I'd now like to hand the conference over to your Chair, Ms. Joan Withers. Thank you. Please go ahead.
Hello everyone, and good morning. Welcome to The Warehouse Group 2021 Interim Results. My name is Joan Withers, and I'm Chair of the Board of The Warehouse Group. With me on the call today, I have our Warehouse Group Chief Executive Officer, Nick Grayston, and our Chief Financial Officer, Jonathan Oram.
Morning.
Morning.
I'm going to just start by providing some of the highlights of the half year that we're reviewing. To slide four, the first six months of the 2021 financial year has seen a very pleasing record first half result. That, of course, included part of calendar 2020, a year which saw just so much disruption. The highlights for the half year are shown on that slide four. Group sales were up 7.4% to NZD 1.8 billion. Gross profit increased 15.8% to NZD 655.4 million. Adjusted net profit after tax increased 140.2% to NZD 111 million. This exceptional financial performance, combined with robust inventory and balance sheet management, has led to a strong cash position. We've moved from a net debt position of NZD 68.6 million this time last year, to a positive cash position of NZD 183.6 million at the end of January 2021.
Our investment and commitment to e-commerce solutions for our customer has resulted in an increase in online sales of 50.3% across the group, meaning online sales are now 11.9% of our total sales. Despite lockdown periods, we experienced strong demand, and in-store demand, with more than 2.2 million average customer store visits per week. Our Click & Collect offering continues to go from strength to strength, now offering The Warehouse customers same-day collection, and Noel Leeming customers one-hour collection. This has seen our Click & Collect fulfillment increase 106.3% across the group on that same six-month period last year. Now to slide five, just a bit more detail on our performance and operations.
Following a year of interrupted and uncertain trading conditions in 2020, and despite Auckland entering another Alert Level 3 lockdown for two weeks in August 2020, the six months ending 31st January 2021 has delivered a record result and a strong platform for the FY 2021 financial year. As I mentioned a moment ago, The Warehouse Group total retail sales were NZD 1.8 billion for the half, up 7.4% on the prior period, with online sales continuing its growth trend from last year, increasing 50.3%, and now, as I said, comprising 11.9% of all group sales. The group delivered a reported net profit after tax of NZD 55 million. That was up 88.5% on the prior period. Adjusted net profit after tax of NZD 111 million, up 140.2%.
Increased customer demand in the half year, along with the continued execution of everyday low price in The Warehouse and less discounting across our other brands, contributed to significant margin increase. Operating profit was NZD 153 million in FY 2021 H1. That was up 125.4% on the prior period. Operating profit margin increased from 4% to 8.5%. Overall, we grew slightly ahead of the market, and that's based on market share of total retail spend. We did that by focusing on delivering what customers need, when they need it, while maintaining careful focus on not driving unprofitable sales. Due to strong operational performance, sustained sales momentum, and strong financial position, the group was able to repay the wage subsidy of NZD 67.6 million that we received in March 2020 that we paid to our 11,000 employees. Customer demand continues to be strong, and stock levels and supply remain well controlled.
We do see isolated issues with suppliers' ability to fulfill inventory requirements, and we will continue to monitor that closely. To slide six, dividend and the review of our dividend policy. The board took an appropriately cautious approach to cash preservation in FY 2020 due to COVID-19 and the resultant operational uncertainty, which drove us to the difficult decision to cancel the FY 2020 interim dividend, and we declared no FY 2020 final dividend. Following stronger than expected trading performance in November last year and December, the board declared a special dividend of NZD 0.05 per share in February 2021. The directors have recently undertaken a review of the group dividend policy, including a review of our policy compared to market practice and to other listed retailers.
We took into account current and forecast group operational cash flow, forecast capital expenditure, and liquidity requirements. As a result, the directors have now approved a new dividend policy in March 2021. That new policy is to distribute at least 70% of the group's full year adjusted net profit, of course, at the discretion of the board and subject to trading performance, market conditions, and liquidity requirements. That dividend policy will provide the group flexibility to maintain a stable capital structure, allows us to provide capital expenditure to invest for future growth, and progressive and sustainable dividends. The payment of special dividends is included within this policy, where an additional dividend may be paid outside the interim and final dividends. The group maintains a healthy balance of imputation credits.
