Ladies and gentlemen, welcome to Super Retail Group's FY 2023 full year results presentation. Today's presentation will be made by Chief Executive Officer and Managing Director, Mr. Anthony Heraghty, and Chief Financial Officer, Mr. David Burns. There will be an opportunity to ask questions at the end of the call. Today's presentation is for investors and research analysts only. Members of the press wishing to speak with management should contact Kate Carini, whose contact details appear at the bottom of today's ASX announcement. I would now like to hand over to Mr. Anthony Heraghty to begin today's call.
Thank you, operator, and welcome everyone, to Super Retail Group's full year results presentation. In terms of structure for today's presentation, I'll begin by speaking to some of our financial, operating, and ESG highlights for the period before speaking to the performance of each of the brands. Our Chief Financial Officer, David Burns, who's joining me here today. Good morning, David.
Good morning, everyone.
We'll provide you with more detail on the full year results. I'll then provide you an update on progress we're making in executing our corporate strategy and our approach to capital management. Finally, I'll provide you with a trading update, which everyone is always interested in, for the new financial year. Of course, there'll be an opportunity for you to ask questions at the end of the call. Before we get started, it's important just to cover off some housekeeping, which is set out on page two. FY 2023 comprised, I should say, a 52-week trading period, as compared to 53 for FY 2022.
We've had one less week of trading this year. Unless otherwise indicated, growth numbers in the presentation are comparing a 52-week trading period in 2023 with a 53-week trading period performance in FY 2022.
Adjusted numbers do show an apples with apples, 52 versus 52 comparison. Finally, and probably most importantly, all like-for-like numbers in this presentation are also based on a 52 versus 52 comparison for stores which have been open for more than 12 months. All right, that all said, let's get to it. Over on slide five, the group delivered a record sales of AUD 3.8 billion, driven by like-for-like sales growth of 8%.
Pleasingly, notwithstanding the return to a more normalized promotional environment, we were able to deliver gross margin of 46.2% above pre-COVID levels. Segment PBT was up 12% to AUD 391 million, and segment PBT margin increased 50 basis points to 10.3%.
This translated into a statutory net profit after tax of AUD 263 million and a normalized NPAT of AUD 274 million. The AUD 8.8 million difference between the statutory and underlying the recognition of the proceedings filed by the Fair Work Ombudsman in January 2023 and costs relating to the team member wage remediation.
The board has determined to pay a fully franked final dividend of AUD 0.44 per share and a fully franked special dividend of AUD 0.25 per share, together with an interim dividend of AUD 0.34 per share, which represents aggregate annual dividends to shareholders of AUD 1.03 per share. The group is entering FY 2024 in a strong financial position, with no drawn bank debt and AUD 192 million of cash on hand. We go to slide six.
Won't go into a lot of detail. Group delivered about AUD 3.8 billion in sales, which represented a 7% sales growth, or adjusting for that pesky extra week, 9% sales growth. All four of our core brands delivered record full year sales. Slide seven provides a more detailed breakdown of like-to-like sales between the first and second half. Following an 11% like-to-like growth in the first half, we delivered a 6% like-for-like sales growth in the second.
In comparing our first and second half performance, I'll remind you that the first half sales in the previous year were adversely impacted by COVID-19. All four of our brands have delivered positive like-for-like sales growth in the second half, despite a weakening consumer environment.
Finally, I note that sales momentum in BCF actually improved in the second half, which shows continuing support for the outdoor category post-pandemic. Slide eight shows the five-year group trend for gross margin, cost of doing business, and profit before tax. Group gross margin is normalizing, but we're happy with this result, particularly given the pressures on domestic supply chain during the year.
Cost of doing business as a percentage of sales has improved by 60 basis points, despite inflationary pressures on rent, electricity, and wages. This reflects the impact of some of the group's cost-out initiatives, which I'll discuss on the next slide.
Inflationary pressures will continue to impact the group's cost base in FY 2024. While we continue to practically manage our costs to align with revenue, we reasonably expect that % of sales for CODB, or I should say, sorry, CODB as a percent of sales will increase next year. The net impact of the gross margin and CODB outcomes has been a 50-basis points improvement in PBT margin for the group. Over to slide nine.
I've previously spoken to a number of projects the group has underway designed to protect margin and manage our cost base. In light of the challenging macro environments, we're reiterating these steps we're taking to maintain profitability and align costs with revenue.
In terms of gross margin, the good news is that inflationary pressure from the supply chain has continued to moderate, with offshore freight costs back to historic levels and domestic supply chain pressures starting to ease. We've successfully negotiated terms with our ocean freight providers and trade partners to achieve rate reductions, which will benefit COGS over the medium term. Our strategic pricing team is continuing to work with each of our brands to optimize our approach to price setting, clearance, and discounting.
As part of our strategic goal to simplify the business, we are achieving meaningful benefits from a more centralized approach to tendering and procurement across the group. The recent Annual Wage Review decision and the renewal of our EBA in February 2024 will impact our wages bill in FY 2024.
While ongoing investment in our workforce planning systems to optimize store roster will provide a level of offset, we reasonably expect that wages will increase as a percentage of sales in the FY 2024 period. In terms of rental exposure, exposure, or rental increase exposure, approximately one half of the group's leases are CPI linked, although a portion of those leases have capped increases. I would note that the group's weighted average lease expiry is around three years. That means we have over 200 leases due for renegotiation each year.
That clearly provides us the flexibility to renegotiate rent based on market conditions and market rates. Slide 10. Group inventory at the end of FY 2023 was AUD 11 million lower than 12 months ago. Overall, inventory levels are 21% of sales, which is in line with pre-COVID period or the pre-COVID period.
For those of you seeking further detail, the composition of inventory by brand is set out in the segment note. The detail in the segment note shows that the value of inventory held in both Supercheap Auto and BCF has decreased compared to FY 2022. Rebel's inventory position reflects a normalization compared to 12 months ago, where, frankly, trade partner supply constraints and disruption actually constrained the inventory levels at that time. There's a modest increase in Macpac's inventory levels, which is consistent with the expansion of the store network.
