Super Retail Group Limited (SUL) Earnings Call Transcript

Welcome to the full FY '25 Results Presentation for Super Retail Group. Today's presentation will be made by the group's Chief Executive Officer and Managing Director, Mr. Anthony Heraghty; and its Chief Financial Officer, Mr. David Burns. There will be an opportunity to ask question at the end of the presentation. This call is for investors only. Media wishing to obtain access to management should contact Kate Carini, GM, Corporate Affairs, whose contact details appears on today's ASX announcement. I would now like to hand over to Mr. Anthony Heraghty to begin today's presentation.

Thank you, operator, and good morning to everyone. Welcome to Super Retail Group's FY '25 Full Year Results Presentation. As always, I'll begin by speaking to some of our financial and operating highlights for the period before discussing the performance of each of the brands. Our Chief Financial Officer, David Burns, is joining me here this morning. Good morning, David.

Good morning, everyone.

We'll provide you with some more detail on the full year financial results, of course, provide the all-important trading update, then there will be an opportunity for you to ask questions at the end of the call. Let's get started. So we -- look, the group faced a pretty challenging retail environment in F '25. Consumers continue to be cautious with their spending, most notably and frustratingly, frankly, New Zealand, elevated competitive and promotional intensity across pockets of our business, ongoing inflationary pressure on key lines of cost of doing business. So a challenging backdrop. I think with this context, we were pleased to be able to continue to grow our revenue from last year's record base with contributions importantly from both like-for-like sales and network expansion, featuring continued strength in online growth. It was pleasing to see growth accelerate in the second half of the year across all 4 brands with Supercheap Auto and Macpac in particular, experiencing a stronger momentum in the final quarter. Our continued investment in the store network saw 31 new stores opened in FY '25 with several more undergoing upgrades in either format or refurbishments in the period. From a loyalty perspective, our rebel Active loyalty program enjoyed its first full year in operation, tracking well against its targeted KPIs. And we announced changes to the Supercheap Auto program, including the launch of the new Spend & Get scheme, which commenced on the 1st of July 2025. The investments in our network and loyalty programs are yielding positive results from our customers. During the year, we saw continued growth in our active club membership, customer Net Promoter Scores and customer member percentages of total sales across all 4 brands. These results also reflect our ongoing strong team member engagement scores, which exceed global benchmarks. And we were particularly pleased with the progress during the period of our team member safety scores with target initiatives and a real focus delivering an improvement in the Total Recordable Injury Frequency Rate from 15.5 (sic) [ 14.5 ] last year to 12.1. That's a 17% improvement. If we go over the page to Slide 4, the group delivered another record year of sales. We've surpassed the $4 billion mark for the first time. Revenue grew 4.5%, driven by 2.6% like-for-like growth and supported by continued network expansion. Gross margin declined 50 basis points over the full year to 45.6% with an improved performance in the second half. Normalized PBT declined by 3.9% to $329 million, representing a PBT margin of 8.1%, down 70 basis points from the prior year. Normalized NPAT was $232 million. The Board has determined to pay a fully franked final dividend of $0.34 per share and a fully franked special dividend of $0.30 per share. Together with the interim dividend of $0.32 per share, this represents aggregate annual dividends to shareholders of $0.96 per share. The group is entering F '26 in a strong financial position, no drawn bank debt and $63 million cash balance. All right. Let's go to Slide 5. I'll obviously make further comments on each of the brands. But just if we just take a total look of sales here, I want to note a couple of things. As I say, delivered full -- record full year results in terms of sales, total growth, 4.5%, 2.6% like-for-like growth and 1.9% from new store openings. Full year like-for-like sales were mixed within the portfolio, a strong performance from BCF, more to say about that later and a solid result from rebel, contrasting with outcomes from Supercheap Auto and Macpac, which were frankly below our expectations. Pleasingly, growth accelerated across the portfolio in the second half with all 4 brands seeing improvement in trading momentum. Now whilst sales are good, we also recognize that PBT margin declined by 70 basis points. And on Page 6, we just wanted to sort of set out the drivers of that 70 basis point decline. You can see in the shaded boxes on the left-hand side, that's margin evolution expressed in the P&L categories of gross margin and CODB with the overall decline being attributable to gross margin. By contrast -- or not by contrast, but just to provide a different perspective, on the waterfall chart on the right, we presented these margin drivers in terms of strategic outcomes. These are decisions that we've made for long-term gain versus operational outcomes, which is something that's more in the direct control of management or arguably not direct control of management within the performance period. If you start with those strategic outcomes, you can see they contributed a net 40 basis point decline to the PBT margin. And that, first and foremost, is this investment in the store network, and we'll talk a little bit about this later in the presentation. So this encompasses the new stores as well as refurbishments, and that's had a negative 40 basis points on PBT margin during the period. Now that's because you've got the setup costs associated with that activity as well as the near full run rate of the operating cost of the stores offset or matched against a revenue base that's not yet mature. So in many respects, it's a future investment that should yield in the latter years. The second item in that waterfall chart refers to loyalty, which is mainly the rebel Active loyalty program, which resulted in a 20 basis point impact at group level. And that loyalty program, however, was matched against a planned marketing spend reduction, where you see a saving of 20 basis points. So we've actually achieved broadly what we wanted to within loyalty and rebel, which is a net 0 PBT impact when you take the gross margin impact and offset against the CODB cost reduction in marketing. On operational side, the most significant individual driver of gross margin and group PBT was a rise in stock loss. Again, we'll talk about that later in the presentation. It was elevated in all brands, but notably in rebel, and that was a real disappointment operationally within the period and one that the management team are very focused on. So outside of that stock loss, some gross margin improvement at Supercheap Auto and Macpac, along with some CODB saving offset rising finance lease costs. So in short, when we have a look at that 70 basis point decline, there's 2 big drivers. It's our deliberate investment in stores, and we always said we'd invest through the cycle, and we've done that and executed, we believe, to a high standard as well as