In accordance with this new policy, the board has declared a fully imputed interim dividend for the 2021 financial year of NZD 0.13 per ordinary share to be paid on the 22nd April 2021 to all shareholders on the group share register at the close of business on the 7th April 2021. Nick's going to give a group update, so I'll hand over to Nick, and he'll talk about our strategy and provide some group performance highlights of the half year.
Thank you, Joan, and good morning, ladies and gentlemen. Slide eight demonstrates our purpose, vision, and strategic priorities and how they play into our values. The past three to four years has seen the transformation of The Warehouse Group from a company with multiple independent brands working in silos with duplicative support functions, to a centralized, agile, efficient, high-performing, customer-focused retail group working together to help Kiwis live better every day. This is our purpose, and throughout our transformation, this has not changed. Rather, our transformation and shift to agile has enabled us to change fundamentally so we may deliver on this purpose. Our vision to build New Zealand's most sustainable, convenient, and customer-first company has now become embedded throughout the organization. How we deliver on this vision will continue to evolve as we adapt to meet the changing needs and wants of our customers.
This year, we have developed this vision to focus on three primary areas. Firstly, to provide a customer-first offering powered by data. We're investing in our core systems and infrastructure to capture, manage, and utilize data better to manage our inventory, to monitor both internal and customer-focused initiatives across the group, and to enable us to identify customer shopping behavior to allow us to adapt quickly to solve our customers' problems. Second, to provide a frictionless on-demand shopping experience. This is providing customers what they want, how they want it, and when they need it in the smoothest, easiest, and hassle-free way, be it in-store or shopping online, either with delivery or with Click & Collect. Using the principle of continuous improvement, we continuously make changes to our operations and improvements to our stores, websites, and delivery options in order to meet these ever-changing customer needs.
Last but not least, by delivering an ethical and sustainable performance. This means achieving our vision by offering ethically sourced, sustainable products to our customers, doing the right thing for our people, and delivering sustainable performance and returns to our shareholders. Our strategic priorities underpin our ambition to fulfill this vision. These are outlined here, but I'll go into these in more detail on the next slide. Lastly, our values underpin our way of working, our culture, and how we strive to go about delivering on our strategic objectives to put the customer first in everything we do, to walk the talk and make things happen, and to do good by being one team standing up for our people, our planet, and our communities. Slide nine demonstrates further detail on how we are starting to deliver on our vision to build New Zealand's most sustainable, convenient, and customer-first company.
We are building a customer ecosystem. This is at the heart of what we do. Our ecosystem is centered around our customer. I'll go into this in more detail shortly, but essentially, it's designed to serve our customers' needs and wants through our people, our platforms, and our data. By utilizing our data-powered platforms, we can engage with new and existing customers to give them seamless and frictionless shopping experience. We have invested in our customer-facing e-commerce solutions, ongoing store optimization, and supplier relationships to improve inventory management. We have achieved a number of milestones in this half. We re-platformed and relaunched a new website for The Warehouse. We continue to develop TheMarket.com, providing 2.5 million individual products for our customers. With improved inventory management, we have reduced in-store SKUs by 11% in Red, but with an enhanced range of choice through our online offer.
We're building the experience of the future. We know customer shopping habits are changing, and that we must change and adapt with them. We continue to focus on our store optimization to ensure that we have the right stores in the right places with the best layout and appropriately staffed to meet customers' needs and shopping behaviors. Our focus on e-commerce solutions is designed to meet trends towards digitally powered shopping journeys, driving on-demand shopping whenever and wherever our customers want. This half year, we have developed personalization across our store websites and e-commerce platforms. We have established same-day Click & Collect at The Warehouse, increasing fulfillment by 116% and scaled one-hour Click & Collect at Noel Leeming, increasing fulfillment by 93%.