In short, we're pretty comfortable with the inventory position, noting, as we always do, that the products we sell are non-fashionable and non-perishable. Off to slide 11, shows that we've added over 1 million active club members.
Remember, to be an active club member, in this number means you have to be a member who has purchased from us in the last 12 months. On top of that growth, we've also seen our NPS score move from 64 to 67. In simple arithmetic, we've got more customers, and they're happier than they were 12 months ago. Currently, across the group, these active members represent 73% of total sales.
Probably appropriate to call out with BCF striking close to 90% of total sales as club members, being quite a significant achievement. In the context of this softer consumer environment, this is an important figure because these are shoppers that we know, that know our brands and whom, whom we can communicate directly.
Means we have less reliance on casual shoppers just walking past the shops. Having now reached over 10 million active club members, our goal is pretty simple: I'm gonna continue to grow those members. I'm gonna focus on increasing the annual average club member spend. On slide 12. In terms of store network, we've opened 24 new stores in FY 2023 and plan to open another 24 in the current year, including another BCF super store, which I'll touch on shortly.
In addition to these new store openings, we can plan on converting another four of our Rebel stores to the rCX format, and we'll continue the very important ongoing refurbishment of the Supercheap Auto fleet by upgrading them to the next generation format. If we go to slide 13, provides a little bit more detail about the rCX performance.
For those that have been following the company for some time, you'd know our first rCX store opened in the middle of the pandemic in Doncaster in 2020, and now we have reached 15 rCX flagship stores. This format has been designed in partnership with Nike and other key trade partners, and it continues to provide innovative displays, differentiated experiences for customers in the core categories of running, gym and fitness, football, basketball, and kids.
There's two call-outs I want to make on this slide 13. The first is that the rCX stores as a cohort are making an increased contribution to Rebel's performance. For now, it's an 18% of Rebel sales in FY 2023, and this contribution is obviously going to grow as we expand the rCX fleet.
Secondly, the capital we've invested in rCX stores has resulted in a significant increase in our sales base. The analysis on the bottom half of this slide shows an uplift, the uplift for the 10 rCX stores that have operated for the whole of 2023 compared to those stores in FY 2020, prior to their conversion. The investment we've made in these stores has delivered an increase of more than AUD 2,000 per square meter and a 50% increase in total sales when compared to from 2023 back to 2020, FY 2020.
Similarly, slide 14 provides a little bit of color about performance of our BCF Townsville Superstore, which we opened in November 2022. The Townsville Superstore grew from 2,500 square meters to 5,500 square meters and holds just shy of 30,000 SKUs.
We're obviously very pleased with how the store is performing. This has led us to open a second store in Kawana on the Sunshine Coast in June 2023. We're pretty pleased with how that's going. With the expanded ranges across fishing, boating, spearfishing, power solutions, caravaning, and four-wheel drive, our brand partners are embracing the superstore concept, which gives customers the opportunity to see, but most importantly, touch and learn about how products we sell will enhance their outdoor experience.
On slide 15, omni and digital. We've had AUD 445 million of online sales in the period. Notably, online as a percentage of sales have declined from 17% to 12%. This is just reflecting the shift from online to in-store as customers revert to pre-COVID shopping behavior. However, importantly, Click and Collect, which represents our most profitable channel.
of all the channels, so not just online, accounted for almost half online sales. To slide 17, we note our 15,000-plus team members continue to be highly engaged with the business. This year, we recorded engagement scores of 81 and 80, both well above the achievement benchmark for team members. We remain committed to the diversity across the organization as we pursue our goal of 40/40/20, represented in our board, executive, and senior leadership positions by 2025.
Over the next 12 months, we also plan to develop our inaugural Reflect Reconciliation Action Plan, as we seek to advance the cause of reconciliation and deliver meaningful outcomes for our Aboriginal and Torres Strait Islander team members.
On to slide 18, we're making very solid progress on our sustainability agenda, which is focused on supporting our people and limiting the impact of our operations and products on the environment. As a group, we've set out a decarbonization target of zero Scope 1 and Scope 2 greenhouse gas emissions by 2030, which includes the emissions generated by our operations and from our energy use. We've reduced both emission types against our base year by 26% through initiatives including LED lighting upgrades, installation of solar panels, and an energy efficiency program for our stores.
We were again included in the S&P Global Sustainability Yearbook in 2023 and achieved a top quartile result. Slide 21 and 22 are self-explanatory, so I'll then move on to the brand slides. To start with, Supercheap Auto. Wow!
Supercheap Auto has delivered another strong performance this year, and I think that's an understatement, reinforcing the reliability of the auto category and frankly, the strength of the Supercheap Auto brand. Benjamin Ward and his team have done a super job, excuse the pun, and delivered a record full-year sales result, a record number, NPS score, and a record number of fitments for the in-store service program.
It's continued to excel in customer acquisition, having added more than 550,000 active club members to their Club Plus membership program in the last 12 months. The business has also benefited from the upgrade of over 37 stores to the next generation format.
These stores include a dedicated floor space for growth categories, including tools, four-wheel drive, and designated service zones for the do-it-for-me fitment services, improved visibility of Click and Collect, get better signage and lighting. Earlier this year, Supercheap Auto modernized the brand with a new visual identity and a new slogan: "Wherever you are, whatever you drive, make it super." This rebranding has been extremely effective in helping the Supercheap Auto appeal to a more diverse range of customers.
A summary of the financial performance of Supercheap Auto is set out on slide 24, but I want to make the following callouts. Total sales grew by 8% to AUD 1.45 billion, or 10%, adjusted for that extra week. Like-for-like sales grew by 10%, driven by growth in transaction volumes and transaction value.
Second half, second half like-for-like sales growth was 6%. PBT margin increased by 100 basis points to 14.1%, and PBT increased by 16% to AUD 204 million. Very, very well done. To Rebel. Gary Williams and the Rebel team delivered a record full-year sales result. Performance sports, basketball, and football was Rebel's strongest performing category, benefiting from the successful rollout of the home and sports format.
