Ladies and gentlemen, welcome to the Super Retail Group's Financial Year twenty 1 Half Year Results Presentation. Today's speakers will be Mr. Anthony Hearty, Managing Director and CEO of Super Retail Group and Mr. David Burns, CFO of Super Retail Group. There will be an opportunity to ask questions at the end of the call.
Please note that today's call is for investors only. Media wishing to obtain access to management should contact Kate Carini, whose details appear at the bottom of today's ASX announcements. I would like to hand over to Mr. Anthony Hearty to begin today's presentation. Please go ahead.
Thank you, and welcome everyone to the Cipa Retail Group's Half Year Results Presentation. Joining me this morning is our Chief Financial Officer, David Burns. Good morning, David. Good morning, Evan. Okay.
So in terms of the structure of today's presentation, I'll talk through some of the financial and operating highlights for the period Before discussing some of the opportunities we see to leverage our loyal consumer base, grow our 4 core brands and to create long term shareholder value, I'll also talk about divisional performance. I'll then ask our Chief Financial Officer, David Burns, to provide more detail on the full year financial results And then finally, provide you with a brief overview of our corporate strategy together with the trading update for the 1st 7 weeks of the second half. There will obviously be an opportunity for you to ask questions at the end of the call. If we just go to the presentation on Slide 4, we go to the summary. Look, we're pleased to report The group has delivered a record first half result, underpinned by strong top line growth, high growth margins and disciplined cost management.
But we're no doubt and there could be no question that unprecedented consumer demand was the key driver of this result. However, it was the group's Omni retail business model that will enable us to successfully capture this demand despite the ongoing challenges of COVID, lockdowns and the like. This is in a period when our online sales grew by over 87%. The group was able to deliver strong operating leverage, Therefore, demonstrating the profitability of our online sales and more importantly, the scalability of our online omni retail platform. As we enter the second half, the group has a conservative balance sheet with no net debt and a healthy cash position.
This leaves us well placed to reinvest in our 4 core brands, Grow our market share. Turning to Slide 5, group sales increased by 23 percent to $1,780,000,000 Pleasing me, this top line growth translated into 122 percent increase in EBIT to 256,000,000 With group EBIT margins up 6.4 percent to 14.4 percent. Our underlying NPAT increased by 139% to 177,000,000 Our statutory NPAT increased by 2 0 1 percent to $173,000,000 reflecting a significant reduction in below the line adjustments. Online sales grew by 87% to over $237,000,000 now represents over 13% of grid sales, With a million increase in the number of active customers in the last 12 months sorry, I should say, with a 700,000 Increase in the number of active online customers in the last 12 months and an average online transaction value of 170% Higher than our average in store transaction value, there's a significant opportunity for the group to leverage the shift in customer spending patterns towards digital to profitably grow our business. And with a net cash position of $400,000,000 we can continue confidently We'll execute our strategy to both capitalize on current elevated levels of consumer demand and reinvest in long term to reinforce our market leading positions in our Great.
We turn to Slide 6, we want to call out some operating highlights. And really, it underpins the capability of both our systems and our team We successfully managed this unprecedented uplift in the volume of customer orders and transactions more generally flowing through our business. We grew our number of active club members during the period by 10.9 percent to 7,100,000. They're active members who have shopped with us in the last 12 months. These active club members now represent 62% of group sales in the first half and increasingly represent a source of sustained competitive advantage, which will help to underpin the resilience of our earnings going forward.
The group fulfilled over 2,000,000 online orders during the first half. It's worth noting that despite the impact of COVID disruptions on store trading and foot traffic, click and collect sales increased by 74% to $108,000,000 don't think anyone would predict the extraordinary surge in customer demand that we saw during the second half. And the statistics on Slide 6 We'll give you a sense of that scale of that volume uplift. We successfully managed across our supply chain to not only ensure that Stock was on shelves, which was outstanding, but customer orders were successfully fulfilled. And from the team perspective, we were delighted to award Over 5,000 team members with a cash payment of up to $5,000 to thank them for their extraordinary efforts in serving our customers And looking after each other while meeting the unique challenges of COVID-nineteen.
