Good morning, ladies and gentlemen. Welcome to Super Retail Group's FY23 half-year results presentation. Today's presentation will be hosted by Managing Director and CEO, 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 call is for investors only. Members of the press seeking access to 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 presentation.
Thank you, operator, and good morning, everyone. Joining me today is David Burns, our Chief Financial Officer. Good morning, David.
Good morning, everyone.
All right. In terms of structure for today's presentation, I'll begin by speaking to some of our financial and operating highlights for the period before talking to the performance of each of the brands, and then David will provide you with more detail on our financial results. I'll speak to the progress we're making in terms of executing our corporate strategy, describe some highlights around our ESG and team, and finally provide you an outline of our approach to dividends and capital management. Of course, I'll provide you an update on our second half trading as well. There will, as always, an opportunity to ask questions at the end of the call. Right. Let's get started. On to the executive summary, given that we effectively pre-released the half yearly result in our January trading update, I'll move through this pretty quickly.
The group delivered record sales of AUD 1.96 billion in the first half, driven by a very strong Black Friday and peak Christmas trading period. Group like sales growth in the first half was 11%. Pleasingly, notwithstanding a return to a more normal promotion environment, we were able to deliver gross margins of 46.2%, well above the pre-COVID levels. Segment net profit before tax of AUD 280 million at the top of the previously announced guidance range. This translated into an NPAT of AUD 154 million and a statutory NPAT of AUD 144 million.
The difference between statutory and underlying NPAT primarily reflects an AUD 8.8 million increase the group has made in our provision to recognize amounts potentially payable as a consequence of the proceedings filed by the Fair Work Ombudsman in January of this year. The board has resolved to pay a fully frank dividend, interim dividend, I should say, of AUD 0.34 per share. Total ordinary dividends in FY23 are currently expected to be more weighted to the interim dividend than in FY22. This is consistent with our pre-COVID practice and reflects the strength of the half one trading outcome. The group is entering into the second half with a strong financial position with no drawn bank debt and AUD 204 million of cash on hand. If we go to slide five, I won't speak to the detail, but make a couple observations.
In the first half, the group has delivered 15% sales growth and 11% like-to-like sales growth, adjusted to make sure that Boxing Day appears in both periods. All four of our core brands delivered record first half sales. Having returned to a normal consumer environment where customers are comfortable shopping in stores, the differentiating nature of our store formats and the positioning of our brands as category killers is pleasing. Slide six shows a five-year group trends for gross margin, cost of doing business and profit before tax. Gross margin has held above pre-COVID levels, which is broadly consistent with our ambition to maintain half of the growth margin uplift we achieved during the COVID period.
Cost of Doing Business as a % of sales in the first half was below pre-COVID levels, and given the potential for a slowdown in consumer demand, we recognize the importance of managing our cost base to match our top line. I'll talk shortly to some of the measures we've taken to ensure that occurs. The outcome of the improved gross margin and ongoing cost management has seen the improvement of PBT margins for the group, which again remained well above the pre-COVID levels. We turn to inventory on slide seven. You see the chart on the left-hand side shows group inventory at the end of December 2022 was AUD 33 million lower than 12 months ago. In terms of composition of this movement and inventory volumes have actually gone down to the tune of AUD 156 million.
This reduction in total inventory volume has been partially offset by inflation in COGS and a shift in mix to higher value products. For those who seek detail on the composition of inventory by brand, for December 22 and December 21, it's set out in segment notes in the appendices. There's a couple of details which I'd point out. The value of the inventory in both Supercheap Auto and BCF has decreased. The value of inventory held in Rebel has increased. This reflects a normalization of Rebel's inventory position compared to 12 months ago, where trade partner supply chain disruption really constrained inventory levels. Rebel's inventory number also reflects the early delivery of new season stock from the global brands in December, which has contributed to a positive sale outcome during peak and into January.
A modest increase in Macpac's inventory level is consistent with the expansion of a growing business and a growing store network. Overall, inventory is 44% of sales, which is broadly in line with historical levels. We're comfortable with our inventory position, noting that the vast majority of products we sell are non-fashionable and non-perishable. We continue to manage our inventory in an orderly fashion with a view to optimizing our gross margin. We expect our inventory levels to normalize in the second half as we adjust forward orders to reflect our current levels and expected demand. I would, however, add that we see inventory as a percentage of sales, sort of in the low forties is a sustainable position for the group. Over to slide eight. We're optimistic about the group's ability to perform through the economic cycle.
We continue to maintain our hope for the best and plan for the worst posture. The group has a number of projects underway to design to protect margin and to manage our cost base. In terms of growth margin, encouraging news is that inflationary pressure from supply chain has continued to moderate with freight cost retracing towards historic levels. We have initiatives in place to capitalize on this deflation in the supply chain. We've initiated cost reduction programs in FY22 to capture these savings. We're actively renegotiating terms with our ocean freight providers to achieve rate reductions and with our trade partners to ensure the benefits of this normalization are reflected in our go-forward costs. We've been at the front of the queue to ensure we capture these savings.
In addition, our strategic pricing team is working hand-in-hand with each of our brands to review our approach to pricing, clearing, and discounting. Aided by our data insights into the now 9.7 million active club members, we're improving our understanding which products are key value items, traffic drivers, cross-sellers, profit generators, and reflecting that in our pricing architecture. As part of our strategic goal to simplify the business, we continue to identify new opportunities to derive sourcing benefits from a centralized approach to tendering and procurement across the group. Whilst we can reasonably expect some wage inflation over the next couple of years, our investment in our workforce planning systems to optimize our store loss streams and develop new ways of working should partly offset this inflation by improving our operating efficiency.