Key events, yes, the Women's World Cup, and a rebound in participation in grassroots sport, which is fabulous news to Rebel. Following the opening of our four rCX stores in the period at Erina, Joondalup, Knox, and Warringah, Rebel has now a total of 15 Rebel rCX stores.
It's also worth noting that Rebel's top three performing rCX stores are now part of the AUD 20 million a year sales club, which is quite an achievement. In addition to this rCX store rollout, Rebel commenced a regional store rollout by opening stores in the likes of Dubbo, Tamworth, Ballina, and Nowra. We've been pleased with the performance of these stores and we really see further near-term opportunities for regional store openings.
On top of this, Rebel has expanded its power range to include P.E Nation, Lorna Jane, and THE UPSIDE, and launched a redesigned Rebel website. A summary of the financial performance is set out in slide 26. I want to call out the following: Total sales grew 8% to AUD 1.3 billion, or 10%, adjusted for the extra 53rd week.
Like-for-like sales grew 9%, driven by high, high transaction volume. Second half like-for-like sales growth was 7%. PBT margin fell by 40 basis points to 11.2%. PBT increased by 4% to AUD 146 million. On to BCF. BCF, well, Paul Bradshaw and the BCF team not only delivered a record sales result but actually improved their like-for-like sales momentum in the second half, which I think puts them into some rarefied air. Among other highlights, BCF successfully launched the new super store format in Townsville and Kawana.
The Townsville super store is on track to join that AUD 20 million a year sales club with, with some of the rCX formats. BCF achieved a 10% sales growth in fishing category. Club member sales increased to 89% of sales.
In response to the competitive market, BCF is focused on developing a portfolio of private and strategic brands to differentiate itself from competitors and to provide customers with access to exclusive products. BCF Partnerships- partners with leading outdoor specialty brands including YETI, Weber, Darche, Dometic, and Lowrance. They're providing successful sales from strategic and private brands, now representing more than 50% of BCF's total sales. There are positive signs that this strategy is leading to growth in BCF market share.
A summary of the financial performance is set out on slide 29. I want to call out that total sales grew by 1% to AUD 840 million or 3%, adjusted for that 53rd week. Like-for-like sales are flat, as higher transaction volumes were offset by a modest decline in APV.
Like-for-like sales grew by 3% in the second half. Against this backdrop, segment PBT of AUD 51 million was a very credible result. Macpac. Macpac delivered a record full-year result, driven by favorable weather conditions in the first half and a continued rebound in tourism and travel activity. I'm pleased to report that Cathy Seah and the Macpac team have, for the first time, delivered over AUD 200 million of sales, underpinned by 20% growth in annual customer transactions.
Macpac opened six new stores, bringing its network to 89 stores across Australia and New Zealand. On top of that, Macpac product is now stocked in 200 Rebel and BCF locations across Australia, supporting growth and brand awareness.
Similarly, the performance of the other brands is set out in slide 31, but I want to call out the following: like-for-like sales grew by 22% or 27%, adjusted for the 53rd week. Like-for-like sales grew by 24%, 26% in Australia and 20% in New Zealand. Second half, like-for-like sales grew by 5%, noting the first half, like-for-like sales were cycling that COVID impact prior corresponding period.
PBT margin increased by 280 basis points to a 13.3% and reflected a 140 basis point improvement in gross margins. PBT increased by 54% to almost AUD 29 million. Now I'd like to hand over to David Burns to talk in more detail to the financials.
Thank you, Anthony. Slide 31, group unallocated. This segment includes our corporate costs and costs that are not allocated to the brand segments, due to the cost being not related to the underlying trading of the brands in the financial year. Pleasingly, corporate costs have decreased to AUD 22 million, AUD 3 million lower than PCP. The customer loyalty capability build has been undertaken over a number of years, targeting to benefit all brands.
We outlined that we will hold the cost to develop the personalization and loyalty capability in group unallocated until it is in use by the brands. The investment in 2023 of AUD 18 million was slightly below the AUD 19 million we advised at the start of the year.
The customer program has further development for Supercheap Auto and BCF to be completed, and that will be deployed in FY 2024, those costs will approximate AUD 8 million, and those costs will be held in the 2024 year in group unallocated. All the costs associated with the Rebel loyalty program will be borne by Rebel once the capability is in market.
We disposed of our AutoGuru investment in the year, recognizing the proceeds, having written off the business to zero in FY 2022. We received AUD 3.7 million of interest income in the year, benefiting from our strong cash position and the higher risk interest rate environment. Turning to page 32.
Our balance sheet has improved over the year, increasing our cash position, reducing total inventory, and improving our net inventory investments, despite adding an additional 24 stores to the network. Our inventory position has normalized across all brands with a healthy store in-stock position, low aged inventory profile, and good balance across categories. The brand has worked hard through the year to manage inventory cover as customer preferences have normalized post-COVID. Unit inventory volumes are lower, but this has been offset by some inflation in purchase value and mix shift.
As Anthony outlined earlier, we've seen an increase in investment in Rebel and Macpac. Rebel, as a consequence of their in-store inventory position normalizing, having had some supply issues in the 2022 year. Moving to slide 33, returns and capital ratios.
The strong normalized EPS results have allowed the group to pass on a final dividend of AUD 0.44 and a special dividend of AUD 0.22. The total ordinary dividends in the year of AUD 0.78 represented 64% payout ratio of underlying earnings, which is at the top end of our dividend payout ratio payout range.
Combined with the special dividend, we declared AUD 1.03 fully franked this year. Our credit metrics are excellent. We have a net cash position of AUD 192 million and committed undrawn debt facilities of AUD 500 million. Moving to slide 34, cash flow. The operating cash flow result of the business of AUD 716 million was robust as the business normalized its trading activity post-COVID-19.
Capital expenditure cash flow of AUD 109 million is higher when recognizing we had AUD 19 million of Capital expenditure payments that fell into 2024. This is due to the late delivery of a number of store projects, which were, in fact, completed in the month of June, and which was driven through construction delivery delays, both at a landlord level and also at a fit-out level. I'll now hand over to Anthony to take you through the corporate strategy.
