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Edited Transcript of MYR.AX earnings conference call or presentation 14-Sep-22 11:30pm GMT

·47 min read

Full Year 2022 Myer Holdings Ltd Earnings Call Melbourne Sep 16, 2022 (Thomson StreetEvents) -- Edited Transcript of Myer Holdings Ltd earnings conference call or presentation Wednesday, September 14, 2022 at 11:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * John Anthony King Myer Holdings Limited - CEO, MD & Director * Nigel Chadwick Myer Holdings Limited - CFO ================================================================================ Conference Call Participants ================================================================================ * Johannes Faul Morningstar Inc., Research Division - Equity Analyst * Mark Wade CLSA Limited, Research Division - Research Analyst * Michael Simotas Jefferies LLC, Research Division - Equity Analyst * Shaun Robert Cousins UBS Investment Bank, Research Division - Analyst * Simon Conn Investors Mutual Limited - Senior Portfolio Manager ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the Myer Full Year Results 2022. (Operator Instructions) I would now like to hand the conference over to Mr. John King, CEO. Please go ahead. -------------------------------------------------------------------------------- John Anthony King, Myer Holdings Limited - CEO, MD & Director [2] -------------------------------------------------------------------------------- Thank you, Ashley. Good morning, everybody. Apologies for the slight delay there was some technical issues getting the ASX up today. So hopefully, you all have the presentation. Thank you for joining the call today to investors and analysts and also to media who joined on a listen-only basis. I'm John King, CEO of Myer, and I'm joined today by Nigel Chadwick, Myer's Chief Financial Officer. Please note that this call is being recorded. Before going any further, I'd like to take a moment to recognize the various traditional lands on which we do our business today as well as acknowledging elders past, present and emerging. And so to the agenda for this morning, I'll begin with an overview of the FY '22 results, then I'll hand over to Nigel, who will provide you with more details on these results. Then I will speak further on our Customer First Plan, which is a strategy we outlined in September 2018, which continues to gain momentum and underpin everything we do. After that, there'll be an opportunity to ask questions. So let me take you through the key financial takeouts from today on Page 4. I'm pleased to report on these results today. We emerged from the impacts of the pandemic with a better, stronger and more agile organization that is well equipped to meet the demands of today's consumer and beyond. While the last few years has been disruptive to our people and to our business, it has created an opportunity for Myer to adapt and grow with a new environment. We have delivered strong sales growth, up 12.5% with comp sales up 15%, demonstrating growth in a non-lockdown environment. Online continues to outperform, delivering an outstanding 34% growth and importantly, outperforming our competitors. We're pleased to report that NPAT result of $60 million for the full year, a 104% increase from last year when adjusted the JobKeeper. This included a record second half NPAT figure the best since financial year 2013, demonstrating the bottom line up for progress we have made in the business operations. The Customer First Plan implemented in September 2018 has yielded significant improvements to all aspects of Myer, and the output of that progress is a tangible improvement in some of the key metrics shown here on the slide. Our balance sheet is strong with $186 million in net cash position, which supports a strong return to shareholders via franked dividend. To Page 5, I will talk how we've seen strong growth and clear momentum. Comp sales were up 15%, demonstrating strong growth across both our store network and our online business. Despite the disruption throughout the year with Omicron particularly in the early part of the year, our store network has contributed growth with comp sales up 8.9%, driven largely by stores outside of CBD locations with over 10% growth. Our CBD locations have also returned to growth, albeit much more slowly as travel and work has start to return, but we still see some major upside there in the future. Our group sales results for the second half of '22 represents strong growth from prior year of over 20%. This was the first half that we didn't have impact from mandated lockdowns. This second half exceeds the FY '19 results before the pandemic by 11.5%. And importantly, we're not only demonstrating growth on pre-pandemic periods, but we are taking market share. In FY '22, we gained 110 basis points from last year based on the Mastercard commission report comparing Myer to the retail industry. So online growth, the facts behind our online business are sometimes lost in the coverage of the day. But the growth we are seeing means we are outpacing our peers and competitors, meaning now -- meaning that we are now one of the largest online general merchandise retailers in the country. To demonstrate this, the chart on the left outlines our growth against the ABS nonfood retail trade, index back to pre-pandemic levels. Our growth has outperformed the market by nearly 28% to the extent since 2018. When we again look at our Mastercard commission data comparing online sales only, our market share in FY '22 rose by staggering 191 basis points, meaning we have now had considerable growth in market share for both in-store and online channels. And to the right of the page, when talking about how we're outperforming the market, our total growth of 38% has outpaced brands like David Jones and online-only marketplaces Kogan and Catch. But the interesting aspect is when you look at our category level when compared to specialist retailers, for example, if you take our home category, which has grown 53% in FY '22, this has well surpassed the growth of pure plays like Temple & Webster at 31% (inaudible) at 4%. And even when you look at our beauty category, our 17% increase continues to outpace pure plays, again, like Adore Beauty, who grew at 11%. The online story over the last 4 years is compelling when you look at our key metrics. As we mentioned, the growth has been exceptional, and this has not been isolated for the last year, or CGAR since pre-pandemic FY '18 have been 36.4%. We have some exceptional highlights when you look across these key metrics. The scale of the sessions and unique customers visiting the site has grown considerably. Our efforts across building experience has led to huge improvements to conversion rate and NPS, respectively. Finally, we have fundamentally changed the MYER one journey on the website to ensure we now capture over 70% of all transactions with our MYER one program, up from 53% in FY '18. This ensures we create a stronger link with our customer, rewarding them more and driving greater frequency and lifetime value. And furthermore, we see considerable opportunity going forward in our digital business, enabled by a number of key initiatives, including our National