In terms of rental expense, approximately half of the group's leases are CPI linked, although a proportion of those leases have capped increases. I would note that the group's weighted average lease expiry is less than three years. As a rule of thumb, we have roughly 200 leases due for renegotiation each year. That provides us with flexibility to renegotiate based on market conditions and market rates. Finally, within that AUD 125 million capital envelope we have set for ourselves this year, we remain focused on the disciplined allocation of capital to projects meeting our internal rate of return. That's the plan. Hope for the best and to pay it and plan for the worst. On to customer insights on slide nine. It shows that in the last 12 months, we've grown our active club members.
Remember, to be an active club member, you need to be a member of our program and have purchased from us in the last 12 months. We've grown that by 11% to 9.7 million active club members, which is pleasing. It also means that we'll likely be revising our internal ambition of achieving 10 million active club members by 2025. Our club members' NPS score has also improved from 64 to 66. Not only do we have more customers, we have more customers that are happier customers. It's an easy formula. Currently, across the group, these active customers represent 72% of our total sales. They are a significant asset.
We think this customer stickiness bodes well for the earnings resilience of the group throughout the economic cycle. That's why we continue to invest in our capabilities in customer loyalty and data analytics. On to store network highlights on slide 10. We've got a strong pipeline of store openings in FY23 across each of the brands. In addition to these new store openings, we've upgraded two rebel stores to the RCX format in the first half, with another two to follow into the second half. In October, we extended our BCF Townsville store, one of the more significant BCF stores, to a new super store format, which is comprised of 5,000 square meters and over 25,000 SKUs.
While it's early days, we are very pleased by the response of our customers and our trade partners to this format. We'll look to open a second trial store in Queensland in the second half of this year. On to slide 11. The RCX format, just over 2,000 square meters for rebel, showcases a comprehensive range of sporting goods and apparel from key global brands, focusing on core categories including running, football, basketball, and kids. These stores are exceeding our expectations. They offer a differentiated customer experience with physical experience zones, including half-court basketball, indoor football pitches, and sports game consoles, which are particularly popular after 3:00 P.M. on a school day. Since opening its first RCX store in Doncaster in 2020, rebel has added a further 12 RCX stores to the network.
These stores feature a range of home of hubs, where customers can access the latest cool products from their favorite sports, specifically basketball and football. Slide 11 shows the step change which rebel has delivered in that basketball and football category over the last four years. During that period, you'll note the basketball category, which represents 8% of rebel's total sales, have grown by 126%. Sales in football category, which represents 9% of rebel's total sales, have grown by 60%. We're pleased with these sales we're achieving and the performance of these stores in these high-growth categories. As a key sponsor of the Matildas, we very much look forward to the hosting of the Women's World Cup, which will be in Australia later this year. On Slide 12, digital and online.
For online sales, we're at AUD 236 million, 12% of group sales. Click and collect comprised just over half of the group's online sales. As expected, following a significant uplift in online sales during the COVID period, customers are normalizing and returning to stores. In the first half, 94% of all transactions, online or offline, were actually completed in-store. Whilst we expect that over time, online sales, especially delivery sales, will resume in an upward trajectory, these numbers give us confidence. That our national network and our customer-focused team members continue to represent a valuable asset to the group and our omni strategy. Slide 14 and 15 summarize group financial results. They speak for themselves and we'll propose to move on to brand by brand details, starting with Supercheap Auto.
Supercheap delivered an excellent first half result, reinforcing the reliability of the auto category and the continued strength of the Supercheap brand. It was a triple crown for Supercheap Auto in the first half. Record sales, record NPS results, and a record number of fitments for the in-store service program, where customers can get their bulbs, lights, and globes installed on their car. Supercheap Auto has continued to excel in customer acquisition, having added more than 650,000 active club members to their program in the last 12 months. In March 2022, Supercheap Auto modernized the brand with a new visual identity and slogan, "Wherever you are, whatever you drive, make it super." I implore you to check out our latest campaign which launched today, which is a continuation of this program.
As part of this launch, Benjamin Ward and the team have been busy making their brand super everywhere. Through improvements to their website, which has attracted over 20 million visits, and store upgrades with 22 refurbishments completed this half. A summary of the financial performance for Supercheap Auto is in the first half is set out on slide 17. I would like to particularly call out the following. We saw total sales grow by 18%. Like-for-like sales grew by 15%, driven by both higher transaction volumes and higher average transaction value. PBT margin increased by 250 basis points to 14.8%. PBT increased by 42% to AUD 108 million. Very sound result, to say the least. On to rebel, r ebel also delivered a strong first half performance.
Peak sales benefited from growth in foot traffic from higher inputs and higher inventory too, levels in seasonal categories, which were well stocked compared to the prior corresponding period. Gary Williams and the rebel team delivered a record first half sales and a record December sales result for the business. Among other first half highlights, rebel relaunched its website in October, added two RTX stores in Miranda and Erina, bringing the total RTX store count to 13. The rebel RTX at High Point in Melbourne achieved a $20 million record sales result in its first 12 months of opening. A summary of the financial performance is set out in 19, to call out the following highlights, with sales growing by 11%. Like-for-like sales also grew by 11% off the back of double-digit growth in transaction volumes.
