Shaver Shop Group Limited (SSG) Earnings Call Transcript

Ladies and gentlemen, welcome to Shaver Shop's Results Presentation and Investor Conference Call for the 2025 Financial Year. Please note that today's call is being recorded. There will be a presentation followed by a Q&A session. Presenting today will be Cameron Fox, Shaver Shop's CEO and Managing Director; and Larry Hamson, Shaver Shop's CFO and Company Secretary. If you wish to follow along with the slides, Shaver Shop's presentation has been lodged with the ASX and is also available from Shaver Shop's Investor Center website. I will now hand you over to Cameron Fox.

Good morning, ladies and gentlemen, and thank you for joining us today. Larry and I look forward to updating you on our FY '25 performance. We will discuss some of the highlights from the year as well as what we have seen so far at the start of FY '26. As always, please refer to our disclaimer around forward-looking statements in the appendix. So let's start off on Slide 4. This is a slide that no doubt many of you will be familiar with. You have seen it a number of times now and provides a good overview of the business and the history. So to quickly recap, we are a unique specialty retail business in Australia and New Zealand in that we are the only pure-play personal care grooming retailer of any substantial size with both a significant bricks-and-mortar presence as well as a strong digital offering. We've now expanded to 124 stores across the network, which is 1 store up on the same time prior period. And we are the market share leader across many of our core categories. This is particularly true in high-end men's grooming solutions like top-end shavers, trimmers, clippers and body groomers. This market position has been developed over many years by working closely with our global supplier partners and has enabled us to secure our exclusive access to many of the latest innovative product launches. This gives us a highly differentiated range with both substantial depth and breadth of offer. We feel we are now the recognized go-to retailer for men's and increasingly women's personal care appliances with very strong unprompted brand recognition in Australia. Our balance sheet is strong and it also generates considerable operating cash flow each year. This has enabled us to continue investing in the business as well as maintaining a healthy dividend yield for our shareholders. Finally, our executive management team has significant experience with an average tenure at Shaver Shop of almost 12 years. So moving on to the business fundamentals and strategy on Slide 5. In addition to the points I just mentioned, the market itself, particularly in men's grooming, remains a very attractive place to be. It's less competitive than female beauty and cosmetics and benefits from new innovations coming to the market each year as people become increasingly self-conscious about their image in the social media age. These new tools allow all generations to get selling quality looks in the comfort of the home. Our business model also relies heavily on investing in and training our store teams, so they become trusted experts in the categories we sell. Shaver Shop has always prided itself on providing exceptional customer service and we are very fortunate to have passionate store team members. Our store network is now 100% corporate-owned and is highly profitable. We have also built a significant online sales channel, which reflects the investments we've made in this area over many years. Now in terms of our growth priorities, strategic category management, which is really about driving differentiation in and maximizing the performance of the existing categories we sell remains a crucial lever for the business. In addition to growing Transform-U, our private label offering, we are focused on securing additional exclusive brands and lines that are in high consumer demand and will increase customer engagement. Now a great example of this was the distribution license we signed with Skull Shaver just over a year ago. This brand has a viral following that is 100% aligned with Shaver Shop's go-to-market approach. We're on the lookout for similar innovative global businesses that are looking to expand into Australia, given we can provide them a turnkey market entry option for these suppliers. We are also adding new categories and brands through our range expansion and category creep initiatives. And finally, we are evolving our store format and footprint to best meet customer needs, and this will remain a key priority for our business. Pleasingly, we made significant progress advancing our strategic initiatives in FY '25. As you can see on Slide 6, we successfully launched our new Transform-U private brand and Skull Shaver has continued to grow both sales and margin. We have secured more exclusive distribution brands like the Epilady in FY '25. We have had some hits -- we will make some hits and misses along the way, but trialing new brands is a crucial way to differentiate, increase our relevance and hopefully grow our business over time. To enable this activity, we have opened our first relatively small warehouse facility, which we expect over time will improve both our efficiency and effectiveness for distributing both our private brand products as well as those we import. We also added a significant number of new locally sourced brands last year, both in our core and complementary categories. As this category and brand creep continues, we expect our average store size to increase proportionately so that we can appropriately display and merchandise the product and category range. Our store network expanded despite shutting 3 stores and we upgraded many stores to our latest store format and brand standards. The quality of our in-house store training modules is now absolutely world-class, providing bite-sized learning modules that educate and empower our store teams. Many of our suppliers are now envious of the quality and frequency of the training modules we produce. Now this is a true differentiation point for our business, and our library now helps new starters and experienced team members alike by delivering the latest knowledge and insights about the products we sell. Now quickly touching on our key highlights on Slide 8. Total sales were approximately AUD 219 million in 2025, relatively flat versus last year. Online sales declined slightly to just shy of 23% of total sales or approximately AUD 49 million. Gross profit margin was a real highlight, continuing to expand and setting a new annual record for the business at 45.5%, up 110 basis points. With operating costs well