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Edited Transcript of TRS.AX earnings conference call or presentation 16-Feb-21 10:30pm GMT

·29 min read

Half Year 2021 Reject Shop Ltd Earnings Call VIC Feb 17, 2021 (Thomson StreetEvents) -- Edited Transcript of Reject Shop Ltd earnings conference call or presentation Tuesday, February 16, 2021 at 10:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Andre Peter Reich The Reject Shop Limited - CEO * Clinton Cahn The Reject Shop Limited - CFO ================================================================================ Conference Call Participants ================================================================================ * James Barker Morgans Financial Limited, Research Division - Analyst * Keegan Booysen Jarden Limited, Research Division - Analyst * Sophie Carran Goldman Sachs Group, Inc., Research Division - Analyst * William Macdiarmid Ord Minnett Limited, Research Division - Small-Caps Industrials Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Andre Peter Reich, The Reject Shop Limited - CEO [1] -------------------------------------------------------------------------------- Good morning, everyone. I'm Andre Reich, the CEO of The Reject Shop. It's my pleasure to welcome you all to our 2021 Half Year Results Conference Call for The Reject Shop. Joining me on the call today is Clinton Cahn, our CFO, who'll start by walking you through our results. I'll then come back and provide an update on the progress we've made during the half from an operational and strategic perspective. Today, we'll be referring to the deck that was released to the ASX this morning. (Operator Instructions) I'll now hand over to Clinton Cahn. -------------------------------------------------------------------------------- Clinton Cahn, The Reject Shop Limited - CFO [2] -------------------------------------------------------------------------------- Thanks, Andre, and good morning, everyone. I'll start by walking you through the group's first half '21 results, which are summarized on Slides 3 and 4. We have again presented our EBITDA, EBIT and NPAT on both a pre- and post-AASB 16 basis, which will assist you in comparing the results with historical performance. Some key highlights from our results include: sales of $434.3 million with flat comparable store sales; then on a pre-AASB 16 basis, our cost of doing business margin of 34.9%, which represents an improvement of around 230 basis points; EBITDA of $31.1 million, up 20.8%; EBIT of $23.3 million, up 44.9%; and net profit after tax of $16.3 million, up 46.5%; then on a statutory or post-AASB 16 basis, NPAT of $17 million, up 79.3%. We're again pleased to have finished the half with a strong balance sheet. On 27 December 2020, we had a cash balance of $107.6 million and no drawn debt. In terms of dividends, the Board has decided that no interim dividend will be declared in the first half, given the company's current focus on fixing the business and the uncertain operating environment. Management and the Board will continue to assess its capital management strategy, and we'll provide an update at our FY '21 results in August. Finally, as announced last August, the company has not received any JobKeeper wage subsidies. So turning to Slide 5. Comparable store sales were flat during the first half. Sales were impacted, in some instances, unfavorably and in others, favorably by various state government restrictions relating to COVID-19. This included Stage 3 and Stage 4 restrictions in Victoria between July and October, the South Australia lockdown during November, restrictions in New South Wales during December as well as border and travel restrictions across the country, all of which impacted customer behavior. Our stores in CBD locations and large shopping centers were impacted the most, with footfall reducing significantly due to concerns around COVID-19. Sales during the half were also negatively impacted by stock availability issues, mainly resulting from delays in international shipping. We were pleased that almost all Christmas stock made it on to the shelves before Christmas. As mentioned in August, given the unknown impact on how COVID-19 might affect the way Australians celebrate Christmas in 2020, we decided to be prudent and reduced the amount of Christmas stock we bought during the half. Pleasingly, the range resonated well with customers and effectively sold out before Christmas Eve. It's also worth mentioning that during the half, we opened 3 new stores: Engadine, Braybrook and Port Adelaide and closed our underperforming Melbourne CBD store. Moving on to gross profit, which was $182.8 million on a pre-AASB 16 basis, with gross margin percentage down by around 100 basis points to 42.1%. Gross margin includes the impact of a write-down on hand sanitizer of $3.6 million as well as higher shipping charges due to strong demand and limited capacity in the international shipping market. Excluding the hand sanitizer write-down, the gross margin would have been 42.9%, which was down approximately 20 basis points on the prior periods. Turning to Slide 6. pre-AASB 16 EBITDA was $31.1 million, up 20.8% on the prior period. This was mainly driven by a reduction in the cost of doing business, which improved by approximately 230 basis points to 34.9% of