PBT margin increased by 100 basis points to 12.3%, and PBT increased by 23% to AUD 84 million. BCF. Strong top line result in the first half. Now I've spoken previously about our aim to rebase BCF revenue and earnings to above pre-COVID levels. BCF is making good progress on this through store expansion, range improvement, expansion of our apparel offering to reduce the seasonality in the business. Paul Bradshaw and the BCF team delivered record for first half sales, including a record Boxing Day result. Among other highlights, BCF grew their club member sales to 88% of total sales. They successfully launched super store format in Townsville. They expanded sales from strategic and private brands to now representing 49% of total sales.
It's a highly competitive category, we're very pleased that we continue to grow our strategic relationships with marquee brands like Weber, Dometic, Engel, YETI, and more recently, Navico. A summary of the financial performance is set out in 21. Call out the total sales grew by 7%. Like-to-like sales declined by 2%, even though transaction volumes increased. This reflected a lower ATV achieved due to aggressive discounting from a pretty hot competitive environment. Against this backdrop, segment PBT of $31 million is a very credible result. On to Macpac. Delivered a very solid first half result. Conditions helped drive strong growth in both insulation and wet weather, and sales in key travel categories benefited from tourism growth.
Cathy Seaholme and the Macpac team delivered again a record sales for the first half of over $100 million, which is a high water mark, and a record half profit of $16 million. This was a high-quality result driven by a 50% increase in transaction volumes and a 35% growth in active club members. A summary of the performance is on 23, noting sales grew by 55%. Like-for-like sales grew by 69% in Australia and 32% in New Zealand. PBT margin increased to 15.7% and reflected a 500 basis point improvement in gross margin. PBT increased by $16 million compared to a prior period loss. That's a summary of the brands. I might hand over to Dave who can talk through the financials.
Thank you, Anthony. On slide 24, we present the group unallocated segment, which includes corporate costs and costs not allocated to segments relating to the development of our loyalty, digital, and omni capabilities. In August, we advised that we would be holding costs to develop our loyalty capability in this segment with a full-year estimated cost of AUD 19 million for 2023. Looking at the performance, corporate costs have increased on year. The customer and loyalty investment for the half was AUD 10 million. Of note, our investment in OrderGuru was sold in December, which finalizes the exiting of all non-core businesses. The investment in OrderGuru was written down to 0 last year and taken through group unallocated. This disposal in the half was a small gain of AUD 1.8 million.
Group balance sheet on slide 25 is presents the key balance sheet focus areas of inventory, working capital, PPE, and net cash. Inventory is reduced by AUD 33 million compared to December last year. As noted by Anthony earlier, we have reduced the volume of inventory in the business, but we have had an increase in the value of inventory due to inflation and mix shift towards higher value inventory consistent with brand strategies. Compared to December last year, the business has reduced inventory units by four weeks cover. By brand, we have seen Supercheap reduce inventory compared to December last year by AUD 44 million. BCF has reduced inventory by AUD 20 million, noting in December last year the business was impacted by late deliveries.
rebel inventory has increased by AUD 20 million, which is pleasing given the poor inventory position the business has had to deal with over the last 2 years. As Anthony outlined earlier, Global Brand supply chains are now fully recovered with a AUD 10 million early delivery captured in this result. We can see the benefits of this stronger inventory position in the very robust like-for-like sales performance that rebel has delivered in the last 6 weeks of trading, which you will see in the trading update. Macpac inventory has increased by AUD 4 million to support the very robust sales performance. Net inventory investments increased compared to December last year, recognizing that our financial year close has moved out a week due to the 53-week financial close in FY22.
December this year has captured an additional payment cycle, which is driving the increase of the AUD 80 million difference compared to December last year. Of note, net cash of AUD 212 million reflects our strong trading performance. Slide 26, returns, capital ratios, and FX, highlights our strong balance sheet and trading performance. I'd like to note the group dividend policy is to pay annual ordinary dividends of between 55% and 65% of underlying net profit after tax. We determine the payout ratio on a full year basis. We do not apply the payout ratio specifically to the interim dividend, but to the full year combined interim and final dividend.
Our approach to the interim dividend has historically been to target a lower interim dividend than the final dividend. We have announced an AUD 0.34 fully franked interim dividend. In the period, we have refinanced our core debt facilities, which now total over AUD 500 million with between three and five years of tenor. Slide 27, group cash flow, highlights our performance. The operating cash flow for the period was strong at AUD 439 million, noting strong cash conversion of approximately 108%. Capital expenditure this year has a stronger weighting to the second half due to the profile of our system development and the store development program. There are a number of new stores targeted to open from February onwards. I'll now hand back to Anthony to take us through the corporate strategy.
Thanks, David. Let's onto slide 29, and that just provides a bit of an overview of the pillars, the key pillars of our corporate strategy, which we released our Investor Day in November, 2019. Unchanged. It's our core focus on the core four brands, leveraging our closeness to customer, connecting our omni-retail supply chain, simplifying the business and excelling in omni-retail. Now slide 29 contains some detail on our progress. Given the limited time, I won't talk to the detail, but it'll be there for your review. Over though to slide 31, I just wanted to reiterate our commitment to our customer loyalty program and our investment, which is proceeding to timetable. Importantly, we recently completed a spend and get trial at Supercheap to test the program in New Zealand, which yielded very positive results. We're quite encouraged.