Distribution Center investment, which will step change our economics online by facilitating a better customer experience on delivery, range and flexibility. Our marketplace offering, which will broaden our range, continued enhancements to the user experience at checkout and further enhancements to our return on investment performance marketing spend. In terms of our omni-channel strategy, while we're excited by our online performance and opportunity, it is just one component alone of our omni-channel retail strategy. The bottom line is that consumers want to -- customers want to shop across multiple channels, not just online. They want to come to our stores. They want to buy from us online, and they want the experiences offered in store and they want the ability and the flexibility to choose. In our view, the convenience in both channels at our disposal has been demonstrated throughout the pandemic period with the balance of high online growth during lockdowns, but went out of lockdowns we return to in-store shopping and the experiences within our stores. We know from looking at our data that our omni-channel customer is more valuable. They spend more per customer, they are more engaged, shopping more frequently and more engaged with our brands and more loyal than our single-channel customers. The ability to have online and in-store is complementary. Not only do customers visit our website before they come in-store, we have an increasing number wanting to leverage our Click & Collect offer for online orders. This not only provides greater convenience for our customers, but also an opportunity to customers spending again in-store when they pick up their parcel. This slide sums up clearly the strength and competitive advantage we have through the benefit of having, I think a multichannel offer. On Page 9, the growth we're seeing is underpinned by our MYER one programs. The role of first-party data is incredibly important in today's marketplace, and we have reaped the benefits from our MYER one program with over 71% of all purchases using a MYER one card, our highest on record since publicly listing in 2009. The program now stands at over 6.6 million digitally contactable members, meaning it has significant scale, but also is highly contactable. Importantly, one of the key areas when we assess the power of our loyalty program is not by the top line number, but by the number of customers who are engaged with us at any one time, and that is why our 3.7 million unique active customers [being those] that have spent with us in the last 12 months is what makes this one of the standout loyalty programs in the country. We have been actively building engagement and acquisition with 593,000 new members signed up in the last financial year '22. Pleasingly, we are seeing a significant shift to younger demographic with over 55% of all new sign-ups in the 18 to 34 age group. Our loyalty program is one of the most rewarding in the market, and our MYER one customers spent 83% more than a non-MYER one customer. It is a compelling foundation for our business and when we will continue to underpin growth for our business as we leverage better insights to inform better business decisions by us, deliver greater insight and support for our business partners, provide a strong and actionable database to commercialize further, and importantly, maintain and deepen the connection with our most loyal customers. Now to Page 10, profitable sales growth has led to the best second half results -- [2H13] and with a return to dividends. Our relentless focus on profitable sales has seen significant momentum across the bottom line, particularly when you have less impacts from mandated lockdowns. Our second half not only delivered strong sales growth in both store and launch online channels, it translated to our strongest result in almost 10 years. We are buoyed by the strength of our multichannel capability, the structural improvements we've made through our Customer First Plan are continuing to be realized. And importantly, we continue to deliver the significant momentum despite disruptions. Quality and sustainability of the results given the Board confidence to declare a second half dividend of $0.025, meaning a full year dividend of $0.04. As you would know, earlier this year, we reinstated the dividend for the first time since 2017. Page 11, I'd just like to touch on how we have emerged in the pandemic stronger on all key metrics. While we're pleased with the quality and the quantum of earnings, [it’s close to the] earnings that are also important to us. Our earnings now feature high levels of sustainability and quality than previously. The plan has yielded significant improvements to all aspects of Myer, and the output of that progress is tangible improvement in some of the key metrics shown here on this slide. Our online business is now almost 1/4 of sales and growing ahead of the market. We continue to strategically reduce floor space where it makes sense and a reduced space by 11.1% since the launch of the Customer First Plan in financial year 2018. Our merchandising improvements are paying significant dividends, both in terms of customer trust, brand engagement and financially, through a significant reduction in clearance and aged inventory. Our cost base continues to permanently reduce enhancing margins. And at the bottom line, we've generated our strongest net profit since the second half of 2013 and given ourselves balance sheet flexibility to pay dividends. I'd now like to hand over to Nigel, who will go over the results in more detail. Nigel? -------------------------------------------------------------------------------- Nigel Chadwick, Myer Holdings Limited - CFO [3] -------------------------------------------------------------------------------- Thanks, John, and good morning. If we could move to Slide 13, please, the income statement. Overall, considering the disruptive trading environment in parts of the year, this is a really strong result and reflects the continuing progress we've made over the last 4 years with the Customer First Plan. As a reminder, I'd just like to mention that this year is a 52-week year compared to 53-weeks last year. And as a comparison on a 52-week basis included in the appendices for anybody who's interested. On to the P&L. Clearly, total revenue and GP were severely impacted by the temporary closure of various parts of the store network in Q1. In total, we lost 2,463 department store trading days or 11.4% this year compared to 2,067 trading days or 9.4% last year. And whilst first half total sales were up just over 8%, we finished the year with sales of 12.5% following a strong second half which was up nearly 17% on 2H'21, which, of course, included some store closures. In terms of comparable sales, which exclude periods where stores are closed or under refurbishment from both years and the 53rd week in FY '21, a strong second half, so finished the year with a 15% increase following the 17.8% increase at the half year. Sales growth resulted in strong operating gross profit growth, which was up 8.5%, and we'll discuss that in a bit more detail in a couple of slides. After adjusting the last year for the net JobKeeper benefit, cost of doing