Ladies and gentlemen, welcome to the Super Retail Group FY 2022 half-year results presentation. Today's presentation will be hosted by CEO and Managing Director, Mr. Anthony Heraghty, and CFO, Mr. David Burns. There will be an opportunity to ask questions at the end of the call. Today's presentation is for investors only. Members of the press who would like access to management should contact Kate Carine, whose contact details appear at the bottom of today's ASX announcements. I would now like to hand the conference over to Mr. Anthony Heraghty to begin the presentation.
Thank you, operator. Welcome everyone to Super Retail Group's half-year results presentation. In terms of the structure of today's presentation, I'll begin by speaking to some of the financial and operating highlights for the period before talking to the performance of each of the brands. I'll ask our Chief Financial Officer, David Burns, who's joining me from Sydney. Good morning, David.
Morning, Anthony.
He'll provide you with more detail on the full-year financial results. Finally, I'll speak to the progress we're making in executing our corporate strategy and also refreshing our sustainability goals before providing you an important trading update for the first half of the second half. As always, there'll be an opportunity for you to ask questions at the conclusion of the call. Right, let's get to it. If you turn to page five in the executive summary, I'm pleased to report the group has delivered AUD 1.7 billion in sales in the first half. This is in spite of the challenges of COVID Omicron, which significantly disrupted the supply chain. Group first half NPAT of AUD 113 million is, as anticipated, down on the prior corresponding period.
That is more than 60% higher than the profit the company delivered just two years ago. Commensurate with this report, the board has determined to pay an interim dividend of AUD 0.27, fully franked. A couple of parts. First quarter trading, which was, you know, significantly disrupted by COVID-19 with lockdowns, widespread lockdowns. We're pleased to see sales rebound in the second quarter. Our decision to digitally capture strong consumer demand holiday trading period. We have sustained growth of 86.7%. This result in such circumstances is a testament to the sheer might of our team, the Christmas casual, the DC team member, all the way to Executive Leadership Team. I can only say thank you. This half, our omni-retail strategy continued to deliver. The Group achieved AUD 389 million in sales.
That's a 109% increase in click and collect. That sustained our demand during the Q1 lockdowns. Put simply, this period has demonstrated that our online business can grow directly without losing the operational leverage of our store network. Consistent with our strategy, half one also saw the recent investment in stores, digital, and our team's capability to pursue our strategic growth objectives. Operating costs as a percentage of sales have begun to normalize as a result of both this investment and the unwinding of cost containment measures that were implemented in the first half of FY 2021. The group is entering the second half in a strong financial position. We have no bank debt. We have AUD 94 million cash in hand.
Now for completeness, I note that Boxing Day fell in the second half of this year, whereas it fell in the first half of last year. Adjusted for Boxing Day to allow for a more meaningful comparison with the prior corresponding period, first half sales would increase by AUD 27 million, and PBT would increase by AUD 7 million. We've been quite thoughtful about how we show this comparison throughout the presentation, so I think you'll hear me say Boxing Day adjustments with some frequency. Okay, let's go to slide six. A couple of points to make. Firstly, we've been able to achieve a first half sales number approaching the prior year's record sales result.
Facing the risk of a disrupted supply chain, the decision for the group to invest in inventory was key to this result, and we've clearly seen the benefit of that higher stock availability as we've rounded out the half. On a two-year basis, we've achieved double digits in our two largest brands, Supercheap Auto and rebel. Lifestyle and fitness categories have continued to far outpace the norm in respective product categories. BCF on a two-year basis has grown by more than 40%. This is a testament not only to the growth and the popularity of key categories like four-wheel drive and camping, but the group's focus on lifting sales intensity in BCF through tailored local offerings, the broadening of our footwear and power ranges, and the introduction of Macpac, our winter product, to offset the seasonality structure of this business.
Finally, while Macpac's performance is comparatively modest by comparison, Macpac is a brand that without doubt has been impacted by store lockdowns and restrictions on travel in its cold winter markets of New Zealand, New South Wales, and Victoria. I think as we say with Macpac, once it opens, it gets going, and we'll talk about that later in the presentation. Slide seven shows like-for-like sales in each of our key brands split between the first 16 weeks and the last 10 weeks of the first half. Now, we wanted to show this split for two reasons. Firstly, it provides continuity in disclosure as the last update we provided to the market showed our trading performance in the first 16 weeks.
Secondly, it provides a pretty reasonable proxy of how our business performed since the reopening of key markets of New South Wales and Victoria followed the lifting of the COVID lockdowns in October. A clear sales rebound occurred in all brands weeks 17 - 26. While the economy reopened during this period, Omicron certainly made its presence felt late in that quarter. This was certainly the case for rebel. Major centers and CBD locations experienced quite significant reduction in foot traffic. Onto Slide eight, which shows gross margin performance over the last five years. Group gross margin of 46.7% is 100 basis points lower than the prior corresponding period, but 170 basis points above some recent historical levels.