We are in the process of completing our go-to-market plan for rebel loyalty program and be launching that in the second half of this calendar year. This is expected to be followed by BCF and Supercheap into calendar 2024. Our personalization trial continues, with now BCF communicating over 50% of its club members using that tool. Over to slide 33, ESG sustainability and team. We continue to be committed to implementing a more sustainable practices and integrating sustainability in our into our decision making as part of and in line with our group values.
We're proud of progress we've made on our sustainability strategy to date, and on slide 33, we've highlighted some of our achievements, including a double A rating from MSCI, Dow Jones Sustainability Index score, which places in the 97th percentile across 493 retail peers, and a comprehensive rating from the Australian Council of Superannuation Investors. Amongst our other ESG achievements, the group has maintained our WGEA citation as our employer of choice for gender equity, and Macpac has certified as a carbon-reduced business with Toitū. In terms of team highlights, our engagement score of 80 is above the achievement benchmark for comparable companies, which is quite the achievement considering the environment our team have been operating in over the last couple of years.
We have over 3,000 team members as part of our I Am Here wellness program. Our team members have completed over 70,000 hours of training across leadership and development programs. I'd say that's one of the drivers of a continued improvement in our NPS score. Slide 35, dividends and capital management. In light of our strong net cash position, we thought it'd be appropriate to touch on how we're thinking about the group's balance sheet. In summary, given the uncertain macroeconomic environment, the group intends to maintain a conservative debt position. We're targeting a long-term net debt to EBITDA position pre AASB 16 of between zero and 0.5 times. Given the group's strength of the group's balance sheet, really provides the capacity to support organic growth and flexibility, including future capital management initiatives such as special dividends or an on-market buyback.
Group trading update on slide 37. Well, I'm pleased to report that the group's delivered a 10% like-for-like sales growth in the first 32 weeks. Strong year-to-date sales momentum has extended into January with positive like-for-like sales in each of the core four brands. Supercheap Auto performed well in auto maintenance and do-it-yourself categories, including car care, lubricants, and tools. rebel's delivered a successful back-to-school promotional program. BCF has continued to see strength in fishing, supported by the introduction of new brands and regional ranges. Macpac launched an expanded summer range and is outperforming in the travel-related categories. Everyone's getting back on planes. In the second half, the group is targeting the opening of 18 new stores plus 2 rebel RTX store upgrades, which will bring the total rebel RTX store count to 15.
We'll also continue to progress our BCF personalization trial and complete our go-to-market plan for rebel new loyalty program, which is expected to launch later this year. Low unemployment and accumulated savings seem to be supporting customer demand. However, interest rates are expected to dampen that demand later in the second half. We're not immune to that either. Nevertheless, we remain optimistic that the business will perform well throughout this economic cycle. Noting that, for example, Supercheap Auto has an average transaction value of $40 and an average dwell time of 4 minutes. It is able to run both sides.
We'll be supported by that and also our customer base of 9.7 active club members, the strength of our brands, their ongoing network expansion, the rollout of our new store formats, and our leading market position in what has continued to be attractive and growing categories. Thank you. I would now like to hand back to the operator for questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Michael Simotas with Jefferies. Please go ahead.
Good morning, guys. Well done on another great result. Can I start with the trading update? I mean, I'm still thinking about sales relative to pre-COVID to remove the base effect. It looks like momentum actually accelerated in the early weeks of the second half of 23. You made the comment that you expect demand to dampen as a result of monetary policy. Is there anything you're seeing in the sales mix that shows any sign of any change in consumer behavior yet, or is this just an expectation to go forward? Also, is it worth a comment on the weather as well, given weather patterns on the East Coast have been so volatile?
Yes. Yeah, thank you. I'm just processing all of that. I think we'll be. I'll make a couple observations around sales, around sales momentum. On the face of it, there's no change. We are seeing some mix change out of wants to needs. You know, sort of called that out for Supercheap Auto. I think the result for this period is the result, meaning it's very hard for us. I'd be very unenthusiastic about trying to extrapolate a continued strength given what's happening in the macroeconomic environment. We're pleased with what we've achieved. It's very dangerous to start working through the entrails of a couple of weeks of trading to sort of extrapolate from. It is solid.
We are seeing some mix shift, but we don't see any reason why we would be any more immune from the macroeconomic environment than another retailer. We are in good categories. We're able to play at the lower ATV side of the cycle across all the brands. You know, as I say, we do have a posture of hope for the best, but we have planned and continue to plan for the worst.
Okay. I think that's sensible. The second question from me is on inventory. As usual, you've given us some good color on inventory. Did the timing of Boxing Day shifting halves have a material impact on your inventory balance? If it did, with the sell-through of Boxing Day inventory in the first half of this year versus second half of last year, can you give us some sense of where your inventory position would have been if not for that timing issue?
Clearly, we outlined last year what Boxing Day contributed, which was a sales impact of AUD 27 million. The inventory impact is circa AUD 10 million. We would note, though, that obviously we had inventory arrive late last year because of the supply chain. We bought inventory that didn't get in for peak. Now BCF was really impacted by that, by over AUD 25 million. We're underway on the other side of it, in rebel, and we can see this year, we're delighted to have the global brands delivering on time. In fact, they delivered AUD 10 million of inventory early, which means we can plan to sell through the season, in the season, rather than having to sell it through later in the season.
I think you all experienced that with the football boots last year. Yes, there was a Boxing Day on, you know, balance sheet, the balance date. It's $10 million. It's not a major factor.
Yeah. Okay. That AUD 10 million, that's just relating to Boxing Day sales. Particularly, there's a little bit from the couple of days after Boxing Day that are pretty big as well.