Yeah. Thanks, David. If we go to the corporate strategy slides, they provide an overview of the key pillars of our corporate strategy, which we first released in November of 2019, and reconfirmed at our most recent Investor Strategy Day in May of this year. The group's strategic focus remains on growing four core brands, leveraging closeness to our customer, connecting our omni retail supply chain, simplifying the business, and excelling in omni retail.
Slide 37 provides further detail on some of our progress to date in executing this strategy, given the limited time today, I won't talk to the detail of this slide. Over to slide 38, I can confirm that our program of investment in customer loyalty and personalization is on track and proceeding to timetable.
We're looking forward to the relaunch of the Rebel loyalty program between now and Christmas. We'll have more to say on that shortly. Our personalization trial at BCF is continuing, with communications being extended to the vast majority of customers, excluding our control group, and the Rebel personalization pilot will commence at calendar next year. Over to Supercheap Loyalty. Before talking to the new Rebel loyalty program, I just wanted to make brief mention of the success we're having with the Supercheap program.
It's worth noting, and it's worth pointing out that over the past four years, Benjamin and the team have made a number of changes, which has meant we've seen active club members grow by 2 million, from 1.7 million at the end of FY 2019 to 3.7 million active members. It's quite an achievement.
Benjamin and the team have introduced a number of changes to the club program, including the removal of the AUD 5 membership fee, the relaunching of loyalty along the new brand platform, and the introduction of exclusive member offers, which have all contributed to growth in club member sales.
Most recently, Supercheap's been conducting spend and get trials, which have delivered positive outcomes in terms of incremental visits, transactions, and increased gross margin dollars, and improved member engagement. This bodes well for the continued success of Supercheap, but importantly, it provides some lessons and valuable insights for us as we contemplate the Rebel Active launch.
If we turn to slide 40, when we talk to this Rebel program, I'll hand over to David, because we want to manage some, some disclosures around the financial impact and the accounting treatment of the introduction of this program. David?
Thank you, Anthony. We outlined the launch of the new Rebel loyalty program at our Investor Day in May this year. We note, we noted that we are targeting new members, a new member value proposition with benefits linked to every transaction and an expanded presence in store and online. Yet we have been able to attract approximately 3.7 million active club members and a swipe rate of 73% of sales attributed to those members. We understand that we only capture approximately half of our customers' wallets.
This program is targeted to increase our share of their wallet with an effective value exchange. The program is therefore targeting to grow sales by increased visitation, increased items per basket, or increased value of items.
The outcomes we are targeting vary by customer segments. To achieve the lifting, lifting customer sales, we need to provide the appropriate value exchange, points or credits, which will have a dilution impact on gross margin percentage. Sales will increase, gross margin percentage will dilute, but gross margin dollars are expected to generate a net gain. In the first year, we expect the program will break even on an underlying basis.
Year two, the program is expected to deliver a net benefit. In the first year, we will need to recognize the value of unexpired points or credits as deferred revenue. This is a one-off impact for the launch year. We have modeled this and expect it to be approximately AUD 8 million in FY 2024. This will be reported in the Rebel segment results for the FY 2024 year.
This is an exciting change to the Rebel customer base. The Rebel management team are championing this to launch the program and get the offer into market. We need to finalize testing, including a pilot, in the first half of this year. I'll now hand back to Anthony to take you through our new automated DC.
Thank you, David. Getting close to the end. The group has on slide 41, the group signed a long-term lease agreement with the Goodman Group for the construction and leasing of a new 62,000 square meter distribution center at Truganina in Victoria.
Construction of the new DC will be built to achieve a five-star green sustainability re-rating and scheduled to commence in the first half of FY 2024, with completion expected by the first half of FY 2026. The future capital costs of the DC to Super Retail Group is expected to be approximately AUD 80 million, with approximately AUD 30 million scheduled to be incurred in each of the FY 2024 and FY 2025 years.
Further, as we transition from two of our existing facilities in Victoria, transition and close, the company will incur a one-off OpEx cost of AUD 8 million in FY 2025. The new DC will reduce the group's supply chain costs over time, improve the group's home delivery capability, and minimize the group's need to use third-party storage facilities. Over to slide 43, dividends and capital management.
I'm pleased to confirm that having considered the group's strong balance sheet position, in addition to payment of a financial dividend of AUD 0.44, the board has decided to pay shareholders by way of a AUD 0.25 special dividend.
Together with an interim dividend of AUD 0.34 per share, this represents an aggregate annual dividends to shareholders of AUD 1.03 per share. The group is targeting long-term net debt to EBITDA position pre-AASB 16 of between 0x and 0.5x , in the near term. Given the current uncertain macro environment, a more conservative net debt position seems prudent.
Turning to the important trading update on slide 45, I'm pleased to report that the group has achieved flat like-for-like sales and 2% total sales growth in the first six weeks. Supercheap Auto achieved like-for-like sales of 3% and total sales growth of 4%. Rebel, negative 1% to like-for-like sales and total sales growth of 1%.
BCF, a negative like-for-like sales of 1% and total sales growth of 6%, Macpac, a negative like-for-like sale of 9% and total sales of negative 8%. Sales growth has continued to moderate as the group cycles strong sales in the prior year, rising interest rate costs and cost of living pressures damping consumer spending.
The group has a sound record of performance through the economic cycle and the customer value proposition and the low average ticket price across its four core brands, mean we think the group is well positioned for a more value-conscious consumer environment. The group is targeting CapEx in FY 2024 of AUD 150 million to fund its store development program, the new distribution center, enhance its customer loyalty program, and cyber, omni, and digital capability.
As a result of inflationary pressures on wages, rent, and electricity costs, the group expects cost of doing business as a percentage of sales to increase in FY 2024. Group and unallocated costs in FY 2024 are expected to be AUD 43 million, including AUD 8 million relating to investment in personalization and loyalty programs, and that does not include the Rebel loyalty first-year revenue deferral, which David mentioned, which will be captured in the Rebel brand results.
