Super Retail Group Limited (SUL) Earnings Call Transcript

Ladies and gentlemen, welcome to Super Retail Group FY 2024 Full Year Results Call. Today's presentation will be made by Mr. Anthony Heraghty, CEO of Super Retail Group; and Mr. David Burns, Chief Financial Officer, Super Retail Group. Today's presentation is for investors and analysts only. Media seeking access to management should contact Kate Carini, whose contact details appears at the bottom of today's ASX announcements. I would now like to hand over to Mr. Heraghty to begin the presentation.

Thank you, operator, and welcome, everybody, to Super Retail Group's F '24 full year results presentation. In terms of the structure of today's presentation, I'll begin by speaking to some of our financial and operating measures for the period, before discussing the performance of each of our brands. Our Chief Financial Officer, David Burns, who joins me this morning... Good morning, David...

Good morning, Anthony, good morning, everyone.

To provide you some more detail on the full year financial results. I'll then provide you an update on how we're executing against our corporate strategy, talk briefly to progress we're making towards our ESG goals, and outline our approach to capital management. Finally, I'll provide a trading update for the new financial year. As always, it'll be an opportunity for investors to ask questions at the end of the call. All right, let's get started. The Group delivered a record sales of $3.9 billion, achieving sales growth of 2%. Pleasingly in a competitive environment, we're able to increase gross margin by 10 basis points to 46.3%. This revenue and gross margin expansion was offset by cost inflation, with segment PBT down 12% to $343 million, representing segment PBT margin of 8.8%. This translated into a statutory NPAT of $240 million and a normalized NPAT of $242 million. The Board has determined to pay a fully franked final dividend of $0.37 per share and a fully franked special dividend of $0.50 per share. Together with the interim dividend of $0.32 per share, this represents an aggregate annual dividend to shareholders of $1.19 per share. The Group is entering F '24 in a strong position, with no drawn bank debt and $218 million cash balance. Move over to Slide 4. I won't speak to the detail, but obviously call out the record sales result of $3.9 billion. Sales growth at 2% was driven by new store openings and pleasingly a reignition of growth in our online sales. Flat like-for-like sales reflected the impact of higher interest rates in an increased cost of living expenses, which obviously dampened consumer sentiment and spending. As a group, total transaction volumes increased. So despite a more cautious consumer, we were able to maintain a connection with this customer, and particularly with our 1.5 million active loyalty club members. We have -- still have a large number of customers visiting our stores, our websites, and should retail conditions improve such that customers gain confidence to start spending a little more, we are well positioned to benefit from that. Turning over to Slide 5, which shows trends for gross margin, cost of doing business and profit before tax since 2019, which is our pre-COVID year benchmark. Chart here shows that Group gross margin and PBT margin have now settled above those pre-COVID levels. A 10 basis point improvement in gross margin to 46.3% is a pleasing outcome for the Group, given that we've absorbed the impact of the new loyalty program rebel, and return to the cut and thrust of a normal promotional environment. Cost of doing business as a percentage of sales increased by 120 basis points as the impact of inflation on rent, electricity and wages was only partially mitigated by the Group's cost control initiatives. While inflation appears to be gradually easing, we do expect continued upward pressure on our cost base as we move into F '25. And of course, the net impact of these gross margin and CODB outcomes has been the inevitable compression of our PBT margin to 8.8% for the period. Let's go to Slide 6, customer highlights. So 11.5 million active club members, and remember, to be an active club member, you need to have shopped with us at least once in the last 12 months. This 11.5 active club members now represent 77% of our sales. Pleasingly, club member spend as a percentage of sales has continued to increase across all of our core 4 brands. In particular, I would absolutely like to highlight once again, BCF, where club members now account for 90% of their sales. Across the group, a measure of customer satisfaction, club member NPS has improved from 67 to 69, and again, this reflected in the improvements across each of the brands. Over the page to Slide 7, gives you a snapshot of the continuous improvement we've achieved in our club member metrics over the last 5 years. I'm proud to say that this is the fourth consecutive year where we have added over 1 million active club members to the program. In fact, the company has already achieved its F '25 or 2025 mission statement some years ahead of schedule in achieving our 11.5 million active club members. Achieving this scale and the 77% coverage that our membership -- of our membership program has been hard fought. The prize is compelling. Simply put, Super Retail Group can directly influence 77% of our revenue base. We are growing confidence in our ability to defend our high customers, retrieved lapsed customers, stimulate disengaged customers and moderate investment in low yield, high churn segments. Off to Slide 8, store network. In terms of the store network, in the period, we opened 28 new stores, and plan to open a further 25 in this current year, including 2 more BCF superstores. And if we go across from Slide 9 to 12, it provides you a bit of a whistle stop tour in terms of investment we've made in the network in '24 and what we've planned to achieve in F '25. So, for instance, in Supercheap Auto, we opened 11 stores and upgraded 28. We're focused on completing over 200 next generation stores by the end of financial year '26. Now the key features of these stores include dedicated, increased full space for high growth categories like tools, 4WD drive, better signage and designated store -- service zones for the do-it-for-me Pittman services. In F '25 we'll add a further 10 stores and undertake a further 28 store refurbishments. In rebel, we've added 5 rCX stores