need to continue to execute well, particularly why foot traffic in our shopping centers remains soft. Our strategy for maximizing gross profit dollars has continued to pay dividends so far in the second half, with our gross margin percentage in line with that of the comparative prior period. So in conclusion, Shaver Shop remains very well placed to benefit from the continued acceptance of men's and women's DIY personal grooming. We have a unique specialty retail model built upon exceptional customer service, unparalleled product knowledge, depth, and breadth of range, with a high percentage of our sales and gross profit coming from exclusive product lines and compelling value-for-money offers to our customers. This positions us well to end the year strongly and return to growth as consumer sentiment improves. That concludes our presentation. We'd be pleased to respond to any questions you may have.
Thank you. We've now opened the floor for questions. If you would like to ask a question, please press star followed by the number one on your telephone keypad to raise your hand and enter the queue. If you are using a loudspeaker and are selected to ask your question, kindly switch to your handset to ensure your question can be clearly heard. Again, press star one to join the queue for questions, and your first question comes from the line of Andrew Johnston from MST Access. Your line is open.
Oh, good afternoon, Cameron and Larry. Well done on a good result. Looks like you had to work pretty hard on a couple of fronts to get all the numbers together. So well done on getting there. A few questions. I'll start with ones that runs around the product. So we saw a shift in the product mix and a shift in supplies as well, and we saw some numbers changing payables come through as a result of that. Has there been any significant change in the percentage of exclusive products that you're selling as a result of that shift in product mix?
Yeah, hi, Andrew. It's Cameron. In terms of percentage of sales from exclusive product lines, no, there's been no material change at all. So pretty consistent in terms of revenue derived from those exclusive product lines.
Okay. Can you make any more comments around your store software that you're rolling out? That looks like it's a combination of both customer-facing as well as internal. Is that correct? Can you give us any more detail around that?
Yeah. Unfortunately, Andrew can't give you too much more detail on that, although it does touch, as we say, customer and internal touchpoints. With today's technology platforms, basically, all of our platforms are linked in one way to one another if they have a financial impact. So all the integrations that happen between those systems are core for us getting right. That's why it takes a while for us to get through that investment process. I don't want to go through too much more detail, but it is a core platform. We're looking to get it up as soon as possible.
Okay. And in terms of, and this may link into the last question, but in terms of your social media presence and the ability to drive sales from your social media presence, how's that? I know you've had some pretty good improvements in that over the last couple of years. How's that tracking now?
Yeah, I'm happy to take that, Andrew. Look, hopefully, you've seen yourself being a lot more active in that space in terms of social media activity. We've long said that we'd like to be leveraging our product knowledge that our store teams have and using those personalities across social media platforms. And that's really what we've been able to execute over the last six-12 months, really tapping into those folks at store level and helping position Shaver Shop as the category and product matter experts. So I think we've developed significantly across our social media platforms over the last 12 months, and that's certainly helped in part drive some organic growth through search as well.
It's fair to say that we're still probably 50% through the sort of roadmap that we have in terms of being or getting to the position we want to as a brand across social media platforms.
Okay. Thanks, Cameron. I'm impressed that you thought I might spend enough time on social media to have noticed the difference. I didn't, but I was.
I was trying to be generous with you there, Andrew, so I'm not sure I'm picking you for a TikTok user, but anyhow.
I'm probably not the target customer, unfortunately, either, both on a couple of accounts. Okay. Thanks very much, guys. I'll leave it there. I'll come back later with a question around capital management and M&A, but that's enough for now. Thanks very much.
Yeah, Andrew. Thanks.
Your next question comes from the line of Patrick Labordet, investor. Your line is open.
Yeah. Hello. Just wanted to come back, in fact, about your capital management. In page 12 of your slide, you mentioned we consider capital management options. So can you give more details about this?
Yeah, I'm happy to take that one, Patrick. So at the moment, the board is wanting to retain, as I said in the presentation, a strong balance sheet and liquid financial position. We're hopeful that over the next six-12 months, there might be some investment opportunities that will be accretive for shareholders where we can deploy that capital and generate incremental returns. But I guess if that doesn't come to bear, then the board is always considering other capital management alternatives. But at the present time, we're choosing not to pursue those. So, hope that answers your question.
Yeah. Thank you.
No worries.
Before we continue on to our next question, a reminder, if you would like to join the queue and ask a question or a follow-up, please press star one on your telephone keypad. Your next question comes from the line of James Casey from Ord Minnett. Your line is open.
Good morning, gents. I just wanted to ask a question in relation to foot traffic. So I think foot traffic declined slightly in the second quarter. Your sales have improved thus far in the second half. I just wonder whether you'd comment on the foot traffic observations or data you've seen in the second half 2024 so far.
Second half 2024 is still pretty consistent, actually, with the second quarter of the year. So it hasn't changed materially. What we've seen is outside foot traffic continue to be well down on the prior comparative period. Our ability to actually attract those customers into our store has improved versus last year. So our shopfront conversion has improved, which is pleasing, but still outside foot traffic at shopping centres, based on the numbers we collect, is still well down on last year across Q2 and Q3.
So down kind of low teens still?
Yeah.
Yeah. Okay. Just a final one, just on your debt facility, Larry, is it? That's around AUD 30 million from memory. Is that about right?
Yeah, it's 29.5. So there's a AUD 10 million trade finance facility and then a term facility as well, a AUD 19.5 million term facility. Those are looking to be renewed around the 31st of July.
2024. Yep. Okay. Thank you.
Thank you.
Thanks.
That does conclude our Q&A session for today. I would like to hand the call back over to Cameron for closing remarks.
Thank you. Just in conclusion, Shaver Shop is a segment leader both online and offline. We're a large and growing market driven by changing consumer preferences and new product innovation. Our product range is applicable to almost all consumer demographics, and importantly, we are a differentiated and resilient specialty retail business model. Our fundamentals rely on service excellence and unparalleled product knowledge, product exclusivity, as we've covered off through today's presentation, and offering competitive, value-based pricing. We do believe we have an opportunity to further increase our market share, particularly within specific categories. We have high brand awareness in Australia. New Zealand brand awareness is growing. We have a proven and highly profitable omni-retail model. We have a clean balance sheet, no debt, with high cash conversion. We have an experienced board and management team. We're focused on investing for growth and improving total shareholder returns.
Hopefully, everyone would agree we have attractive dividend payout and fully frank dividend yield. In conclusion, thank you for everybody's participation today. We appreciate everybody's support. Thank you.
This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.