Looking ahead to the rest of FY 2024, while the macro looks challenging, Super Retail Group's unique portfolio of retail brands with market-leading positions in growing lifestyle and leisure categories, our large and growing active club membership base, very strong balance sheet means the group is well positioned to deliver long-term value for our shareholders. I'd now like to hand back to the operator for questions.
Thank you, speakers. At this time, I would like to remind everyone, in order to ask a question, press star, then one on your telephone keypad. In the interest of time and to ensure we can cover as many participants as possible, we do ask for a limit of two questions per person, please. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Adrian Lemm from Citi. Your line is open.
Good morning, Anthony and David. The cash the CODB looks like it was down about first, 1% in, in the second half. For the cost initiatives you, you outlined earlier, did most of those benefits come through in the second half? Should we see similar improvements in the first half of 2024?
Yeah, thanks, Adrian. Certainly, as you saw through the like-for-like sales performance, we had a moderation that occurred in the second half, but also we saw strong underlying sales growth in the business. We would say that there's both the benefits of just cost control, and certainly, some cost leverage that's been achieved on those strong like-for-likes.
We've certainly seen, as was outlined in the presentation, onshore inflation pressures building, but offshore inflation, inflation pressures are, are abating. I think we've every noted that we're expecting to see improvements on sourcing, and they'll flow through GP and also, freight, inbound freight into Australia, which again, will flow, flow through GP.
We are, we are seeing a, a still a continued elevated inflationary environment onshore. Some of the initiatives obviously have supported that, but I would also point out the just the general leverage that we've achieved on sales growth in the half.
Thanks, David. Just one follow-up, please. Can you explain the process for the new EBA being formalized? Should we expect wage growth of around 6% in line with the Fair Work decision from February onwards, please?
Yes. I think, best way to think about, the EBA is that, relative to position to, to the general award will always more or less stay the same. You always think of an EBA as a form of, of hedging. Ultimately, that 5.75% will find its way through into our wage file. It's just the, it's just the way it will moderate through agreement to agreement. As GRIA goes up, you would expect that our EBA will transition over time. I think that's a, a relatively fair assumption.
All right. Thanks very much.
Your next question comes from the line of Shaun Cousins from UBS. Your line is open.
Great! Thanks, sir. Good morning. Maybe just a question on corporate costs. Can you just talk a little bit about, you guided in the second half, 2023 to be AUD 26 million, but it seemed to only come in at AUD 16 million. If you talk about why that was the case? Then just thinking about the additional AUD 8 million cost for the DC, is that a step up that is enduring in FY 2024, or will that be a one-off, sort of AUD 8 million cost in corporate, and that should fall away in FY 2025, please?
Thanks for the question, Sean. The corporate cost, the well, the guide as we didn't note the interest income, that's certainly one of the factors that played through in our, when we gave you that, that guide. The 3.7% is incremental. We have underspent, you're correct. The guide that was given for the DC is the cost of having duplicate infrastructure in place for the transition year. We have to have the, effectively, we're paying rent and costs on two, two sets of infrastructure. We've got the existing two DCs, which will be there, and we've got the new DC, which will be, we'll be paying rent on.
It's a transition year only, whilst we transition from one set of infrastructure, being the two DCs, to the next set of infrastructure. As we outlined earlier, the businesses should only pay for one set of infrastructure, not duplicate infrastructure. We're holding it at group, and it's only a one-year period.
Great. Thank you. My second question is just around Rebel. Can you just talk a little bit about particularly sort of trading for the first six weeks, just the assistance from the supporter wear in terms of the tremendous success for Matildas, how much that helped? Then maybe the broader trends that you're seeing in Rebel, sort of key categories, shopping center traffic, apparel solutions, just the broader factors playing out in Rebel for this first six weeks, please?
Yeah, thanks, Sean. I think the story for the first six weeks, we see it, carbon copy in Macpac, and for that matter, BCF apparel, is apparel performance across the board. We sort of note it does seem to be a bit of a market trend, especially in the first two weeks of July, was very poor, double-digit down. Matildas have been fantastic and has provided some moderation to that number.
Given what was a very interestingly warm start to the season, apparel did notably stand out as a significant underperformer across the group. The Matildas thing was, it's there, it's good. I think my view would be it pales by comparison to the value, extra participation of girls getting into soccer and requiring soccer boots in the future will create.
You know, we, we backed women's sport or Rebel backed women's sport many years ago, and we're quite excited by what we're seeing in terms of, intention to sign up to, participative sport, which translates into footy boot sales for us over the medium term.
Fantastic. Thanks, Anthony. Thanks, David.
Your next question comes from the line of Bryan Raymond from JPMorgan. Your line is open.
Great, thanks for that. Just continuing on with Rebel, if you back out the rCX sales using the, on the slides from the presentation deck, and look at the non-rCX store base, it looks pretty flat in FY 2023 and FY 2022. Obviously, rCX is going really well, but just keen to understand the broader trend across the other 140 odd stores in the network. Is rCX cannibalizing some of those stores, do you think, or is there something else going on, where they're not obviously achieving some of that growth that you're seeing in other parts of your business?
Yeah, look, it's a good question. We've got, you'll see that Rebel's overall store numbers have not really significantly shifted over the last five years, and we've been rationalizing the network. There's certainly examples where we've gone and opened a, an rCX, and we've, we've had to consolidate an old Kmart at the same time. Overall, you're eliminating all the costs associated with that extra bit of infrastructure and getting certainly a lot more efficiency. You've just got to be careful of, of that, that impact passing through the Rebel numbers.
You know, we're still at only 159 stores at the period end, and yet we've been opening, as you saw, a number of regional stores this year, because we continue to do some store closures, which we have had over the last number of years. Yes, there's a, the general network, we are doing rationalization of stores in the network, and there are stores that are being combined, you're getting the benefit of a larger, more efficient store.