controlled, EBIT grew 2.4% to AUD 22.5 million. We continue to generate strong operating cash flow at AUD 23.6 million, which led to net cash of AUD 3.9 million at 30th of June '25. Now having regard to the resilient financial performance and Shaver Shop's solid financial position, Shaver Shop's Board today maintained our fully franked final dividend at AUD 0.055 per share, bringing total dividends declared for the year to AUD 0.103, up AUD 0.01 on last year. Now finally, our passionate store teams maintained the service focus with our Net Promoter Score coming in at 89 out of a possible 100. So overall, a pleasing set of metrics with the standout being our gross profit margin, which reached an all-time high. The next slide provides a little bit more color around the sales trends for Shaver Shop across FY '25. You can see that the first half was challenging for us with sales declining in both quarter 1 and our crucial quarter 2 trading period. Now the second half was more pleasing with 2% growth in quarter 3, followed by a 0.9% decline in quarter 4. Overall, however, our second half sales grew 0.5%, which was pleasing following more than 4 halves of comparable sales declines. You can see in the bottom graph that Shaver Shop has done well to retain the top line sales that were realized through the COVID era. We view some of our categories as being largely non-discretionary in nature, which makes our business quite resilient. That said, we are intently focused on driving growth back into the top line despite Shaver Shop now being relatively mature. Now back to our FY '25 performance. The sales decline was entirely due to our online channel contracting AUD 1.2 million for the year. Pleasingly, this channel returned to growth in the second half, up 2.1%, and importantly, has continued to grow into the first half of 2026. Now I'll cover that more off later on in the trading update. In terms of consumer behavior, we see customers being increasingly value conscious with spending more and more focused around key promotional events like Black Friday, Boxing Day and end of financial year sales. We also saw competitor activity in these periods increase, which means winning these key events remains an absolute priority for the business. So let's now dive into the gross profit margin result on Slide 10. As we noted at the half, the gross margin uplift is coming from 3 key areas. The first is Transform-U and the success we've had over the last 8 months since Transform-U was launched. Secondly, the exclusive distribution license for Skull Shaver commenced on 1st of July '24. So this is the first term of the initial 5-year term. As part of this arrangement, we secured significantly lower unit costs on this key range, which continues to grow into share of sales in FY '25. Lastly, over the last 3 to 4 years, we've been heavily focused on maximizing gross profit dollar contribution by balancing sales volumes with margin percentage. Now we haven't always got it right, but the balance is much better with almost all categories generating higher gross margin percentages in FY '25. The combination of the above factors led to gross profit dollars increasing AUD 2.0 million or 2.1% to AUD 99.5 million, slightly below the all-time record for Shaver Shop. So moving on to our category analysis. We saw slight share gains in hair cutting and men's manual shaving in part due to increased stock lake and availability with a number of additional brands added during the year. This offset share declines in DIY massage and hair styling with the latter seeing ruthless competition around Black Friday and end of financial year sales periods. We still see long-term hair removal solutions being a long-term growth strategy and story for Shaver Shop. However, competition has certainly increased with a number of new solutions now being offered in the market. So moving on to our operational metrics on Slide 12. Our stores did a really fantastic job again this year with sales conversion up to 44.7%, which was integral to offsetting the declines in the shopping center foot traffic. While transaction volumes were down 0.9%, this was able to be offset with average transactional value growth, leading to in-store sales growing 0.2% in FY '25. As mentioned previously, online proved more challenging for us. Sales conversion declined slightly year-on-year, leading to transactions being down 1.9% and average transaction values online dropping 0.3% Pleasingly, we have seen a return to online sales growth at the start of FY '26 and we are intent on maintaining this positive momentum as we head into our peak trading period in quarter 2. And now it would be remiss for me not to provide a thorough update on Transform-U. Transform-U is our new private brand that was launched in October 2024 after close to 2 years of planning, sourcing and development. This is a critical element of our strategic category management program and was an absolute highlight for us in FY '25. To recap, this initiative was driven by our desire to close gaps in the range that were unable to be filled by our existing global supplier partners. Since launch, we've sold almost 120,000 units of Transform-U products and have expanded the range with more than 70 individual SKUs generating sales in FY '25. Overall, the Transform-U brand contributed 3.4% of consolidated sales for the year and had an average consumer product rating of 4.8 stars out of a maximum of 5. This strong customer rating is supported by our return rates for the brand being well below our company average. In summary, Transform-U's overall performance last year well and truly exceeded our most optimistic expectations. This is despite not really investing at all in the Transform-U brand. Almost all sales were generated in store through the strong support we received from our store teams. Whilst we're very proud of the way our store teams got behind the Transform-U launch, we're looking to significantly reduce this reliance in FY '26 with an improved online presence, investments in building the Transform-U brand through engaging social media activity as well as selected advertising on television, particularly through our relationships and partnership with ESPN and Kayo. We'll also be looking to expand the range further and improve some of our demand forecasting, given we actually experienced out of stocks of Transform-U products across a number of lines over key promotional periods. In summary, an absolutely outstanding achievement for the business this year, which we believe sets up for an even more success in the years to come. I'll now hand you over to Larry to go through the financials in more detail.