This uplift in gross margin reflects the ongoing benefits of business improvement that have been put in place relating to sourcing, relating to our ability to manage strategic pricing and promotion. This result, this half result is consistent with our previously stated aim, observing a meaningful proportion of the 300 basis point gross margin uplift we generated over the full year of FY 2021. It's worth emphasizing, though, that the prior corresponding period did really benefit from this once in a lifetime combination of extraordinary demand with effectively a flat line of promotional activity. It's not supposed to work that way.
Nevertheless, one pleasing aspect considering the current results are impacted by a couple of transient factors relating to COVID, including higher cost of external storage and a surge in home delivery as we were dealing with temporary store closures, specifically in Q1. Now, we recognize that continued cost inflation is a key concern for investors at this time in the cycle. Our focus is unchanged, though. Optimizing the balance between the generation of gross margin dollars and protecting our brand's market position is unchanged. On to slide nine. It's sort of showing the group's cost of doing business expressed as a percentage of sales over the last five years. Highlights the point that cycling the FY 2021 mark, the H1 2021 mark, was always gonna be challenging.
1H 2021 saw the business deploy aggressive cost containment measures in response to the pandemic, measures that have sensibly and subsequently been unwound. At 1H 2022, the group has accelerated its investment in our team's capability. We've accelerated our store network and our strategic programs. This investment is consistent with the strategy articulated during the July 2020 capital raise, namely that we're aiming to pursue our strategic growth initiatives in line with the key priorities outlined in our corporate strategy. CODB in this first half has been impacted by pandemic-related costs, including higher store wages, higher digital marketing costs, and we expect to see these costs begin to dissipate as we hopefully exit this pandemic phase. Finally, there's been some modest unwinding of cost rationalization compared to the first half of last year, given the reduction in sales. On to slide 10.
AUD 389 million of online sales at 23% penetration in terms of group sales mix is a seismic change when it's contrasted to FY 2019. Now we've aggressively invested in this capability and rightfully so, 'cause COVID has probably and permanently remapped the way that customers engage with online. What's interesting for us is that despite this almost one would argue extreme caution about visiting stores during COVID, 58% of these online sales were click and collect, which thanks to a combination of higher ATV and obviously the low click and collect fulfillment cost, is the group's highest contribution channel. If we go to slide 11, it provides more color on our online performance on a brand by brand basis.
It's worth noting a 31% penetration for rebel of sales and 98% growth for Supercheap Auto. They're notable call-outs. On to slide 12, it really shows, as I mentioned before, this extraordinary circumstance presented by the pandemic and extended periods of COVID lockdowns. Despite all of that, 90% of all these transactions involved a customer going to store, whether that was an in-store transaction or an online transaction with a click and collect pickup. 90%. The key trend that supports the statistic is the increased uptake of click and collect, which grew faster than home delivery and represented 13% of sales. Now, click and collect is attractive to our customers because it leverages the location of our national network. It gives the customer certainty the product's available and allows for collection almost immediately or not.
The chart on the right-hand shows that there's been obviously some surges in home delivery sales during the peak of the pandemic, and we're now reverting to more normal levels as customers start to return to stores. On to page 13. Look, the big picture here is we grew our active club, our active customers, and remember, they are members who have purchased from us in the last twelve months, so they're real. We've grown up by more than 20% to 8.7 million active club members. Currently, across the group, these active club members represent more than 69% of total sales.
We think this customer stickiness bodes well for the earnings resilience of the group throughout the economic cycle, and that's why we continue to invest in our capability in personalization, customer loyalty, and associated data analytics. Slide 14 provides more detail on a brand by brand basis about our customer growth in customer numbers, customer satisfaction, and club members as a percentage of sales. It's worth calling out we've made some good progress on our customer acquisition across all brands, but Supercheap Auto is clearly a standout, with active club members increasing by 50% to 2.8 million. Now, we made a decision this year to remove the AUD 5 club membership fee for the Supercheap Auto Club Plus program, and we've been very pleased with the customer response. Probably just as pleasing as our membership growth are our strong NPS scores.
All four brands improved their NPS despite the logistical challenges and the health and safety requirements associated with COVID-19. You know, simply from a customer lens, I just simply say we've achieved more customers and we've got more satisfied customers. Not a bad start. Okay, slide 15, 16, and 17 summarizes the group financials, but I think what's more important is to start diving into the brand-by-brand detail on slide 18, starting with Supercheap Auto. Supercheap Auto delivered a very solid performance in another COVID-disrupted year, reinforcing the reliability of the auto category and just the strength of the Supercheap Auto brand. As I've previously mentioned, Benjamin Ward and his team continue to excel in customer acquisition, having added more than 900,000 new club members to their Club Plus membership program in the last 12 months.