Oh, yeah, there is. That's also, you know, you've got the days that. It's a 26 week period on a 26 week period.
Yes.
We have to hold inventory for the January peak. Sales are strong in January as well, 'cause, you have quite a lot of people.
Okay. All right. Thank you.
Thank you.
Your next question comes from Craig Woolford with MST Marquee. Please go ahead.
Morning, Anthony and David. G'day.
G'day. [cross talk]
Good to speak. I just wanted to understand, you've made some comments, you know, including on the inventory about units. I'm just trying to understand across each division, the contribution that price is having versus, you know, transaction volume growth. A bit like Michael Simotas' question before, trying to get an understanding of the underlying trends, early in that first half, there would've been strong transaction volume growth 'cause of the lockdowns in the prior year, whereas later in the half, it might've been a better read. I don't know whether it's something you can easily pinpoint, but just to get an understanding of how much price inflation and average transaction growth is contributing to like-for-like sales.
Yeah. There's no question the first quarter of the year, the first quarter that we experienced in this half, benefited from comping the lockdown periods, particularly in Victoria and New South Wales and New Zealand. We saw from really late October onwards, where we're comping the opening period and obviously, that was quite a strong rebound. Overall, we've seen a really sound increase across the businesses in Average Transaction Value. We've benefited from that increase in both the price of items, but then also the fact that we're in a different promotional cycle.
We would say that BCF is probably the exception to that, where BCF's average transaction values have fallen, and in fact, transactions have been a little bit robust, more robust there. It's a, you know, across the three brands, it's, excluding BCF, it's been predominantly through price.
Okay. Then you mentioned, you know, some renegotiation with suppliers and sea freight rates coming down. There's just quite a few moving parts for us to comprehend around currency, what your hedge rate might be on your own purchases, sea freight, and then general factory cost reductions. What do you see on that score as a, you know, contribution to cost of goods or gross margin outcomes over the next six months?
Yeah. I think we'd be careful not to quantify, but just maybe give some color. If you take the retracing of the shipping costs and some of the logistics costs, you know, we are working hard to get that into pre-COVID shape. We're also noting that we're seeing availability at factories very strong. We are able to access supply easily and are able to negotiate accordingly. We started this process in June, August, June, July, August last year, and are quite pleased that we'll see the COVID inflation that we've experienced within the broader supply chain start to normalize the pre-COVID period.
That's a big prize for us and will give us shelter from what we're starting to see in the CODB line. We're obviously getting domestic inflation coming through, whether that's local logistics or wages, but, you know, we're working hard to use this as a bit of the COGS benefit as an offset to that inflation. That's been key to our strategy as we start thinking about go-forward 24, 25.
Got it. Thanks. Just on currency, is there anything to say that's-
Yeah. No. As long as we got the currency playing through, it's been, you know, a pretty challenging calendar, 2023. Sorry, 2022. This 2023 period, we have a hedge book that we execute. We benefited. That was certainly supportive in last year, 'cause we'd sort of taken some strong, you know, mid 70 positions into 2022. We've gone and put hedging on most recently in 70, low 70. The hedge book's there to manage things, but it's, currency is passed through, and it does play through into the gross margin line item. It will do that over time, because of averaging.
Certainly that's been a factor that's driven our COGS inflation and driven some of that price that we've been able to take in market.
great. Thanks, Anthony. Thanks, David.
No problem.
The next question comes from Shaun Cousins with UBS. Please go ahead.
Good morning. Maybe just a question regarding the trading start second half FY23, particularly the stronger performance in rebel. Can you maybe sort of talk a bit about the benefit you might have got from back-to-school vouchers? Recognize that's just a New South Wales issue, and you're a national business. Also just the Omicron sort of undemanding comp that you had there and where back to school seems to have occurred now in January, where Omicron meant last year that back to school might have been lighter, but also February, please.
Yeah. Thanks, Shaun. Good to hear from you. If we go back to 2023, I think the biggest differential for rebel was inventory. We called out last year that if we could have more, we'd take it. I think this year has demonstrated that having it was an advantage. I think that's a tick. I think in terms of the vouchers, I mean, the vouchers are still large. You're right to New South Wales being where it's difficult to just get a precise read on a. If we think it's coming through an ASP as opposed to transaction. You know, mom and dad were always gonna buy the sneakers, you know, for said children.
Are they It looks like they might be buying a slightly more expensive pair than the pair they otherwise would. The transaction was always gonna happen. Are we seeing a benefit in ASP? Perhaps we are. Too early to quantify, but, you know, I don't think that's a game changer. You're right. You know, rebel, you almost got a normalization in some of that school-based activity. Remember we had those footy boots, footy sort of I mean, there was lockdowns in some of the schools, this time last year in and out. We're clear of that now. Got a good inventory position. I think that does augur well in terms of that participation flowing through into those articles, footy boots and those type of oddments for rebel.
Inventory, clean demand, ASP bump from the vouchers in New South Wales, perhaps, that feels like that's the story.
Great. Maybe a question for David, just conscious around where the supply chain's at and capital management. I think the 0-0.5 net debt to EBITDA, pre-AASB 16, capital management framework's been provided for a little while now. The first gate you had to get through was a, you know, clearing a disrupted supply chain. Is the supply chain still disrupted, or are we getting to a stage where it's not in that manner such that we could then anticipate, given the strong balance sheet, capital management consistent with the framework that you've previously outlined?
