Thank you for standing by, and welcome to the Adairs Limited FY 2021 results call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Mark Ronan, Managing Director and CEO. Please go ahead. Good morning, everyone, and welcome to the Adairs 2021 financial year results call. Joining me this morning on the call is Ash Gardner, our CFO, and Jamie Adamson, our Head of Investor Relations. The 2021 financial year has been an exceptional year for the group. The results achieved by Adairs and Mocka continue to highlight the strength of our brands, the hard work of our teams, and our culture that sees us look to delight customers every day, providing us with the ability to adapt to the ongoing challenges from COVID-19. The group achieved exceptional sales and profitability growth across both Adairs and Mocka. Group sales were up 28.5% to nearly AUD 500 million, with online sales representing more than 37% of total sales, driven by great results across both Adairs and Mocka, with all channels delivering strong sales results. The exceptional sales and gross margin results, combined with disciplined cost management, delivered strong operating leverage, allowing both brands and the group to achieve a record profit result with underlying EBIT of AUD 109.1 million, up 97.3% on the prior year. FY 2021 also saw the group invest in distribution facilities to support the future growth of both Adairs and Mocka. At Mocka, we doubled the size of our Brisbane distribution facility, whilst Adairs continued to work on moving to the national distribution center in Melbourne in partnership with DHL. The FY 2021 year result came on the back of a trading environment that was supported by consumers' additional focus on their home as a result of the COVID-19 pandemic. However, the ongoing focus on our underlying strategies helped deliver this growth. Some of the key drivers of the Adairs sales growth over the year included the growth in retail floor space, with gross lettable area growing 8%. The store sales result continues to be highly correlated to increasing our GLA. Over the course of FY 2021, Adairs delivered strong sales growth through a combination of opening new stores in areas where we were not well represented and the continuation of our upsizing program. Both our new stores and the store upsizing program delivered great results, as our larger stores provide us with the opportunity to showcase more products and categories and deliver a higher store contribution margin. Importantly, the new stores delivered strong sales and profit growth, but also drove an increase in online sales in those catchment areas. The Linen Lovers membership base increased by approximately 14% across the financial year. Linen Lovers who shop with us spend on average 10% more than they did in FY 2020 and grew to represent more than 80% of Adairs' sales. The team was highly focused throughout FY 2021 on signing up Linen Lovers, as we know this gives us the opportunity to build a relationship with our customer and increases the chance of them returning to shop with us in the future. An increased omnichannel conversion. More customers were comfortable shopping across channels than ever before. While store closures were one driver of this, we saw customers happy to shop both in-store or online, depending on the circumstances at the time. Ultimately, we know the most important driver in creating a multichannel customer is building their trust and loyalty to the brand. We saw strong sales growth driven by the increase in multichannel shoppers as they on average spend more, which is driven by their engagement with the brand and their comfort in shopping with us how they want, when they want, and where they want. The Mocka sales growth was driven by continuing to build out our product offering, enhancing the customer experience through initiatives such as the introduction of augmented reality to help customers visualize the product in their home, and continuing to build brand awareness, as highlighted by the 35% increase in website sessions. At Mocka, we also continued our focus on building up our customer database, with us now having more than 550,000 email subscribers available for us to both showcase our new product and promotions too. FY 2021 was a terrific year, and I'll now hand over to Ash to walk through the financial results in a little more detail. Thanks, Mark. Good morning, everyone. Yes, FY 2021 was certainly an exceptional year with many highlights. Total sales for the group of almost AUD 500 million were 28.5% up from last year, despite a third of trading days being affected in some way by COVID-related store closures, most notably in Victoria in the first half. Online sales of AUD 187 million across Adairs and Mocka now represent 37% of total sales. Both businesses were able to grow their customers and achieve higher average selling prices and like-for-like transaction growth, which converted to strong like-for-like sales growth and an expansion in contribution margins across all channels. Adairs stores achieved like-for-like sales growth of 7.4%. Online sales were up 33% to AUD 127 million. Mocka sales grew 31% to AUD 60 million. Despite the sporadic and at times lengthy disruptions caused by COVID-19, our customers demonstrated a willingness to shop across both channels, with total sales now more than 30% up on the pre-COVID-19 levels of FY 2019. This strong like-for-like sales growth, combined with a focus on gross margin and cost control, delivered the record EBIT result for the group of AUD 109.1 million, up 97% on last year, and delivered an EBIT margin of 21.8% and increases 760 basis points on the prior year. Adairs reported a record underlying EBIT of AUD 96.7 million, up 98% on last year, with an EBIT margin of 22%, driven by the strong like-for-like sales growth across both channels and margin expansion. Mocka contributed AUD 12.4 million for the year, up AUD 6 million, and ahead of the business plan that we put together when we acquired the business in 2019. It should be noted that Mocka was only owned by Adairs for 30 weeks in FY 2020. Costs continued to be carefully managed throughout the year with improved labor productivity across our stores and distribution centers, and an ongoing focus on achieving high returns on investment for key marketing and digital initiatives. As we announced in February, the company repaid its JobKeeper wage subsidy benefit and has not been eligible for any other government support. We've continued to work collaboratively with our landlords to share the impact of the store closures, with rent rebates received in FY21 related to COVID store closures since the prior year. Throughout the last 18 months, we've adapted our operating model and cost base to be able to respond quickly to unplanned disruptions caused by COVID or other issues that are beyond our control. We continue to employ these measures today as we deal with the current lockdowns across Victoria and New South Wales. It is a credit to our team for the way they've adapted to the different situations throughout the year. Their resilience and commitment to servicing our customers has been the critical ingredient to achieving this result for our shareholders. Our reported net profit after tax of AUD 75.4 million was double last year and includes the effects of AASB 16, as well as the one-off transition cost for the new national DC of AUD 1.7 million after tax, and the true-up of the Mocka deferred consideration, following the agreement to settle the deferred payment in September of 2021. The record