Universal Store Holdings Limited (UNI) Earnings Call Transcript

Good morning, everyone, and thanks for joining the Universal Store Holdings full year FY 2026 results call. I'm Sam Wells with NWR Communications, and with me from the company today are Alice Barbery, our outgoing Managing Director and Group Chief Executive Officer; George Do, who is stepping into the Managing Director and Group Chief Executive Officer roles; and Ethan Orsini, Chief Financial Officer. After we run through a summary of the results that went out to the market this morning, investors and research analysts will get the chance to ask questions. You have two options available. First, analysts and investors can raise a hand through Teams if you'd like to pose a verbal question at any point during the call. Alternatively, you can send a written question using the Q&A function located at the bottom of your screen. We'll try to get through as many of the questions as we can, and in certain cases we'll group together questions that cover the same or a similar topic. If you are asking a verbal question as an analyst, we'd kindly request that you keep it to a maximum of two live questions on today's call. If you're joining from a mobile device, the best approach is to send any questions straight to me. Thank you. Alice, over to you.

Thanks so much, Sam, and thanks to everyone for being here on this year's results webinar. After my high-level summary, Ethan will take you through some of the finer financial detail. George will then guide us through the divisional results along with the trading update. I realize it's a busy day for all of you. So let's jump right into the slides. Thank you. Group sales came in at a very pleasing AUD 376.1 million, which is up 12.9% against the prior corresponding period. Our gross profit margin was 62.5%, an increase of 140 basis points on last year. Turning to underlying EBIT, that was AUD 64 million, up 17.2%, which works out to 17% of sales, and underlying NPAT came in at AUD 40.5 million, up 16.3%. It's important to flag the statutory NPAT of AUD 18.2 million, which was down 21.6%. That figure includes the AUD 23.8 million non-cash impairment of CTC intangible assets. Earnings per share were AUD 0.528, up 16.3% on the prior corresponding period. We have a strong net cash balance, with nil borrowings outside of leases, of AUD 23.3 million, up 35.5%. I'm also very pleased to announce a fully franked dividend of AUD 0.17 per share for the half, which brings the fully franked dividend to AUD 0.43 for FY26, and that's up 11.7% on the prior period.

Turning to group trends, there are a couple worth highlighting. Group sales came in at AUD 376.1 million, which, as we mentioned, represents a 12.9% increase over the prior corresponding period, lifting the Group five-year sales CAGR to 12.3%, covering FY 2021 through FY 2026 — that five-year span. U.S. six-year like-for-like sales growth was 7.88%, and 13 new stores were opened in FY 2026: five Universal Store stores, seven Perfect Stranger and one Thrills store. As planned, one Universal Store store was temporarily closed during FY 2026, set to reopen in half one FY 2027 for center refurbishment. At June 30, the group operated 123 physical stores, excluding our web stores. The Perfect Stranger retail format keeps rolling out nationally, with 26 stores trading at June 30. Perfect Stranger made up 9.4% of total group in FY 2026, which is up 7.6% on the period. Underlying FY 2026 EBIT of AUD 64 million, up 17.2%, equates to a five-year CAGR of a positive 7.3% from FY 2021 to 2026. Just a brief strategy update — we remain committed to our core strategy of scaling and growing our premium fashion apparel brands and retail formats. It matters that we keep delivering a compelling customer service experience while driving sustainable growth.

I'll briefly address all three banners. To begin with Thrills: our main focus is the retail approach, and it's advancing through better store operations, product selection, and a mindset and set of processes that get to market much more quickly. The cadence of fashion drops shifts beginning November 26. As a reminder, back when this was mostly a wholesale operation, drops happened quarterly. We've since managed to shift to monthly drops, becoming far more retail-oriented. Rejuvenation of the Thrills brand is certainly in motion. Product design aims to honor the brand's historic values while we keep evolving alongside current trends—precisely what our customer is choosing and responding to with enthusiasm. We're concentrating on steadying the existing wholesale channel via truly key partnerships and the lasting retail relationships we hold with those partners. That's not the area of the business we expect to expand and grow. It is unmistakably a retail strategy. Perfect Stranger is generating ongoing brand awareness and new customer acquisition by way of targeted brand activations that our customers are genuinely embracing and engaging with. We're delivering elevated, curated product ranges that serve diverse customer occasion needs. Remaining close to the customer and helping us understand exactly what those wear occasions are has done a lot to push this business forward.