this stock loss issue, which is particularly fraught in rebel over the period. Okay. Let's go to Slide 7 and talk about some customer highlights. So Slide 7 shows that we now have 12.5 million club members. And remember, to be an active club member, you have to shop with us. So it's not just the mailing list. These are live heartbeats that come into our stores or go online and buy something from us in the last 12 months. Now this group, this 12.5 million represents almost 80% of sales. And pleasingly, club membership or club member spend as a percentage of sales continue to increase across each of the 4 brands. It's worth noting that BCF a standout where club members now account for 91% of sales. Across the group, our club member NPS score has improved from 69 to 71. And again, this is reflected improvements across each of the brands. So as I keep saying, it's a simple equation, more customers, happier customers, generally speaking, is a lead indicator of business that should grow. I would note the largest increase in club membership and club NPS was at rebel, which we attribute to the rebel loyalty program gaining traction with our customer base, and we'll talk about that shortly. Slide 8 just gives you a snapshot of this continuous improvement over the last 5 years. I'm proud to say it's the fifth consecutive year which we've added 1 million or more active club members to the program. You can see we continue to grow active club membership. Those club members represent a growing percentage of group sales and that shopping experience with us is increasingly positive. These are shoppers that know and love our brands and frankly, our team members who visit us regularly and for whom we can communicate directly through our programs. As I've said on a couple of times previously, that means unlike many of our peers, we are not relying on casual blow-ins walking past the store doors. These are relationships that are built over time that we can capitalize on. Slide 9, we talk about store network highlights. We continue to deliver on a strong pipeline of store openings. 31 stores have opened in FY '25, and we plan to open around 23 in FY '26. In addition to these new store openings, we converted a further 2 BCF stores to the superstore format, more on that later, increasing our BCF superstore fleet to 5, continued with the refurbishment of the Supercheap and rebel fleets, rebel to that rCX format. Slide 10, I want to sort of pause here for a second because one of the things -- this chart, Slide 10, really highlights the importance of this renewed network expansion, especially in that post-COVID period. And you recall, over the COVID period, we had that elevated level of sales. You can see that in the annual group revenue chart on the right-hand side of this particular page. And the question that management had is how do we maintain that sales intensity. And so we sought to look for more effective store formats and start a process of executing a store network expansion program. And so today, our store network is now 10% higher than it was pre-COVID. But most importantly or more importantly, the increased store network count has been complemented by growth in sales per square meter across all 4 brands. And effectively, this has enabled us to sustain this elevated revenue trajectory on the right hand -- on the chart on the right-hand side, frankly, when many and one of management's concerns at the time was that we would revert to the pre-COVID trend line that's represented in that dotted line. So whilst we have taken a PBT impact from this investment in network, we're confident that we've been able to maintain the revenue base of the organization and therefore, the underlying margin structure, but do so without losing store-based or sales density productivity. All in all, a sound result. Slide 11, go to digital and omni highlights. Full year online sales grew by 8% to $524 million, now represent 13% of sales. Click & Collect, which is our most profitable channel, accounted for almost half of online sales, meaning that 93% of all sales are completed in the store. Our new distribution center in Victoria, and I'll talk a little bit about that later in the presentation, which we anticipate will be fully operational in calendar 2026, will further enhance our capacity to meet growing customer expectations for fast and reliable service. All right. So 13 and 14 are self-explanatory. So let's go to the brands, and I'll start with Supercheap Auto. So it's fair to say it was a challenging year for Supercheap Auto with ongoing market softness in New Zealand and elevated competitive activity in Australia, resulting in a full year like-for-like sales growth outcome, frankly, that was just below our expectations. That said, the team made a number of tactical adjustments in the second half, resulting in improved like-for-like sales growth and gross margin performance and a restoration of PBT growth for the half. So a sound recovery. Supercheap Auto added 600,000 members in the 12-month period and generated a record customer Net Promoter Score. The team completed 1 million fitments. This is where customers come in and get their wipers changed, their bulbs changed. It's a good program. And in the weather in Sydney today, I recommend you pop into a store. So we did 1 million fitments across the network in F '25. That's an 18% increase on the prior corresponding period. And we'll talk more about this over the coming months. But I'd call out this as a key point of differentiation, not only amongst our auto peers, but particularly in generalists trying to enter the auto market. Summary of the financial performance of Supercheap Auto is set out on Slide 16, in particular, I would make the following callouts. Total sales grew by 2% to $1.5 billion. Like-for-like sales growth of 0.7% in Australia contrasted with a like-for-like decline of 2.7% in New Zealand, with both regions reporting improved sales momentum in the second half. Despite the elevated competitive intensity, the gross margin improved by 30 basis points as the group maintained promotional discipline, prioritizing profitability and focusing on growing gross profit dollars. Full year PBT margin fell by 60 basis points to 12.9%. PBT decreased by 3% to $197 million in the full year, noting PBT growth was positive in the second half. Over the page, Supercheap Auto team announced changes to its club membership program, which involved replacing the previous Best Price Credit program with a new Spend & Get loyalty scheme with changes effective from the 1st of July 2025. This new Spend & Get scheme is the most generous and straightforward loyalty program in the category. It needs to be because they are straightforward customers. It's expected to be more efficient at rewarding a broader base of customers as well as stimulating additional visitation and/or spend per visit relative to the previous Best Price Credit program. The implementation of the new scheme is expected to be gross margin neutral with the cost of the scheme offset by the removal of the existing Best Price Credit program. All right. Let's go to rebel. Rebel produced a solid revenue outcome during the year with 3% or 3.5% like-for-like growth generated amidst a period of inconsistent consumer demand, but quite choppy actually as evidenced by challenging results at the footwear and apparel peers. Following a very well-executed peak season over Christmas, the business saw like-for-like sales continue to improve in the second half, supported by strong