business, or CODB, increased at a slower rate than OGP, up 6.9%, mainly reflecting inflationary pressures and variable costs in online fulfillment. Support was received from landlords in the form of rent waivers during lockdown periods in the first quarter totaling $18 million, which is approximately the same amount recorded in the FY '21 year. That brings us to EBITDA, which, again, after adjusting for the net JobKeeper benefit in the prior year was up 11.6% to $400 million for the year on a post-AASB 16 basis or $187.5 million on a pre-AASB basis, both of these [quoted] before implementation costs and individually significant items. From a store performance perspective, we had just 2 stores that were EBITDA negative. And obviously, we have plans in place to improve their performance going forward. Depreciation was down slightly, reflecting lower net CapEx spend in recent years, offset by a small increase related to changes in the lease portfolio. Net finance costs were up $2 million, reflecting the write-off of capitalized borrowing costs related to our old facility, whilst interest on leases was flat. So the bottom line was a net profit after tax but before implementation costs and ISI's of $60.2 million, which is at the top end of the range we advised in July, and compares to $29.5 million last year after removing JobKeeper. Given the first half NPAT before implementation costs and ISI's was $32 million. This means 2H delivered $28 million. And as John said, this is the best second half since 2013. Implementation costs and ISI's were mainly related to space exit costs and associated residual asset write-offs, such as Blacktown and the recently announced Frankston closures. Statutory profit was $49 million compared to $46.4 million last year. On the right-hand side of the slide, you can see our mix between private label, national brands and concessions, which after 2 years of disruption from COVID have returned to almost identical levels as FY '19. And John will cover our category mix and the sheer scale of some of these businesses a little later. Moving on to Slide 14, operating gross profit. As you can see from this slide, OGP finished the year of nearly $90 million or 8.5% and with OGP margin at 38.3%. As you can see, volumes contributed $138 million improvement, reflecting the higher sales revenue for the year. Rates deteriorated as we took higher discounts on seasonal product following lockdown periods and lower foot traffic in late December and January from Omicron. In addition, we deliberately exited seasonal inventory at the back end of the year to ensure we've positioned ourselves well for the spring season in [turn], where it was also impacted by increased [freight] costs, primarily in getting our private label brands from the manufacturers to Australia. In the other COGS bar, shrinkage has increased by nearly $11 million to $28 million for the year, and now sits at similar levels to FY '19. Shrinkage now stands at 1.2% of wholesale sales having been driven down to below 0.9% over the last 3 years. So obviously, we are reviewing what actions we can take to drive this back down. In addition, we incurred higher MYER one costs, reflecting the improvements in the MYER one tag rate and lower reward card threshold, offset in part by higher non-redemption of gift cards, and a small year benefit from FX and improved supply support as purchase volumes increased. Lastly, we also had a small negative movement in margin rate from a mix shift to concessions. Moving to Slide 15 and CODB. On Slide 15, we've excluded the net JobKeeper support out of the prior year numbers, but we have not adjusted rent waiver as the amount received this year, as I said earlier, we're almost the same as those recorded last year at around $18 million. CODB has increased 6.9% over the prior year. This compares to a revenue growth of 12.5% and OGP growth of 8.5%, demonstrating operating leverage on our cost base, which is growing at a slower rate than gross profit. As you can see from the waterfall, the principal areas of increase were inflation, mainly in the form of higher wages for in-store under our EBA and in the support office, where a pay increase was given for the first time in several years, and store operating costs such as light and power and other outgoings. Variable costs in our online business grew in line with our online sales volumes driven by fulfillment and central support. We also incurred higher store project topics from movements of product adjacencies and OpEx elements of store upgrades as well as higher COVID costs reflecting more store closure days and [locations]. These costs were offset by reductions in store occupancy costs, largely associated with space reductions. Moving to cash flow on Slide 16. As you can see from this slide, we've had a very strong cash flow performance during the year with operating cash flows before interest and tax, improving $22 million to $387 million. As noted on the slide, FY '21 also included $58 million of net JobKeeper cash receipts. So excluding those, cash flow before interest and tax improved by $80 million, which makes this year a really terrific outcome off the back of the improved sales and margin. Further down the cash flows statement, you can see we've moved from a tax refund in FY '21 for paying tax in FY '22, making operating cash flow after interest and tax almost the same year-on-year. But again, if JobKeeper is excluded from FY '21, then this year has outperformed last year significantly. Cash CapEx, net of landlord contributions was up from last year, but still at a relatively modest level of $44 million, with the bulk going into our store network, supported by contributions from landlords. As well as, refurbishments, we've been deploying new back-of-house technology to enable quicker fulfillment and stock tech processes and also deploying new point-of-sale hardware to mitigate the risk of post failure and improve the customer experience through much quicker processing. We've also continued to invest in our online platforms, and of course, our National Distribution Center, which is currently being [kitted] out with state-of-the-art robotics. We expect CapEx to continue to increase in FY '23 to something in the range of $60 million to $80 million net of landlord contributions. As we continue to invest in the store network to improve the customer experience and update some of our older infrastructure, continue to improve our online presence, complete the rollout of our new point-of-sale system, including new software, and of course, complete the NDC. Moving to the balance sheet on Slide 17. So the noteworthy items here are total inventory, of course, at year-end was up $66 million or 21.7% year-on-year. And whilst department store stock on-hand was up just 9% from abnormally low levels in the prior year when we curtailed [in tag]. Stock in transit was up $35 million due to a deliberate decision to accelerate in tag this year in response to global supply chain concerns. So the bulk of the year-on-year increase was actually in stock in transit, which in turn has positioned us extremely well going into the spring season and for the remainder of the first half of FY '23. And John will update you shortly on how that