Total sales declined by 6.9% to AUD 616 million, but this represents an 11.9% growth on half one FY 2020. Supercheap Auto delivered a strong rebound in sales in the second quarter with a 4.1% like-for-like growth. That's with the adjustment for Boxing Day in the final 10 weeks. Like-for-like sales declined by 7.7%. Again, adjusting for Boxing Day, that's 6.2%, which represented a 10.1% growth on half one FY 2020. Gross margin was consistent with PCP, as pricing promotional effectiveness was able to offset higher supply chain costs. Segment normalized PBT of AUD 75.9 million was 39% higher than half one FY 2020. Normalized PBT of 12.3% was 240 basis points higher than half one FY 2020. On to rebel.
rebel also delivered solid performance in the half, particularly considering that peak Christmas trading was impacted by a reduction in footfall in CBD and large shopping malls. Faced with this challenge, Gary and the team and the rebel team have done a great job pivoting to meet online demand, growing online sales by 56% to represent 31% of sales. The penetration number, that was unthinkable not that long ago. Total sales declined by 2.9% to AUD 606 million. This represents an 11.6% growth on half one FY 2020. Like-for-like sales declined by 5.9% or 5.4% adjusted for Boxing Day. This represents 10% growth on half one FY 2020. rebel delivered a strong rebound in second quarter.
Like-for-like sales down just 0.3% adjusted for Boxing Day in the final 10 weeks, cycling a record PCP. Gross margin was lower than PCP, reflecting higher supply chain costs, some increased promotional activity, and a higher sales mix of lower-margin categories. Segment normalized PBT of AUD 63 million was 32% higher than H1 FY 2020. Normalized PBT margin of 11.3% was 180 basis points higher than H1 FY 2020. BCF delivered a strong like-for-like sales performance in the first half.
Now, I've spoken previously about our aims to rebase revenue and earnings above the pre-COVID levels, and Paul Bradshaw and his BCF team are making good progress on delivering this ambition through an expanded store network, range improvements, tailorization, and expansion of our footwear and apparel offering to reduce the seasonality impact of this business. Total sales declined by 2.2% to AUD 418.5 million, but this represents a 47.6% growth on H1 FY 2020. Like-for-like sales fell by 2.7%, but with adjustment for Boxing Day, that's 2.4. This represents a 40.6% growth on H1 FY 2020.
BCF delivered a strong rebound in sales in the second quarter, with a 7.2% like-for-like sales growth in the last 10 weeks, with Boxing Day included, and that was cycling a record prior corresponding period. Gross margin was lower than PCP, reflecting the anticipated normalization of promotional activity, an increased mix of higher value but lower-margin national branded products, and of course, higher supply chain costs. CODB has increased compared to the prior corresponding period, as we've discussed on slide nine earlier in the presentation. However, we're favorable to historical levels as a percentage of costs. Segment PBT of AUD 31.2 million, EBITDA of AUD 53.3 million.
Moving to slide 25, cash flow. Our operating cash flow of AUD 157 million was impacted by three key factors. Inventory investment increased. We made a payment to the ATO of AUD 67 million related to last year's record profit. We also had the impact of the timing of Boxing Day, which we've previously mentioned is AUD 27 million. If we were to capture that, we would have had AUD 27 million of additional cash in the operating cash flow results. We have increased our investment in stores to drive, and we're driving an increase of AUD 63 million of CapEx to spend in the period. AUD 34 million higher than previously when our investment was constrained. We have AUD 94 million of cash at bank, and we've paid a record dividend.
I'd like now to hand over to Anthony to talk to the strategy and trading update. Thank you.
Yeah, thank you, David. Okay, let's go to slide 20. It provides an overview of the key pillars of our corporate strategy, which we first released at our Investor Day, and the strategic focus for the group remains focusing on these core four core brands, leveraging our closeness to customers, specifically through our club, connecting our omni retail supply chain, simplifying the business, and excelling in omni retail. Now, slide 28 provides some detail of our progress to date in executing the strategy and but give us a tour of the slide. But on slide 29, I did wanna highlight the progress we've made in terms of execution of our FY 2022 store development plan. In short, the group planned stores in the first half and has undertaken a number of relocations and refurbishments.
Overall, we're well on the way to delivering our network on target. Slide 31, and 33, so, sustainability. The group is building more resources and integrating sustainability into our decision-making in line with our goals. We previously announced that we're currently developing our sustainability framework, and we look to publish it later this year to update the market when we release our sustainability report later this year. Nevertheless, I'm proud of the progress we've made on our sustainability strategy to date. On slide 32, we've highlighted some of these great achievements. We've increased our Dow Jones Sustainability score to 62 and received an A rating from MSCI and a leading rating from ISS for ESG. Our Modern Slavery report was recognized by Monash University as a top ASX 300 of 300 companies.