performance in footwear, license, apparel and fitness tech. Rebel reported a 6% increase in active club membership to 4.1 million members and generated a record Net Promoter Scores across all channels. As we've talked, disappointingly, we did experience a significant step-up in stock loss activity during the period, which negatively impacted gross margins and offset top line performance at the profit before tax level. We're no longer dealing with the teenager stealing a pair of tracksuit pants in the change room. Rather, this is a much more sustained and systemic problem, and I encourage those involved in it to find alternative employment. The team have implemented a number of measures to address this activity during the second half in an effort to limit the impact of the profitability of the business in FY '26. A summary of rebel's financial performance is set out in 19. Total sales grew by 4.8% to $1.4 billion. Like-for-like sales grew by 3.5% with growth in both number of transactions and average transaction value. The gross margin declined by 110 basis points, primarily driven by this stock loss as well as the full year impact of establishing the loyalty program. CODB was very well managed, declining by 60 basis points as a percentage of sales. Full year PBT declined by 1.6% to $101 million, again, noting the positive PBT growth in the second half. Slide 20 sets out some pointers for the rebel Active loyalty program. And look, it's resonating well with customers. It's performing in line with our expectations as it continues to mature. This slide revisits some of the key performance metrics of the program and how it's resonated with the customers. So since October 2023, we've talked very strong membership sign-up. That's accelerated. We're up 4.1 million, now accounting for 81% of sales. But more importantly, that's interesting, but this is fascinating. Average basket value per club member is higher than nonmembers, while redemption transactions are higher again and growing faster. Members who redeem loyalty points are spending more than 12x the amount of their loyalty credit. These factors are combining to deliver growth in average annual spend per member, which you'll see on the chart on the left has steadily increased since the introduction of the program in October 2023. That very subtle growth of that annual club member spend is a key driver in the underlying organic performance of the business longitudinally. These factors are combined to deliver growth in average annual club member spend. As you'll see -- sorry, I've spoken about that. We're pleased with the progress to date and remain confident that the program is on track to achieve our aim of incentivizing our rebel Active club members to visit us more frequently and to increase their annual average spend. All right. Let's talk about BCF. Well, the BCF team, frankly, just shot the lights out. They've had an outstanding year, record sales, 12% PBT growth driven by strong performance in key outdoor categories of camping, boating, fishing, 4-wheel drive, caravanning, you name it. There was, however, and we've got to call this out, a very favorable weather pattern in the key trading period. It all came together. However, retail execution was strong from the team, including delivery of store format initiatives such as the in-store tackle store format and the continued rollout of the superstore phenomenon. Our strategic investment in stock availability during peak summer trading was a smart move and the ongoing focus on premium global and domestic brand partnerships continue to resonate well with our customers. Club members now represent 91% of sales. Net Promoter Scores are on the improved to record levels. A summary of the financial performances on 22. Total sales grew by 7.9% to $951 million, so closing on that $1 billion mark. Like-for-like sales increased by 5.4%, driven by growth in transaction volume. Segment PBT margin increased by 20 basis points to 6.4% as investments in gross margin were offset by a reduction in cost of doing business. Segment PBT increased by 12.3% to $61 million. Key part of the growth strategy is the ongoing rollout of the superstore. If we look on Slide 23, you can sort of see that these stores are typically 3,500 square meters or greater inside. They offer a bonanza of expanded boating, camping -- product range across the key outdoor categories of fishing, boating, 4-wheel drive, camping and caravanning. They feature interactive experiencing zones, allowing customers to explore products hands-on and they understand how they enhance their boating, camping and fishing adventures. On average, customers spend 1.5x more at a superstore with higher visitation, more items per basket and higher average item values, resulting in superstores contributing disproportionately to BCF's overall growth. There's 5 superstores in operation. I think we'll see some scope for more, somewhere between 15 to 20 locations in the near term. All right. Let's turn to Macpac. So Macpac's had a mixed '25. Highlights include a record Boxing Day sales, continued expansion of the network and ongoing market share gains in Australia. However, it's been contrasted by weak underlying market growth, most notably in New Zealand and elevated cost of doing business with impacted profits. Weather on -- weather conditions on balance were unfavorable, remaining mild for much of the period, although it was pleasing to observe Macpac delivered strong performance late in the period when the cold weather finally arrived in Australia. It's important to highlight that the growth in cost of doing business has both an underlying inflationary component as well as this network expansion component with the latter taking on a near full rate of store costs ahead of the seasonally important winter trading periods, noting a Macpac store usually requires 2 or more winters for it to reach revenue maturity. Macpac opened 10 stores in the period, which is a lot for them. including the launch of its new premium store fitout in its 100th store in Christchurch and saw solid growth in active memberships. A summary of the financial performance is set out in 25. Like total sales grew by 3.8% to $231 million. Like-for-like sales grew 2% with 3.7% growth in Australia, offset by a decline of 0.9% in New Zealand. Both regions improved in the second half, including New Zealand returning to positive growth. Gross margins improved by 30 basis points despite elevated competitive activity and softer market conditions. PBT margin declined to 4.5% with the gross margin improvement offset by higher cost of doing business, including this network investment. Segment PBT was $10.3 million in the full year. Slide 26 reports and note the gains made by Macpac in Australia over the past 5 years as well as the potential for further progress in the medium term. Macpac network in Australia has expanded from 24 stores in FY '18 to now 64 and has executed its strategy of improving penetration in the Australian market and achieving market share gains. Its brand awareness has improved from a very low base, but there continues to be substantial upside relative to the levels of brand awareness enjoys in its home market in New Zealand. Market share in Australia has steadily improved, but it remains an opportunity over the medium term as brand awareness continues to climb. The network strategy aims to support a profitable conversion of future share gains. With that said, I might hand over to David to talk more details to the financials.