Yes. The supply chain has improved substantially. We are still seeing a very challenging operating environment for inbound going into New Zealand. It's still substantially delayed getting SKUs in there. When you then look at the actual landed supply chain, there's still, it's been a very challenging half, whether it was pallet shortages, driver shortages, huge amounts of disruption from flooding across where we had significant inflation in costs related to flooding across the Perth, most recently, Far North Queensland. It is still a challenging operating environment.
As I called out earlier, we are now seeing deliveries on time, but there are still some national brand partners that are still not fully recovered. We've been quite deliberate, I think, in our disclosures today, that Anthony took us through in terms of our thought, our thinking around capital management to outline our views around our balance sheet strength and how we are thinking about that. I think we've been quite clear that environment's improving and we've tried to be sort of present that thinking on that slide as he's taken us through.
Okay. Thanks, David. Thanks, Anthony.
No problem. Thanks, Shaun.
Your next question comes from Bryan Raymond with J.P. Morgan. Please go ahead.
Morning, guys. Great trading update and great result. Just on the promotional activity, obviously gross margins came back a little bit, and you've given great color across the brands and take a lot on board. Just thinking about marrying that up with the trading update, which is very strong. Just interested if there's been any change in promotional activity by either yourself or your competitors that might have contributed to that delta we've seen in underlying run rates of growth.
Not in the beginning of the second half. It's not a. I wouldn't declare a shift of gears. I think if you go around the grounds, you know, auto category is slowly spinning up. You know, it's sort of, I would observe, Bryan Raymond, that we're kind of at the new normal. You know, we've seen some store-wide discounting take place. That doesn't feel like it's accelerating. Just feels like that's what it is. That feels reasonable. In terms of the Adventure Macpac space, again, I think there's a bit of activity there in the clearance space, but nothing untoward. Again, starting to, you know, we saw an acceleration, but it's starting to normalize. Again, that feels like a bit of a new normal.
BCF in the leisure space has been terrible. It continues to be terrible. You know, could it get worse? Unlikely. I think we're, a re we there yet? I don't think we ever left. It's always been bad. Rebel is actually outside of clearance, fairly orderly. From fractional activity, we sort of, we think we're at a place of equilibrium in the market. I don't anticipate it's gonna get better, but at this stage, I don't anticipate it's gonna get materially worse.
Right. Okay. That's really helpful. Thank you. Just my second question is on RCX and rebel. By the end of this year, you'll have roughly 10% of the network by store count under the RCX banner, which is, I'd assume a fair bit more of that in sales. I'd be interested if you could give us a feel for what sort of sales penetration or as an ROI against sales would fall under that format. Just trying to understand the economics of those refurbishments, how meaningful are they in the sales and earnings improvement you've seen in rebel? If there's any store economics you can share, that'd be helpful for us to be able to build out potentially some uplift from that in the future.
I think we've disclosed a couple of uplifts, in previous presentations. We might sort of just dig that out for you on RCX. I think we'll give the benefit. I think the benefit is two ways. There's the store economics upgrade of the store itself, and we've started from the top trader. You know, started from the top and worked our way down. We've always said it's the top 25 doors that we're shooting for, and, you know, you've got a high point sort of hitting an MAT of AUD 20 million. That gives you kind of a sense of, of, you know, what that top door in rebel does, which, you know, were the time where AUD 20 million was a dream. That's, I mean, that's a big deal.
There's the store economics. The bigger benefit that has a much more transformative effect is the access to range inventory. The name of the game in, especially with the global athletic brands, is you've got to be a door that's worthy of them ranging. What the RCX has proved to us and also proved to our partners, is we're a top global retailer that can accept their best ranges, which usually attract a higher ASP, but it sells through. If you don't look like a first-grade footballer, they'll give you third-grade product. We're able to take that RCX range and start to push it, you know, across the network, which gives us a much more tidal impact. That strategy is quite cunning because you get the store economics, but you also get a tidal movement across the network.
You know, from a competitive perspective, we start to become, you know, a key partner in this part of the world for some of these global brands, which gives us, you know, the beginnings of a, you know, sustainable advantage.
Okay. That's, that's helpful. Just on that uplift you're seeing, is it basically more foot traffic or is it bigger basket size that people sort of trade up because they're inspired by the experience? Like, how should we just think about the customer experience in those stores?
It's both. It's both. They are a destination. We see good traffic generation. You see, what we're seeing is better basket performance, but more the with greater breadth and depth. What I mean by that is, if you look something like personal fitness, we're actually be able to create a range and an experience there that's creating multiple purchases around a category that, you know, rebel's sort of trying to push in and grow. It's been. It really has gone, it's gone particularly well, because it is, it's become a destination and we're just applying, you know, the basic rules of good retail here, and we're getting the advantage of that across the whole store.
Notwithstanding the kids playing basketball after school, which we still love, but, you know, that's a traffic driver in of itself.
Absolutely. Thanks, guys.
Your next question comes from Adrian Lemme with Citi. Please go ahead.
Morning, David and Anthony. Great result as always. Just a question following on actually from the RCX question. Are there any elements of that that couldn't be applied to the other businesses? I know you obviously got the trial of the BCF super format. Yeah, just interested if there's any learnings from that that can be applied to other businesses, please.