in the year, including our flagship store at Melbourne's Emporium, which is featured on Slide 10, it's worth a visit. And in F '25 we open to -- we plan to open 4 new rebel stores and upgrade a further 3 stores to the rCX format. In BCF, we opened 7 stores this year, including our third BCF superstore in Mackay, okay -- Mackay people would be very upset with me. Our in-store tackle store which offers an extended fishing range tailored to individual store location, has proven a big hit with consumers. As a result, we plan to open a further 10 tackle stores in F '25 as well as 5 new BCF stores. And finally, Macpac, having opened 9 stores this year, plans to open another 6 stores next year, will have us on track to celebrate our 100th store opening. Off to Slide 13, and I'm pleased to report that our online sales grew by 9% to $485 million. When we first launched our corporate strategy in 2019, our focus was on excelling in omni-retail execution, was based on the premise that we needed to be agnostic as to which channels our customers chose to shop in, instead focused on our efforts on ensuring we provide customers with a seamless and positive experience regardless of the channel they shop. With the Group online sales fast approaching $0.5 billion, this approach appears to be well and truly vindicated. Nevertheless, it's worth pointing out that 93% of all transactions are still dependent on in-store, highlighting ongoing value of our national store network and our omni-retail approach. Slide 15 and 16 is self-explanatory. So what I propose to do is, let's go to the brands and start with Supercheap Auto. Once again, Supercheap Auto has a delivered a resilient performance this year, confirming the reliability of the auto category and the strength of the Supercheap brand. Benjamin Ward and his team have done a great job delivering a full year sales result and EBIT result, a record customer NPS score and a record number of fitments for the in-store service program. Supercheap Auto has continued to excel in customer acquisition, having added more than 500,000 active club members to their club plus membership program in the last 12 months to exceed 4 million active club members. Supercheap Auto also announced the launch of its dedicated trade website, which is now live. The website provides an enhanced digital experience for our trade customers by giving them access to over a million products online with accurate and transparent pricing. A summary of the financial performance of Supercheap Auto is set out on Slide 18, but I wanted to call out the following. Total sales grew by 3% to $1.5 billion. Like-for-like sales grew by 2% by -- driven by growth in transaction volumes and higher average transaction value. PBT margin fell by 60 basis points to 13.5% and PBT decreased by 1% to $203 million. Off to rebel. So rebel performance during the year fell short of expectations, weaker consumer demand which turned in -- which in turn led to increased discounting from competitors in the footwear and apparel categories, contributed to a sales result that was below previous year. On a more positive note, there were still some highlights of Gary Williams and the team, including the successful launch of the rebel loyalty program, which I'll talk to later in the presentation, the execution of the highly successful Women's World Cup licensed football campaign, and an online sales result which was 12% higher than the previous year. A summary of rebel's financial performance set out in Slide 20. And when considering the financial performance, I would remind you that this -- the results include, for this period, the one off impact, or the revenue deferral of $7 million which relates to its new points-based member loyalty program. Total sales fell by 1% to $1.29 billion. Like-for-like sales fell by 2% with transaction volumes and average transaction value decreasing. PBT margin fell to 7.9% which translated to a full year PBT result of $102 million. While these results were disappointing, we have taken a number of steps to improve performance in rebel and for the -- for F '25 year-to-date, we've seen some encouraging results in the key category of footwear and apparel, which are both seeing positive sales momentum. BCF, well, Paul Bradshaw and the BCF team have had an outstanding year, delivering record sales and 10% EBIT growth. Successful rollout of our in-store tackle format has helped deliver BCF's biggest ever year of fishing sales, and BCF has delivered strong growth in other key categories, including 4WD drive, caravan and touring. Our Townsville superstore delivered more than $20 million in sales in its first year of opening, and it's a further success of that superstore in Kawana and Mackay, what's [indiscernible] now, has strengthened our conviction that we can roll out this format more widely, watch this space. A summary of financial performance of BCF is set out in Slide 22. In particular, I'd like to call out the following. Total sales grew by 5% to $879 million. Like-for-like sales fell by 1% as higher transaction volumes were offset by a modest decline in average transaction value. Segment PBT margin increased by 10 basis points to 6.2%. As a result, segment PBT increased by 6% to $54 million. Turning now to Macpac. Well, following a very soft half due to a mild winter, we did experience improved sales momentum in the second half, helped Macpac deliver a credible full year result. This year Australia achieved another full year record sales result, as well as a record NPS scores in both Australia and New Zealand. It's a testament to the teamwork and collaboration across our brands that more than 10% of Macpac Australian sales were actually made in BCF and rebel stores. I'm pleased to say that Macpac has also made significant steps increasing the recycling content across our product range, including the introduction of Pertex Quantum NetPlus, which uses fabrics from recycled fishing nets. A summary of the financial performance is set out in Slide 24. I'd like to call out the following. Total sales grew by 3% to $222 million. Like-for-like sales was flat with 8% like-for-like growth in New Zealand, offset lower like-for-like sales in Australia due to that milder Australian winter. Segment PBT margin of 8.5% translated into a PBT result of approximately $19 million. And with that, I'd like to hand over to David Burns to talk through more detail up to the financials.