On Slide 7, we illustrate our Ongoing commitment to social, ethical and environmental initiatives that benefit our team, investors, customers, trade partners and the communities in which we operate. During this period, we've continued to make good progress towards our objective of adopting a sustainable An ethical approach to our business operations and some of these key achievements are set out on the Slide 7. We continue to invest in measures that keep our team and customers safe during the COVID-nineteen period, including contact free Click and Collect. Pleasing me, our continued focus on safety reporting and accountability Has helped to reduce has helped to sustain our safety measures. Moving on to Slide 9, we'll sort of touch and go a little bit deeper on our online performance.
The COVID-nineteen period really has reinforced our conviction That our omni retail strategy is the right one. And that's because it gives us the flexibility to quickly adapt to changing consumer preferences and pivot our focus on meeting this elevated demand in our online channels and also in our in store channels. Over the past 4 years, online sales have grown by a CAGR of 64% and in the first half, as I mentioned, reached Over $230,000,000 which is more than 13% of total sales. Group investment in digital and omni has benefited all our brands This is reflected in this online performance. When we go to Slide 10, we see that again despite this COVID disruptions to stores, 93% of sales and 45% of online sales required or involved that customer visiting a store.
The store network is just as important to our omni promise as it ever was. Home delivery represents 55% of online sales, which is slightly elevated compared to historic levels due to shutdowns and the like. And click and click was still 45% of online sales, and we would expect that contribution to normalize upwards over time. On Slide 11, we provide a bit more detail brand by brand in our growth in customer numbers, Customer satisfaction and club members as a percentage of total sales. We're pleased with the double digit growth we saw in active club members of our 3 largest brands, noting that Macpac, of course, was impacted by store closures in Auckland and Melbourne and restrictions on international travel and the like.
We are broadly happy with our NPS scores, although we note that the level NPS score was impacted by delivery times and availability of inventory for high demand products like gym equipment and during the peak of the pandemic. Nonetheless, we accept the challenge and we'll continue to do better. Group wide active club members now represent more than 60% of sales and we think that's a big opportunity and we'll touch on that later in the presentation. On Slide 12. This slide really talks what we think is one of the big opportunities available to the group, which is leveraging that loyal member base.
We saw significant growth in the last 12 months, 9% to 7,100,000 members, 62% of sales. And we've seen this trend in the past year Also mirror in terms of the acceleration of online purchasing within the active club member base. As evidence of that, The number of active club members purchasing online in the last 12 months has almost doubled to 1,400,000. Key priority for our business is the quality of our digital engagement. So we have worked through suspending some traditional Marketing and pivoting to digital, that's been a valuable exercise for us during the pandemic.
It's meant that we are able to better target More efficiently and more effectively, these club members. But more importantly, we are getting a much deeper understanding of shopping habits of our members, which provides insight into pricing, promotion and also our ranging decisions. We currently have research and training to determine even more defined behavioral segmentation And that will feed into our decision making process of how we will feed into the process of us Reviewing our loyalty club member propositions across all four brands. Going to Slide 13. Some of you who have been familiar with our stock would have seen this chart before.
For us, it's key because it shows over the last 4 years that our active club member base has grown by 48%, where store numbers have only grown by 11%. We think this is important because we can scale our business by growing our customer base And capturing an increased share of customer wallet with our significant investment in the physical store network, then we can Effectively scale our business and deliver the benefits of that operating leverage to our shareholders. On Slide 14, one of our key focus has been Our 4 core brands, and this slide outlines some of the key initiatives we expect to undertake in the second half. I won't touch on all of them, but I wanted to call out just a few. In Super Cheap Auto, we continue to see strong demand for the do it for me category, especially within fitment, We are tending to expand dedicated service areas in stores to provide more fitment options to more customers.
In Revel, our RCX store in Parramatta has been a very pleasing success. We intend to roll that format out to Four new locations as well as taking insights from that format in terms of specialized in store world dog format We must be in categories of basketball, football, running, kids and training more broadly across our store network. In BCF, we successfully tried trial the introduction of hyper local and regionally relevant ranges in areas like North Queensland, That has been incredibly successful that we'll apply that tailored approach to other regions. Finally, for Macpac, we're going to range Macpac products in over 150 stores In BCF and Rebel this winter, which in the case of BCF should help address the seasonality skew of earnings in that business. Slide 15, we wanted to sort of set out what we believe are 3 key opportunities That we think will deliver long term value for our shareholders beyond this pandemic period.