sales. The improvement in the cost of doing business during the half comprises a saving of approximately $8 million in store expenses and a saving of $2.4 million in administrative expenses. Store labor costs reduced to 13.6% of sales compared to 14.9% in the prior period, mainly through lower inventory and the simplification and standardization of in-store processes. Store occupancy costs increased slightly to 13.1% of sales, with CPI increases partially offset by rent reductions on renewals and other savings. Other store costs and marketing spend were well controlled and were lower than the prior period. As mentioned earlier, the company has not received any JobKeeper wage subsidies. Our pre-AASB 16 EBIT was $23.3 million, up 44.9% on the prior period. Depreciation reduced by $1.9 million, mainly due to a number of nonstore assets being fully written down. Turning to Slide 7. The company's balance sheet remains strong with a cash balance of $107.6 million and no drawn debt at the end of the half. We generated free cash flow of $15.2 million during the half. We were compliant with all financial covenants at December 31, 2020, and our current debt facilities are in place until August this year. Inventory, which closed at $89.9 million remains a key focus. Our SKU base has been rationalized to approximately 8,000 SKUs, and stock-turn has improved from 4.2x to 5.5x over the past 12 months. While we continue to focus on reducing the inventory held across the supply chain and improving stock-turn, inventory levels are expected to remain elevated over the coming months to mitigate against potential further international shipping delays. On to Slide 8. While we are pleased with the first half '21 result and the progress made so far during the fix phase of our turnaround strategy, I'd like to emphasize that our first half performance should not be used as an indicator for the second half of the financial year. As you may know, The Reject Shop typically generates a high proportion of full year sales in the first half and has reported EBITDA and EBIT losses in the second half over the past 2 financial years. We expect the same to occur in the second half of FY '21. COVID-19 continues to impact sales performance, with January and February sales adversely impacted by the Brisbane, Perth and now Victoria lockdowns, COVID-19 concerns in New South Wales during January and changing state border restrictions. Stores in CBD locations and large shopping centers continue to be negatively impacted by reduced footfall. In addition, ongoing challenges in the international supply chain are expected to result in increased costs through higher shipping charges and are expected to continue impacting stock availability. Given the operating environment remains uncertain, we've determined not to provide specific guidance for the second half or FY '21 at this time. But consistent with our plan, we'll continue to focus on cost reduction, driven by business simplification and operational efficiency during the second half. This takes us to Slide 9, where I'd like to share with you our key takeaways from the half year result. We delivered solid profit growth in the first half, notwithstanding flat sales, volatility from COVID-19, higher international shipping charges and the write-down of hand sanitizer. We have a strong balance sheet with $107.6 million in cash and no drawn debt. Our cost reduction initiatives are well progressed. And finally, the operating environment does remain uncertain, particularly in relation to COVID-19 and challenges in the international supply chain. So we will remain focused on cost management and business simplification in the second half. I'll now pass back to Andre to talk about the strategic and operational progress we made during the first half. -------------------------------------------------------------------------------- Andre Peter Reich, The Reject Shop Limited - CEO [3] -------------------------------------------------------------------------------- Excellent. Thanks, Clinton. So turning to Slide 10 now, please. And this is really a strategy recap. Consistent with our FY '20 results presentation, this slide sets out the 3 phases of our turnaround strategy, fix, reset and grow. We're currently working through the fix phase, and our objective in this financial year is to grow EBIT through cost reduction, driven by business simplification and operational efficiency. And you've seen that in half 1. Only halfway through the financial year, progress we've made to date has been pleasing, particularly given the uncertainty of COVID-19 pandemic, the challenges associated with international supply chain and the significant changes that have occurred within our business over the past 12 months. I'm proud of how much our team have achieved in the initial stages of the turnaround, and I will outline some of this progress in the upcoming slides under each of our strategic areas of focus, namely our customers, our operations and our performance. So turning to Slide 11, which is really about our customer. In our FY '20 results presentation, we said that we would commence lowering prices, we would grow everyday consumables, engage strategic suppliers and fix general merchandise. During the first half, the following customer-related initiatives were delivered. Consistent