With Warehouse Stationery, we continue store optimization through the implementation of our store-within-a-store program, which has proven to be hugely successful, and we rolled out a further six SWAS stores this half year, bringing the total to 23. The third pillar of our strategic priorities is to invest in our infrastructure to excel in retail fundamentals. We seek to deliver the best retail performance metrics, build a strong corporate and brand reputation, and build a company with long-term financial security and improving returns for our shareholders. We have seen benefits accruing from this across the company in H1. We decreased stock on hand by 14% to NZD 497.7 million at half year-end, and reduced aged inventory as a percentage of finished goods from 8.7% as at January 2020 to 5.4% as at January 2021.
In 2020, we held our number eight spot in the 2020 Colmar Brunton Top 20 Corporate Reputation Index for the fourth year in a row, despite the numerous challenges the year brought. At the half year, we're in a very strong financial position with cash on hand of NZD 183.6 million, which, combined with available facilities, increases our liquidity to NZD 513.6 million, with no debt drawn down currently. Moving to slide 10 and our ecosystem. This demonstrates our customer centricity, putting customers at the center of everything we do, and finding new ways beyond our own network to satisfy their needs and wants, all powered by data and driven by personalization. Today, I'll highlight just a couple of successes we have seen in this half. Our approach to fulfillment demonstrates how we deliver to customers however they want to shop for goods.
We established same-day Click & Collect at The Warehouse and one-day Click & Collect at Noel Leeming. Noel Leeming consultation revenue increased 375%, with Noel Leeming tech service solution revenue increasing 28%. We increased our use of artificial intelligence chatbots and digital humans to drive improved personalization, and better to solve customer problems while increasing team member engagement and effectiveness. Our digital human, Nola, has become one of our most productive employees. We increased customer payment options by launching Purple Visa interest-free at The Warehouse and Warehouse Stationery. Online shopping is increasing exponentially, and we're dedicated to providing customers with a seamless, frictionless online shopping experience. Our online sales in total increased 50.3%, now up to 11.9% of total group sales.
As I previously highlighted, we continue to develop TheMarket.com, now featuring over 4,400 brands and over 2.5 million active SKUs, also increasing customer sessions and repeat purchases. Lastly, we launched a free e-waste recycling program in 16 Noel Leeming stores, making it easier for our customers to live sustainably. Moving to slide 11, highlighting some of our key performance metrics for each of our brands. Total group sales increased 7.4% for the half year, as you can see, this was driven in no small part by exceptional sales growth in both Noel Leeming and Torpedo7. The Warehouse saw pleasing sales growth of 3% and delivered exceptional operating margin growth from 6.4% in the first half of FY 2020 to 12.7% this half year.
We continue to focus on our everyday low price strategy, combined with increased sales from higher margin categories, and gained further benefit from buying better and exploiting our sourcing capabilities. Online sales continued to increase significantly over the last year, as New Zealanders shopped online, both in and out of lockdown periods. Red's online sales grew 75% on top of the 50% achieved in the FY 2020 financial year, while Click & Collect fulfillment grew an outstanding 116%. Our new same-day collection offer, along with improved logistics and inventory management, providing exceptional service delivery for our Click & Collect shopping option, which our customers told us they appreciated greatly. Warehouse Stationery sales grew 2.1% and delivered outstanding operating margin growth from 7% in the FY 2020 first half to 12.6% this half year.
This is driven by less discounting in the half year, combined with the benefits of our increasing SWAS model, for which we rolled out six more integrations this half. At NZD 17.2 million operating profit, this was another record first half for the brand. Online sales trajectory continued in H1, with 31% online sales growth following 25% growth in FY 2020. Warehouse Stationery saw our largest Click & Collect fulfillment growth, increasing 230% as people continued to work and study more from home. Noel Leeming sales were up 15.7% in the half, contributing significantly to the group-wide sales increase. Noel Leeming also delivered a 140 basis point increase in operating margin to 5.6%. Customers demonstrated the need for more tech products to enable them to work and learn from home and helped online sales to increase 85%.