Yes. Thanks, Adrian. Appreciate the question. I think so, look, in short, it does. If you look at the BCF Townsville store, which, you know, as we go along, we'll try to give you a bit more color of some of the things we're doing there. It does have the same characteristics, actually, where you're creating an experience which attracts brands that you otherwise wouldn't have access to. If we look at the ranges that we've got in that Townsville store, you know, traditionally, BCF 4 or 5 years ago would never, ever be confident enough to range it, nor a trade partner give it to us, because you're creating an experience.
In that respect, using that retail experience to leverage exclusivity and high, you know, you know, high volume, highly attractive product, absolutely, that's the case. In Supercheap, it's been interesting. We've probably played a slightly different game there as opposed to going bigger and brash. Where we've looked at the Supercheap refurbishments is the team have been actually able to focus the store presentation in the same format and really leverage the economics of that store. In terms of the way we position tools, the way we position car care, car maintenance, we've been able to get a little bit more of an incremental outcome as opposed to a step-out performance that we saw with RCX and that we are seeing with this Townsville store for BCF.
It's a bit of different strokes for different boats. Is there a Supercheap Superduper store in the mix? We probably will look at it, but it doesn't have the same kind of driver of these credentialing products that, say, rebel and BCF seem to enjoy. You know, I think the other point I'd make is, as I sort of said, I think it's Bryan Raymond, that the real benefit is taking the small parts of the Superstore experience and then blowing them out to the network. House sort of basketball, house football, which you'll find in your local rebel store today, all things being equal. You know, if it's a good idea, believe me, we'll steal it and throw everything at it.
Thanks. That's very helpful. It seems like there's more opportunity there. Just one more question, if I could please. The CapEx prior to the current investment program was something in the order, I think, about $100 million. Obviously, the business is much larger now. Once this current program ends, we expect CapEx to sort of return closer to that $100 million level. Are there thoughts about further investment programs post the current one, please?
No, I think one of the core tenet of the core four strategy is investing in your biggest assets, finding opportunities that provide an incremental return for relatively low risk. Like opening a store in Townsville is not going to kill us. You know, it's sort of trying to set up a new retail brand and then, you know, tinker with them and then roll them out. You know, it's almost like reload, reimprove, and get the return, you know, so their return on capital numbers are strong as a result of that. I'd be of the belief that the 125 is kind of there or thereabout. I can't see us deleveraging our investment in these core four assets because you've got to stay with it.
You know, the minute that you take your foot off the accelerator, you've got a customer that can potentially go elsewhere, et cetera, et cetera. The other thing that's obviously worth also kind of pointing out is, you know, we've sort of spoken for a while, we've got two sheds in Melbourne that need to become one in the next couple of years. That's probably gonna have a bit of a bump to that CapEx number. We'll have more to say about that in the full year, but, you know, I can't see that number sort of finding its way south.
Great. Thanks, Anthony. Cheers.
Your next question comes from James Lee with Goldman Sachs. Please go ahead.
Thanks, guys, and well done on the update. Just a quick one on me around loyalty. What loyalty will we be providing loyalty members? I think you previously noted that you didn't have to provide much value in the loyalty space. Is that still the same or has that ticked up a bit?
Yeah, no, thanks for the question. It's a good question, because that's the work as we prepare for the rebel launch that we're doing now. Traditionally, outside of Supercheap Auto, we haven't provided what we call a structural loyalty program, where you give something to get something from a customer. One has to be very cautious about executing a program like that, because if you don't get the uplift, you obviously just get gross margin dilution. We're very alive to that risk. To manage that risk, we've been conducting a series of trials where we've been offering customers incentives to see what that does to their basket size or their visitation, their recency and frequency.
That was a trial that we sort of referred to in New Zealand for the spend and get. We're very pleased about the returns of that. All of that sort of builds into the way we will think about the in the first instance, the structured program for rebel and ultimately other improvements that we may take to BCF and Supercheap Auto and Macpac in due course. Short answer is, you're right, don't give much now. Will we give something in the future? Yes, we will. Will we test it to know what we get in return? Absolutely. We won't hit go until we're sure of our footing on that.
Thank you.
Your next question comes from Ben Gilbert with Jarden. Please go ahead.
Good morning, guys. Just interested in the decision-making at the board level when you decided not to do capital management for this period. I suppose in terms of my thinking is if your thinking was around potentially doing an on-market buyback, you probably would have done it to give yourself the option. Does it mean that you'd probably, if you were going to do something, you'd lean towards more of a capital return to utilize some of the franking credits? Yeah, I don't think I'd be, I don't think I'd be sort of answering that directly, though, Ben. I think the way we're thinking about this is we're wanting to get through the supply chain issues, and I think we're there. I think we're past that gate.
Question for us now is we absolutely have excess capital, needs to be returned to shareholders. Is the question for us of how we do it and when, what if. Does it feed into your mind at all? I think so. Obviously, the business is also pretty humming now. You've got good momentum coming through with the brand initiatives around loyalties. You've talked to things like there's some plans in place around the DC consolidation. Do you feel you're in a position of I think you sort of, you talked to before, have sort of a license to go out and look at M&A in terms of some attractive add-ons which might be complementary, or is that something you're still thinking of a few years down the track? Yeah, we're not there yet.
You know, I've always said this about M&A, you know, we're getting good returns from the program now. We're not done. You know, we're two-thirds of the way through the transformation. You know, with the FY19 program that we talk about every half hasn't changed, and we're ticking it off and we're making progress. My concern is that if we throw something in too early, we'll actually stunt that growth and potentially put ourselves at a strategic disadvantage. Business gets distracted, you know, we sort of lose our bottle. You know, the strategy now is still core four, and the capital management approach is consistent with that strategy. In due course, we'll consider our strategic options thereafter that. You know, M&A may be part of that in the, you know, the go forward.