with our commitment to help all Australian save money every day, we lowered our average selling price and implemented our Lowest Price Guarantee. We've broadened the range of our consumables offering and launched well-known brands at everyday low prices, including Tesco; Coca-Cola; Bega, which includes Australia's favorite Vegemite; and Purina pet food. The general merchandise range, including homewares, was in fix during the half with new and improved product range planned for later the second half, which is the half we're in. We're working to enhance our customer in-store shopping experience with reduced inventory resulting in cleaner stores and simplified aisle navigation. And for those of you who visit a store, you'll see a remarkable change in the presentation across all of our stores from 12 months ago. We've trialed trolleys in approximately 30 stores to make it easy for our customers to shop and drive a higher basket. And we've launched also a new website in August and actually tied that website back to the collateral in store. Turning now to Slide 12, which is about operations. In our FY '20 results presentation, we said we would build cross-company teamwork and end-to-end efficiencies, simplify our operating model, standardize our store layouts and ways of working. During the first half, the following operations-related initiatives were delivered. Most importantly, we implemented COVID-19 safe ways of working across all stores to ensure a safe and clean environment for both our teams and our customers, who were very pleased. As Clinton mentioned earlier, we reduced store labor cost as a percentage of sales from 14.9% in half 1 '20 to 13.6% in half 1 '21. This was driven by a reduction in SKUs and aged inventory as well as the standardization and simplification of the ways of working across all stores. We continue to move towards one-touch merchandising through shelf- and floor-ready product flow, with more products in shelf-ready trays. We installed new fixtures in the drive aisle of each store, which is 354 stores, which makes it easier for our teams to merchandise the event zone and removes the need to rearrange the store to support major events, such as Christmas. We upgraded our rostering tool, which will provide rostering efficiencies and ensure our team members are in the right place at the right time to support our customers' needs. We launched a new recruitment system, page-up to support aligning and attracting the right team members into the right role. We rolled out Push to Talk communication headsets in all stores, which create an efficient communication across all team members in each store, manage customer queries, manage safety and workflow. We opened a Store of Learning in each state, and seeing positive results from those, we also installed a further 100 barrier gates in 100 stores. Now we have around 200 stores, where these barrier gates, should keep our customers and team members safe by deterring theft. Now turning to Slide 13, which is performance. So in our FY '20 results presentation, we said that we would strengthen commercial accountability across the business, optimize inventory and improve working capital, reduce costs across operations and supply chain and establish a platform for future growth of The Reject Shop. We grew pre-AASB 16 EBIT by around 45% on the prior period in the first half and delivered cost savings in line with our plan. While the profit growth achieved during the first half is pleasing, as we said earlier, we expect to face a number of headwinds in the second half relating to ongoing uncertainty associated with COVID-19 and the challenges in international supply chain in terms of both higher shipping charges and further stock delays. There is more work to be done in fix, in the fix phase of our business. So during the second half, we'll remain focused on optimizing the cost base and navigating through the challenges I just mentioned. We'll also keep an eye on the future and begin to prepare for reset and growth phases. We maintain our belief that the discount variety sector presents a significant opportunity for growth over the medium and long term as Australia's largest discount variety retailer. And with our strong balance sheet, our business is well placed to capture this opportunity by store network expansion, and by growing our online presence. This is already starting with the opening of 3 new stores during the first half and a further 9 new stores planned to open in the second half. We also launched a trial with online same-day delivery with -- in partnership with DoorDash across approximately 145 of our stores. As I've said before, FY '21 will be a pivotal year in reducing costs, simplifying and standardizing our operations to improve our EBIT, and we'll position The Reject Shop for growth over the longer term. The Reject Shop has a clear purpose. We are here to help all Australians save money every day. During the half, we pursued that purpose with real commitment and focus of fixing the business with a view to serving even more Australians. I'd like to acknowledge, again, the hard work and dedication demonstrated by our more than 5,000 team members, who worked hard every single day to deliver value for our customers and shareholders. Finally, I'd like, again, to invite all