Thank you, Anthony. I'll move to Slide 25. Group and unallocated includes our corporate costs that we do not allocate to the brands. It also holds development costs, which are early phase project costs that the brands are not yet benefiting from those projects. This year, by way of example, the loyalty and project OpEx was held here, and I wish to confirm that these costs are pre-launch costs only. Once the project moves into an operational phase, such as rebel loyalty, the brand rebel bears all the full cost of that loyalty program once live. As outlined on Page 25, the Group unallocated segment was lower than last year. A key driver was interest revenue that was from both improved cash balance and higher underlying interest rates, noting that we had no drawn debt through the entire period. Moving to Slide 26, the Group balance sheet. Our total inventory has increased by $58 million driven by the opening of a net 23 new stores into the network. Some increases in the size of these stores, in particular, the BCF superstores and the rebel rCX format have contributed to a higher stock weight. Inventory cost inflation has also passed through and a slightly higher stock weight targeting rebel, where we felt compared to last year we were slightly underweight. Overall, stock health was robust. Average inventory per store was in line with our target, and we are confident that we will be executing a stronger in-stock position this year. Net inventory investment was lower due to the higher trade creditors at close position. And pleasingly, our net cash position increased to $218 million. Moving to Slide 27, Group cash flow. Our operating cash flow was solid at $635 million, noting the larger tax payment in FY '24, a difference of $64 million year-on-year. Adjusting for this item, cash conversion was robust. Capital expenditure of $135 million was slightly lower than what we had outlined this time last year as progress payments related to the national distribution setup in Victoria moved into FY '25. This has now elevated the FY '25 capital expenditure from $150 million previously advised to $165 million. I'll now move to Slide 28, returns and capital ratios. The ordinary dividends determined for the year have lowered to $0.69 in line with earnings. At the same time, the Board has determined a $0.50 special dividend, increasing our total dividend for the year of $1.19, as noted earlier by Anthony. All metrics remain robust, reflecting a strong balance sheet and quality of our underlying earnings. I'll now hand back to Anthony to take us through Group's strategy and the trading update.