The first one is gross margin. Clearly, as we've dealt with challenges in availability of inventory, we've reduced our promotional frequency and depth. But underneath that, we'll be working tirelessly with our promotion and pricing analytics teams to look for structural improvement. We're confident of some of the achievements that teams achieved. We've also worked through a very clean inventory position, Gives us a strong gross margin base to work from as well as sustained sourcing benefits through our China sourcing team.
The second big opportunity is online profitability harmonization. We've seen, as we called out, sustained Click and Collect penetration and Click and Collect is good business for us. We also see when we look at a transaction online, whether it's delivery or clicking or collect, a higher average transaction value And a higher gross margin dollar per online order. That means with combined with the ongoing reduction of delivery costs Through our order management capability, we switched on June's period and the alignment of pricing and promotions across channel. We believe we are very close to achieving profit contribution harmonization across channels.
It's an exciting development. And finally, BCS sales in Kennett City and the ability to sustain it above that COVID-nineteen period is critical. We've got an increased customer base of 1.7 Reenacted Club members, far greater than we had when we went into the pandemic. We've tried small format stores in Victoria and Queensland successfully, and we're excited by their prospects. We've talked about MACPAC entering the BCF range this winter as well as successfully including exclusive ranges within BCF, We're just starting to provide a good competitive shield in terms of protecting its share.
Moving to Slide 17 and sorry, moving to Slide 19 as we get into the segments in more detail. We'll start with Super Cheap Auto. Skibit Super Bowl, which represents 39 percent of group EBIT performed very well during the period. Sales increased by 20.2 percent to $662,000,000 with like for like sales growth of 19.6%, driven by both transaction growth and increased unit per sale. Like for like sales growth was achieved in all categories with outdoor and accessories delivering the strongest growth.
In car tech, 4 wheel drive and outdoor, paint protect, car detailing, and safety and comfort were the strongest performing subcategories. Segment EBIT increased by 81.7 percent to $104,100,000 and segment EBIT margin improved by 5 30 basis points 15.7 percent. Online sales grew by 46.1 percent to 54,200,000 Revel, over the page, represents 37% of group EBIT and had a strong first half. Sales increased by 17% to 624,000,000 Off the back of strong like for like sales growth, like for like sales growth was achieved in all categories with fitness and hard group delivering the strongest customers Strongest growth as customers in various states of lockdown scrambled to buy home gym equipment like weights, yoga mats, pots and gloves, sleeping ropes, you name it. Pleading me though, apparel and footwear sales accelerated during the half as the COVID-nineteen subscription eased.
Livent said stock availability did impact sales, but this was of course offset by higher gross margin due to the reduced promotional activity. Segment EBIT increased by 85.5 percent to $99,600,000 and segment EBIT margin improved by 610 basis points to 16%. Online sales grew by 102.1 percent to $119,900,000 BCF was the clear standout performer in the first half. Total sales increased by 50.9 percent driven by extraordinary strong like for like sales growth reflecting material uplift in consumer demand As COVID-nineteen restrictions eased and domestic tourism and leisure activity increased, like for like sales growth is achieved in all categories With camping, boating and apparel are delivering strongest growth. Camping accessories, water sports, sports 4 wheel drive were among the best performing subcategories.
Segment EBIT increased by over 400% to 62,000,000 And segment EBIT margin was 14.5%. Online sales grew by 113.1 percent to 50.5 This is a pleasing result for BCF, which demonstrates the team's ability to take advantage of what was unprecedented demand. BCF's got a strong brand. We know that. It resonates with our customer, and this is evidenced by this 1,770,000 active club members, which now represent Significant 84% of BCF sales.
Obviously, you appreciate that BCF has benefited from a unique set of circumstances in the last 6 months. However, we remain optimistic about our ability to leverage this brand strength and the customer base that we created to take advantage of uptake and participation in this category. Well done, BCF. On the Macpac, Macpac Brown was most impacted by COVID-nineteen because of closures in key markets of Melbourne and Auckland and obviously of the impact on restrictions on international travel and therefore thermal and insulation sales. Despite a 5.3% fall in sales, Segment EBIT increased by 52.2 percent to $3,500,000 and segment EBIT margins increased by 210 basis points to 5.6%.