We keep backing the brand’s expansion by adding dedicated capabilities and resources. Our national retail rollout is progressing strongly, and we view this as a 60+ retail banner. Universal Store also stays customer-led, thanks to a nimble, fast-to-market approach. We find and curate premium, on-trend items that shoppers love—a slogan you’ll hear echoed around our corridors. We stay service-focused, stay near the customer, keep putting money into our team and capability, and still view this network as having potential for 100+ stores. Always supporting and safeguarding that approach is our customer-led mindset, shaped not merely by intuition but by data analytics and independent customer research—work we’ve now conducted for the first time across all three banners—and that assists in steering our strategic priorities. I take great pride in our proactive team and in sustainability. We are strongly placed for the new mandatory climate reporting, applicable from FY 2027, to satisfy every one of our governance requirements. A new point of sale has been rolled out as recently as last week, so we have fully cleaned that up and every store is now using the new POS system. At the same time, we are implementing a new warehouse management system for FY 2027.

We remain a culture that learns, and we're putting money into group technology across both depth and capabilities, along with controls and risk management. So we're taking on emerging technology with gusto and governance. Within the organization, that's a very balanced approach. Now I'll hand things over to Ethan, who will walk through the financials in a bit more detail.

Thanks, Alice, and good morning, everyone. I'll begin with the group P&L. Sales for FY 2026 came in at AUD 376.1 million, an increase of 12.9% versus the prior period. It's pleasing that all three retail banners are growing. Universal Store sales rose to AUD 313 million, up 11.5%. Perfect Stranger sales climbed to AUD 35.9 million, an increase of 40.8%. Sales for the CTC retail format grew to AUD 12.7 million, up 16.9%. CTC wholesale sales fell 18.9% for the year, reflecting reduced U.S.A. exports, the closure of a small number of key retail accounts, and lower intercompany sales to Universal Store. Gross profit rose 140 basis points to 62.5% for the year. That growth came from strong product assortments, a higher Perfect Stranger sales mix, and the lower warehouse channel mix. Good inventory management has supported our disciplined pricing strategy and good full price sell-through. Cost of doing business rose 100 basis points to 34.1%, as we keep investing in team and capability from a system perspective to support future growth. A higher LTI and bonus expense was recognized in the year, in line with stronger trading results. On a total basis, underlying EBIT was AUD 64 million, up 17.2% on prior year and representing a robust 17% of sales.

Now let's turn to how sales have performed over the longer term. This slide's chart displays the retail banner sales trend across six years. It shows Universal Store growing consistently, with like-for-like growth averaging 8.3% during that six-year stretch. We also see what Perfect Stranger has gained by developing from an organic concept into a network of 26 stores. Perfect Stranger accounts for 9.4% of group total sales now. CTC sales matched the prior period, since higher retail sales made up for the wholesale channel's decline. Let's examine gross profit more closely now. The chart on the right side tracks group gross profit across six years. Group gross profit, as we can see, rose to 62.5% this year, which is 140 basis points above prior year. Four factors really drove this increase. First, continued expansion of the Perfect Stranger and Thrills retail formats has pushed a favorable GP mix through to the group. Strong assortment ranging has underpinned disciplined pricing and full price sell-through. We've also recorded a lower clearance sales mix thanks to that inventory management. A stronger AUD/USD exchange rate also gave us a benefit this year, adding roughly 15 basis points to the gross profit result.