We're happy with our accomplishments to date on ESG, but we recognize there's more to do. We look forward to updating on our goals and aspirations later in the year. Finally, on slide 33, it's important to talk about our team. Engagement levels remain high. We've recently deployed a new time and attendance capability across the group. Clearly, strides are being made in terms of achievement of improved health and safety scores. What is most telling is that over 2,500 team members are part of our I Am Here mental health program. Very proud of that achievement. Right, let's turn to the trading update on slide 35. I'm pleased to report it's been a pretty positive start with the group delivering 60% like-for-like sales growth. That's a clean comparison with Boxing Day out.
Supercheap Auto and BCF in particular delivered strong sales, with both brands benefiting from this higher in-stock position in key categories. January sales were impacted by reduced footfall in malls and large shopping centers and it particularly impacted rebel. We note recent sales trends have continued to improve as customer caution has shown signs of receding. In terms of brand-by-brand call-out, Supercheap Auto has executed a successful lubricants campaign. Rebel has actually started to benefit from a catch-up on back to school spending. BCF delivered record sales result in January, driven by continued strength in boating and camping. Macpac, 'cause it was open, achieved strong sales growth in summer apparel equipment and accessories.
The group still expects to spend AUD 125 million in CapEx in FY 2022 to fund our store development program, our investment and loyalty, omni, and digital capability. Finally, I note that FY 2022 will be a 53-week year for the group. That concludes the formal presentation. I'd now like to hand back to the operator for questions. Thank you.
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 are on a speakerphone, please pick up your handset to ask your question. Again, to ask a question, please press star one. The first question comes from Adrian Lemme from Citi. Please go ahead.
Hi. Good morning, Anthony and David. How are you going?
Good morning, Adrian. Well, thank you.
Cool. Look, just first question, please. Just on what you're thinking about inflation, just what you're seeing from the brands and what you're thinking on private label, given the step up in supply chain costs and, you know, are you looking to keep price points or sort of and then sort of work around those and, yeah, just thinking how you're looking to pass on costs, please.
Yes. It's, I think, obviously a topical point. We are fortunate where we've made some good investments in terms of our capability around strategic and price promotion, promotional analytics. What that enables us to do is really understand not only elasticity, but relativities to competitors pretty clearly. What that enables us to do is appropriately manage to a gross AUD 90 outcome, with one eye on our market position. That's the balancing act that we're trying to achieve. Therefore, you would anticipate that as we start seeing increase in COGS, logistics costs, you'd reasonably expect those costs will be indeed passed on, but passed on in reference to market position and optimized through that analytical capability. There shouldn't be as sharp a sting.
The second thing that's worth pointing out is the benefit of a private brand business that we've got is it actually gives us, you know, as a percentage of sales, COGS is much lower than a national brand. It gives you a little bit more latitude to be able to flow cost increases through or do better work around mitigation. It's certainly not business as usual, but we're pretty confident we're well set up to manage that fairly effectively.
Excellent. Thanks. Could I just ask one additional question, please? Just thinking about capital management, should we think about, you know, the trajectory of the normalization of inventory and perhaps the trading outlook as the key swing factors to how you might think about, you know, capital management down the track, please?
I think we've always said, Adrian, that the drive of the capital management is the external environment, namely the pandemic and its associated complexities. I think when we start feeling confident that we're nearing or at the end of this period, we'll turn our mind to capital management. You know, we accept that our gearing's conservative, but that gearing's allowed us the confidence to invest in inventory. You can see this is the second peak period where that strategy has paid dividends. We wanna be sure of our footing before we turn our mind to that issue.
Great. Thanks very much.
No problem.
Thank you. The next question is from Lachlan Costello from Jefferies.
Just looking at consensus, it's implying Super Retail Group growth margins to remain elevated from pre-COVID levels. Just wondering how sustainable current gross margins are in terms of the outlook in 2H and beyond, or do you expect these to normalize to pre-COVID levels? Thank you.
Yeah. We whilst we're not providing guidance on anticipated movement in gross margin, I think what I'd probably direct you to would be if we look at the five years, you know, you'll see that gross margins have performed quite robustly based on that five-year performance. As we think about two things. One, that investment in the pricing and promotional capability as well as some of those transient COVID costs in the mix, that sort of gives you some pluses and minuses. It is worth noting though that you know, this external environment continues to throw up unanticipated consequences and, you know, ongoing inflation is one of them. It's something we're gonna have to manage, and that's why we're not, you know, being able to sort of provide specific guidance accordingly.
Thank you.
Thank you. Next question is from the line of Keegan Booysen, Jarden Group. Please go ahead.
Good morning, team. First question from me is just on the phasing of corporate costs. Expect a bit more digital costs to come through in the first half. I appreciate COVID's probably disrupted a lot of those investment plans. Can you give us some color on just how to think about the full year run rates? How big a step up in those costs should we expect? Just giving you commentary, please.
Oh, we would expect the
Yeah, I'll take that.
Yeah, I'll take that. The CODB is, as you can see, sort of normalized. We had the benefits, particularly in H1 last year, of a really heavily constrained cost environment. We weren't investing in our projects. We were sort of certainly constraining our expenditures, both in terms of marketing and also just general team. What you're seeing in this result is it moving back to a consistent level to what we've seen over time, and we would expect to try and maintain a relative consistency of CODB.