Australians, including our shareholders, to give us the opportunity to serve them and help them save every day. So this is the end of our prepared presentation. I'll now hand back to Josh, the moderator, to open up the call for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question comes from Will Macdiarmid from Ord Minnett. -------------------------------------------------------------------------------- William Macdiarmid, Ord Minnett Limited, Research Division - Small-Caps Industrials Analyst [2] -------------------------------------------------------------------------------- Andre and Clinton, well done on what I think was really, really good results. I've got a couple. Just firstly from a sort of like-for-like revenue point of view. Can you provide a bit -- a bit more of a sense on what like-for-likes looked like in CBD versus, I guess, regional and suburban locations? And I suppose an extension from that, how does that inform you on your rollout that you're going to be completing in the second half in terms of location and property? -------------------------------------------------------------------------------- Clinton Cahn, The Reject Shop Limited - CFO [3] -------------------------------------------------------------------------------- Will, thanks for the question. We haven't provided that detail, but I'll give you a little bit of color. Our neighborhood and strip regional stores have performed much, much better than our CBD and major shopping center stores. We have approximately 48 stores across CBD. We have 4 CBD stores and then about 44, what we'd probably call, large shopping center stores. At a high level, I'd say, transactions were down approximately 20% across that cohort of stores, and sales were down approximately 10%. So it probably doesn't give you enough to give you a sense of how the others have performed, but those stores have been, as you'd expect and as we've seen across the market, have been particularly hard hit. And I think to your second question, naturally, our growth focus, I think, and is consistent with what Andre said in the past, our growth focus is very much skewed to regional neighborhood strip and more regional shopping centers, outdoor shopping centers. So that will be our focus. -------------------------------------------------------------------------------- William Macdiarmid, Ord Minnett Limited, Research Division - Small-Caps Industrials Analyst [4] -------------------------------------------------------------------------------- Okay. Great. And then just in terms of GP, in the past, the second half has often been somewhat impacted by the need for discounting, particularly things like Christmas (inaudible), given that you sold out of all of that stuff through that period, what -- how can we look at sort of gross profit margins in the second half? Will the need for discounting be the same? -------------------------------------------------------------------------------- Clinton Cahn, The Reject Shop Limited - CFO [5] -------------------------------------------------------------------------------- Yes. So I might answer the question a bit differently. So I think at the full year, in August, we talked about GP margins for the full year being in the 41% to 42% range, which was somewhere between where we were in FY '20 and FY '19. We now have that write-down on hand sanitizer and we do have some challenges around international shipping costs, some of that came through in the first half, and there is more to come through in the second half, but we are working to absorb those costs. So to answer the question, I'd say that 41% to 42% is probably looking more like 40% to 41%. So I think that would imply a GP of around 39% in the second half to get to that point. As for how we get there, I think there's going to be lots of moving pieces. One of the challenges we have at the moment is our high-margin home product is late. In January, over 60% of our orders were late by about 2 weeks on average, and so that high-margin product is flowing through a bit later. So I think just to focus you on, we've previously talked about 41%, 42% for the full year. It's probably looking more like 40% to 41%. -------------------------------------------------------------------------------- William Macdiarmid, Ord Minnett Limited, Research Division - Small-Caps Industrials Analyst [6] -------------------------------------------------------------------------------- Okay. Great. And then just last one. Just in terms of cost of doing business. Was there any cost-outs in that that's I guess, one-off in nature, I guess, partly associated with the lockdowns that existed? Or is there a high degree of permanence in that and more effective of a strategy? -------------------------------------------------------------------------------- Clinton Cahn, The Reject Shop Limited - CFO [7] -------------------------------------------------------------------------------- Yes. There's nothing that really comes to mind that's one-off other than potentially some travel savings, which will probably come through in the second half and we're not sure what travel is going to look like in FY '22 either, so I'm not sure those are one-off at this stage, but that wasn't a material saving. So no, we're really on track around cost of doing business cost out. I think we previously talked about labor as a percentage of sales on a full year basis at about 14%, and that's -- that remains our target for FY '21. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- The next question comes from Keegan Booysen from Jordan. -------------------------------------------------------------------------------- Keegan Booysen, Jarden Limited, Research Division - Analyst [9] -------------------------------------------------------------------------------- First question from me is just want to understand what the consumables percentage was going through in the first half. And then maybe within that as well, how private label of Tesco brand has performed? -------------------------------------------------------------------------------- Clinton Cahn, The Reject Shop Limited - CFO [10] -------------------------------------------------------------------------------- Sure. I'll give you the numbers, and then I'll let Andre speak to Tesco and private label. But consumables, if you go back to the first half of '19, consumables were about 46% of our revenue. In the first half of '20, and again, this is pre-COVID, were about 47% of our revenue. And in the first half of '21, it's edged closer to 49%. And I think when we spoke at the full year, we were talking about consumables longer term being just above 50%. So it's tracking in line with expectations. That being said, some of the delays of stock out of China, again, predominantly general merchandise, will skew that consumables percentage up in the short term, probably higher than what we would have wanted it to be. I'll move Andre to Tesco. -------------------------------------------------------------------------------- Andre Peter Reich, The Reject Shop Limited - CEO [11] -------------------------------------------------------------------------------- Thanks, Keegan. So just building on what Clinton said around consumables. The point around consumables, the major point, I suppose, for everyone on the call is we've changed our model, moving our dependence from deals in consumables to [more 365]. So I think that's probably the bigger point around our consumables mix in terms of our customers now can start to rely on The Reject Shop to get their basic essentials, which does 2 things. It means we can improve their buying power because we have one range that goes to all stores. But it does increase frequency of shop because you can rely on the fact that you can get some of your favorite brands at the cheapest price in the market at The Reject Shop. So that's the first main consumables point. In terms of the second point Clinton made about the international supply chain delays, we've definitely seen shipping times out of China increase. So we've filled in those potential sales gap with increasing our local supply, which is consumables. So that's given us a lot more flexibility. So you will see at the moment, probably more consumables in-store at the moment until we fix the mix with general merchandise, which is now flowing in through back end of January, early February. And we can tail that product off much faster than we can international deliveries. Moving on now to Tesco. Tesco was one of the best launches they've had internationally. We bought 3 months of stock in -- for delivery in Q2. It sold out in 1 month. The U.K., as you'll know, has had its own COVID issues. We had shipping the delays out of the U.K. That stock is now flowing in. We've improved the mix, and it's performing just as well as when we launched it. We've got more of the well-known U.K. treats, especially in areas like chocolate and lollies, which is what a lot of the feedback that's come back from our customers have said. So very positive brand addition to our business. It is a small percentage at the moment of our consumables mix. -------------------------------------------------------------------------------- Keegan Booysen, Jarden Limited, Research Division - Analyst [12] -------------------------------------------------------------------------------- Fantastic. And then maybe just switching over to the FX hedge book as well. I mean, when can we start expecting that to roll off and start getting some of the benefits of the FX appreciation over the last 12 months? I mean that must be a pretty material benefit coming to the first half of next year. Is that the right way to think about it? -------------------------------------------------------------------------------- Clinton Cahn, The Reject Shop Limited - CFO [13] -------------------------------------------------------------------------------- Yes. Keegan, there's -- so we're not going to see that benefit in the second half. I think as we called out in our annual report, our hedge book is a little bit challenged through this half, the second half. However, we will start to see that benefit flow through in the first half next year. The extent to which we -- the extent of that benefit, I guess, will depend on a few things. It will depend on the market. It will depend on what the international shipping market looks like as well in terms of shipping charges, but that benefit will flow through -- will start to flow through in the first half. But we are not getting an FX benefit in the second half, if anything, we've got a bit of an FX disadvantage in the second