That's not now. You know, now is completing the job that we set out, getting the returns that we said we would, which we're on track to do. Got excess capital now, got to hand that back. We'll just, you know, as I say, it's a matter of, you know, when, not if.
Just final one for me. Appreciate all the color you guys have given around inventory. It's helpful. Just if you give a comment on sort of cleanliness. I know you talked provisionally that relates to cleanliness in terms of age stock, because obviously typically you sell the better quality stuff out first. rebel seems like it's fine, but you're pretty comfortable with the quality in terms of aged stock and at-risk stock across the brands?
Yeah, we are. I mean, look, there are always when we go back to COVID and we ingested all this inventory to sort of protect our position, which, you know, in hindsight still was the right move. You know, now we're pulling off the dismount from that. You'll always have some oddments that are longer than you would like, but none of them are material, and all of them are well managed. Management incentives are strongly aligned to ensure that they are not held. There's nothing in that. I mean, Dave and I've turned the place upside down looking for it. We're comfortable that whatever's there is manageable, which isn't a lot. You know, we've said the inventory is not perishable. We don't have a balance sheet issue, obviously.
We can, you know, we can afford to be patient. You can see in our growth margin that we have been pretty managed, pretty measured in the way we've sort of pulled this off. We're pleased with where we're at.
That's fantastic. Thanks, guys. Appreciate it.
Your next question comes from Mark Wade with CLSA. Please go ahead.
G'day, guys. Firstly, on the trade opportunity in auto, how attractive is that one, Anthony?
Yeah. Good day, Mark. look, it is, it's a significant category and it's an adjacency that is a bit like a siren that calls us. Also like a siren, it can create some issues because of the nature of the inventory holding in order to be in order to be competitive. you know, I think one of the strong parts about Supercheap Auto, it is a B2C player that absolutely nails that customer, gets the value proposition right. The focus that team has put on understanding the customer, building out ranges. I mean, for those that have been there in the business for a long time, Supercheap Auto has always performed well, but we are seeing a step up in performance, and I think it's because of that focus.
That said, we do think there's opportunities for us to play in the trade space. You know, we're looking at some of our go-to-market, and channel optimization, especially online. In terms of aggressively stepping into it, you know, I would be concerned about, impact on focus on the B2C stuff. You know, we would have to think about a business model which works to our advantage, you know, from a spare parts perspective. Yes, we'll, we're looking at it. We're certainly going to make some investments to assert ourselves more. You know, focus is the name of the game and that's what's given us the return and that's what I think we'll continue to do.
Excellent. Just 2 years ago, you had this a JV with Bosch. Was it in the auto stores? There was like a premium format. It's kind of interesting how that format didn't work. You know, the RCX in rebel is really going well. Just remind me that deal with Bosch, where that fell short of expectations?
Yeah.
Why did?
The deal with Bosch was really trying to step into the service mechanic space where we would be providing a service with Bosch where you actually service the car, the customer's car, you know, a whole list. I mean, that's probably, I mean, it was a good learning because it's a different mode. You know, when you're hiring mechanics, dealing with a different EA, safety, from a property perspective, where you open a mechanic shop is very different to where you'd open a Supercheap Auto store. You are actually getting into a completely different business model. The determination we made is, you know, whilst, again, the market is big, it seems attractive, it's well serviced. It's going through obviously a quite a step change courtesy of EVs.
You know, we came to the view, I think we made a retrospective right view by investing our money in the B2C business, the core business, we'd get a better return. I think history would probably judge that to be the right judgment.
Yeah, fair enough then. Lastly, if I can sneak one in. Sally announced her resignation at the AGM last year, but it was a bit of like a 2-year caveat. I'm wondering if it's been considered to bring that forward.
No, I think Sally announced that her term concludes at the, not this AGM, the next AGM. I think that announcement or her intention still stands.
Okay, good to know. Thanks, guys. All the best. Keep up.
I think that might be, Operator, I think we might have time for one more or indeed time is it?
Thank you. Your last question comes from April Lowis with Barrenjoey. Please go ahead.
Hi. Thanks for taking my question. I'm just wondering how we should think about FY24 and beyond corporate EBITDA and EBIT costs. Also we saw that there was a $6 million D&A charge in the corporate and unallocated line. Can you talk about what that is?
I think we've put the CODB outlook into the slides. The historical performance is in there. We've been quite specific about corporate unallocated incurring costs associated with the development of the loyalty. We've not gone and provide, and we've guided that there will be a AUD 19 million full-year cost associated with that development in this year. There'll likely be some additional costs next year. We haven't guided to that at this stage. In terms of the AUD 5.8, that was related to that program. In terms of, we've identified a decision to change our approach to carrying one of those assets.
That's in the group unallocated line for the half.
Can I sneak in one more question? Is that okay?
I think we're at time, I'm afraid. Appreciate your question.
Thank you. That is all the time we have for questions today. I'll now hand back to Mr. Heraghty for closing remarks.
Great. Thank you, operator. Thank you for, to ask questions. If you missed that, I apologize. We've run over. Got people waving at me frantically. Thank you for joining the call. As always, look forward to seeing some of you or most of you over the next couple of days, and we'll see how it all unfolds for another interesting calendar year in the Australian consumer segment. Thank you for dialing in.
That does conclude our conference for today. Thank you for participating, and you may now disconnect.