That's good color. Thank you. Just secondly, on M&A. Look, you're in a net cash position. Your balance sheet is looking very strong. How do we think about M&A opportunities out there that fit within your verticals? Do you see some scope for M&A, or do you think that the better allocation of your capital would be to reinvest in the existing verticals?
Yeah, I think, look, our position on this one is unchanged. You know, we've sort of got a strategy that core four brands, and we always would think about any activity within the context of that construct. You know, we'd have to make sense on that front. Secondly, you know, we've just gone through a fairly elevated period of performance and trying to bottom out, you know, ongoing underlying performance of some of these assets is challenging, so timing may not be awesome. Then lastly, you know, we'd sort of maintain this position, and, you know, we're in the middle of quite a significant digital transformation of the business. It's paying dividends. That focus is paying dividends.
If we were to do something in this space, we would have to make sure that, you know, it did not adversely impact our organic transformation agenda, you know, first and foremost.
That's fantastic. Thank you.
Thank you. Next question is from Bryan Raymond from J.P. Morgan. Please go ahead.
Good morning. My first one's just on online. You guys have seen over the last two years, bricks and mortar sales actually go backwards, you know, Supercheap and rebel, albeit with obviously lockdowns contributing to that. It's not a normal period. All what I'm trying to get is all of your sales are being driven by the online part of those businesses. You've seen underlying PBT margins up, you know, substantially, circa 200 basis points across those divisions. Just wanting to sort of get your feeling on how the profitability of online has evolved. Do you see that as a margin neutral business or is it still dilutive? Yeah, why don't I pause there and then there'll be a follow-up after that. Thanks.
Yeah, no problem, Bryan . I think the key whenever you think about online for Super Retail Group, you just have to have a look at the click and collect penetration because I think that tells a story. 'Cause only 10% of those sales being delivery at total sales, you have a very different dynamic to, you know, a traditional construct about online with fulfillment through delivery. If we just you know, called out in sort of in the presentation, click and collect contribution dollar perspective is our most affected channel. That's 'cause online will always attract or has attracted and continues to this day attract a higher ATV than an in-store purchase. And that combined with zero, effectively zero fulfillment costs for click and collect makes it an astonishingly good channel for the business.
There's no sort of loss of operational leverage. You still have customers coming into the store. They still have the possibility and the probability of buying something else while they're there. We've always said that's good business. The fact that in this period that outgrew delivery, even with lockdowns, says that customers like click-and-collect. It's good for us, it's good for them. It sort of doesn't unwind operational leverage. First things first is click-and-collect. Second piece is then when we look to delivery, courtesy of that high ATV and the improvements we've made through our order management system, we still are losing it, albeit lower than a click-and-collect contribution at a dollar.
I think we, you know, we sort of published, you know, a bit of an insight into this at the Macquarie Conference last year. From a dollar perspective, it's there or thereabouts to in-store courtesy of higher ATV lift, fulfillment costs. From an online perspective, you gotta start generating some confidence that the combination of a more and more efficient delivery system and a very, very high contribution dollar, click-and-collect channel, the ability for the company to keep up with online demand without undermining operational leverage, you know, we're pretty confident of that. We feel like we're in a good place.
Okay, great. Just following on from that, you know, gross margins obviously still well up on pre-COVID, some of the other questions have focused on. Just want to understand, is online a higher gross margin channel? Like, do you have a price premium embedded in online, or do you run different discounts? Is that contributing, that online penetration to higher gross margins at the moment?
No, all pricing is omni, so all pricing is the same. The only difference between online and in-store is that mix I talked about from an ATV. Now, when you get a higher ATV, you may get a lower percentage margin, but obviously a high gross margin dollars. That might be in play. You know, behavioral differences or the structural differences between the channels are customer behavioral-driven, led as optimizing pricing or promotion now. You get the same deal in or out, which of course is logical because if you find a deal online, you go on to the click and collect, and there's a different deal in store, that's gonna be a frustration for a customer.
Yeah, absolutely. Just final one for me, just around the gross margin line, just the promotional calendar versus pre-COVID. I think you mentioned in BCF it's normalized, and I understand that's a pretty competitive channel for you guys. Just focusing on two big brands in Supercheap and rebel, can you talk about the, you know, promotional side at the moment and potential for that market to absorb price increases that you're seeing from suppliers in a rational manner?
Yeah, I think that's all looking fairly orderly. Certainly in auto. I think the rebel space, it's just got a little bit more complicated because supply chain's just so lumpy. You know, you've got, you know, the Q1 lockdowns, which potentially had some players going long in apparel, and then now we've got, you know, Vietnam factory closures which sort of have tightened up on footwear. So that's, I wouldn't put that down to promotions. I'd just put that down to, you know, just a little bit of a bullwhip in the supply chain and, you know, people trying to, you know, reasonably optimize their stock position. But generally speaking, I'd sort of say it's, I think the impact of input costs are clear. You know, it's transparent what's coming through.