Yes. Thanks, David. All right. So Slide 30 for me, a slide to most, I would imagine, provides an overview of the key pillars of our corporate strategy, which we first released at our first Investor Day in 2019 and reconfirmed at our most recent Investor Day of May of 2023. Our focus remains on growing our core 4 brands, leveraging closest to our customer, connecting our omni-retail supply chain, simplifying the business and excelling in omni-retail. Slide 31 contains further detail on some of our progress to date in executing the strategy, but given time is limited today, I won't talk to detail on this slide, other than to say that the construction of our new automated DC is on track to timetable with transition from the existing DC facilities to commence in FY '26. And we still see significant value to be extracted from delivering on our existing organic strategy. The Group's made significant progress to achieve many of these strategic goals we originally set up for ourselves way back in 2019, and we remain focused on completing that journey over the medium term. Nevertheless, we've begun to turn our minds to what a refresh 2030 strategy might look like as we transition to our next phase of growth. We look forward to updating the market on our thinking most likely at the end of next calendar year. All right. Over to Slide 32, loyalty. So for those of you who attended the Macquarie conference earlier this year, this slide should be familiar to you. There's a couple of updates. We launched the rebel active loyalty program in October of last year, and this slide provides a further update on how the program is performing against some of the key metrics we use to measure success. I'm pleased to say the program is delivering to our expectations. Most importantly, it is driving increased visitation and higher average basket size from our club members. We continue to focus on increasing the average annual customer value, one customer at a time, millions of times. To date, 3.3 million club members have earned points under the program and 1/3 of members have redeemed those points. Those customers who are redeeming those points are spending more than a 12 times multiple of the value of those points on their redemption transaction, it's a very healthy multiplier. I would remind you that the points earned of the program have a 6-month expiry date. This use it or lose it approach naturally provides an incentive to members to spend their points before they expire at that 12 times multiple, but it also means there is no risk of a ballooning liability on the Group's balance sheet for unused points. 33, confirm that our program investment in customer loyalty and personalization continues to proceed to timetable, have successfully launched the rebel loyalty program in October. Our focus has shifted to BCF and Supercheap Auto where we can expect to launch new loyalty platforms during the course of FY '25. At this point, obviously, mindful of commercial sensitivity, I don't intend to provide details of the proposed changes to these loyalty programs, but I do look forward to providing an update later in the year. On to 35. So I think it's appropriate to spend just a little bit more time than normal, talking about the culture and engagement of our team. Our team members are feeling about Super Retail Group when they turn up to work each day. This slide is intended to provide you with a transparent insight of the process we use to measure team engagement and the responses that we received. Twice a year the Group conducts a team member survey in order to gauge what we're doing well as an organization and what areas we need to improve on. The survey is voluntary. It's anonymous and is designed to illicit direct, honest and actionable feedback and it sure does that. Our most recent survey was undertaken during the period of 18th of April to the 5th of May 2024. More than 12,400 team members responded to the survey. That represents a participation rate of 78%. Remember, it's voluntary. The results of that survey told us a few things. That our overall team member engagement score of 81 was 2 points higher than the global benchmark. Critically, our top leadership team's engagement score is 86, at 7 points above the global benchmark. Survey results relating to work-life balance were 5 points above the global benchmark, indicating that our team feel they're able to balance their personal and professional life. Retail, the team sport. We take development and the wellbeing of our team seriously. Our team are proud of these results and they [indiscernible] will should be. Off to sustainability, Page 36 and 37. And this is an outline of how the Group is performing on key metrics relating to our sustainability strategy. There are some highlights and there are some areas for improvement that I'd like to specifically call out, the first being health and safety. So despite our commitment to health and safety in F '24, we observed a 32% increase to our total recordable injury frequency rate, or TRIFR, to 14.5. The manual handling tasks accounted for 58% of this increase. These instances primarily involved sprains, strains and cuts sustained by team members while handling products. In response, we've initiated a number of steps to address this increase, including a rollout of a refresh manual handling