Thanks, Anthony. Group and unallocated costs increased by $4 million in the period. Corporate customer and loyalty-related costs were lower as projects completed triggering run costs to be absorbed by the brands, offset by a $9.5 million worth of costs associated with our new Victorian distribution center, which we previously signaled to you. Net interest expense was higher, reflecting the higher cash dividends paid during the period as we lost that opportunity for interest revenue. Moving to Slide 28, group balance sheet. Total inventory increased by $41 million or circa 5%, reflecting, firstly, a 3% increase in the store network and secondly, a 1.8% increase in inventory per store. Inventory per store was higher due in part to inflation of cost of goods as well as a strategic investment to improve stock availability at rebel and BCF, which Anthony called out earlier, driving -- supporting a positive revenue outcomes for both brands. Inventory quality remains high with aged inventory levels below our target. Moving to Slide 29, group cash flow. Operating cash flow of $577 million was $58 million below the prior year, reflecting 3 things: a $39 million outflow of working capital compared to a $33 million inflow in the prior period and a $72 million differential is attributable to one less payment cycle taking place in the prior year. The operating cash flow conversion of 95% in FY '25 remains strong. Total capital expenditure of $165 million was $30 million (sic) [ $31 million ] higher than FY '24 and was attributable to the elevated network investment activity in stores as well as project costs related to the new Victorian distribution center. Dividend and interest payments remain high due to the payment of a $0.50 special dividend from FY '24, which occurred in the FY '25 financial year. Moving to Slide 30, dividends and capital management. The Board has determined to pay a fully franked dividend of $0.34 per share, taking the full year ordinary dividend to $0.66 and representing a payout ratio at the top end of the group's 55% to 65% payout range. Board has determined to pay a fully franked special dividend of $0.30 per share. Group has now generated $1.2 billion in operating cash flows over the past 4 years, which has been used to fund its capital expenditure programs as well as ordinary dividends to our shareholders. Over the same time frame, the group has distributed a further $170 million of special dividends to return surplus cash on the balance sheet and make progress to achieve our targeted gearing ratio of 0x to 0.5x pre-AASB 16 EBITDA. I'd note that we have now reached that target range with this final special dividend payment. The returns and capital ratios on Page 31. Look, the group has delivered normalized EPS of $1.029 per share in FY '25, down 4% from the prior year. Post-tax return on capital was 17.7% in '25, below the prior year, but comfortably above our weighted average cost of capital. The average net cash position was below the prior year following the payments of the special dividends noted earlier. I'll now hand back to Anthony to take us through the corporate strategy and trading update.