Now let's turn to the cost of doing business. The chart on the left illustrates how our cost of doing business has moved compared with the prior year. It shows four key impacts. First, wage inflation and investment in team capability added AUD 6.3 million in cost. We brought in new roles to support future growth and strategic projects. Second, new stores and like-for-like growth produced an extra AUD 9.2 million of expense for incremental store wages, rent, and other variable costs. Yet, as the bottom of this chart shows, like-for-like sales growth has fractionalized cost of doing business by 170 basis points. We also incurred higher LTI and bonus expense during the period, which is consistent with the stronger trading results. Lastly, the other costs in business of AUD 800,000 mainly relate to costs for our new point of sale, which, as Alice mentioned, has been fully implemented, and costs for our new warehouse management system, which will be implemented in FY 2027. At present, we have eight leases in holdover, and on average, our cash rental costs have risen 5% on prior year. Turning to the balance sheet. As Alice mentioned, the group continues to hold a strong net cash position of AUD 23.3 million, with nil external borrowings as at June 30th.

Inventory coming down to AUD 32.6 million was a pleasing sight — a drop of AUD 700,000 versus the prior period — and that came about through better CTC stock turns plus a reduction in the wholesale channel. The last thing I'll mention on this slide is that the fall in other current liabilities is a reflection of the timing of corporate income tax payments. Let's turn now to cash flow. There are really only two points to cover here. First, cash flow from operations of AUD 111 million is a robust result, reflecting strong EBITDA conversion of 104%. Our FY 2026 CapEx covers opening 13 new stores, store refurbishments, a number of relocations, and investments in technology hardware and system capability. I'll now hand over to George, who will give our business and trading updates.

Thanks, Ethan. Morning, everyone. Moving on to our FY 2026 updates by banner. Universal Store posted full-year sales of AUD 313.3 million, which is up 11.5% on PCP. On a like-for-like basis, sales rose 8.1%, and we're pleased that the team keeps up its record of consistency and resilience by giving customers an on-trend, differentiated product assortment. Gross profit percentage climbed 150 basis points, thanks to disciplined price management. Private Brand accounted for 51% of sales as the team kept delivering an evolving, customer-led mix of premium private and third-party brands in each category. Online sales rose to AUD 39.6 million, up 9.4% on the prior year. Five new stores opened during the year, along with that one temporary closure, taking the total to 88 stores at June 30. Nine new stores are confirmed to open throughout FY 2027, with seven in the first half. Four to five refurbishments and three relocations are also planned for FY 2027. Universal Store has a target of 100+ stores. Turning now to Perfect Stranger. Perfect Stranger sales grew to AUD 35.9 million in FY 2026. That's up 14.8% on the prior year and up 13% like for like. The dedicated team executed the brand strategy, delivering elevated product ranges that meet diverse customer needs, increasing average unit price, and driving brand awareness and community engagement.

We saw online sales rise 49.5% versus the prior year, reaching AUD 4.9 million. In FY 2026, seven new stores were opened and one was relocated. As of 30 June, we had 26 stores in total. Six new stores are confirmed to open in FY27, and we're exploring additional opportunities. Perfect Stranger's target is 60+ stores. Turning now to CTC. As Alice mentioned, our strategic focus is retail execution and speed to market in product ranging to support store rollout. The retail strategy is making progress, with robust FY26 like for like sales growth of 17.8% in the retail stores. Online sales declined 10.5% on PCP, reflecting lower promotional and clearance sales. FY26 gross margin rose 240 basis points to 45.3%, driven by a higher retail sales mix and improved price management. Total CTC sales came to AUD 36.4 million in FY26, 9.2% below the prior year due to wholesale. One new Thrills store opened in FY26, bringing the total number of stores to nine at 30 June. That one new store is confirmed for half one, FY 2027. Now to our trading update for the first seven weeks of FY 2027. Group director consumer sales for FY 2027 to date were up 9.1% on PCP.

Universal Store's total sales rose 5.5%, with like-for-like growth of 2.9%, against a 10.7% comparison. At Perfect Stranger, total sales climbed 45.8% and like for like were up 17.6%, cycling +19.3%. CTC director consumer sales increased 10.1%, like for like rose 3.8%, cycling +4%. Across the group, we plan to open 16 to 20 stores in FY 2027: nine to ten new Universal stores, six to eight new Perfect Stranger stores, and one to two new Thrills stores. Beyond that, one Universal store will reopen once the center development is finished. Our customers keep valuing quality, on-trend product from the brands they love, and our approach to the mix of private and third-party brands stays customer-led. The gross profit percentage keeps gaining from growth in Perfect Stranger and Thrills' direct to consumer, while higher freight and energy costs should be offset by a favorable AUD/USD rate. Since we expect the inflationary cost environment to persist, including award and junior rate increases, our focus remains on balancing wage optimization with customer experience. We keep investing in team capability and depth so we can deliver strategic priorities and support future growth. I will now hand back to Alice, to close.