improvement program and the introduction of Sonder, which is a program to enhance our early intervention and medical care program. On a more positive note, this year, over 4,000 team members participated in the I Am Here program, which provides practical tools to enable our team to support fellow team members when they need it. Secondly, diversity in leadership. At Super Retail Group, our aim is to cultivate a workplace which reflects the diversity found within our communities and the fostering environment where team members feel a sense of inclusion and belonging. For the reporting period, female representation on our Board was 50% and 37% for women in senior leadership. We continue to invest in targeted leadership development for future leaders, having grown the alumni of that program to over -- sorry, to over 750 leaders. We've retained our citation as a Workplace Gender Equality Agency's Employer of Choice. The 2 -- the Group's 2024 median pay gap was 4.7%, which compares very favorably to the national average of 18.7%. And finally, on community. I'm proud to say we published our first Reconciliation Action Plan or RAP, setting out the actions we'll take to advance reconciliation. Our RAP was developed in consultation with our team members, in fact, driven by our team members and communities, and we will build on some of our important partnerships, including the Clontarf foundation, the Stars foundation and Racing Together. Given time today, I won't talk to the rest of our sustainability highlights. But for those who are interested in further detail, I'd refer you to our Sustainability Report, which was launched with the ASX today and available on the Group's website. Dividends and capital management. Well, I'm pleased to confirm that having considered the Group's strong balance sheet position in addition to the payment of the final dividend of $0.37, the Board has decided to make a return of capital to shareholders by way of a $0.50 special dividend. Together with the interim dividend of $0.32 per share, this represents an aggregate annual dividend to shareholders of $1.19 per share. The Group continued to target a long-term net debt-to-EBITDA position pre-AASB 16 of between 0 and 0.5x. While we are not making any comments at this stage, this gearing target would imply the Group has capacity for further capital management activity in FY '25. Over to the important trading update on Slide 41. I'm pleased to report the Group has made a strong start to FY '25, delivering 3% like-for-like growth and 5% total sales growth in the first 7 weeks. We note that Supercheap Auto executed our Best Performing Oil promotion, which brought forward in the calendar compared to the prior corresponding period. Footwear and apparel sales pleasingly have driven higher sales in rebel, which is cycling the elevated sales of licensed product than the prior corresponding period relating to the FIFA Women's World Cup. BCF has continued to grow in fishing, caravan and 4WD drive. BCF superstores at Townsville, Kawana, Mackay are trading well. Macpac has delivered a strong finish to the peak winter sales period. Sales momentum has accelerated in the FY '25 year-to-date with installation and rainwear sales benefiting from the cold and wet weather. The Group is targeting CapEx in FY '25 of $165 million to fund its store development program, a new distribution center in Victoria, enhancements to its customer loyalty programs and cyber, omni and digital capability. As previously flagged, the Group expects duplicated operating costs associated with commencing the transition from its existing distribution center to the Group's new distribution center in Truganina, and that will result in a one-off increase to the group's unallocated costs in FY '25 of $8 million. Total Group and unallocated costs in FY '25, including this $8 million are expected to be $40 million compared to $36 million in FY '24. While inflation appears to be gradually easing, the Group does expect continued upward pressure on its cost base in F '25. In relation to wages, I note the Group's 2024 retail and CCC enterprise agreement became operative from the 14th of July, 2024. The FY '25 increase to retail team members' base rates represents a step-up in retail team member expenses from F '24 to '25, up approximately 3%. The EA also includes an increase in penalty rates. Targeted benefits from our workforce planning capability along with other improvements to the EA terms are expected to more than offset the impact of these penalty rate increases. The outlook for the consumer remains uncertain given the ongoing cost of living pressure on household budgets. The Group's customer loyalty proposition, the strength of the Group's brand and the size of its loyalty club membership base means Super Retail Group remains well positioned to perform in the retail market conditions where customers are carefully managing their spending and prioritizing value for money purchases. Now, before I invite the operator to ask questions, please be advised that based on the Group's legal advice, I or David will not be in a position to provide you with any commentary on the pending litigation other than to refer you to the Group's ASX announcement dated the 26th of April and the 30th of July, 2024. With that said, I now hand back to the operator for questions.