Thanks, David. All right. Slide 33 should be very familiar to you all with an overview of key pillars of our corporate strategy, which we announced in 2019. We continue to focus on growing our 4 core brands, leveraging closeness to customer, connecting our omni-retail supply chain, simplifying the business and excelling in omni-retail. Now Slide 34 contains examples of our progress in F '25 of executing the strategy, but limited time today, I won't talk to the detail on the slide, other than to say that we are at the end of this strategic cycle, and it's probably the last time you'll see this chart in this format. And we're pleased -- however, we're pleased with our progress towards our objectives and remain focused on sticking, landing before we move forward with a new strategic agenda, which we look forward to share with you later this calendar year. Slide 35, a bit of an update on our new Victorian distribution center, which is now open and operational, serving rebel stores only at this stage in Phase 1 with little or no disruption to the fulfillment activity to date. The internal fit-out is ongoing, including the automation capabilities, which are due to come online in the second half of F '26, that will be Phase 2. We are progressing through a phased opening schedule to minimize risk to the operations. We're very conscious of the risks associated with this type of activity. And in particular, we're focused around mitigating that as we approach peak trading period at the end of the first half. Once this facility is fully operational, the new distribution center will provide a step change in our online and home delivery capabilities while allowing us to optimize our national DC footprint and deliver operating efficiencies, greater scalability and working capital savings over time. Slide 35 (sic) [ 36 ] highlights the evolution of various projects within our capital envelope over the past 3 years. Investing in new stores and refurbishment is a constant element will continue to underpin the capital envelope or CapEx envelope, I should say, in the short to medium term. CapEx loyalty peak '24, now it's effectively complete following the rollout of the rebel Active program. F '25 represented the peak period of investment in supply chain with the new DC in Victoria now commencing its operational run, and that spend is expected to moderate in F '26. Investments in systems and technology commenced in F '25, and we anticipate to grow within the capital envelope in the coming years. On to 38 (sic) [ 37 ], we're making solid progress on our sustainability agenda. It's focused on supporting our people and managing the impact of our operations and products on the environment. We've provided detail on our progress in our new Responsible Business Report, which we published alongside our financial releases this morning. On Slide 38, we highlight some of the key advances and achievements during F '25 with regards to our ESG focus areas. In particular, I'd once again note the improvement in the safety outcome for the year with a 17% improvement in the Total Recordable Injury Frequency Rate. And we continue to make good progress with our senior leaders gender diversity profile with female representation amongst our senior leaders up 4 percentage points to 41% during the period. Our 16,000 team members remain highly engaged within the business. It's our secret sauce. Our most recent engagement score of 81 is above the Global Achievers benchmark for team members and continues to be supported by high participation rates in the survey. We're pleased that our overall efforts are once again being recognized by a top quintile performance in the S&P Global Corporate Sustainability Assessment, and we continue to achieve a AA ESG rating from MSCI. Before proceeding to the trading update, I think it's appropriate to highlight the management transition for Macpac, which has also been announced today. I'd like to thank Cathy Seaholme for her contribution to the group. Under her leadership, Macpac achieved record sales, expanded its market share in a very highly competitive segment. On behalf of everyone at Super Retail Group, I wish Cathy and her family all the best for her retirement and her slated return to Australia. We're pleased to achieve the smooth leadership transition with the appointment of Reuben Casey, a former CEO of Kathmandu. I look forward to working closely with Reuben in -- to drive the next phase of growth for Macpac. On to the trading update. We're pleased to report a positive start to F '26 with like-for-like growth of 3.1%, total growth of 5% for the first 7 weeks. Supercheap Auto continued some improved momentum in the -- from its final quarter of F '25, delivering a 3.3% like-for-like growth for that first 7 weeks, cycling 4% in the prior corresponding period. Rebel generated a 2.7% like-for-like growth. It sort of reflecting this varying demand patterns observed in the category calendar to date. It continues to be a bit choppy. Positive contributions from footwear, license and equipment were offset by some softness in apparel. So keep an eye on that. BCF continued positive momentum, albeit we're on that seasonally low period of the year. That's apart from caravanning, which is everyone seems to be doing caravanning. Growth was broad-based across boating, camping and fishing categories. Macpac delivered like-for-like growth of 1.9%, cycling 9% in the prior corresponding period. July trading was influenced by the timing of promotional activity with a lower level of in-market promotions relative to the prior corresponding period. In Australia, like-for-like sales grew by 3.7%, partially offset by a 1.8% decline in New Zealand. With that said, I'd like to hand back to the operator to open for Q&A.