Thanks, Cameron. As Cameron mentioned, the combination of in-store sales growing at 0.2% and online sales declining by 2.3% across the year led to total sales remaining relatively flat, down around 0.4%. Like-for-like sales were also relatively flat, declining 0.1% in FY '25. Pleasingly, the rise in gross profit margin, which Cameron discussed, led to gross profit dollar growth of 2.1% or AUD 2.0 million. Operating expenses were again well controlled, rising 1.4% across the year despite continuing inflation and cost pressures in some areas. One area where we did experience having some higher expense growth was in lease interest and lease depreciation, given we renewed a significant number of leases during the year as well as having one additional store in the network at year-end. The lease renewals have led to the average remaining lease term at the end of FY '25, increasing approximately 50% to almost 1.8 years, which leads to a corresponding increase in lease expenses, particularly lease interest. The impact of lease renewals is very clear on the next slide, where you can see that our lease liabilities and right-of-use asset balances have increased materially versus the same time last year. In terms of operating earnings, EBIT grew 2.4% to AUD 22.5 million. And pleasingly, this drove operating leverage with our EBIT margin expanding 30 basis points to 10.3%. Finally, our NPAT decreased AUD 0.2 million to AUD 14.9 million, giving us basic EPS of AUD 0.115 per share. Moving on to our balance sheet, which continues to be in very solid shape and is shown on Slide 16. This time last year, we highlighted 2 factors that would impact our FY '25 cash flow and closing net cash balance. The first was the fact that one of our largest suppliers had trading terms that extended into the first week of July given the 30th of June was on the weekend. This resulted in AUD 3.8 million that would otherwise have been paid in June being deferred into the first week into July 2024. If we adjust for this, last year's normalized net cash balance was AUD 9.5 million. We ended this year FY '25 with net cash of AUD 3.9 million, a reduction of AUD 5.6 million compared to last year's normalized net cash balance. This reduction is entirely due to the expected increase in stock levels that we flagged both last year and at the first half. Firstly, we noted that our ending stock balance was around $1 million to $2 million below optimal levels due to the strong sales we recorded in our end of financial year program in June 2024. We also noted that our Transform-U and exclusive distribution brand initiatives would require an incremental AUD 2 million to AUD 3 million of investment in FY '25. Lastly, with one more store in the network compared to the same time last year, requires about AUD 250,000 in additional stock. So while there is a significant incremental investment in working capital, it's absolutely consistent with our expectation and we have no concerns regarding the realizable value of the stock on hand. The final point to call out on this slide is the increase in lease liabilities and right-of-use assets, which I discussed previously. These increased more than 50% in FY '25, which led to the corresponding increase in lease interest as well as a smaller increase in lease depreciation. It's important to note that we still had approximately 15 leases in holdover at 30th of June 2025 or around 10% to 15% of the network, which is slightly higher than what we normally expect, but not materially. As these are renewed, our lease asset and lease liability balances are likely to increase further. Now let's move on to our cash flow statement on Slide 17. While operating cash flow remained a healthy AUD 23.6 million in 2025, it's a decrease of AUD 10.6 million on last year's result. This is largely due to the increase in stock and prior year supplier payment anomaly that I referenced on the last slide. Together, these accounted for almost AUD 10 million of the AUD 10.6 million change in operating cash flow. We also had an increase in the quantum of supplier deposits for Transform-U stock at period end as we continue to invest in expanding our range and building this brand. Net CapEx came in at AUD 4.7 million in FY '25 as we rolled out 4 new stores and completed 7 full store refits and undertook 2 relocations within existing centers. We also completed the integration of a new point-of-sale and order management solution for online fulfillment. After dividends and principal elements of lease payments, we had a net cash outflow of AUD 9.4 million, bringing net cash to AUD 3.9 million at 30 June '25, still a very sound and healthy liquidity position for our business. Let's now move on to the next slide, which illustrates our dividend history. The resilient financial performance and sound financial position of Shaver Shop has led the Board to declare a AUD 0.055 fully franked final dividend. This is flat on last year's final dividend and brings total FY '25 dividends to AUD 0.103 per share, an increase of AUD 0.01 on FY '24. At this level, it represents a payout of approximately 90% of reported net profit after tax and around 86% of cash NPAT. The Board's intention is to either maintain or increase the dividend payout when it's prudent to do so and there is no better investment alternative for the capital. Importantly, FY '25 marks the last year of Shaver Shop being able to claim a tax deduction for the franchise buybacks that were undertaken in the termination of the associated franchise licenses. Given the significant cash benefit of these deductions, Shaver Shop's dividend policy up to this point had been based on cash NPAT, a measure that adjusted reported NPAT for the franchise buyback tax benefit we received each year. Looking forward, the Board has determined it appropriate to amend the dividend policy so that Shaver Shop will pay out approximately 65% to 90% of underlying NPAT. So that's up from the 60% to 80% of cash NPAT that was the previous dividend policy. This should allow Shaver Shop to maintain a healthy dividend payout, while at the same time, investing in the strategic initiatives like Transform-U that are intended to grow sales and profitability over time as well as improve our competitiveness. So that now concludes my section of the presentation. I'll hand you back to Cameron to discuss our FY '26 priorities.