[Operator Instructions] The first question comes from the line of Peter Marks with Barrenjoey.

Just a question on the gross margin outlook into FY '25. Just wondering if you're able to talk through some of the drivers there? I guess particularly interested in what you're saying on shipping costs, if you're getting any relief on product costs out of China? And I guess, any expectations on the promotional environment?

Yes, Peter, we know there's some commentary about shipping costs. I think we've all got a little bit foot by the COVID rates. I think, whilst there's some movement there within our tolerances, so we wouldn't call that out as a specific risk. We've been talking about gross margin drivers for a while, and our observation is the underlying pattern probably isn't changing a lot. Certainly, we continue to see good terms coming out of manufacturing base, conscious of currency there in terms of the net impact of that, promotion looks to be back to normal and stable. So we're not calling out any specific upward or downward movement to gross margin position driven by any material factor.

And then just a quick one on M&A. Obviously, the balance sheet is still in very good shape. You've got strong momentum in your existing businesses. It feels like there's a little bit of distress out there in retail land. Is now the right time to be adding, I guess, another brand to the Group where you can further leverage some of those investments you've made?

Look, not for now. We've been very clear that the strategy is core 4. We've still got work to do as a sort of -- as I mentioned in the comments. There is certainly more value to yield and the distraction of that kind of activity when we've got a strategy that's working effectively, more work to do, feels unattractive at this stage. We have always said and we still are of the mindset that if there was an asset out there that delivers against that core 4 strategy or enhances one of the brands we have, our mind open to that, but no change in mode at this time.

Next question comes from the line of Michael Simotas with Jefferies.

Well done on the results. First one from me, just another one on the gross margin. Historically, and I know there's a lot of noise around COVID and coming out of COVID, but historically, your gross margin seasonally used to be a little bit stronger in the second half than the first half. This year, it was the other way around. Is there anything that's significantly changed in the business, why that seasonality is different? Or is that just sort of the run rate of the changing environment rolling through?

Michael, thank you for the question. You are correct. Historically, that was the case. There has been quite a change to our approach to some of the promotional activity. We've eliminated quite a number of promotions and covered with opportunity to reset. And we've been able to maintain the new environment. I would say that we -- that profile is appropriate at the moment. And I don't see it likely to change, there -- we're just picking up on the gross margins. There will be some -- what you've seen in rebel, the gross margin performance there has softened. There's an aspect in there that relates to the loyalty program. And so, that's actually played through in rebel. But other than that, no, we would say that the profile is as you're currently seeing it.

They're more consistent across the halves relative to what it used to be?

Yes. Yes, correct.

Yes. Okay. No, no, that's really helpful. And then the second one for me is on the cost outlook. Thanks for that color on the wage cost. I just want to make sure I'm understanding it correctly. So I think the point around offsetting penalty rates with more efficient use of labor is clear. On the underlying wage cost increase for team members being 3%, that's below the base rate increase in your enterprise agreement. Is that because you're then cycling provisioning for the one-off payment that was taken in the FY '24 year?

That's correct. We accrued that throughout FY '24. And so, that's an embedded cost in the '24 result. And therefore, on a year-on-year basis, the underlying base rate increase is about 2.5%, and then you've got the 0.5% related to Super. So that's just over 3%. And then as we've noted, there were other things that were agreed in the EA, which have been efficiencies that are offsetting those penalty rates along with our workforce planning system, which we presented on our Strategy Day.

And sorry, Michael, there was provision there and paid in F '24 that one-off.

Yes.