Generally speaking, I think, you know, there's good structure that's holding in the market.
Excellent. Thanks.
Thank you. The next question is from Grace Malin from MST Financial. Please go ahead.
Good morning. My first question is, what portion of the data and digital costs will be ongoing, and what are one-off establishment costs? On that, what revenue gains do you anticipate from the data and digital investments?
David, do you wanna pick that one up?
Yeah. We've got investment in the period, which we've called out as part of the impact on CODB. We would say that that's ongoing. We haven't seen the full benefits yet. We're still in the ramp-up phase. We've only just gone live on a trial with BCF for our hyper-personalization. So that's, you know, we're not gonna see the benefits really until FY 2023 in terms of top-line revenue benefits. There's a lag between investment and return. We'll see that investment required to increase, and we'll see those returns increase. Obviously in 2023, we'll start to see the returns override the benefits, probably in the second half of that year.
Great. Thanks. My second question is, what is the company's planned inventory cover going forward, given the very high levels at 31 December? Will higher inventory cover be retained throughout 2022?
Yeah. I'd direct you to a couple of things that's driving the inventory balance. Firstly, the balance is increasing because of increased sales, which is not impacting cover. There is some inflation cost obviously coming through as well, which we're passing through, which we discussed earlier. The cover position we would expect. We've got an environment of disrupted supply chain and disrupted demand in the last six months. As we see a normalization of demand, which I think we're now in a bit of a more of a normalized environment, so long as we don't have another Omicron, we will start to see a normalization of supply, we expect, during calendar 2022. We would hope to see midway through calendar 2023, an ability to get cover levels down.
Though that said, I think in the context of what we've been through, we'll probably be higher than historical levels just because of what we're seeing. I think with a degree of caution.
Great. Thank you.
Thank you. Next question is from Alexander Mees from Morgans. Please go ahead.
Good morning, Anthony, David. Thanks for taking my question. Just, following up actually on inventory. I just wonder if you can quantify the provision for aged stock that you put through during the period.
Yeah, the provisions are, we provide for aged stock and release it as we sell it, and then obviously provide for it as we see more aging occurring. It has not been higher this period than normal because those aged stock levels are relatively lower than historical norms. I would not call out in this period that we've actually had an increase in those provisions. If anything, because of these elevated sales, we're seeing a good freshness in our stock, and so we're not seeing an increase in aging at this stage. It's been quite good.
That's clear. Thank you. Just for clarity, you've provided the like-for-likes at the start of the second half, adjusted for Boxing Day. I just wondered if they would look different, or materially different if you had included Boxing Day.
Oh, clearly, 'cause you've got AUD 27 million of sales that would be in them.
Yeah. On Boxing Day, is there anything to call out there in terms of a year-on-year basis?
Oh, look, it was a good result for Supercheap and BCF. That was above historical norms, and you know, records. Record Boxing Day for Supercheap and BCF. For rebel, it was just slightly lower because of the Omicron was probably kicking in a bit more and the foot traffic reductions in the major shopping centers.
Great.
We did actually go early on our Boxing Day promotions for rebel. I think they commenced in that last week, so there was probably some slight benefit. It was only slight.
Thank you. Although, actually, when I think of it, there's just one more, if I can. With regard to pricing, I think you referred to taking price in Supercheap, which helped you to keep the gross margin steady. I'm just wondering, did you look to take price effectively in the other brands as well?
Yes. It's a constant process. We've always, as Anthony has outlined earlier, we optimize, we price scrape every day, and we optimize our price position in the market competitively, and so we're constantly taking price adjustments both up and down. As we start to see cost inflation pass through, as you would imagine, the cost of TEUs, shipping containers into Australia has been elevated for more than a year. We've been taking those adjustments and passing them through. It's just a constant process and we'll be continuing. We've already undertaken price changes in January and February.
Thank you very much.
Thank you. Next question is from Aryan Norozi from Barrenjoey. Please go ahead.
Hey, guys. Hope you're well. First one from me, just trying the gross margins. If I just look at simply your first half this year is up about 160 basis points on pre-COVID, so first half of 2020. Can you just split out how much of that is a structural improvement in terms of your own optimized pricing and how much of it is industry driven during COVID, maybe reduction in industry promotional intensity or any other sort of moving part? Just trying to work out what's sustainable and what's not, please.
I'm not sure we'll be able to provide that level of analysis. I think, look, that's tricky broadly because you have seen. So we go back to, you go back to last year, you've got a flatline of promotional
Mm-hmm.
Some starting to come through. The other tricky thing in that analysis is that you have got these transitory costs relating to COVID with higher supply chain. The bet you've got to make or the conclusion you've got to draw is that as supply chain normalizes, does demand start to normalize? There's some of that offset by promo. To try to calculate what's left behind is tricky. I suppose I would just simply point back to, you know, to our broad ambition. Like, when you get beyond the COVID period.