Thanks, Larry. Not surprisingly, our priorities for 2026 are very similar to those for last year. And most importantly, we want to build on the Transform-U success we've experienced to date to cement this brand as a key component of our go-to-market strategy. Now this means building the brand in its own right through traditional channels like television advertising as well as digitally through social media post and online. We also will be expanding the range to close even more gaps in our offering. Secondly, we want to secure additional distribution brands like Skull Shaver so that we continue to lead and offer a unique range of innovative products and brands. We're excited to be importing a new back-grooming solution called Mangroomer prior to Christmas, which builds on our offering in this area. We also want to continue creeping into additional categories and expanding our range in existing categories. As mentioned previously, we've improved our social media presence, but there is still much more that we can do and we can implement to attract a younger demographic and those that increasingly choose to shop using this channel. Finally, our store network optimization program will continue with the increasing number of brand additions and range expansions, we'll be looking to increase the footprint in a number of our stores so that we can showcase all the products we offer in the best way possible. We will continue to carefully evaluate new store builds with 3 to be added so far in FY '26 being Westfield Albany in New Zealand, Bathurst in country New South Wales and ECQ in Sydney. So we are clear on our priorities for the upcoming year and we are well placed to execute. This now leads us to our trading update on Slide 22. It's early days, but we're encouraged with the way we have started the year so far. It is a bit difficult to compare directly with last year's performance given Father's Day, which is one of our key gift-giving promotional periods, is a week later this year. Now that said, it's still been a pleasing start. Between 1st of July and 21st of August 2024, sales are up 2.7% with in-store sales being up 2.2% and online up 4.4% over the prior corresponding period. Like-for-like sales are up 1.5%, noting that we are comping last year when like-for-like sales were down approximately 1%. We've already added to the Transform-U range in FY '26 with men's body groomers and nose and ear trimmers being added to the portfolio. This, together with our ongoing effort to increase gross profit dollars, is leading to gross margins being higher than the same period last year. As mentioned earlier, we have secured 3 new greenfield locations. Two of these will open in the first half with one scheduled to open in late March 2026. Our store network optimization program will also continue with the expectation that fitouts, relocations and new stores will lead to net CapEx of approximately AUD 4 million to AUD 5 million. Finally, in terms of outlook, consistent with prior years and having regard to the material contribution of the upcoming Black Friday, Christmas and Boxing Day promotional periods to our full year financial results, it is not appropriate to provide sales or earnings guidance at this point in time. I'll now hand over back to the moderator, who will open up for any questions that you may have. Thank you.