I believe we're set to take questions now.

Thanks, Alice. And thanks to Ethan and George. Just a reminder that you can submit questions through Teams using the Q&A feature located at the bottom of your screen. If you're asking a question verbally, we'd kindly ask you to limit it to two questions at most, and we'll have enough time to come back around if you have any follow-ups. First off, we've just received a couple of questions regarding the CTC impairments. Now that there's a write-off of brand names and not just goodwill, does this confirm that the Thrills brands aren't as enduring as management originally outlined in the presentation at the acquisition date?

That impression isn't one I really share. I think it's important to remind everybody that this was mainly a wholesale operation, and what excited us was the prospect of finding ways to expand the retail side. At the time, though, we didn't foresee how drastically the wholesale landscape would shift — that their largest partners would collapse, that companies would make wholesale strategy overhauls driven by their own balance sheets and move entirely vertical. And the retail partnership landscape keeps deteriorating, in our view. So we've been forced into a major change in how we run the team. We've had to become far more hands-on. Still, we clearly have faith in the brand. Plenty of customers continue to love the brand. But it's now turning into a retail play as we work through the wholesale partners we still have.

Thanks. I’ve got a couple of quick follow-ups too. With how well the company’s Private Brands have done, does that change how the board thinks about buying brands going forward? And what lessons have come out of the Thrills acquisition?

Let me begin with the final point. Yes, plenty of lessons have come out of this. Had I known then what I know now — naturally, I never anticipated the wholesale market shifting as drastically as it did, and it unfolded as a series of small hurts rather than one sudden blow. In other words, it came on gradually. Still, what would I change? Without question, I'd get more directly involved right from the start. We should have engaged far sooner in the everyday workings of running our retail operation. That is certainly a lesson we'd carry into any acquisition down the road. And no, we aren't hesitant about making acquisitions in the future. This great business can keep growing in a great many ways. Would I do things another way? Yes, without a doubt. We've picked up certain lessons and put some solid ones into practice, just as we do with every experience. Even our major wins leave us plenty to learn from. This is a company that has always been pleased yet never satisfied, whether a result stung a little or looked to everyone else like an enormous triumph.

All right, thanks a lot. Our following question is from James Wilson with Macquarie. James, would you unmute your line, please? Please proceed. Nothing? It seems James has dropped off. Let's move on to the next question, which comes from Sam Teeger at Citi. Sam, kindly unmute your line and go ahead.

Great. Hello, everyone. Am I coming through clearly?

Hello, everyone.

Sure.

Yes, we can.

Sam, we’ve got your point.

Thanks. Morning, everyone. Would you be able to add some detail on the moderation in Universal comps as we head into the start of 2027? I’m curious how August stacks up against July. Is it transactions that are driving it, or basket size? And have you noticed competitors — plural — ramping up promotional intensity? Thanks.

Yeah, I believe that during the initial stretch of this FY 2027, we've witnessed transactions come in pretty robust. It's more about basket size. Right now I'm discussing the macro picture for the group, though it varies by banner. I wouldn't claim that promotional intensity has genuinely shifted compared with what we observed in FY 2026. Afterpay cycle at the same point a year ago. I'd say competitive intensity has been fairly steady. Yeah, I think, just building on that trading update, clearly Universal Store, July, August — bear in mind that last year was a rather elevated comp. At 2.9%, that's below what we're accustomed to, and we've had to feel comfortable in this climate given those elevated comps. Nothing in the trade points that way. We know our customer is discerning. That's something we've traded through during periods when customers are more or less discerning. That's something we're accustomed to. What we aim to do in these conditions is simply grow market share. We're pleased with how Afterpay traded. We aren't really seeing anything in the transactions that indicates customers are strongly chasing promotion rather than paying full price for items they value.