There are 3 positives coming out of this performance in the first half I'm beginning to draw your attention to. Firstly, in its home market of New Zealand, Like for like sales actually increased by 15.6% despite COVID related store closures in Auckland and decreased international tourism and travel. Secondly, excluding the impact of store closures in Melbourne and Auckland, MACPAP like for like sales increased by 6%. And then finally, whilst thermal sales were down, the business delivered a very strong performance in 10th backpack and accessories, following the successful launch of our summer family camping range. I also note backpack has returned green in terms of positive like for like sales growth the 1st of 7 weeks.
Now I'd like to pass over to David Burns to talk about the financials in more detail.
Thanks, Anthony. On Page 23, group unallocated resulting of $13,200,000 includes the cost of the repayment of JobKeeper That we received from the government this year. The decision to place this to unallocated is based on it being a corporate decision. Nat Pack has made team member top up payments during the period to ensure that we maintain a minimum of $1500 a fortnight And that has been and the business has been significantly impacted by the modern shutdown. The result also includes high Costs for D and O insurances and management incentives.
This year, all DC space is being allocated to brands. On Slide 24, Turning to the balance sheet. Maintaining inventory levels has been a challenge in this current high demand environment. Each brand is working hard to manage out of stock levels, which remain elevated. We have benefited from acting quickly in May 2020 To increase our stock purchasing, and we saw the strong lift in demand as we came out of shutdown.
The capital raising provided the group with the financial support to take a higher risk on stock purchasing, which we are seeing in the sales result now. Stock in transit of $43,000,000 is almost double the prior year as higher purchasing activities push up against constrained shipping, port and transport supplies that are at capacity. We are fortunate to have our own supply chain capability that provides more flexibility to manage this more dynamic environment. Inventory levels need to be highly support the increased trading activity. We have increased our dividend to buy, And we are very focused on managing risk in this area to maintain the appropriate balance.
Fortunately, the nature of the inventory we hold is non perishable And mostly not linked to the fashion cycle. We expect the inventory levels to rebalance by March, with some Exceptions are taking until quarter 4. Net inventory investment has benefited from increased stock terms and extended payment terms, which were agreed back in March 2020 and have ceased in December 2020. PP and E investment is reduced due to lower capital Expenditures in the period as the group paused the capital programs in late 2020 and took a quarter to return to normal levels. There's approximately $10,000,000 of increased depreciation and amortization costs in the period that were the result of celebration of depreciation of certain assets.
The strong net cash position is impacted by the Christmas trading period, Which is always seasonally higher and extended payment terms, which are more in H2 and obviously, the elevated demand. Turning to Slide 25. Normalized EPS has increased by 110%, and the group has declared a dividend of 0 point 33 And we confirm our dividend payout ratio will be 55% to 65% for the full year. As expected, all key metrics are excellent. The improvement in the Australian dollar will emerge through the group's results over the next 12 to 18 months as our hedge book rebates to current levels.
Currently, it's averaging $7.37 to the U. S. Dollar. Our hedge policy provides us cover on the downside, but it also dampens responses to the upside. Turning to Slide 26, the cash flow.
Operating cash flow for the period is excellent with strong cash conversion due to season's strongest demand levels in frame of terms as outlined earlier. And as noted earlier, our capital expenditure levels are lower due to The slow start in quarter 1, but we are now scaled back to full activity for the balance of the half and the rest of the financial year. I'll now hand back to Anthony to continue the presentation.
Yes. Thanks, David. So Slide 2829 talk to our corporate strategy, which was outlined at our Investor Day in September 2019. We're pleased to report the strategy has proved to be successful during the intervening Period, notwithstanding the impact of fire and now a pandemic. And given limited time, I won't Talk to this in detail, but I'm keen to make a few high level points.
So firstly, on this platform of growing our core 4 brands, Since the beginning of my tenure, we've taken steps to remove non core businesses, which led to our decision to close businesses like Infinite Retail And Auto Cruise. Following the equity raise that took place in July of 2020 and recent strong trading, the group positions us in a strong cash position. However, our focus remains on reinvesting in these 4 core brands and pursuing organic growth opportunities. In terms of leveraging our closest to customer, we've spoken today about the loyalty club review we've commenced across all four brands and that's making good progress. In supply chain, we've already started to see benefits of our overseas sourcing project flow through and 2 significant software solutions have been implemented, namely our online order management system, Phase 1, and our international freight system as well.