When you know demand starts to normalize and supply chain starts to normalize, given our investment in pricing, promotion, and our investment in club, you know, we're confident to hold gross margins, you know, at a higher than pre-pandemic levels. Now we're obviously not gonna quantify but with that, but that's the underlying logic. It's difficult to calculate for all the moving parts.
Yes. No, that's fine. Just on that point, like in terms of this half, how much, I mean, did you experience the full impact of elevated rates? If I just go from first half 2022 to second half 2022, is there anything that you're annualizing within that gross margin that we should be aware of, that we should analyze or give you the benefit of?
David, anything?
Yeah. Look, I mean, certainly the benefits of. Yeah, we traded the first half of last year and we started to see these impacts of shipping halfway through the half. We've seen them for 15 months now of elevated shipping costs playing through our cost base. I would say that and we've seen, whereas the sort of very little promotional activation last year in that first half because it was just literally trying to get hold of the inventory. We've seen the beginning of the normalizations in some of those activities. Yeah, I just.
I think, you know, we've had the full impact of cost inflation coming through supply chain probably is what I'd call out.
Perfect. Last question, just around the cost of doing business. I think at the AGM, it wasn't quantified, but my understanding was, or rough back-of-the-envelope, was that there's probably about AUD 10 million or AUD 15 million of extra investment in loyalty and digital capabilities. How much of that was incurred in this half? I think you flagged AUD 1.3 million in digital nominally. Does that mean that's gonna step up in the second half? Just give us an idea around the cost investment phase in the second half. Thanks.
Yeah. No, absolutely. That's called out in that AUD 21 million that we've sort of said is our, you know, year-on-year increase in investment in both stores and our portfolio. We would classify the work that we're doing with customer as a portfolio activity. That's lives inside the brand's results. That ramp up that's going on there is, I would say for loyalty, has started, but it's still in a ramp up phase and we'll see a higher proportion of that in H2. At the same time we'll see a reduction of some other project activity that we had in H1.
We're not calling out, you know, a significant step up in CODB, but we're saying it's actually gonna have a higher weighting of our portfolio activity in H2. That cost base will build for customer digital. We'll consume it inside the CODB which we've sort of outlined to you, and it lives inside the brands.
Okay. Thanks, guys.
Thank you. Next question is from Tim Lawson from Macquarie. Please go ahead.
Hey, guys. Thanks for taking my questions. Just in regard to the trading update, you call out sort of higher inventory, but also some risks around supply chain and staff. Is there specific brands you call out that have been, particularly impacted by those issues?
Look, I think inventory.
In the current trade.
Yeah, I think, look, as we get into this half, I think we're from a Supercheap, BCF, and broadly speaking, Macpac perspective, we're feeling pretty comfortable with our inventory position. As you would hope so, considering the inventory we have available to us. It leaves a little bit more of a dynamic situation just because we're a bit more dependent on the global brands. You know, I think it's been called out that obviously there's some supply chain disruptions specifically within footwear categories and the like. So we'll be managing that. There's no specific call-out, but that would be the way I would think about the dynamics of inventory as we sort of cast our mind forward.
Just a question on the relocated stores. It may be too small to have a big impact, but just their trading versus the original side and the costs, et cetera.
Oh, look, in terms of the store program, you know, it's achieving. We're very pleased with the performance of all those activities. You know, especially considering that 90% of what we sell goes into a store courtesy of click and collect, those refurbishments, relocations, you know, we only would do them if there was a return. We're comfortable with the outcomes we're achieving with the program thus far.
Thank you.
Thank you. Next question is from Mark Wade from CLSA. Please go ahead.
Good morning, guys. Just to start with, I'm looking at the big jump in club numbers you've had, big increase in the sales that they represent. Net Promoter Scores are up, your staff engagement's up. It's all heading in the right direction. They look to be a pretty contented bunch. How do you see this playing out or giving you a payback in the form of higher transactions, maybe lower staff absences and turnover, et cetera, in the next year or two?
Well, in some respects, getting more to market, it already has. Just on the team members, you know, we've gone through the most disrupted cycle for our team. You know, with all sorts of external issues and operationally dealing with this has been, I cannot tell you just how difficult it has, it's been for them. The fact that we've been able to maintain the integrity of the network, broadly speaking, we've been able to keep most stores open most of the time, even in the most difficult of circumstances. I think we've the company's handsomely been rewarded for our investment in the team and their welfare, just simply by the fact that operationally, we've been able to do, frankly, so well from a store perspective.
You absolutely, once you get beyond that, one of the biggest drivers of NPS is the customer service you receive in the store. So it does become a little bit of a virtuous circle. As it relates to the big club numbers, I think, you know, with, you know, starting to round out on 9 million active club members, you first and foremost have a marketable database that you can work with. But more importantly, for every single one of those individuals, we have their complete transaction history. So we're able to better inform our purchases, better inform our ranging, better inform our promo. David mentioned it before, but we've just started the process in BCF of sending our very first hyper-personalized emails, which actually looks at your individual transaction history and picks a product that's right for you.