An example would be, which we haven't yet completed the process, but in Adelaide, we had two stores in Rundle Mall. We're expecting to have one with Rebel, with the new Rundle Mall store there, but we've just still got a lease tail on the old one. We're taking those opportunities. That's part of the strategy is to make the stores bigger, a better experience, and to, to eliminate, ineffective duplication.
Okay, great. Then just my second question, just around the cost outlook. You've already talked to wages, which I appreciate. You mentioned rents, energy would be, I'm sure, in the mix as well. Obviously, we've seen a bit of sales ramping up into, or increasing into next year, I should say, which shouldn't surprise. I'm just interested in the, in the sort of, absolute level of CODB growth we could expect and the fixed cost percentages across the brands. Like, obviously, sales are somewhat up in the air in terms of how that might go.
We'll have to wait and see, but just interested in how you might be able to manage costs through that journey, and if there's an opportunity for you to see some higher variable cost businesses or any other fixed cost reductions you might be able to see across some of those brands in a softer sale?
Look, it's a good question, the, there's certainly the rationalization of ineffective stores across all the brands is, is a focus area, we see that opportunity in BCF and in Rebel, we're also looking at the performance of the Macpac stores. So optimization of stores is an opportunity to assert ourselves on that fixed cost. Improving sales intensity in the stores. So the refurbishment programs do lift sales intensity, therefore, you get a dividend certainly there. As you've seen over the last number of years, we've lifted our increase in investment in the customer experience and across all the formats.
There is a underlying inflation that will pass through in rents, but we've got protections in a lot of our leases. We've got either fixed increases or CPI caps. There are a small number of leases it's, you know, less than 40% of our leases have got open CPI. So those, those are certainly things that benefit us.
Then finally, as we go through those the lease renewals of our, you know, probably 120 to 150 lease renewals we're performing every year, we're looking to get outcomes through our from our landlords in terms of improved rental outcomes. All those things do combine to, as you can see through the results over time, we've been able manage that cost escalation.
Certainly, we've just spoken to the EA earlier, in terms of what are the variable costs in stores, but at the same time, there's a rate increase that's passing through store labor. When you look at the other areas of cost in the business, we are certainly working with our service providers and trade partners about achieving outcomes of improving our procurement with them and getting a net benefit. We've got a program of work which Anthony outlined on those eight focus areas, which we've been working on over the last 12 months.
Okay, great. We'll see how, we'll see how we go on the cost front. Should be interesting year ahead. Thanks, guys.
Thank you.
Your next question comes from the line of Juliet Starke from Bank of America. Your line is open.
Hi, Anthony and team. Thanks for taking my question. Just a question on your DC investment. Could you just give us a bit more of a roadmap of the kind of efficiency improvements on Cost of Doing Business that you expect to get from this, and the timeline on extracting those? What are the early signs, the early roadmaps that you're looking at to see if this investment is successful in taking costs out of the business?
Thanks, thanks for the question. We're obviously not going to be disclosing specific targets, but just to give you a flavor of what we're trying to achieve. With the automated DC, we're looking to put totable items into one facility nationally.
That will provide both a working capital gain as well as a cost per unit gain coming through at the same time, because we'll be, instead of having the same inventory replicated nationally through our regional network, we'll be able to concentrate that. We think there's a significant gain in working capital and cost per unit that will, like every DC, go through its natural transitionary period.
You can sort of see with the transition arrangements we've put in place in terms of closing the two older facilities, we've taken a relatively conservative approach to make sure we manage the natural disruption that takes place when you commission a new DC. That'll be the two areas we'll be focused on: cost per unit and reduction in working capital.
Right. Thanks. Just my second question around, continuing on from, on cost of doing business. You, you flagged at the Investor Day a lot of work that you've done on labor rostering. Is there more to do on that?
Yes, there is. I mean, whilst we've got, as David pointed out, a rate increase, in terms of the appropriate allocation of labor hours to transaction load and product movement load in the store, the business has actually generated quite a sophisticated capability where we're able to understand at a site level, not only what transaction volumes are going to take place, but what inventory is moving in and out of the business. So we can better align our, our wage model, our wage volume against that.
That's a- we think there's continual improvement there. It's no terribly different to the way we've worked on, gross margin through the Pricing and Promotional Center of Excellence. We're using analytical tools to understand that highly variable cost base. We, we do think there's, there's ongoing optimization in spite of, you know, an underlying rate increase, which is, as we indicated earlier, somewhat inevitable and unavoidable.
Got it. Thanks, guys.
Your next question comes from the line of Lisa Deng from Goldman Sachs. Your line is open.
Hi, Anthony and David. Two questions from me. First one is on the Rebel loyalty program or the new loyalty program. I understand that sales are going to be higher and GP margin lower, GP dollar higher. Can you help us think a little bit about the magnitude that we should be looking for? Also the follow-on is the AUD 8 million of deferred revenue. Like, what's the actual accounting entry that we should be looking at for that one? Thanks.
Thanks, Lisa. We haven't guided the magnitude of those changes. Obviously, we've got to launch the program and get it into market, and so that'll have an impact this year, but on an annualized basis, it should be driving a sales uplift that's generating a GP outcome, GP dollar outcome that's higher than the actual dollars that have been consumed by customers. We've, we've got experience with this, certainly in Supercheap, where they've got a mechanism program.
We've got experience historically, where we had other programs, such as in other brands, that were mechanistic. We're quite comfortable that that will be favorable. This year, it's, as was outlined, it's gonna be wash of space, it'll be break even. The accounting entry is that, when you have a sale and you've got a, a, a point attached to it, you actually have to defer the revenue at the time of the sale. It's actually a revenue deferment, and you.
Is that liability?
It's. You put a liability on the balance sheet.
Okay.
That liability on the balance sheet sits there until such time as it's consumed. What we've seen historically, we know for Supercheap that for every AUD 10 of credit, the customer will spend AUD 30 when they're consuming it. We do know that, and we've seen that in, and we've done other tests of not just the Best Price Credit, we've done a spend and gift program as well. We do know that we get a net gain when it's consumed.