Our business simplification program is well underway. We're happy with the progress we've made on our information systems 5 year strategy and migration to cloud based solutions. And Finally, in relation to omni retail execution, we've already seen some success in key digital acceleration elements, including web chat, which has had a positive impact on conversion rate and amortization of value and the overhaul of our checkout flow to make transactions more seamless. Slide 39, trading update. Please report that like for like sales growth For the 1st 7 weeks of the half of sorry, let's start that again.
I'm pleased to report that group like for like sales growth of 25.2 percent as at week 33. Strong momentum for trading has continued, Particularly in BCF, we grew like for like sales of 30.5% in the 1st 7 weeks of half 2. Each of our 4 core brands have delivered positive like for like sales in this period, and that is despite the total closure of our stores in Western Australia in week 5 due to the COVID lockdown. The group remains well positioned to benefit from positive consumer sentiment and elevated demand in the domestic outdoor leisure and travel sectors. Current levels of consumer spending are expected to moderate when government stimulus is phased out and international travel restrictions ease.
At the group's strong balance sheet, 7,100,000 active club members and leading market positions in our categories mean we are well placed We execute our strategy and to grow our market share. The group expects to return to normal levels of promotional activities in the second half As inventory levels are restored, second half operating expenses will reflect a catch up on projects deferred during COVID-nineteen and increased reinvestment
in the business.
Finally, I can confirm our guidance for CapEx for this financial year of $100,000,000 Thank you. And I'd now like to hand back to our operator for questions.
Thank you. Your first question comes from Mark Wilde with CLSA. Please go ahead.
Good morning, team. Bump the results are well done. Just trying to think a couple of years out from here, I mean, What's making this a better business than compared with pre COVID, right? So what I know you touched the club members have increased, and I guess there's increased some participation rates. But can you elaborate on any other aspects of the business that you really feel like it's giving you the confidence Such that the business should be capable of making more money in the future than it has done pre COVID.
Yes, Mark, I think that Slide 15 really tells that story. So you touched on 1. That club member base It's quite significant, not in terms of just its scale, but the way we can operationally leverage it, whether It's just simply understanding purchase patterns far deeper than we you can through a single transaction. So that impacts the way we think about ranging, Pricing promotion, it also talks to how we think about the store network because we can see how those segments actually engage with channels. So Can't understate or can't overstate, frankly, of how big a deal that is.
The loyalty program that we're underway with now, which We called out as a program we're working at our investor meeting. We're getting to the more of the pointy end of that now, and that gives us that carrot and stick We've got club members to ensure that we are protecting their custom with us over the long term. So clearly, the club activity is Significant. The second one I would call out is the online piece. So we are keeping pace with this online shift.
We are seeing in our numbers, we are gaining share against our direct competitors online. We're able to see we are starting to be very confident around Profit harmonization across channels, whether it be delivery, click and collect and in store, that's critically important for us. So the fact that we can grow with this online, burst, which we can sustain well beyond COVID, is important. And probably the last one I'd sort of point out Is it some of the formats that we've trialed during this period, particularly the RTX format within Rebel, the small formats that we've trialing within BCF And the click and not the click and collect, the services extensions that we talked about for Supercheap, That's probably an arrow in our quill that we didn't think was there 18 months ago. And I think as we've trialed Some of these new formats, we've been quite encouraged by their performance.
From a post COVID period, we think there is Opportunity to sort of roll those some of those programs out across the wider network.
Okay. That's quite encouraging. And just looking at Macpac and BCF and having an overlapping range, including Revolut, actually having an overlapping range, putting into those other resources, is there a risk that you just And what those brands stand for in much the same way as Rave didn't really do anything for BCF?
Yes. I think it's slightly different because Macpac at its heart is a Product brand, its core is a range of apparel and equipment. And obviously, with that Segmentation data we've got, we can sort of see that where there are similarities and where there are differences. So I think we're much more aware of Those potential traps. The way I sort of think about it is though for Macpac, it gives us significant accelerant In terms of access to the market and doors.
So to simply put, we just think about it from a pure packaged goods or FMCG or Our perspective to have access to 150 doors instantaneously just gives you significant acceleration in terms of brand awareness for Macpac And availability for customers. And so that we think is actually a good step up for MatPat As well as providing good rounding of ranges for the Revel and BCF business.