This was driven by our class-leading Click & Collect offering, which now offers one-hour collection. This improved offering increased Click & Collect fulfillment by 93% compared to the FY 2020 half year, and following growth of 130% in the previous year. Moving to Torpedo7. With a net two new Torpedo7 store openings in the 2020 financial year, along with targeted media in-store campaigns and booming domestic tourism, Torpedo7 sales increased a huge 29% on previous year, including same-store sales growth of 24%. I'm especially pleased to report the turnaround in Torpedo7 from an operating loss of 6.4% in the first half of last year to an incredible positive operating profit of 6.2% this half year. Our turnaround strategy for Torpedo7 is delivering results thanks to improved product margins, reduced discounting, and efficiencies gained across the supply chain.
The Torpedo7 online offering also improved with online sales up 66% and Click & Collect fulfillment up 120%. New store opportunities have been identified. This has commenced with the opening of Torpedo7 Napier store last week. I want to take this opportunity to thank Simon West and the team for driving this impressive turnaround. Slide 12 provides some of the key metrics we monitor for the performance of TheMarket.com. It's now been 18 months since the launch of TheMarket.com website. Its online presence is going from strength to strength with exponentially improving metrics. TheMarket.com offers a significant range in audience growth, supported by increasing purchase frequency. It has grown merchant orders by 493% in FY 2021 H1. We now offer 4,400 local and international brands and 2.5 million individual products from more than 600 merchants. We recorded 9.2 million online traffic sessions in the six months ending January 2021.
This is up from 7.8 million sessions in the first year and have 207,000 active subscribers. We now have 140,000 active customers, the number of orders per customer has increased 25% in the first six months compared to prior year. I'll now hand over to Jonathan, who will talk you through the financials for the half year in more detail.
Thanks, Nick. As Joan and Nick have been talking to, the first half result for the group has been a record. Looking at the group financial performance, some highlights to call out are sales growth of 7.4%, or NZD 125 million, versus 2.6% last year. This was particularly driven by exceptional growth in Noel Leeming and Torpedo7. Gross profit has increased at more than double this rate, underpinned by group gross profit margin of 36.2%, which is 260 basis points up on last year. We began to see signs of this margin growth last year, where margin was up 110 basis points in our FY 2020 first half result. Cost of doing business as a percentage of sales decreased by 190 basis points, with good control of variable costs, including store labor and fulfillment costs versus the comparable period.
This delivered an operational profit of NZD 153 million at a margin of 8.5%. Adjusted net profit, as has been said a few times now, was up 140.2% to NZD 111 million. Turning to slide 15. What slide 15 shows is week-on-week sales trends in the business since the beginning of the half year. What you can clearly see is firstly the Auckland lockdown in August, followed by a sharp recovery, and the timing difference, secondly, of Christmas relative to Black Friday, where we had one more week of trading this year versus last year, and also a Christmas falling on a Friday versus a Wednesday in 2019 or 2020 financial year. Overall sales growth of 7.4% comprised relatively modest growth from Warehouse and Warehouse Stationery with 3% and 2.1% respectively. The standout growth came from Noel Leeming and Torpedo7 at 15.7% and 25% respectively.
What has also been surprising is that the Q2 outperformance of Q1 in terms of sales growth, this is not a trend we have observed in recent years and shows the robustness of spending, at least that we've seen in the first half of our financial year. Looking at slide 16, what clearly shows we have an improvement in gross margin, profit margin, which started with our H1 result in FY 2020. This has been the most significant driver in the improvement of financial performance, with gross profit increasing by NZD 89 million. The Warehouse Stationery, and Torpedo7 all experienced significant improvement in the gross profit margin this half. There have been a number of transformation initiatives that have contributed to this improvement in margin.
The most significant of these being in The Warehouse and the introduction of everyday low pricing three and a half years ago, which laid the platform for further initiatives to improve margin and greater control of inventory management and promotional activity, which we've seen across other brands. Turning to slide 17. Slide 17 gives some further detail on our cost of doing business, which can also be found in our financial results. A couple of items I want to call out. First of all, employee expenses are down 110 basis points to 15.9% of sales. Approximately 67% of employee expenses related to stores, fulfillment centers, and distribution centers, which have all been managed well throughout a period of elevated sales. In particular, store labor has declined 1.5% compared to the prior half-year period, driven by the efficiency gains from the labor operating model changes we had in our Warehouse stores.