Yes. Yes. So if you can maintain like-for-like sales at this sort of rate, should we -- would it be too optimistic for us to think that you should be able to manage your COD beta sales at a pretty consistent level? And we've seen all the deleveraging we'll see and it should be sort of flat or even improving from here?

I think the only engine that will be what underlying CPI does, is its impact through to the lease book. So we're kind of -- we monitor that pretty closely. So look, the arithmetic -- you're not a million miles wrong, or more right than wrong, but there is a hinge in there in terms of what CPI does. So that has a factor. So you're quite right.

Next question comes from the line of David Errington, Bank of America.

Anthony, the question -- there's 2 questions I've got. The first one is a very general one. One thing that you said that really interested me is that you said that your visitations this period was very strong. Obviously, your customer acquisition has been particularly strong. And you mentioned, I think, your shopping basket sizes were down. Now you highlighted that, that highlights that you're very well positioned, you're very well leveraged for a pickup. Can you bring that to life, please? Is that when the economy picks up, that you expect customers to trade up a little bit more? Or do you expect them to -- you want them to expand your basket size? And can you bring to life how you're going to realize? Because clearly, the customer acquisition has been outstanding with your club -- your active club members increasing by 1.2 million. You're saying that your visitations are very high. So you're ready to go when we get a pickup. So how -- can you bring to life for us so that we can actually predict what you -- what it looks like going forward? What does that mean? Does it mean that in rebel, you go from footwear to buying now more apparel? Does it mean that you go from buying spark plugs to buying more oil? What does it mean? And how do you facilitate that expansion? And then the second question clearly is, probably not as optimistic, but it's rebel. Obviously, I'm very concerned about rebel, that drop-off. Following on Michael's question, like you're doing 1% in that trading, which is a nice pickup. But can you go into a little bit more sugar for us, a bit more detail as to what you can do to turn this around? Because it looks to me that unless something changes pretty dramatically in the next 6 months, you're probably going to have another year where earnings are going to go backwards again. So can you go into a little bit there in detail with rebel as to what we can expect because rebel is the one business that does concern me from an immediate earnings outlook? So if you could do those 2 questions, Anthony, that would be fabulous.

Very happy to. All right. We'll take them one -- take the first one first. So I think what we're saying in terms of customer acquisition and visitation is we don't need to promote to get them in the store. So it's not like they've left us. So you don't have to cold start that customer. They're coming in, they're visiting. That provides the company with an advantage. Should the macro turn, customer confidence returns, and we start to see some accretion in terms of the nature of the products they're buying. And so, it would be the reversal of the trend we've just gone through, where, I think now for the last 18 months, 2 years, we've been talking about this movement from wants to needs. And the example of that is BCF out of the fridge in to tackle. Supercheap. You're right, it's out of customer car care into car maintenance. Rebel is out of basketball systems into basketball. That's sort of the narrative that we would sort of talk to in terms of that average basket value deflation. As customers become more confident, you should see some retracing of that. And categories like kids wear, which when – athletic -- say, Nike, Adidas kids wear is a pretty good canary in the cage, when things are going well, suddenly, Johnny is in a pair of Nike tracksuit pants. When it's not so great, they go to our friends at Kmart and more power to them. So it will just be product mix. And I suppose the benefit for us and how we influence that is where we've got the customer data, the ability with point accelerated, for rebel, I'm talking specifically, we're able to better target those customers that are more likely to start marching up that cycle. So we're watching basket value very closely, pleased with visitation, but basket value, I think, is the number that we're looking at -- hitting. So we -- but there's a macro driver there, like there's no magic pudding.

Do you think you're still going backwards in that, you've got a bit more to play out? Or do you think we've hit a point where we might start thinking it could turn around?