Okay. Thanks so much. All the
best guys. Thanks, Mark.
Thank you. Your next question comes from Andrew McLennan with Goldman Sachs. Please go ahead.
Good morning, Andrew. Yes, good morning. Well done on the results. Just a quick one in relation to dividend first. You mentioned that 55% to 65% payout ratio is We maintain full year.
So it looked a little bit weak first half, but it's just the timing issue there. You're going to Put more of the dividend in second half. Is that reasonable?
Yes. We've traditionally always held a higher second half than the first half
Yes, yes.
Okay. And just as a reminder, obviously, the bushfires impacted the business This time last year, but also through to Easter. Can you just quickly Summarize your expectations as best you can in terms of how the different brands are positioned Through the Easter period given that backdrop?
Yes. I mean, look, it's
I think you've got
to extend that question, Andrew, through to May June. So if we just rephrase history a little bit, you effectively had And Easter lockdown where Easter was rendered was disabled for one of a better description. So that's clearly impacted the outdoor businesses at the time. At the same time, as we got into May June, lockdown hard last year, you had a little bit of doomsday prepping That impacted Supercheap and BTF. And then you also had the Grand, everyone decided to have a home gym at that period.
So I think we've got to combine the shutdown of April with the uplifts of May June As well as the fact that during that May June period, the business considerably reaped costs, whether it be marketing investment, Whether it be store wages, etcetera, etcetera, just shutting shut down. So it's I think it's got to think about that I wouldn't suggest that Whole picture for that quarter, not just Easter, but with Easter missed last year, absolutely.
Yes, yes, good. And if I could ask one just quick more final one. Just around freight costs, we're hearing some it's not new, but ongoing negative feedback around Cost, is that a significant impost for yourselves? Or is that offset by FX gains?
No, it's a problem. So shipping is tough, Getting access to equipment is tough, and it's not little sign of it getting worse in the short term. We've got Some offset there in terms of promotion being not as intense in gross margin relief, but The global supply chain is under pressure.
Yes. I think there's
a cost issue and there's a performance issue. I think the benefit we have is the Scale of our supply chain capability means that we're able to mitigate some of the performance issues, but that's underlying cost issue
Okay. Thanks very much. Cheers.
Thank you. Your next question comes from Calum Sinclair with Macquarie. Please go ahead.
Hi, guys. Congrats on the results. Maybe just a follow-up to the supply chain question. You made some in the outlook about inventory levels being sort of restored in the second half, potentially leading to lower discounting. Are there any signs that's actually happening?
Or is supply still 5 as we sort of sit here today.
So supply is difficult to achieve, but we have been fortunate As we did the equity raise last year, and I think we've sort of mentioned this last calendar year, That we're able to sort of aggressively go after inventory really at the Q1 of this financial. And a lot of that inventory has actually arrived December, January February. So we've Probably got we've got inbounds at the moment, which are Christmas like in their scale. And that's consistent with our strategy of In uncertain times, we've been quite tight on costs, we're going long on inventory. So we are more confident of our inventory position being stored Because frankly, we've worked judiciously to make it so.
The team's done a pretty good job. In terms of how that then ties into promotion and promotional strategy, we also note that our customers are telling us Through our NPS scores that our pricing is not to their expectation. So we're playing a delicate game here. We were trying to maintain inventory levels traditionally at the same time as meeting their expectation. And once those inventory levels are restored, we reasonably believe we'll start Turning the promotion machine back up, not to its arguably its previous levels, but we need to address this value perception issue, It's going to emerge if you turn off promotional activity.
Yes, that helps. And then just On the state side of things, I mean, in the slide deck, the segment commentary mostly talks to strengthen New South Wales, Queensland and WA. Just wondering if that's still the same And if there's been any changes, Victoria coming out of
3 plus months of lockdown?
Look, New Zealand was the same, Victoria did the same thing, even WA and Brisbane locked down for 48 hours. Seems that you do get a bounce out, and but is it enough to make up for the lockdown? Arguably not. So yes, broadly, I think that position is the same. I think the challenging things is these lockdowns are incredibly difficult to predict And then nature is different.
Like the WA lockdown was unprecedented insofar as it shut Everything down. We weren't able to operate anything in WA. So it's not just the lockdown itself. It's the nature that creates complexity.