[Operator Instructions] The first question comes from Adrian Lemme with Citi.

Well done on the second half turnaround. Look, the first question I had was in auto. We saw the better gross margin in the second half. Can I just understand, is that being driven mostly by the move to multi-buy promos that avoided triggering that Best Price Credit on your loyalty program? Or was it more about less discounting activity in the market that we heard about from Bapcor where they pulled back on the storewide discounting in auto buying? I'm just trying to get a feel for the run rate into '26, please.

Yes. I think it really was the former more than the latter. So what we were finding as we got to the end of the first half with Supercheap is we were in a trade-off between volume versus yield. So I think I sort of said at the half, we could either show up with a soft top line or a soft gross margin line. We decided to sort of step out of the depth or the intensity of the promotional activity to preserve gross margin and market structure. By making some adjustments to promotional structure, the interplay with the Best Price Credit and ultimately, the replacement of Best Price Credit with Spend & Get, it's given us just a much more sustainable gross margin platform to engage with the market. And so we're quietly pleased with that progress. I don't think I would call an end to a competitive intensity. I think that's premature. I think it's a bit of us getting our house in order to be able to execute in that market in a more sustainable way.

That's very helpful. And can I just ask one more on the store rollout profile, please? I think in May, at your last update, you were outlining, I think, a target of 810 stores for FY '26. Today, I do my math right, I've got it at 796 factoring in closures as the target for '26. Can you talk to what the drivers of that lower store target are, please?

Yes. So it's going to be a little bit of timing. So we'll be very thoughtful about executing stores blindly if the commercial conditions are not appropriate for that, i.e., we don't want to rush into a poor leasing outcome. That's one. There has been some of these stores, you will see the, say, for instance, the new rebel Broadway, very complicated fit-out that one, which sort of creates some movement to the right. So probably, I would sort of say the bottom right-hand number is right. It's the time series that's out. And I think I'd also call out, you see us moderating some of the Macpac openings. Now they've had a big run at new stores, especially within the year. And I think on reflection, what we would like to see is the Macpac team sort of knuckle down and secure the gain of those new stores before we hit it again with another rollout. So I think it's just a matter of moderating some of the executional risk associated with the speed of that rollout. So we think the opportunity is still around that number. It's just a little bit of movement to the right as well as some moderation of the Macpac store rollout.

The next question comes from Shaun Cousins with UBS.

Just a question further to Adrian, just on gross margin. It was down 50 basis points for the year, but I think in May, you indicated you were down some 70 basis points, which based on my math for the last sort of 7 weeks implies a reasonable expansion there. You touched on the competitive intensity sort of issues in Supercheap. Can you talk a bit about some of the broader trends in rebel, the -- particularly around theft and just more broadly, how you're thinking about gross margins in fiscal '26? I know you were silent on gross margins as an -- or margins as an outlook comment where you've made comments on that before in fiscal '25. But just what went on in the last 7 weeks for gross margins and how you think about the '26 outlook, please?