The customer is still the one casting the vote for the finest products, whether at premium price points or at other price points. The only difference is that what they perceive is high value.

Alright. Moving to the second question, which concerns CODB. Within that 100 basis point rise, what portion is one-time and what portion is recurring? And I suppose, when will shareholders actually observe margin expansion resulting from the spending level we have now? Thank you.

Yes. I think that question really breaks into two pieces. First, we'll shift certain investments we've made—in the new POS system, for example. FY 2026 carried the implementation costs, but maintenance fees or license fees will keep running going forward. Those won't necessarily taper off, but the benefit is that it hands us a stronger platform for selling to customers than the one we had before. Then, obviously, there's the effect of items like rent, which is fairly in line with prior years. The second piece of the question is probably that certain capabilities we added in FY 2025 and 2026 have genuinely enabled us to grow Perfect Stranger, as one example. That business, as you can see, is performing tremendously well, and that dedicated resource is really what has driven the result. As we've consistently flagged, we keep investing in that capability—both in team and system—in order to grow. You'll see that investment continue, but as a percent of sales it will taper off. In FY 2025, we grew 130 basis points, and in FY 2026 it was 100 basis points.

My guess is that you'd anticipate some easing there, though we remain in the phase of investing to prepare ourselves for what the group hopes to achieve down the road.

All right, thank you.

Appreciate it, Sam. Our next question is from Ary Norozi over at Jarden. Ary, go ahead and unmute your line, please.

Hi, everyone. Is my audio coming through?

Sure.

Sure.

Hello there, Ary.

Hope you're doing well. I'll start with gross margins. For the Universal Store business, gross margin came in at roughly 62% during the first half of 2026, then rose to 63.5% in the second half. That happened even though Private Brand mix dropped from 55% in the first half down to 46%. Perfect Stranger mix clearly contributes, but given that kind of drag on gross margin from Private Brand, it's still a very strong outcome. Could you walk us through what drove that half-on-half increase, apart from Perfect Stranger, and is that 63.5% second half 2026 base the kind of run rate we should expect going forward, please?

Yeah, on that one I might just phone a friend and bring George in, but look, the currency was definitely stronger in the second half than it was in the first half. That accounts for some of it. As we mentioned in the presentation, we saw a 15 basis point lift over the year. In the first half it was slightly negative. It definitely got better in the second half. I also pointed out in the presentation that I think the range assortment and the mix of what we were selling was pretty strong, combined with solid full price sell-through and just inventory management. I know I'm repeating what we said in the presentation, but it really comes down to probably three or four factors, not just one thing. I might just phone a friend first and see if you have anything to add to that.

Yes. It bears repeating, since you've got it exactly right. Even though Private Brand mix leveled off at the Universal Store, the team handled pricing really well on both Private Brand and third-party brand. And even on third-party brands, the driver was genuinely giving customers what they want — those much-loved, on-trend third-party brands. In spite of the promotional climate, ensuring the assortment stood apart through those third-party brands actually resulted in a lower markdown rate.

Okay, that seems to be—

We’re going to hold to the same discipline.

Yeah. That seems like something you control. So that run rate for the second half of 2026, if you keep executing, it doesn't just flip or unwind going into 2027, as long as you're still executing well.

Yeah, at a broad level, I'd say that's a reasonable way to put it. Yeah.

Thanks. Now a second question about the stores. Clearly, you're launching many more Universal Store banners. Just so we can understand what those stores contribute, would it be fair to say the unit economics or box economics you're aiming for are quite similar to what you've done in the past? I'm just wondering whether you're opening additional stores, say, in sub-regional shopping centers or farther from the metro areas, where payback periods are good but the profitability contribution is lower?

Yeah, it's a bit of both. We're definitely expanding across a mix of geographic regions. I think we're also opening a solid spread of A grade centers, your regional centers, and maybe A-, B+ centers as well. I think we've really considered the combination of return on investment and your EBIT% payback. On an average basis, Ary, yeah, you'd probably say it averages out, but I think we're just kind of broadening our thinking about what kinds of stores would make sense to open.