Secondly, if it's still sitting there because it's got a longer life than, say, for example, the Supercheap one has only 28 days, 'cause it's got a longer life over financial balance date, you have to then make a determination of what would that future consumption be, and you have to consider a breakage assumption, how much of it will be consumed and how much of it will be not consumed, and therefore, that determines what the liability should be. We, we don't yet know what the response from the Rebel customer will be.
We would like them to consume the credit, because we know that then we get a, either an additional visitation, we get an additional item in the basket, or we get an upgrade of the items in the basket because of that credit.
That's all building brand loyalty. So ideally, they will spend, spend the credits, but we don't yet know. We'll have to see that and understand that through the life of FY 2024 and get a better understanding of it through the life of FY 2025. Our auditors and us will go through a process of determining how to calculate that breakage. You see that in any points-based program. You see that in Qantas, you see that in any other, other, other retailer that's got a liability program.
What, what's the other side to the liability? Sorry, just, you know, when we're looking at the liability recording of AUD 8 million, what's the other side to it?
Well, it's revenue deferment. You're deferring revenue at the time of each sale, and then the first year you generate that, that liability, and then...
Yes.
The points break. They, they have a life. They're not, they're not forever. As the points break, you write the liability back to profit.
Maybe we'll take it offline. I just think, like, debit liability, AUD 8 million, and then credit what? I guess, or credit liability... [crosstalk]
Yeah, credit liability, because liability... [crosstalk]
Yeah, credit liability, AUD 8 million, and then debit what?
Deb, debit revenue. It's a revenue... [crosstalk]
Oh, okay. You do recognize revenue, you just don't have the cash. Okay, I got it. Okay. Got it. Got it.
You receive the cash, but you've recognized a liability by deferring it from revenue.
Yeah. Got it. Got it. The second question is just on the unallocated cost. I wanted to clarify. The AUD 8 million on personalization in FY 2024, is that a step up onto our current AUD 18 million, or is it actually falling from AUD 18 to 8 million next year?
Yes, it's moving from this year's spend of AUD 18, and next year's spend is just AUD 8, because the largest build cost we've seen in building the Rebel capability, and then we need to then, transition both BCF and Supercheap onto that platform, and then secondly, transition Supercheap also onto the personalization program, platform along, ultimately with Rebel as well.
That BC AUD 8 million doesn't come in until FY 2025, I think. Then what's the big step up in unallocated cost then, if we're getting a AUD 10 million reduction in our personalization?
That year we've gone, obviously not had, the benefits of the AUD 1.8 million AutoGuru, and AUD 3.7 million of interest income. We've not attempted to put a figure on, on interest income at this stage, given that we'll be undertaking, some, return of capital through a special dividend.
Got it. Thank you.
The next question comes from the line of Michael Simotas from Jefferies. Your line is open.
Good, good morning, guys. First one from me. If we could just follow up again on CODB, in particular, the wage rate and the enterprise agreement. Did you take any wage rate increase in July of this year? Will it effectively be flat until the agreement is renegotiated?
Yeah. Hi, Michael. Yeah, good news. We'll, we'll take into this year a good majority of that 5% increase, even though the enterprise agreement, frankly, doesn't actually allow, doesn't compel us to do that, doesn't require us to do it. I think just frankly, some common sense here, is know we'll, we'll push through a good whack of that 5.75% through this year. Then that appropriately sets us up for a very reasonable engagement in the enterprise agreement in February of next year.
Yeah, that sounds sensible. Then the second one for me on gross margin, appreciate there's going to be a bit of noise around the, the points scheme in, in loyalty, but how should we think about underlying gross margins from here? It looks like you finished FY 2023 a little bit better than what the update in May suggested, because your second half gross margin was actually a little bit higher than your first half. Was there some sort of underlying change in gross margins? Have they stabilized?
They've obviously come down a long way from the peaks during COVID, but they're still above pre-COVID. Any sort of help you can give us on your thinking on an underlying basis, excluding the noise, would be really helpful.
Yes, I sympathize because it is, it is a rich tapestry, gross margin movement. Let's just go through it bit by bit. I don't think there's been a lot of movement in the period. you know, I mean, you're quite right, we've overachieved, but there's no, nothing really material to see here.
If we just sort of step it through appropriately, let's put the deferral revenue aside, and the, the gross margin rate impact that Rebel will, will experience courtesy of the loyalty program. That's going to be one. We called this out at the, at last time we met, around COGS improvement as we see international deflation flowing through. We still see that.
We, we think, you know, we've got ourselves in an inventory position where we are buying inventory, and we are buying into a weak market, and we are seeing a reduction in COGS accordingly. We planned for that eight or 12, 18 months ago now, and, and we've got it, so we're happy with ourselves there. If we look at international logistics, we give ourselves a tick on that as well. We've been able to achieve appropriate levels of deflation relative to the COVID period, so we like that.
On the domestic front, it's still a, you know, a very, it's a, it's a real mixed bag in terms of inflation coming through there, which will provide upward movement, or, you know or negative impact on, on, on gross margin there. Promotions, we, we broadly speaking, are, are flat.
We've never-- we've, we've really not walked back from our position that we could hold the underlying promotional gross margin gain pre-COVID since COVID, and that more or less is holding. We're not seeing the need to pump inventory, also pump our GP for volume. That's, that's fairly tidy. Our inventory file is clean. You know, we, the percentage of sales, we feel, we feel good.
There's no need for us to crush gross margins to go after that. Look, as you say, there's lots of ups and downs there in terms of the component parts. At macro, you know, we, we always saw a big move or a big opportunity at COGS. We've gone after it. We know that we've got the implications of, of, of loyalty, and then, inventory is clean and promotion looks okay.
Extra loyalty impact, you think you could possibly grow gross margins into FY 2024?
I don't think I'll be doing, yeah, I don't think I'll be making any predictive commentary based on that mixed bag. There's a lot of, there's a few, as I say, I emphasize there's a lot of moving parts. I think I would be well into the guidance universe by sort of putting a marker on it.
Okay. All right, thank you.
Your next question comes from the line of Mark Wade from CLSA. Your line is open.