It's too early to tell. Look, it's slowing, it's less worse. I wouldn't declare victory, but there's some early signs in some of the segments that we're seeing some reversal, but like slowing slightly better as opposed to rocketing, if you know what I mean. So I'd say we're well positioned for an improvement, but I'd be gilding the lily to say it's improving now, that would be overstating the position. Rebel, I hear you. So on rebel, the things that we've executed in terms of footwear and the introduction of those new brands have performed very well. We're pleased with the way footwear is going. The other thing I would point to is that some of our trade partners globally have had a tough time in terms of the way that they've managed their innovation. And we're not unique there. If we look at what's being played out in the U.S., we are seeing some softness, especially within Nike and Adidas to a lesser extent. From what we can see from the pipeline that's coming through looks very strong. So I'm optimistic about the new brands coming through. I'm optimistic about some retracing of performance from the key global brands. And then, when I look at the 7 weeks trading data, if I mentally back out the Women's World Cup, actually have quite a credible like-for-like sales result. So I'm feeling more optimistic about rebel's performance coming into '25 driven by the reversal of fortune in footwear and apparel. The other thing, which is yet to kick is what loyalty does once the team actually dial in and we start getting some incremental benefit from there. So the story will be told in Q2. I think when we're talking again in February, we'll flip the card over and we'll know the answer of whether those countermeasures that we've deployed have been effective or not.

So you're confident it's probably getting towards stabilization in the earnings, maybe -- I mean, I don't -- you don't want to get into guidance, I know that.

But sales are in the hinge. I sort of -- I feel much more confident about sales. Because the engine room of that business is footwear and apparel and the underlying performance within those categories as we called out has improved markedly, driven by -- look, that footwear change we pulled off last half was the most significant change in ranging in probably a decade.

That was hocker and on.

Yes. Yes. And frankly, New Balance. So there's been -- that's -- the team -- look, as I think I might have made the remark to you, we called it late, but we called it. We've executed it. We like what we see, see what happens in Q2. But we're feeling -- I'm feeling much more confident about footwear and apparel in that business.

Next question comes from the line of Shaun Cousins with UBS.

Just a question further on rebel. Can you just talk a little bit about the EBIT margin outlook? I guess sort of we're looking at EBIT margins in the second half down to 7.6% conscious that, that includes some negative impact from loyalty, but I think it's only $2 million, $5 million of that was in the first half, I believe, but is that the base that we should be looking at? And maybe if you could touch on where you're seeing some of the building blocks there around mix and promotions in GM and then the rent wages in terms of how the higher wages play out, but also the higher rents play out? Conscious that this is the business with the most service in your staff network and then also the most shopping center SKU across your business, just curious around how we think about EBIT margins and some of the building books there, please?

Yes. Thanks for that, Shaun. I'll take that question. We've got, obviously, the impact that -- the one-off of the building of the provision for points. And so that's about a 50 points impact on their margins because that's just straight off the top line revenue number and pass it through to margin. That's done. It won't be repeated. And if we grow it slightly -- the base slightly, it will be slightly negative, but we wouldn't call that out again. The second component is that, yes, it's the highest exposure in terms of labor cost, rebel, in the Group. And so the impact that we just went through and called out on the inflation in '24 that we had from the EA and the one-off payment, was most significantly impacting rebel. And so that -- with getting back to a cleaner year-on-year position for labor will -- in terms of rate will be a factor that will improve and support margins. The secondary item is, yes, rebel has a much larger exposure to CPI-linked leases whereas the rest of the large format tends to be a fixed lease -- a fixed escalation arrangement, whereas rebel tends to be more susceptible to those sorts of changes through CPI. Finally, the -- there is -- yes, there's no question -- as we've gone through that period, we've had the impact of the loyalty redemptions passing through into margins. And so overall, rebel's margins are at these levels and will be slightly above the 8% once adjusting for the 50 basis points I mentioned, going forward because we are providing the customer with an outcome in terms of a loyalty position, which we're expecting to see the benefit in a stronger top line position. So as Anthony called out, I see a stronger top line growth coming through from loyalty and the impact of those margins -- the impact of that loyalty redemption on margins will still have to play through the first half results.

That's very helpful. So just to clarify there, so you'd expect the first half '25 -- or really we should see that the second half of '24 is really the low and then we should start to see an improvement from here, but it just sort of depends on how you trade it?

Correct.