Yes, sure. So I think Supercheap, it's a bit of a copy and paste answer to Adrian's question. I think I would just sort of say we were not totally confident that we would be able to achieve a neutral outcome in terms of -- as we wanted to reapply volume in the auto market, we thought we would have to give away more gross margin than we ultimately did. So I think we got a better result that we -- than we -- we got the result we deserved, but a better result than we hoped for, put it that way on Supercheap. Rebel on theft, we haven't -- look, we've thrown the kitchen sink at it in terms of countermeasures. We can talk more about that later, but haven't yet seen a result come through that we go that feels like an improve. So that feels -- that stock loss issue feels challenging. And I mean, because for us, what we're trying to trade off, whilst we don't love the stock loss, we still want to make sure the customer experience is sound. And frankly, as important, if not more important, it's the team member safety. So I don't really want team members are costing fees at the door. So that just is quite a tricky thing to navigate, and it's just meaning we're not getting the bottom right-hand result that we're looking for there. But broadly speaking, outside of those 2 factors, you read my silence on commentary of gross margin for '26 as there's neither an upward or downward inflection. I think we're relatively steady as she goes with the exception of our stock loss issue. And we've not called out any moderation in competitive activity. So just I think that don't read into an improvement there. It's same old, same old there.

Fantastic. And then maybe just regarding capital management. Just the special dividend history has been a little bit more uneven in terms of $0.25 in August '23, $0.50 this time last year and $0.30 this year. Now that you're in the capital management framework of that sort of gearing metric, should we see an end to special dividends or -- and then hence, only get regular dividends there? I'm just curious around the path of capital management now that you've added an appropriate level in reducing your net cash position once the payment of this special dividend would occur, please?

Yes. I think, Shaun, considering the goal here has been all about getting to our guided gearing position. So that was the goal and the special dividend was a mechanism which the Board sought to deploy to achieve that goal. If we're there and we are declaring we're there, it would be logical to assume that a special dividend would not be something that one would expect going forward unless things materially change relative to our liquidity.

The next question comes from Michael Simotas with Jefferies.

Anthony and David, well done on the result. First one from me on the auto business. Just interested in how you would assess your balance right now between gross margin and sales, just extending from the comments you've already made. Looking at the disclosure from your 2 major competitors, one of them continues to grow sales at a pretty rapid clip. The other one is under pressure. How do you see your trends in your key categories? Do you think you're maintaining market share given you've got slightly different customer and slightly different category exposures to your 2 major competitors?

Yes. Thanks, Michael. Look, I think we would say it's an improvement to where we were in the first half. So by stepping out of the fray, we gave some share up there. We certainly gave up some volume, and we didn't enjoy that. But we weren't prepared to deploy significant gross margin in the short term to defend it. We just felt that, that wasn't the right call. I think history -- we'll see how history judges that decision. I still think we're in the right side of history there. I think we are better, we're improved. I would say we're not where we want to be, and we'll be very thoughtful about that. So I don't think we would declare we're there. I think in terms of your observation around the peers' performance, you've clearly got a player that's underperforming in retail and in trade versus a player that's more trade than retail. And I would suspect that some of that growth, well, certainly on our numbers has to be coming out of that trade business, which we don't participate. But I'm not going to sit here and say we are loving what we're doing in the retail space. We still think we've got work to do, and we've still got some -- we're appropriately plotting and scheming to be able to achieve a better result. I would point out the deployment of Spend & Get is a big play here. So the storyline there is effectively it's the same gross margin dollar investment against a broader customer base with better returns. So we think that's going to be a factor, but we can make further improvements and we will.

Okay. No, I appreciate that answer. And then the second one relating to inventory cash flow and just tying it back to capital management. Your inventories increased year-on-year as a percentage of sales with puts and takes across the businesses. It actually got a little bit lower in the second half. How should we think about that inventory position going forward? Is this the right level? And then just tying it back to Shaun's question around capital management. Take your point on adjusting for the special that it will put you at a slight net debt position, but you guys generate $400 million of free cash flow a year. So it's not hard to see you getting back to a positive cash position in the absence of a big inventory investment or something along those lines. I'm just sort of struggling to reconcile the comment around assuming no more special dividends from here.

I might just clarify. I think if we -- the goal here is to get to the targeted liquidity position, which -- with the gearing ratio, which we've done. If we're there, there's -- we would see no need for a special. I think that's just a truism. Your question is, will we be there? And that's, I think, another question entirely. So in terms of our commitment to the gearing, that's not changed. The mechanism which we get there, that will be a decision we'll make in due course. But all things being equal, I think that the chances of longitudinal specials are low in the long -- in the medium to long term. I'll let David talk to your inventory question.