Combined depreciation and lease costs have declined slightly with the reduction of four stores as part of a group store footprint optimization and ongoing SWAS program. Other costs are down 30 basis points, which is a mix of fixed and variable costs, including technology, credit card commission, and non-labor store costs, and advertising and promotional spend. Looking at slide 18, to better show the underlying performance of the group, we adjust our reported earnings for unusual items. This is the number that we base our dividend policy calculation on. There are two major items to note here in terms of impact on the adjusted net profit after tax. First of all, the restructuring costs. The group has continued its transition to an agile way of working.
The restructuring costs incurred in the current half relate to fees paid to our consulting partners and some additional redundancy costs connected with the group's restructure announced at the end of last year. The second item to point out is the repayment of a wage subsidy in December 2020. The group made the voluntary decision to repay the NZD 67.6 million in relation to the government COVID-19 wage subsidy. After adjusting for these two items, and other minor items, reported profit improves from NZD 55 million to an adjusted net profit after tax of NZD 111 million for the half. Slide 19, turning to our balance sheet. There are a few line items I'll call out here. Firstly, inventory, which is significantly lower at the end of the half year.
Following strong customer demand through the Christmas holiday period, better inventory management, and the impacts of COVID-19, which have included supply chain challenges and port congestion. It should be noted that last year also, Chinese New Year was earlier, which brought forward some of our purchasing activity in The Warehouse. Secondly, higher trade and other payables are due to higher New Zealand trade creditors and higher payroll accruals impact by the timing of the balance date occurring a week later in the payment cycle compared to last year. Finally, gearing. This time last year, we announced a reduction in gearing from 24.5% to 12.6% on a non-IFRS 16 gearing measure. This trend has continued, and we've ended with a very strong cash position of NZD 184 million, which when combined with the undrawn facilities of NZD 330 million, gives us liquidity of NZD 514 million. Slide 20.
Slide 20 gives a bit more color on inventory with a five-year history of our inventory levels at half year, and also some inventory turn ratios by brand. What this demonstrates is that despite significant drops in the likes of TWL, the implied turn ratios are not unsustainable. We think there is more to go, in particular in The Warehouse Stationery, and Torpedo7 brands. Turning now to slide 21. In terms of cash flow, a couple of items to note here, that the very strong EBITDA, with an increase of NZD 83.4 million to NZD 247 million for the half, did not translate into a significant increase in operating cash flow compared to last year. This is due to the repayment of the wage subsidy of NZD 67.6 million, plus increase in tax paid and reduction in working capital offsetting most of its benefit.
The other major difference when looking at net cash flow is the fact that we paid a dividend, in relation to the FY 2019 final year, and there was no dividend which impacted FY 2020 cash flow and no dividend in the FY 2020 half. This resulted in net improvement in our cash position from year-end of NZD 15.5 million to give us NZD 184 million of cash. Slide 22, looking at CapEx spend. Some further details on our CapEx spend for the half.
We are pleased here to see a 33% increase in our spend versus FY 2020, with year-to-date spend of NZD 40 million. The group's major investments in the half were in customer-focused digital initiatives, including our group e-commerce platform and continued development in TheMarket.com. The investment in our core systems is also a major component, including ERP finance and inventory systems, warehouse management systems, and deploying cloud-based master data management.
The third biggest category in our CapEx spend is store renewals and included new stores in Ormiston and the rollout of five store-within-a-store integrations in the first half. The group did provide guidance of capital expenditure to be in the range of NZD 100 million-NZD 120 million in FY 2021. While we do expect CapEx to pick up in the second half, our revised FY 2021 CapEx number guidance is between NZD 80 million-NZD 100 million. Turning to slide 24. Slide 24 gives a snapshot of our overall divisional performance. The graph on the right-hand side clearly shows the significance of the performance improvement in The Warehouse, with operating profit up NZD 62.8 million, accounting for 75% of the improvement in group operating profit.