Yes. And last one for me. Just on the CapEx, obviously, there's a step up in the second half. You've touched on where you see that being spent, but just what time frame to execute on those projects? And when can you expect to see benefits flow through?
Do you expect to drive EBIT margin sustainably higher post the elevated demand, particularly on the unit economics for home delivery? How long does that take and what sort of margin improvement could we expect?
Yes. So I don't think I'll be sort of conveying That answer to an outlook statement per se, but a lot of these programs are ongoing. I think some of The outcomes that we're looking for is reduced delivery costs and we've made some good inroads there. Probably most of the activity from a CapEx perspective is actually within the store network, whether it be refurbishments or more of those RCX type programs for Revel. And as I said, we're quite Pleased with the outcome of that store activity.
So the non store activity is consistent with the corporate strategy. No new news there. It's really probably a bit of a step up in some of our store activity that's sort of driving that increase from 80 to 100.
Thanks, guys.
Thank you. Your next question comes from James Wang with Citi. Please go ahead.
Good morning, Anthony and David. Great results and thank you for taking questions. I've got a few questions around trading update. So we talked about the improvement in gross profit and margin first half, 2 60 basis How much of that was driven by lower promotional intensity? Or in other words, how much of that margin expansion do you expect to hold on to as promotional Activity normalized in
the second half.
Yes. It's a good question. A lot of that improvement It's from lower promotional intensity. One of the things that these elevated results are masking is from the great work that the teams have been undertaking in the business, which is Where we get we've got confidence in our holding sustained, capturing some of that those gross margin gains on a sustainable basis and In particular, the management of some of our markdown processes or Our pricing cost is in market and our sourcing. So the predominance of it is the lower promotional Actually, that's causing that.
What we've said is that we will return those promotional cadence and depth Back to more normalized levels as the inventory position recovers. We don't believe we should be promoting And giving a customer an offer when we don't have the stock there to support that offer. It's just A recipe for disaster with getting up and losing the customer. So that's likely to be Through this month and March, we should be back in stock in the majority of our business areas.
Great. And just touched on the inventory issue. So in the trading update, we saw that every brand saw accelerating like for likes In first half, first few weeks in second half, how much of that exploration can be attributed to the improving inventory availability?
Well, I think you've got to look
at the underlying demand levels are there, which we're seeing. And the extent to which we can be in stock for those customers and improve our stock positions, we were Mid teens out of stock levels after Christmas, which is just unprecedented. We normally talk about a 3% out of stock level. And so they're usually, they're on the things that are selling through with customers in high demand. And so bringing those out of stock levels Back down to normalized levels, you'll see a direct lift in sales performance.
So there's no question that as Anthony has called out we've had significant volumes coming in, in December, January and also in February in terms of our supply chain. And that improvement of our in stock position certainly supports that sales performance. And Again, some of the lead times, and we're putting we extended our purchasing from May last year. We're only at In a number of areas, we're only just now seeing that inventory get delivered.
Right. And further on the CO2V, on the trading update, you mentioned that second half operating expenses will catch up. So what sort of order amounts are you expecting on these? You mentioned other deferred projects.
Well, certainly on the in the capital program, you can see clearly the CapEx year to date for December and the CapEx expectations for
the full year at 100, so that's
In terms of the level of cost leverage you've seen in the business in H1, there was A very strong cost leverage achieved, and that was we've held very strong cost controls in quarter 1 and eased them in quarter 2 as we Demand. There was initial expectation that demand was going to fall off of the back of JobKeeper. As we saw that, that was not the case, We had to support the business with significant increases in capacity to just capture This volume of sales, I mean, for DCF, in particular, to grow at those levels through a peak period, which is normally 2 to 3 times higher levels of activity in store, that required a significant increase In manning levels in store and Christmas casuals and night refill, opening hours. So I think there's a lot of those sorts of activities were skewed more to Q2, and obviously, we've had to carry forward some of those Into Q3 and Q4. And then there's additional investment we're looking at putting in place in Q3 and Q4 to Maintain and improve our market share position.
So I'm not going to quantify any.
Okay, great. Thanks for that. That's all my questions.
Thank you.
Thank you. There are no further questions at this time. I'll hand back to Mr. Hearty for closing remarks.
Thank you. Thank you very much and thank you for joining us this morning. We look forward to seeing some or most of you in the coming days and wish you all a very good afternoon.