Now, that's not cutting edge. A lot of retailers are starting to do this. For us, we've started the journey of hyper-personalization that's been underpinned by, you know, quite a relatively substantial, for us, investment in data analytics and data engineering. What you'd hope for as we start executing this, as well as the, you know, re-platforming of our loyalty offers that we're underway on, is you would see great stickiness, so increase in ATV or transactions per year, and you should see improvement in promotional margin because you're being much more targeted at an individual basis. That's a long journey. It's a big investment.
It's no different, frankly, to the omni investment, which seemed to sort of get to the kind of numbers we're talking about today, was a bit of an anathema not that long ago. I suspect we'll be talking about customer in the same way in the not too distant future.
That's helpful. Thank you. Lastly, in the past, you've highlighted the long-term positive trends reinforced by the pandemic on the business with the customers' focus on health, fitness, outdoor participation, et cetera. Is that still your expectation that those benefits will hold and/or perhaps weaken slightly as the world returns to some form of normality, hopefully, in people's lives?
Yeah. What the world looks like going forward is the question. I think health and well-being only seeks to improve, and it's arguably more potent than it was pre-pandemic. Especially the relationship between mental health and physical well-being. That has become clear. We see, I think it'll be fascinating to see, you know, kid participation in sport numbers as we start to get into a normalized school year. I think that, you know, parents wanting kids out of the house, active, you can sort of see that be a driver. Certainly, the Australian holiday has changed for the foreseeable future. You know, like, the domestic caravan and camping holiday, you know, we're in our second summer now where that's taken place. That starts to become habitual.
We're seeing that in terms of, you know, BCF's camping performance as people, you know, go beyond buying the tent, to buying the table and the chairs and the barbecue and all that type of stuff. Still as confident as we always were in terms of those macro trends. We sort of point to, you know, international tourism at pre-pandemic levels does seem some time away. Certainly the, you know, the brands like Supercheap and BCF will be a big beneficiary of that. Then finally, Macpac, you know, connecting with the outdoors, getting out and about. As I say, once that, you know, domestic, even Trans-Tasman tourism window starts to normalize, you know, there's some upside, good solid upside there. Look, we're a big believer in these categories.
They're high involvement. We've got three of the market-leading brands in three of our categories. You know, the company's well-positioned to benefit from that upside.
Okay. All the best. Thank you.
Thanks, Mark.
Thank you. The next question is from Sophie Carran from Goldman Sachs. Please go ahead.
Hi, Anthony Heraghty and David Burns. Thanks for taking my questions. This may be one on inventory. I mean, how do you think about your inventory position over the half relative to your competitors? Do you think this has given you an advantage in terms of sales over the half? Just sort of following up from that, looking forward to the second half, with that higher inventory position in mind, is your thinking about promotional activity as we sort of come into what could be a more normalized sales period?
Look, it's hard to judge. Certainly on your first part of your question around, you know, did it provide the company an advantage. Look, broadly, I think that's true. There's been some segments within the brands where we've been very much stronger than others and others where we're even. What's interesting, though, when you get into this kind of hyper demand period, which we've now experienced over two peaks, is that people are prepared to go for second choice, third choice, just simply to get access to product. While you've got to have it does become a little bit fuzzy into the customer's mind as they're dealing with product shortages and the like. I'd say broadly speaking, I think that's true.
Given the second part of your question in terms of go forward. Look, I think this is gonna be interesting because you've still got China, which is where the vast majority of our products are sourced, either from a componentry perspective or finished goods. Clearly that economy is still in a suppression strategy. That means that we could reasonably expect more impact to the supply chain continuity. That is going to play into this calendar year without doubt. That plays on our mind in terms of how we think about inventory and appropriate levels of safety stock, as well as the fact that, you know, as you know, mentioned in the previous question, underlying demand still is robust.
We wanna make sure as we approach peak for this calendar year, we're appropriately set up, taking into account probably a still robust demand position and still possibility for supply chain disruption. Could it be similar to the last two years? There's an argument that says it could. You know, we watch that carefully. We've got pretty good controls over it. We'll, you know, make a decision that just optimizes the position for us.
Excellent. Thank you.
Thank you. Anyone who would like to ask questions, please press star one. Participants to ask a question, please press star, then one on your telephone keypad.
Oh, I think we might leave it there, operator, if there's no more questions.
Yes, sir, we don't have anybody in the queue. As there are no further questions at this time, I'll now hand over to Mr. Heraghty for closing remarks.
Great. Thank you, operator, and thank you all for joining us. For those that we are seeing later this week, look forward to seeing you, albeit still virtually. We'll get to in person at some point soon, I hope. Again, wishing you a very good morning. Goodbye.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.