However, all the brands, with the exception of The Market, which is only in its second year of operation, exceeded a 50% increase in their operating profit. Turning to slide 25. On slides 25 to 28, we cover the financial performance of each of the established trading brands. I will touch on key highlights of each which haven't already been called out by Joan or Nick. First of all, looking at The Warehouse on Slide 25. The standout in performance here is the gross profit margin, which was up 340 basis points in combination with CODB being down 6.1% in terms of dollars due to good variable cost control, including the successful implementation of our new labor operating model. This resulted in our operating profit improving 105% to NZD 122.6 million, and an operating margin of 12.7%, which is over, or nearly over double, the operating margin from last year.
Since H1 last year, there have been a net reduction of two stores, with Birkenhead, Johnsonville, and Dunedin stores closing, and a New Lynn store opening. Turning to page 26. In terms of Warehouse Stationery, the financial performance for Warehouse Stationery is a similar story, with much greater contribution of the gross profit margin to its financial performance. Sales were up 2.1% on the prior period, despite total transactions declining compared to FY 2020, both average basket and conversion were strong. Gross profit margin was up 500 basis points due to a range of inventory management initiatives, including the benefit of stronger disciplines around promotional and clearance activity. This in combination with holding CODB flat in terms of dollars, delivered an operational profit improvement of 84.4% to NZD 17.2 million.
We had six further SWAS integrations were implemented, bringing the total number of SWAS to 24, with one new SWAS store opening in New Lynn. Turning now to slide 27. Noel Leeming delivered another excellent result, with the largest dollar increase in sales of all the brands up NZD 80.4 million, or 15.7% compared to last year. Top-performing categories with double-digit sales growth from prior period included communications, computers, whiteware, televisions, and small appliances. Gross profit margin was relatively steady at 22.7%, with some increase in CODB, reflecting the stronger variable component in store labor relative to other brands, and delivered an overall operating profit of NZD 33.1 million, up 54.3%. In addition to the four store closures and two store openings in the second half of FY 2020, Noel Leeming, Takapuna was closed in September 2020. Finally, slide 28, looking at Torpedo7.
It should be noted that this is the first year that we are presenting Torpedo7 standalone, excluding 1-day, which in last year's sales numbers would have accounted for NZD 24 million of sales. This has been a turnaround half for Torpedo7, achieving the strongest sales growth of all brands at 29%, and delivering NZD 84.9 million of sales in total. Torpedo7 has benefited from strong trends in outdoor activity and fitness, at the same time as lifting its media and in-store marketing campaigns. Gross profit margin is up nearly 950 basis points to 37.8%, which is approaching where we would expect the margin to be for a brand operating in this category. In combination with good control in CODB, down 310 basis points as a percentage of sales, delivered an operational profit up 223.5% to NZD 5.2 million.
I'll now hand back to Joan to comment on our outlook.
Thank you very much, Jonathan. I'm going to look at the outlook and the dividend. For the first four weeks of the second half, we have experienced group sales growth of 2.3% on the same period in FY 2020. This is inclusive of the most recent Auckland Alert Level 3 lockdown. However, for the three weeks into March 2021, we do cycle a comparative period of March 2020, which saw increased COVID-19 uncertainty, and unseasonal increased demand and sales as New Zealanders faced the impending lockdowns. As a result, sales for the first seven weeks of the second half are relatively flat year-over-year. Compared to the first seven weeks of the second half of FY 2019, which is a more comparable period, being unaffected by COVID-19, sales in FY 2021 are up 9.7%.
While the Group has traded well through recent Auckland Level 3 lockdowns, there does remain significant uncertainty as the COVID-19 environment evolves, including the sustainability of heightened consumer retail spends, constraints on global supply chains as consumers in other parts of the world experience relaxed COVID-19 lockdown restrictions, and retailers building stock levels ahead of retail demand. Due to that continued uncertainty in the trading environment, the Board does not consider it appropriate at this time to provide guidance for the full year FY 2021 result. The Board will continue to reassess this position as we get closer to the year-end. As I said earlier in the presentation, the Board are pleased to declare a fully imputed interim dividend for FY 2021 of NZD 0.13 per share, payable on the 22nd April 2021, and based on a record date of the 7th April 2021.