half. -------------------------------------------------------------------------------- Keegan Booysen, Jarden Limited, Research Division - Analyst [14] -------------------------------------------------------------------------------- That makes sense. And maybe just the last one from me. Just that 9 stores you've called out opening in the second half. I mean, it sounds like things are coming along from the cost side much quicker than anticipated. Is it probably reasonable to assume that, that kind of growth can accelerate into the first half '22 as well? I mean, is that sort of the new way to think about the store rollout plan? -------------------------------------------------------------------------------- Andre Peter Reich, The Reject Shop Limited - CEO [15] -------------------------------------------------------------------------------- So Keegan, I suppose I'll probably answer that question a bit loosely and talk about growth in- store expansion and material growth in store expansion will happen in our grow phase. So our key focus at the moment, whilst we are opening a larger number of stores than we planned, we also plan to exit a number of other stores over the next 12 months that are the high-rent locations that have been most impacted by traffic. So I suppose, consistent what we've said for the last 12 months, there will be a phase where we bring on new stores to offset store closures, but at the same time, build a pipeline for future growth, and we're still committed to growing our number of stores. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- The next question comes from Sophie Carran from Goldman Sachs. -------------------------------------------------------------------------------- Sophie Carran, Goldman Sachs Group, Inc., Research Division - Analyst [17] -------------------------------------------------------------------------------- Andre and Clinton, just on the cost of doing business. It was a really strong outcome. And given those improvements you've made, can you sort of talk through why you expect the second half to deliver an EBIT loss given that these costs look sustainable? Or is there some reinvestment coming back into the business? -------------------------------------------------------------------------------- Clinton Cahn, The Reject Shop Limited - CFO [18] -------------------------------------------------------------------------------- Sophie, thanks for the question. So we have historically been -- we've been -- we've had a loss in EBIT and EBITDA over the last couple of years. Historically, EBITDA has been positive, if you go back a few years. And I think coming into the year, it's certainly been a focus of ours to return to positive EBITDA. I think positive EBIT will take a bit longer, but it was a focus of ours to return to positive EBITDA this year in the second half. That being said, I think we're facing a number of challenges in the second half. So while I think we're making good progress on cost of doing business, the challenges we're going to face are, just kind of pointing to our announcement, January and February have been challenged by some of the volatility around COVID. So if we use the Victoria lockdown, as an example, we do see panic buying on the first day before the lockdown. And then the first day of the lockdown, we're actually down 30% in Victoria. And then the day subsequent, it slowly improves from 30%, but we're still down quite heavily during lockdown periods. And then, of course, if we have a lockdown like South Australia, where all our stores, we have 26 stores in South Australia that are closed, we lose those sales. So I think there's a sales risk around COVID. Secondly, shipping delays are also creating a sales and gross profit challenge in the short term because our high-margin homewares product is taking longer to arrive. And there is a higher cost associated with shipping. So that's going to create that gross profit margin pressure in the second half. So I think cost of doing business will be on track in the second half. I think the challenges will be at the sales line and at the gross profit line. And so our expectation at this stage is that we'll be loss-making at both EBITDA and EBIT in the second half, yes, which is consistent with our last 2 years. -------------------------------------------------------------------------------- Sophie Carran, Goldman Sachs Group, Inc., Research Division - Analyst [19] -------------------------------------------------------------------------------- Yes. And then just on the inventory position. There's been some big improvements in the last 12 months. And the SKU targets suggest another 1,000 SKUs reduction to be achieved. How much more efficient can the inventory position be from here? -------------------------------------------------------------------------------- Andre Peter Reich, The Reject Shop Limited - CEO [20] -------------------------------------------------------------------------------- Yes. So Sophie, Andre here. So we've made in the last 12 months, huge progress in terms of inventory optimization. We're at a point now where I think it's prudent for our business and our customers based on the shipping delays that we've increased stock levels. So you'll see us run at elevated stock levels to what we had originally thought we'd run at, and that's just really to