[Operator Instructions] Your first question is from James Casey from Ord Minnett.

I just had a question on the recent trading activity. Obviously, it's only a small period. Just with regard to the recent interest rate cuts we've seen, are you starting to see improved foot traffic, both in the shopping centers and I guess, more importantly, within your stores?

Yes, it's a good question. And the answer is yes, we are. I think the sort of the historical trends that we're seeing are starting to reverse in terms of material declines in customer footfall. Certainly, over the last 6 to 8 weeks, we've seen some encouraging signs there. And the actual customer footfall has actually been positive versus the same time prior period, which is the first time we've seen that probably since the pre-COVID days.

Okay. That's great. And Larry, maybe one for you. Just with regards to the store optimization program and also the new stores, where would you see your CapEx landing for the year?

Yes. So we think it will probably come in roughly the same as this year. So this year, after landlord contributions, we came in at AUD 4.7 million and we're guiding to around AUD 4 million to AUD 5 million in FY '26.

Your next question is from Andrew Johnston from MST Access.

I wanted to focus on a couple of things. So first of all, what changed online? Because I noticed in your -- one of the opening slides, one of the things that you wanted to achieve and you'd flagged that -- it looks like you flagged that you didn't actually get there was in terms of social media. Yet in spite of that, we're still seeing -- we still saw a pick-up in online sales. So can you just talk about both those issues and then obviously, a pretty good start to improvement in online sales for the last few weeks?

Yes. I think it's been a combination of factors. What we did experience Black Friday last year was paid search conversion was becoming increasingly challenging. So your cost of conversion through paid search and your effectiveness that we saw for our dollar spend was declining. And obviously, the ultimate goal has always been to try to drive more organic traffic. And I think we started to do that. So we're starting to see some of the benefits of our improved content management, our improved social media presence and improved quality of social media connecting with the customers as well. And I think that's transcending through to some increased organic traffic, which is obviously bolstering our top line online sales. And it also is obviously organic traffic and conversion is far more cost effective than through your paid search channel. So I think that may seem a subtle change. That's saying we're working on long term, but obviously, the ultimate goal is always to try to drive more traffic through organic means, which is primarily through improved content management.

Okay. So your -- so point 6 on Page 6 where you didn't have a tick next to maintain social media momentum. Is that in reference to the point you made about Black Friday sales last year?