I'm going to thank you for your time this morning, but I also want to take the opportunity to thank Nick and the entire The Warehouse Group team for delivering what has been an outstanding result for this half. I know that we've had some fair winds in terms of consumer sentiment and spending, but as you'll see from the detail of the result, a lot of the work that's been put in in the last three and a half years is now really to pay dividends to the company and its operational performance. Thank you, and I'll now open the mic for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question please press star one on your telephone [audio distortion]. If you need to cancel your request please press the pound or hash key. Once again press star one to ask a question. Our first question comes from Lily Zhang at Jarden. Please go ahead.
Hi, guys. Thank you for the question. Can you hear me? Sorry.
Yes, really well.
Perfect. My first question is about the gross margins. Obviously, you've seen significant uplift across most of the segments like in Red and Blue sheds and Torpedo7. To what extent do you think this level can be sustained? Do you think this is a sustainable level going forward? Did the recent New Zealand dollar strength against the U.S. dollar contribute to a bit of that in the current period?
I'll ask Nick to answer that.
Okay. I'll take the first question for sure. Thanks, Lily. Yeah, that's one of the things that's been most encouraging for us. We've been saying for a number of years now that we would no longer chase unprofitable sales. We've built a mechanism both in terms of the intake margin and the selling margin that enables us to be able to have much better control. If you think about first off, the fact that we built a better sourcing business and so do a lot of the business direct. We have built that out. We have 200 + people in Shanghai. We have an India office and a Bangladesh office, Bangladesh being significant for apparel now, biggest apparel manufacturer in the world. We're getting a benefit on that end. We've continued our ethical sourcing policy.
In addition to that, we firstly moved to EDLP a few years ago in Red. All of the up and down in pricing that often confused customers, and they told us it was very confusing, and they could never be sure what the price was and whether it was correct. We've seen benefit from being able to give our customers everyday value. The price is the price is the price. In addition to that, even though we are still in the process of modernizing our, in some cases, 30-year-old systems, we've built mechanisms, especially using data science, where we've been able to do a lot of work around price optimization and sell-through.
Being able to buy product better, negotiate better through our use of our negotiation factory tool, be able to price it appropriately to optimize profit using data science, being able to plan the sell-through better despite the system's inhibitions, and being able to sell through and therefore generate less clearance, run on less inventory, are the reasons why we've improved gross margin, gross profits at double the rate of sales. Whilst we understand that there is a buoyancy around the market at the moment, we believe that it's more as a result of all of the efforts that we've put into all of those areas that make it sustainable.
Right.
Just on FX. We keep cover around that 65%-70% mark in terms of 12 months forward. The delivery rate has been more around that NZD 0.66 mark. Given we're continuously updating our cover, we haven't seen the benefit of some of the spikes in the New Zealand dollar to U.S. dollar rate that we've seen in recent times. Look, going forward, we'd expect some of that to factor in, but it will all be averaged out by our overall buying over the period.
Right. Thank you. The next question, I recall back in December and January, you had mentioned shipping delays on some winter products. Is that no longer an issue?
Well, it's still an issue. It's fairly isolated. It's a volatile situation between what I talked about then, which was the circulation of containers around the world, which is still inhibited by COVID, all around the world. I read today that the Suez Canal is like to be blocked for a couple of days, which isn't going to help. In addition to that, a lot of our merchandise comes through Ports of Auckland, and we're all aware of the issues there. What I would say is that we've planned for it. We're managing it actively. We look for substitutional products. We brought forward things where appropriate. There are isolated areas. Winter is the latest one. We got through back to school fine. We got through Christmas fine. It's not gonna be material in our view.
Great. Thank you for that. On Torpedo7, now that it's in an operating profit position, how should I think about it in terms of the profitability going forward? Maybe a pullback or sustainable?