Yes, I'm with you on that. Looking at the store lineup we've got planned for FY 2027, it's a genuinely solid blend. I think it shows just how strongly the brand connects across a broad spread of locations — regional, suburban, or metro. I'm sure plenty of you have driven past that massive Bondi Junction hoarding. That kind of store is part of the mix too, which is pretty exciting.

Excellent. Thanks so much, everyone.

Appreciate it.

Thanks. Ary, back to James Wilson from Macquarie. James, please unmute your line and go ahead.

Hello, everyone. I hope my voice is coming through clearly at this point.

Right.

Yeah.

Apologies for getting disconnected before. Let me start with Universal Store. In that trading update, it seemed as though momentum might have slipped a bit when you look at the growth rates versus FY 2026 during the opening weeks of this year. Could you walk me through what you're observing at that brand, especially across the last couple of weeks?

Yes. Once more, we need to recognize that through July and August, Universal Store was up against very strong comps from the prior year. That is something to keep in mind. The team, I think we have to be at ease with that comp, but the team is certainly not content. We are aiming to do better than that. I suppose we are not really hearing this talk in the market that winter is performing poorly. For instance, outdoor has been reliably strong. It is somewhat of a mixed picture across regions and categories. Still, I think customers keep choosing great product. So when the team executes well, as they are doing, that produces good freshness and customers will react to it. There is also some nice momentum behind our two-for promotions, which you will remember we run as well. That is not simply because of trade down, since we still see the premium price point in tops from Perfect Stranger as the top sellers at Universal Store. In fact, there is some solid trend potential feeding into those promotions from Open Archive and L&T, which are genuinely exciting and value driven.

Okay, so let me build on that point, George, regarding the value proposition you just mentioned. If younger shoppers do begin encountering stronger headwinds during this year—especially when it comes to things like their cash flows—how do you see your various brands being positioned to provide a more value-oriented product? Is that mostly Universal Store, or do you believe Perfect Stranger also carries sufficient value product should that scenario start to unfold?

Yeah. I think that's actually a solid question, since it comes down to how you're positioned relative to the market. If you look at where the Perfect Stranger brand sits, we've pushed the unit price up quite a bit year on year, as you'd have noticed. We've landed in the white space we were aiming for. It's now pricier than it used to be, and pricier than a lot of the price points you'll find at Universal Store. But for that particular customer, it's genuinely pretty accessible given that this is designer-led fashion in effect. So we see that as the value proposition, rather than chasing the entry level, because Perfect Stranger isn't looking to compete down there at the entry level of the market. At Universal Store, once again, we've traded through a range of macro conditions, making sure there's a solid full price offer. What we know is that our customer will back the premium product when they've just got to have it, but they'll equally back a product with a great price point. So it isn't about promotion and clearance — it's really about building a great architecture across the price assortment. In FY 2023, we had rents going up, for instance. We made sure there was good energy behind our promo offers, and that there were also solid entry-level price points in every category.

Yeah. I think the key phrase you brought up to me was simply the team trade. The team is outstanding at trading and at staying close to the customer, and since we have that fast-to-market inventory procurement, we aren't like other retailers who purchase three to six months of stock at once and see how it kind of goes. I think that kind of operating model is really quite agile in this environment as well.

It gives us flexibility. We have to respond. I believe we’ve shown quite convincingly how strongly this business performs both when macroeconomic conditions get tougher and when they soften. We aren’t afraid to react to the market when necessary, and we have ample skills, tools, and talent to make that happen.

Understood. Thanks.

Thanks. Appreciate it, James. Our next question is from Chami Ratnapala at Bell Potter. Chami, if you could unmute your line, go right ahead.

Thank you. Appreciate it, Sam. Hello, everyone. Hello to Alice, George, and Ethan.

Hello there, Chami.

I might have a couple of things to ask. Yeah, I have two questions for you. On the first one, given that there's been some consolidation in the streetwear market and a few other players have come out and reported declines too, how meaningful have your market share gains been, to whatever extent you're able to comment? Or is that a difficult one to answer?