offset the impact caused by the delays and those impacts on sales. So we'll run higher stock levels through to the end of the year, which is higher than the numbers we've previously quoted, but it's prudent at this current time. In terms of further range rationalization, absolutely, we are on that every day. And we'll continue to rationalize the range and find the right balance between number of SKUs and volume. So still a key focus. To be honest, based on retail lead times, the range that's in- store for the last 6 months was decided 12 months ago, and we are learning as the new product arrives, and we'll definitely go through a large amount of learning over the next half as the new GM product arrives, the new homewares products arrive. So I think what we'll do is learn from this half and then start to rationalize further next year. -------------------------------------------------------------------------------- Sophie Carran, Goldman Sachs Group, Inc., Research Division - Analyst [21] -------------------------------------------------------------------------------- Yes. And then just one more on the balance sheet. It looks really strong. And operationally, you're on much better footing. So can you just talk about how you and the Board are thinking about dividends and capital management given that you've got a lot of excess franking credits? -------------------------------------------------------------------------------- Clinton Cahn, The Reject Shop Limited - CFO [22] -------------------------------------------------------------------------------- It's certainly a conversation we're having more often than we were 6 or 12 months ago. I think given the seasonality in the business, I think given we're still in fix, given the uncertain outlook over the next 6 months. And given we'll probably have a firmer view on our growth plans in 6 to 7 months' time, it's something we'll continue to consider over the coming months and then update you and the market in August on our plans around capital management. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- The next question comes from James Barker from Morgans. -------------------------------------------------------------------------------- James Barker, Morgans Financial Limited, Research Division - Analyst [24] -------------------------------------------------------------------------------- Just -- most of my questions have been answered, but maybe just touching on the cost base. Obviously, you flagged that sort of $10 million of cost-out achieved through the half. Could you just talk about, I guess, what you might be exiting the half with in terms of run rate costs? Or should we assume that to be, I guess, the new structural kind of cost base? -------------------------------------------------------------------------------- Clinton Cahn, The Reject Shop Limited - CFO [25] -------------------------------------------------------------------------------- It's a good question. I think some of the cost-out that occurred both in the admin line and the store expense line commenced in the fourth quarter of last year. So if you step through, I think I'm going to answer this question a little bit differently to what you're probably looking for. But our target on store labor costs is 14% of sales, which is unchanged to our -- the target we set in August. So I think that will give you -- you should be able to back out what that means for the second half. Our target around rent is about 14.5% to 15% of sales for the full year. So I think, again, that should allow you to back out the second half. Then if you take out -- from the store expenses line, if you take out rents and labor, which is really, I think, almost 90% of the cost, but that remaining cost, I think you could expect that to be the same in the second half. And then as for our admin costs, I expect a similar level of cost in the second half, which will represent some cost-out. So there is a bit of cost-out in admin in the second half. So I think we -- we'll be looking to take out approximately $3 million or $4 million versus what we did in the second half, although there was some one-off costs in the second half of '20. And then in the labor line, there's a little bit coming out as well in the second half. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- At this point, we have no further questions, I'll hand it back over for any additional or closing remarks. -------------------------------------------------------------------------------- Andre Peter Reich, The Reject Shop Limited - CEO [27] -------------------------------------------------------------------------------- Thanks very much, Josh. So as Clinton said and as I've said, we've delivered strong and solid profit growth for half 1, notwithstanding the challenging environment we're in. We've got a very strong balance sheet. Cost reduction initiatives are well progressed and will continue. We're heading into some uncertainty for half 2, and we continue to focus on fix phase of our business. Thanks, everyone, for dialing in. We appreciate your support, and we'll look forward to giving you further updates. Thank you. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- That concludes The Reject Shop's half year results announcement. Thank you, once again, for joining us today. You may all disconnect.