is translated into a strong start to the year. To give you a sense of relativity, total inventory is only up 7% from FY '19 levels despite the pull forward of (inaudible) this year. In addition, the charts on the right display the health of our inventory with the percentage of clearance inventory being the lowest we can find on record. An inventory over 6 months old also at healthy levels and predominantly in non-seasonal stables that are less sensitive to age, such as cosmetics and homewares. Right-of-used assets are down by nearly $50 million, mainly as a result of depreciation and spare [handbacks] at Blacktown. Fixed assets are down, reflecting depreciation again and store exits during the year. And then finally, net cash, again, we finished the year in a positive cash position of $186 million, which is up $74 million from last year-end, and I'll talk more on that on the next slide. So turning to Slide 18. Debt and liquidity. Really, I should be saying cash and liquidity based us. On this slide, you can see the progression of our net debt or net cash balance over the last few years and the repair of the balance sheet. We've gone from over $100 million of net debt at the end of FY '18 to finishing this year $186 million net cash positive. And given we have a fully drawn component of our debt facility of $65 million, that means we had cash on hand of over $240 million at year-end. In the bottom chart, you can see where our net cash position has been across this year and less. We've only been in a small net debt position for a total of 17 business days during the entire year, and these were all in the first half. Peak net debt was just $41 million compared to $30 million in '21 and $210 million in FY '20. Last year, we were only in net debt for a total of 15 business days. So across the last 2 years, we've only had net debt for a total of 32 business days. And our current expectation is that we'll go through this year's peak financing period in November in a net cash positive position. So clearly, we've got significant headroom and liquidity within our existing facility and on balance sheet. And our existing facilities got over 3 years to run and is working really well for the business. I think it's reasonable for us to now [claim] that our balance sheet is rock solid, and has been all year long. And this underpins both a gradual increase in reinvestment in the business and a return to franked dividend payments. So before I hand back to John to summarize, we've had our first non-COVID interrupted half year since 2009, which allows us to see how the underlying business is traveling under the Customer First Plan. And importantly, this has resulted in the best second half profit since 2013. Our balance sheet and liquidities were up solid and underpins future reinvestment in the business and our ability to pay franked dividends. We're continuing to invest in key aspects of the Customer First Plan, including growing our online business, further improving our in-store customer experience and strengthening both our fulfillment and store networks. Our omni-channel approach to market is a significant asset, which allows our customers to switch between channels to suit their shopping preference. And finally, our [unrelenting] focus on costs, cash and our balance sheet will continue to be top priorities, and we are well positioned to take advantage of the peak Christmas trading period. And on that note, I'll pass you back to John. -------------------------------------------------------------------------------- John Anthony King, Myer Holdings Limited - CEO, MD & Director [4] -------------------------------------------------------------------------------- Thanks, Nigel. If you could turn to Page 20. I'd just like to touch on the progress that we've made in the Customer First Plan, which means we're well placed to drive what we believe is significant value creation for all shareholders in the future. So the plan has provided us with a strong foundation for the business, and it's delivered in a number of areas. Our outstanding online growth, we're now well on our way to our $1 billion annual revenue target. The acceleration of our fulfillment and supply chain capability, and our National Distribution Center opens in the second half '23. The improvement in the customer experience, both in-store and online, our customer satisfaction metrics have increased to 82% this year from 70% in the first half '18, a very healthy inventory profile, improved stock turn and making the big brands bigger and turbo-charging key categories, more of which a little bit later. And then a strong focus on the reduction in space, improved productivity of floor space and the strategic refurbishment of stores. We've right-sized the store support office. And of course, we continue with our approach on disciplined management of costs and cash, as Nigel said, providing our strongest balance sheet in recent times. The delivery of this program will continue to underpin the future growth of this business that allow us to further unlock greater shareholder value, particularly as we continue to look to scale and deliver a market-leading online business and continue to build our loyalty offer and seek more opportunities to commercialize this program as we have seen CommBank and our recent announcement this week with Velocity, which I'll talk about shortly. Turning to Page 21. I'd like to touch on one of our key focus areas, our NDC, National Distribution Center. As we said, it's on track to open in second half of '23. This will fundamentally change the way we manage our factory to customer operations, both for in-store and online. From a store perspective, it will drive better inventory management and will deliver greater sales, lower discounting and improved margins. For online, it will improve the speed and the cost of how we fulfill orders for our customers. The NDC will be central in delivering future capacity and efficiency as we are close to the aspiration of over $1 billion of annual online sales. The facility itself will be a state-of-the-art complex, featuring significant innovation with more than 200 autonomous mobile robots or AMRs, as we call them, to ensure faster order processing and delivery time frames and will be the largest implementation to-date of the Geek+ RS8 Shuttle System in the Southern Hemisphere. I think this is a great example of how Myer is modernizing for future growth. The next focus area for us is our loyalty program and our partnerships. We are looking at new and expanded partnerships to help build our MYER one program. Leveraging these partnerships are and continue to be important, as they provide a new source of customer growth, significant revenue streams to both in-store and online, plus another opportunity to engage and to build loyalty. Our points plus pay program is one of the most significant in Australia. It allows us and our partners to leverage Myer's unique offer of Australian and international brands across a wide range of categories, a large national footprint and a dynamic online business. At a time, when we see Australians wanting to make their dollar stretch further to allow them to leverage their points program with Myer and provides even greater value