Yes. We've gone and invested in inventory and deliberately in BCF and in rebel because we saw availability was lower than what is optimal. And we've yielded certainly the benefits of that in BCF. And noting we've also got some -- the superstores do take a lot more inventory investment. And we've got in those planned store openings. We've got more superstores this year, in the next calendar year, we've certainly got a number. And so we would say that, that inventory investment is more intense in BCF and rebel compared to our Supercheap by way of example. So certainly, we see an opportunity to grow earnings through that organic investment of capital into stores and into that inventory profile. And there's still a profile of out of stocks in BCF that we're trying to eliminate, which will actually support the top line growth.

The next question comes from Josephine Forde with Bank of America.

Anthony and team, congratulations on the result. My first question is just on the rebel cost of doing business growth. It looks like in the second half, it was about less than 2%. Are you able to comment on this better-than-expected cost growth? You've pulled back investment in advertising, but I would have expected more costs to come through from addressing the stock loss issues? Or is that likely to just be minimal?

Yes. No, I think, the reduction in marketing is quite deliberate. So I think we -- when we talked about loyalty over the last couple of years, we sort of said that one of the benefits of loyalty is that your costs associated with acquiring or reacquiring the same customer should go down. So if you've got 4.1 million members and it represents 80% of your sales, you shouldn't have to spend external marketing at the same rate in order to transact. And so if we go to that PBT margin bridge earlier in the pack, there's -- it's more or less an offset. So whilst you've got a gross margin hit from loyalty at the top, you've got the offset of the marketing line. So I would think about it through that lens from a CODB, just line it up against the gross margin negative.

Okay. And then going into the first half, are you going to need to put more costs in to address stock loss?

Well, it's not -- well, look, it's -- one of the interesting things about the stock loss is it has a pretty aggressive Pareto. So you're not seeing -- across the whole group, we're not seeing the same rate of stock loss acceleration. That's the first issue. It is more of a rebel issue. Then we dive in -- double-click into rebel, it is more of a Victorian issue. Then we dive into Victoria, there is a number of stores. So what we're finding is that in terms of what we're deploying at countermeasures, it is in labor. So in terms of just having visibility of team members, that's one. Second is some capital costs associated with physical barriers and the like, body cameras and the like. So these are not material impacts. These countermeasures are not material impacts on OpEx, there's -- and nor CapEx for that matter because it is a relatively narrow Pareto of stores that are problematic. So it's not across the board, [ burglar theft ].

The next question comes from Sean with CLSA.

My first question is related to the -- so you have now recycled the first full year of rebel Active and going to launch Spend & Get within Supercheap Auto. I'm just interested to know if you can please provide some more specific metrics on customer behavior change you have seen? Any uplift in average basket value or the visit frequency?

Yes. Thank you. And look, on Page 20, we sort of provide some disclosure there of the rebel loyalty program. We're obviously not for a whole bunch of reasons disclosing some specific numbers. But probably the thing that I would call out and for those that have been listening for some time, if you look at that average annual member spend, at group level, we sort of indicatively said it was around that $270 and the goal of loyalty was to get that arguable $30 to get to $300. What that index chart shows on the right is that for that customer base, which is now 80-odd percent of sales, we've been able to -- the loyalty program has impacted their behavior, either those customers have grown in visitation or average basket, which has meant the spend they are making with rebel annually is growing quite robustly. So we're very pleased with that. And what's most interesting is the factor that's impacting that spend is more visitation than average basket. So -- which is, frankly, what we hope for, that you get the credit and you make a return. And the good news is when you return with the credit in your pocket, you're spending 12x the value of that credit. So the driver metrics here are working pretty much to expectation. It's been a long time coming, but we are certainly seeing some good results there. In terms of Spend & Get for Supercheap, it started in July. We're 2 months into it. Of course, I'm going to say it's going well, and it is, but way too early, and we'll talk about that as we get to the half. But the good news is with the percentage of revenue that is impacted by these initiatives, it does push through into organic growth. And we would sort of point to rebel's like-for-like performance versus its peers to sort of say in a quite a difficult apparel market, rebel is an outperformer and from our analysis, is taking share in the category, and we can sort of trace that through to that increase in visitation of the core engine of the business, which is that club membership.

Perfect. Maybe just a follow-up. Given Sports Direct's entry in Australia and consider the global scale and supply chain capability, just very interested to know your view of the competition landscape for Sports Direct.