Okay, guys, can I start with the rCX uplift? I mean, it's, it's pretty impressive, some of the figures you've provided today. Thank you for that. Is it, is it reasonable to think you can kind of extrapolate that 50% growth across the whole network in time, even though you won't be converting all the stores, I imagine? These are the better stores you've done already. What is it trying to do to long term to the, to Rebel's group sales?
Yeah, I don't think you'd I think, I don't think you'd extrapolate it to the whole network. I think this is a, I mean, these are very capital-intensive projects and, you know, we just if you zero in, you've got very high traffic, high volume stores that you're making an improvement and quite a material improvement. Whilst the uplift in sales per square meter is the main thing, and it is, there is an appropriate uplift in capital that we put into those stores. I'd still say that would be an unlikely outcome.
It is, however, worth calling out that we've taken a cut down, and I, I previously referenced Bryan's question earlier in the call. We've taken a cut down of Worlds of Football, Worlds of Kids through the network, which has also provided an underlying like-for-like growth across the network.
You know, where we, making the investment for rCX, we'd expect to get this uplift. Where we're making a, a more modest upgrade, we are still seeing an uplift, and of course, we've got the capital and the program to go after that. I would say from a Rebel total business perspective, the combination of improvement in rCX, the cutdown versions, going after driver, driver categories, throw in loyalty, et cetera, et cetera. I mean, there's a fair bit of wood to chop there in terms of, sales velocity, all things being equal.
Okay, that's helpful. Thanks, Anthony. Lastly, on the turning to the auto business, what would be the notional opportunity you see in fitment? I mean, you've called out 769K, I think it was, fitments in the year. I know at AUD 10 each or so, some are more, some are less. It's maybe only talking less than AUD 10 million, right? So it's pretty small fry in that scheme. But then again, how big can it get in terms of being introduced as sales of products you may not get otherwise? So what's it been limited by? Is it awareness of the customers? Is it the sites? Is it the staff capability, and how big can it get?
Oh, look, we think there's, there's a, there is a lot to be gained with fitment. Yeah, we don't frankly charge a lot for it, Mark. It's the benefit we get is the gross margin from the item that we're fitting.
Mm-hmm.
There is a constraint in terms of there's a, there's a, an acute safety issue that we always deal with, with fitment. When you've got team members working on customers' cars, you need to be very mindful of that. We're, so we're, we're, we're, we're caught. That is a limiting factor. We've slowly grown our fitment business over time. The one thing I would always back is the executional engine of Supercheap Auto. We think this is a big opportunity.
You just need to go after it methodically and conservatively, just because you are dealing with, with a, with, with, with an underlying risk there, which we are very, very mindful of. The customer impact in terms of customer sentiment is quite material. It's a, it's a way of turning a customer into a fan.
Mm-hmm. That doesn't explain the... You said about safety, that doesn't explain why you've seen those team safety measures deteriorate in the year. It's nothing to do with this. It's just as they're unrelated... [crosstalk]
No.
Manual handling and stuff, I imagine. Yeah.
Yeah. More, more talking to the underlying, all, all talking to the underlying risks...
Mm.
That we're trying to manage. You know, we always, it's the priority for our, for us, for this business, it's team safety, and if we push too hard in accelerating fitments, we put that at risk, and we're frankly not going to do that.
All right. Yeah, well done. Yeah, really robust results. Congratulations.
Thanks, Mark. I think we've got, operator, we've got probably one more question, given time.
Not a problem at all. Your next question comes from the line of Craig Woolford from MST Marquee. Your line is open.
Morning, Anthony. Glad I've just stuck in.
Morning.
Can I just, can I just ask a question? There's obviously a lot of moving parts on, on gross margin. How would you describe the discounting activity across the market? Are you seeing some of the, what I would describe as excess supply amongst the supplier base in footwear and outdoor? Is that having an impact on discounting activity across the market?
Within outdoor, we have seen excess have an impact on terms of the directly sourced product, as opposed to supplier-generated product. Third-party inventory, not too bad. Some of the direct source programs within the market have been, we've seen some pretty aggressive discounting in the period. I would note, Craig, that that's moderated. I want to say that cautiously, but that has moderated.
We always have sort of seen in the footwear space within Rebel, especially in the lifestyle stage, you know, a fair bit of aggressive discounting to clear stock, as you know. You know, we like to think of ourselves as cool, but we don't really sell the super cool stuff. That's not so much of an issue.
You know, we saw with some of the global brands, a little bit of excess inventory in the period, but that more or less has been managed as we would expect and as we've experienced from those global brands over the medium and long term. Nothing, nothing material that I would, I would call out. If anything, I think the challenge of managing costs is playing on the market's mind in terms of gross margin optimization as it relates to price.
Yeah, agreed. I totally agree. The other question, just on, I'll probably just direct this on Supercheap Auto, because it'd be hard to answer across all the brands. What is the cadence now in terms of average transaction values versus transaction numbers for that business? Maybe for June half and just reflecting on the resilience that it's shown in July as well?
Yeah, no, good. Transaction, both are very strong. They're strong. They're good. Supercheap, I mean, we've always said, and, and we've said it because we just have to look at history, that Supercheap run both sides of the cycle. When times are good and everyone buys a new car, they, they go buy, you know, car wash and car care. When times are tough, car maintenance five, and that's exactly what we've seen.
There's not, there's not many indicators within the Supercheap performance that we would point to that would suggest that we're seeing a collapse. You know, I think it's far, far, far from that. You know, Supercheap, both, price and, and volume is very solid.
It's overall 3%, but both are contributing to that 3% like for like?
You betcha. Yep.
Got it. Excellent. All right. Thanks, Anthony.
No problem. Thanks, Craig. All right. Well, I think we are at a close. Thank you for joining us this morning. Always a delight to do Q&A. I think we've got a fairly big dance card over the next couple of days, so we look forward to seeing quite a lot of you in the coming days and into next week. Wish you a very, a very good morning.
Thank you all for joining us. This now concludes today's conference call. Enjoy the rest of your day, and you may now disconnect.