Yeah. The reason why we haven't given guidance in totality is because the current situation is extremely volatile. In a half where we've just announced 7.4% sales gain, you'll have seen on Friday, GDP figures down 1%. There's a real bifurcation of everything going on. It's clear to us that there is some benefit, and Torpedo7, I think, has been one of those beneficiaries of the discretionary income, something around NZD 12 billion, that typically Kiwis spend abroad, being retained in the country. If you think about the NZD 16 billion-NZD 17 billion tourists spend when they come in, it's far more likely that people will buy goods such as bicycles or ski gear, because they're stuck in the country and they're using our country for outdoor pursuits, as opposed to tourists coming in who are much more likely to spend on hospitality and experience.
There's no question that there's a benefit. It's hard to model because we don't even know if and when a bubble's going to happen with Australia, let alone the rest of the world.
Yeah.
What I'd point you to is the fact that we've gotten leverage and that the benefits from Torpedo7 were anticipated pre-COVID. I think we've gotten some incremental on top of that. It's come from starting to get to more scale, improving how we buy, and the profitability margins. We've done quite a lot on the cost base, like improved logistics, for example. A lot of those benefits still to come through. We're not finished with accruing those benefits. I think you'll see some easing of demand at some point in the future, but the structural benefits will remain. We see it as a profitable business that will be accretive going forward. Hard to say in the immediate future how much so. We do still see opportunities for opening stores. In fact, last week, as I mentioned, we opened Napier. We're looking for other opportunities.
There's quite a few places where we see a lot of potential, and that will only help.
You're not aiming for a specific number of store rollouts by the year-end?
No. We'll take opportunities where they make sense.
Great. Thank you. That's all from me for now. Thank you very much.
Thank you, Lily.
Our next question comes from Chris Byrne at Craigs Investment Partners. Please go ahead.
Good morning. Wow, what a massive result. Congratulations. Just quickly, I know you've given a sort of mixed outlook versus what's the prior comparable period. It looks like sales are still trending reasonably well. Can you give us an outline on what your margin trends have been like in the last couple of months and what those are still looking like? I imagine you've gone through the restructuring process late last year. Are you still cycling good margin improvement over the last two months or so?
Yeah, we're still seeing good improvements. Obviously, on a tactical basis from week to week, month to month, there's a number of things going on. We've had further Auckland lockdowns in the last couple of months. Who knows where that will go? We've got a shift in Easter, which is a week later. We've continued to manage our clearance. As we mentioned, aged inventory reducing from, I think, 8.5% to 5.7% means that we've got less of a drag on our business in terms of clearance. That will feed through in terms of future benefits as well. Interestingly as well, this week, we're starting to cycle up against panic buying, going into lockdown. You may remember last year, we missed Easter effectively and had to give away a whole bunch of Easter eggs.
We're hoping we won't have that sort of disruption, and we'll be able to continue to harvest margin. As I said, margins we believe to be continually sustainable, and we believe also that we'll continue to get cost leverage. If you think about gross profit benefit in addition to cost leverage, we see both of those things continuing.
Great. I don't have any problem with giving away Easter eggs. It's a great thing to do.
Yeah, we'd rather make some money out of candy.
Sorry. Also, I was a bit late to the call. When you were going over the dividend policy, I just wanted to clarify, the special dividend will be, if paid, and like this NZD 0.05, should we assume that's over and above the 70% payout ratio?
We've aggregated the NZD 0.05 per share special dividend within that policy framework at this stage, Chris.
Okay. Effectively, the 13 plus the five, and then whatever you forecast that should add up to sort of 70% level.
Yeah.
Yep. Okay. That's great. That's sort of it for me. Thank you.
Thanks, Chris.
Thank you, Chris.
Thank you. We have no further questions, so I'll hand back for any closing comments.
Well, thank you very much, everyone, for your attendance this morning. It has been great to be able to present this result to you. As I said in my introductory comments, a huge thank you from the board to the entire team and to our shareholders for their fortitude. It's nice to see that the market is acknowledging the progress that we're making, and also, of course, to our customers. We look forward to updating you as we go forward closer to the end of the financial year. Thank you.