to us and our partners' customers. Leveraging (inaudible) currency will be an important differentiator if economic conditions continue to change. This also set the foundation for a deeper strategic partnership with 2 of Australia's most recognizable brands, being combat convergent. But for us, it further enhances our loyalty program. It captures greater brand preference and demonstrates why we are the ultimate one-stop shop for Australians. Turning to Page 23. I just like to talk about another focus area for us, which is becoming the destination for growing brands. Over the past 4 years, our merchandise offer has been changing. We now have a well-balanced offer with significant size businesses across womenswear, menswear, home and beauty in particular. This is compelling as it not only demonstrates the size and scale we have when compared to specialty retailers, but also demonstrates the resilience we have by having a more balanced offer, allowing us to move quickly and capture changes in customer trends and emerging markets, whilst also being less susceptible for certain areas face headwinds. Our merchandise offer is as strong as it has been with clear focus on inventory management, many of our customers are shopping more newness than ever before. The last season alone, we have announced over 30 new brands across home, fashion, intimates and beauty portfolios. However, the strength has been our focus of making the big brands even bigger. This has been done with our renewed focus on working with brands in a partnership approach to achieve long-term strategic commercial success. And that is why we're seeing more and more brands choose Myer. An example in womenswear, we launched [intimate label’s by Pharrell] into selected Myer Stores (inaudible) Australian online from February this year. We also announced the return of Bendon Lingerie, will came back to Myer in August with a stable of brands including pleasure state, (inaudible) heritage brand, Fayreform. These strategic additions will cement us as the leading intimates retailer in the country. We've also moved to announce other brands like American Eagle, Aerie Thrills, and many more to come, reflecting our changing customer base. In beauty, our designer brands, including Chanel, [Dior], Tom Ford are big star performers. Recently, we've launched Gucci Beaute and [MS Beaute], which are proving incredibly popular with our customers. The Myer Perth Beauty Hall was refurbished with new counter designs, showcasing our range in the best way. Myer Melbourne opened global first counters for Estee Lauder, MAC, Bobbi Brown and [Omez], with further exciting new counters planned to open later this year. With our healthy inventory position in new brands, we are ensuring newness for our customers and delivering on our aim of making the big brands bigger and ensuring more and more brands are choosing Myer. In terms of other focus areas, this is where using our strong balance sheet to invest really helps us. We've outlined a significant investment in our supply chain and online. However, we have continued to invest into our stores, our biggest channel. As part of this, we have embarked on the biggest store technology transformation in recent history. The 18-month transformation will deliver new point of sale to all stores, a new one device strategy to underpin through operations and continued investment into our leading proprietary M-Metrics team member platform, which allows our team members to serve our customers better. We are continuing to improve and curate our store experience with major refurbishments completed at Toowoomba and Albury and the relayering of Chadstone, Fountain Gate, Carindale and Adelaide City, with further optimization plans for another 17 stores in the works for the rest of FY '23. Our focus on delivering an optimized store network is still well on track with 11.1% space produced since the first half of 2018, and more in the pipeline. Before we conclude, we want to provide context on the current trade. Pleased to share that our current trading in FY '23 continues to build on momentum seen in the second half of '22 across our store network. With the first 6 weeks of FY '23, delivering sales growth of 74.8% on the prior year and 21.8% on pre-pandemic levels. To put this into even greater context, this 6-week period now means it has been the highest start 3 years since 2006. Whilst we believe there is significant uncertainty in the economic outlook, current performance gives us confidence leading through important Christmas trading period, particularly given the strength of the multichannel offer and in particular, stores continuing to perform well. We are well placed to meet market volatility. We are and have been focused on profitable sales growth, a disciplined management of inventory and costs and a prudent approach to investing in our future capability. So in conclusion, on Page 27, as we said earlier, we'll continue to deliver against our Customer First Plan. It was the right plan when we started and the right plan going forward, and this has underpinned our growth in recent times. We've delivered strong sales growth, up 12.5% with both stores and online performing well. Our online channel continues to outperform delivering strong growth and scale and providing future value creation opportunities. We have delivered profit growth of 104%, second half, up 219%. We strengthened our balance sheet with considerable cash and a more flexible financing facility, and we continue to aggressively reduce space with more than 11% reduced from our store network since the start of the plan. And this results in confidence in our plan given us the ability to reinstate the dividend. Whilst we've delivered the best starts year on records, we believe we're well placed to capitalize on the year ahead and despite an uncertain economic outlook. We have the right value-based proposition of affordable and aspirational brands. We have a strong multichannel offer, and we provide deeper customer value through our loyalty program and partnerships that will underpin the value for our business and for our customers. Firstly, I want to thank all our shareholders, our team members, our brand partners and suppliers, but above all, our customers, their ongoing loyalty to this great business. Thank you very much for listening. We'll now open up the call for questions. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Mark Wade with CLSA. -------------------------------------------------------------------------------- Mark Wade, CLSA Limited, Research Division - Research Analyst [2] -------------------------------------------------------------------------------- Gentlemen, a really solid result well done. Turnaround of the company has been a really long time in the making, and these latest results show you've made some really good progress. What do you think in terms been the real key difference in this current turnaround under your -- compared with some of those other attempts over the decades? -------------------------------------------------------------------------------- John Anthony King, Myer Holdings Limited - CEO, MD & Director [3] -------------------------------------------------------------------------------- Well, I think it's -- we have a simple plan, which affected all the key areas and the key drivers of the business. So I'll just go back to the Customer First Plan, and that is about creating a better customer experience, whether it's in-store or online in terms of the product, the offer, the conditions, the space, the service. It was about seriously going after online. If you remember, 4 years ago, it was only 100-odd million. I've been serious about that, rightsizing the cost base of the business, whether that was the store support office or other parts of the business, and focusing on bringing in great brands and making sure that customer experience is good. And then an obsession on the balance sheet to give us absolute foundation for us to actually launch all of these initiatives. I mean, that was one of the things that we've aggressively targeted. And I think it's shown now, if you look at our -- if I think back to our inventory 4 years ago, I think most of it was clearance. I mean, now we're looking at 5.8%. And we've got nearly 80% of our inventory under 6 months old. So it's all new merchandise. So I think there's a number of those. But more importantly, it's about having good people to execute. So we've got a good team spirit here, everyone's focused. Everybody understands what the Customer First Plan, and everyone understands here that one page that we show, beneath that, there are work streams and details that are right down to everyone's KPIs. So although we show that simplistic slide as the Customer First Plan, actually, it's beneath that, the work streams are significant. And I think -- and then the most -- the one of the most important things was the launch program. It was a diamond in the rough and the team has really focused on that. And as you see with the CommBank and the [version] announcement, we're now able to commercialize that and have it as a revenue stream. -------------------------------------------------------------------------------- Mark Wade, CLSA Limited, Research Division - Research Analyst [4] -------------------------------------------------------------------------------- And just looking at the second half and the year-to-date FY '23 that performance. I mean, how indicative is it of what you feel like that the business can continue? And maybe try and answer that through the lens of customer accounts, whether foot traffic, transactions, what have you, and how that's compared with some of the pre-COVID times. So how indicative is that? -------------------------------------------------------------------------------- John Anthony King, Myer Holdings Limited - CEO, MD & Director [5] -------------------------------------------------------------------------------- I think it's difficult to compare it. Yes, I think it's difficult to compare it [roughly] where we shut 65% of the stores. So I think there is a real opportunity to -- there's an opportunity for customers who want to get back and get shopping. I mean, in terms of online, we've seen significant improvement there and growth there. So whether it's online or in stores, that's great. I mean we're happy with the momentum that we've got now. But we're mindful of what might be coming down the track next year, I think there will be some challenges for the customer. We don't have a crystal ball. If we did, we'd probably sell it to the RBA and the Fed. But I think -- I think for us, what we've got to do is just keep focused on what we can do and what we can impact in our business. We believe we have a great value proposition, which allows people to trade up or trade down depending on their disposable income. But as we said, one of our underlying tenets in this business is a disciplined focus on cost, cash, and we will continue to do that. And I think the pandemic taught us a number of things, and we've come out with more agile. And I think we're able to react to changes in the market much more quickly than changes in consumer behavior much more quickly. So I think we're well placed to capitalize on the opportunities as they go forward. -------------------------------------------------------------------------------- Mark Wade, CLSA Limited, Research Division - Research Analyst [6] -------------------------------------------------------------------------------- And last one, I mean, hypothetically, where is the merit, if at all, in a potential merger with your probably biggest rival in Australia here. And alternately, I mean, where would that investment case struggle to stack up? -------------------------------------------------------------------------------- John Anthony King, Myer Holdings Limited - CEO, MD & Director [7] -------------------------------------------------------------------------------- I'm not going to comment on that, Mark, I'm just going to comment on Myer today, it's our Myer results. I mean we're focused on -- and we're focused on our business and we go around the houses on the hypothesis around what could happen between DJ's and Myer. But quite frankly, we're just interested in Myer today. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- (Operator Instructions) Your next question comes from Michael Simotas with Jefferies. -------------------------------------------------------------------------------- Michael Simotas, Jefferies LLC, Research Division - Equity Analyst [9] -------------------------------------------------------------------------------- I just got one question on gross margins, if I can. You've called out a few moving parts in the gross margin, and it looks like the percentage margin was about the same across the first half and second half. Can you just talk about the medium or how you see the medium-term outlook for gross margins? If you sort of look back over the longer term, since it's listed history, Myer's, gross margin has been maybe 100, 150 basis points higher on average. Do you think you can get the OGP margin back to those sorts of levels? -------------------------------------------------------------------------------- Nigel Chadwick, Myer Holdings Limited - CFO [10] -------------------------------------------------------------------------------- Yes, it's Nigel here, Michael. We certainly do, we feel the margin is probably going to range between 38.5% to 41% over time. And it sort of really just depends on the seasonality and the consumer sort of confidence at the time that may impact sort of what we do in terms of discounting and promotional activity to clear inventory through. So -- but we certainly feel that we can move it up from where it has been this year, because we did make decisions this year around promotional activity that has dampened the margin somewhat. And we also pointed out that things like shrinkage have increased. We've also incurred slightly higher freight costs during the year. But one of our key focus areas will be to make sure that we maintain the cleanliness of our inventory and that helps us in multiple ways, which is including what we've just done in this half year, which is to make sure that we've got ourselves ready for the intake that is coming in the next 6 months for the next season and are cluttering up our stores with old edge clearance inventory in any way, share performance. So we'll continue to focus on that cleanliness as a sort of a key aspect of our trading. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- Your next question comes from Simon Conn with IML. -------------------------------------------------------------------------------- Simon Conn, Investors Mutual Limited - Senior Portfolio Manager [12] -------------------------------------------------------------------------------- I just had one question on the Slide 23, just the split of categories. Obviously, it's okay, that we saw a lot of at home expenditure. So you've seen home and beauty being strong. Can you just talk about the category mix and what you're seeing there? And is there -- you're seeing movements between categories? And is that the drive variation in gross margin or all categories have a similar [GM]? -------------------------------------------------------------------------------- John Anthony King, Myer Holdings Limited - CEO, MD & Director [13] -------------------------------------------------------------------------------- Yes, there are differences in gross margins. But the thing is that we're not reliant on any one, I mean, within womenswear, you've got accessories and lingerie which performed strongly. Menswear has been particularly strong. The composition of each of those segments is different in terms of concession versus private label. So that obviously will affect the margin. So if the customer decides to trade into a concession rather than a private label, there's differences around there. But by and large, we've been pleased with the overall performance of each category. And within that, what it's done is allowed us to have a better balance throughout the year. So we're not reliant -- we're not a fashion -- women's fashion retailer, which is solely reliant on women's fashion. And if women's fashion goes off, then that has a significant effect on that business, whereas for us, because we've got a strong mens, a strong basics, a strong home and strong kits, we're able to be agile and flex and follow the customer. -------------------------------------------------------------------------------- Simon Conn, Investors Mutual Limited - Senior Portfolio Manager [14] -------------------------------------------------------------------------------- And just [ask] about the National Distribution Center when that opens, you have -- can you just give us some CapEx and return on CapEx guidance, return on capital sort of guidance as to what you believe you can drive in terms of efficiencies out of the business when that comes in place? -------------------------------------------------------------------------------- John Anthony King, Myer Holdings Limited - CEO, MD & Director [15] -------------------------------------------------------------------------------- Yes. So the total CapEx spend in terms of [kitting] it out is in sort of the mid $20 million, so about $25 million. Our business case had a return on investment of north of 30% against our internal hurdles of about 15%. And in terms of what it will do to pick and pack costs, we'd expect it to drive our pick and pack cost down by about 20%, 25% over a 2 to 3 year period. The other aspect, Simon, of that is our aspiration to continue to grow online. And with our current sort of framework in terms of fulfillment, we actually would cap out at sort of growth volumes not to sort of different to where we are today. So if we're going to continue to grow our online business, this is absolutely necessary for us to be able to sort of cope with that aspirational $1 billion per year. What I said as well, our business case didn't include benefits that we might achieve out of store fulfillment as what – out of store replenishment as well. -------------------------------------------------------------------------------- Simon Conn, Investors Mutual Limited - Senior Portfolio Manager [16] -------------------------------------------------------------------------------- And is your experience -- last question. Did you experience that the online sales growth is cannibalizing the in-store experience? Or is it additive to that? -------------------------------------------------------------------------------- John Anthony King, Myer Holdings Limited - CEO, MD & Director [17] -------------------------------------------------------------------------------- There's no doubt that there is some level of cannibalization, but we think it's sort of relatively low. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Your next question comes from Johannes Faul with Morningstar. -------------------------------------------------------------------------------- Johannes Faul, Morningstar Inc., Research Division - Equity Analyst [19] -------------------------------------------------------------------------------- I had a question on inflation. You called out cost inflation. Has inflation affecting the top line and especially, let's say, the last 6 months, what's the ASP doing for you? -------------------------------------------------------------------------------- Nigel Chadwick, Myer Holdings Limited - CFO [20] -------------------------------------------------------------------------------- Well, as John said, sort of -- we've seen sort of our strongest start to financial year that we can sort of find -- so at this stage, we're not seeing any impact from inflationary pressure on the consumer. But as John sort of highlighted, we are very cognizant of that potentially coming down the pipeline that is either towards the back end of this calendar year or more likely earlier next calendar year. -------------------------------------------------------------------------------- Johannes Faul, Morningstar Inc., Research Division - Equity Analyst [21] -------------------------------------------------------------------------------- Yes. And have you listed prices? Have you seen a lot of inflation on your shelves? -------------------------------------------------------------------------------- Nigel Chadwick, Myer Holdings Limited - CFO [22] -------------------------------------------------------------------------------- Well, we haven't -- but the vast majority of our sales, remember with national brands, and we sell at their RRP. So where we can influence price this is in our private label, and we haven't changed our private label pricing at this point, but we always look at the pricing of that product relative to the national brands that we're selling and adjust them come in [shortly]. -------------------------------------------------------------------------------- Johannes Faul, Morningstar Inc., Research Division - Equity Analyst [23] -------------------------------------------------------------------------------- And just on the inventory piece, on the inventory transit, you said you ordered -- did you order more? Or did you order it more early? -------------------------------------------------------------------------------- Nigel Chadwick, Myer Holdings Limited - CFO [24] -------------------------------------------------------------------------------- Both -- volumes are up, no doubt in terms of our intake, but we also accelerated our ordering by approximately 4 to 6 weeks. So to make sure that, that inventory is actually (inaudible) as for the sort of start of spring and then obviously, the start of the important Q2 period. Yes, we wanted to mitigate any delays in supply chain. So to make sure they have the merchandise there. And obviously, Johannes year-on-year, we were closed for months last year. So it needs to make sure we could restock the stores. But as I said earlier in the presentation, the great thing is that they return to that stock is 6 months are under. So it's all new. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Your next question comes from Shaun Cousins with UBS. -------------------------------------------------------------------------------- Shaun Robert Cousins, UBS Investment Bank, Research Division - Analyst [26] -------------------------------------------------------------------------------- John and Nigel, maybe just a few questions. Just on online. Can you just talk a little bit about with the NDC, obviously, that there's some clear benefits there in the way you fulfill. How do you see online then from a margin perspective in comparison to stores on a post NDC basis? Does it make it in line with stores better than stores, conscious there might be a different mix as well of what you sell? But just what does it do to the online margins that you generate then, please? -------------------------------------------------------------------------------- John Anthony King, Myer Holdings Limited - CEO, MD & Director [27] -------------------------------------------------------------------------------- Yes. It's a good question, Shaun, which we get (inaudible). And we do go -- we do obviously, an internal sort of assessment of contribution. We don't allocate every single line item in our P&L, because it's just not feasible to do that. But we look at a contribution level. And pre-pandemic, the stores -- the bricks and mortar stores had a better contribution level than online. As we went into the pandemic and we saw significant online growth and a higher percentage of total sales in online. That dynamic went the other way around and online outstripped bricks and mortar for the last 2 years by 3 or 4 percentage points. And in the last 12 months, that started to just correct a little bit. So I think it's a wait and see. But obviously, the NDC would assist the online cost equation. And therefore, we'd expect that to broadly sort of improve the dynamic there in favor of the online business. -------------------------------------------------------------------------------- Shaun Robert Cousins, UBS Investment Bank, Research Division - Analyst [28] -------------------------------------------------------------------------------- Fantastic. And then when you're thinking about online, and I'm not sure if you've broken this down, but how do you think about the mix of your sales and maybe where your sales growth is coming across first-party and third-party sort of product? -------------------------------------------------------------------------------- John Anthony King, Myer Holdings Limited - CEO, MD & Director [29] -------------------------------------------------------------------------------- Well, to honest with you, we just like sales -- I'm honest with you. So I think it's really -- it's the opportunity. So for example, I'll give you exact -- I wanted to buy (inaudible) the other day. But I'm not carrying that on the trend back from [Berg Street], but I went into the store to actually check it out, speak to the team, and I don't want to be online. So I think big and bulky -- big and bulky, definitely lends itself to online. But also, it's really important as we make the big brands bigger, what we're able to do is the endless aisle for online. So in terms of -- if you take -- I'm using home as an example here, but if we take the long cities of the world poster, it comes in about 20 colors, but we'll have the top 4 in stores or top 6, and then we'll have the other 14 or 16 online for customers to choose. So I think what online does is it allows us the flexibility to show range with the range. But in terms of the brands, what we tend to do is work with them on what works best in store, what was best online and maximize it that way. -------------------------------------------------------------------------------- Shaun Robert Cousins, UBS Investment Bank, Research Division - Analyst [30] -------------------------------------------------------------------------------- And I apologize if this was mentioned in the presentation, but just around Frankston and more generally, the work you've done on your store network, where do you feel you're adding the broader journey of getting your store network in the right sort of shape in that -- it seems to be a very patient approach you've taken rather than aggressive write-downs and closures rapidly. But I'm just curious where you think you are in terms of optimizing your sales space, which has implications for the number of stores you have? -------------------------------------------------------------------------------- John Anthony King, Myer Holdings Limited - CEO, MD & Director [31] -------------------------------------------------------------------------------- Yes. I think you're right. We haven't been aggressive deliberately because we don't want to waste shareholders' cash. What we want to do is go in a measured approach with the landlords, where leases are coming up, but we have the [greater] up discussion about what they're planning on doing with their centers. And so we try and have a -- well, we have had strategic discussions with the big landlords about what they're trying to do with their assets in the future and what is the right size Myer -- asset or actually should Myer be in that center. So what we've done is we've come out of the centers that we don't believe work for us either economically or for the long-term strategy or the demographic. But more importantly, the [landlords] realized that a strong right-sized Myer is actually a draw card for footfall, particularly because of what we've done with our branded offer and obviously, our online also which drives customers into store. So we've got a ways to go. But basically, as I said to you before, Shaun, it's more about floors not stores. As in we don't need 4 floors and it might be -- might be 1 floor or 2 floors or 3 depending on the market size. So we have a number -- we talked in the presentation about the 17 more stores that we're looking at that we leverage, and we've got a number of stores in the pipeline, and we'll update on those probably at the AGM. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- There were no further questions at this time. I'll now hand back to Mr. King for any closing remarks. -------------------------------------------------------------------------------- John Anthony King, Myer Holdings Limited - CEO, MD & Director [33] -------------------------------------------------------------------------------- Thank you. Thank you all for joining us today. Apologies for the late start, but we're here if you have any further questions and look forward to speaking to you all soon again. Thank you. Have a good day. Bye. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- That does conclude our conference for today. Thank you for participating. You may now disconnect.