operating result achieved has enabled us to finish the year with a strong balance sheet. Our inventory levels have improved, and we've chosen to carry more stock than we would normally to allow for the production and shipping delays being experienced across the supply chain globally. We closed the year with cash on hand of AUD 26 million and no bank debt and declared a final dividend of AUD 0.10 per share, which brings the total dividend for FY 2021 to a record AUD 0.23 per share. Back to you, Mark. Thanks, Ash. On slide 10, we look at the continued drivers of our future growth, which are largely based around our omni model. The Adairs model aims to deliver exclusive designed and developed product through our vertical supply chain. The total addressable market is large, with management estimating the market to be over AUD 13 billion in Australia. By offering our exclusive product across multiple channels, it allows us to maximize and fully leverage the benefits that come from our Linen Lovers program, back-end infrastructure, and highly capable team. This provides Adairs with the opportunity to offer a seamless, inspirational customer experience across channels, resulting in high levels of customer acquisition, retention, and preference. Given the size of the market, our opportunity to continue to grow market share by focusing on our strategic pillars is high, enabling us to deliver strong EBIT growth and margins for shareholders over the medium term. With this in mind, you can see how our five key drivers of future growth highlighted in the presentation continue to build upon this model to enable us to capitalize on the growth opportunities for both Adairs and Mocka. If I start with our proven and resilient business model, the strong brands that we own, our vertical supply chain philosophy, and our direct-to-consumer store and digital channels allows us to develop and control the expansion of our product offering and customer base. This enables us to be more agile and responsive to changing customer needs through the delivery of exclusive on-trend product at higher margins. Our strong brands, combined with our large and loyal customer base, delivers a lower cost of customer acquisition and provides significant opportunity to enhance and build upon our relationships with our customers. We see the combination of omnichannel retail with loyalty as a key growth driver. Adairs is focused on continuing to grow its market share, and the best way to do this is to grow our customer base whilst increasing our share of spend from our existing customers. Linen Lovers is the program through which we provide value to our members, allowing us to achieve this. The Linen Lovers program today accounts for more than 80% of Adairs' sales, and we have started our investment in data analytics capability to enhance our ability to build upon the value of this program for our customers and deliver ongoing returns for shareholders. At Mocka, we continue to review the opportunity to create a loyalty program that is relevant to our customers. We have focused on growing our email subscribers and have added more than 30% to the database over the FY 2021 year. This provides us with the opportunity to remarket to these engaged customers at significantly less cost than general digital marketing allows. Our focus on becoming an omnichannel leader is supported by our digital trans- - us is to showcase range, customer traffic measurement and analytics, both in-store and online, together with online chat. Adairs will continue to build upon its digital capabilities by upgrading the online platform in 2022. This will help enable a more seamless omnichannel customer experience and see us introduce additional personalization and basic items such as click and collect and express delivery. Mocka is continuing to build upon its digital capabilities after successfully upgrading their online platform in FY 2021. This gives us both a solid foundation upon which to grow over the coming years and enables us to trial new technologies such as augmented reality in the short term. We will continue to trial different technologies to ensure that any significant investment delivers an enhanced customer experience. The combination of Adairs and Mocka allows us to capitalize on two great brands with well-developed digital platforms. With strong online sales growth achieved by both brands and 37% of total group sales now coming from online, we are well-positioned to win share as traditional store-only customers transition to become omnichannel shoppers. The addition of Mocka to the group increases our exposure to the fast-growing online segment of the market, with the significant benefits of vertical integration. Based on Mocka achieving the same penetration in Australia as it has in New Zealand, there is the potential for Mocka Australia to exceed AUD 100 million in sales revenue simply based on population size. Mocka provides the group with greater exposure to the furniture segment and provides the opportunity to reach a different customer through design-led value for money differentiated product. With a significant market to grow into, we continue to invest in product category expansion. Whilst this has been more challenging due to travel restrictions, the team have adapted to these conditions and continue to work on enhancing our width and depth of offer at Mocka. This will enable us to provide customers with a more compelling offer, and in time, allow customers to fit out their entire house with Mocka product. We are also investing in additional talent to supplement the Mocka management team and are excited to announce the appointment of Vanessa Brennan to the role of Mocka CEO. Vanessa brings a wealth of retail and e-commerce experience to Mocka, and her appointment, combined with ongoing investment in additional talent, will ensure we are well-placed to execute on our strategy of building market share by delivering differentiated, stylish, and functional product, convenience, and value for money to our customers. Our digital channels are enhanced by our store network. All of our stores are profitable, and our store formats deliver strong contribution margins. Larger stores are more profitable, and there is a strong pipeline of new store and upsize store opportunities for us to capitalize on. As I mentioned earlier, these larger stores give us the opportunity to showcase more products and categories and enhance the customer experience. With a highly profitable store portfolio, we remain focused on deliberately creating flexibility within our store leases through relatively short lease terms, allowing us to strategically manage our store portfolio through opening new stores, upsizing existing stores, obtaining more favorable terms on renewals, or closing stores that simply do not meet our return requirements. Finally, our omnichannel business model needs to be supported by an omnichannel supply chain. Construction of the national distribution center in Melbourne for Adairs is now final, and we are currently transitioning stock into this facility. Whilst this project has experienced some delays as a result of a variety of COVID-19 restrictions, we expect to be fully operational in Q2. The consolidation of our multiple distribution center operations into a single national facility will improve stock flow and online fulfillment, increase stock availability, and improve service levels for both our customers and stores during peak trading periods at a lower cost. We expect to realize AUD 3.5 million in annual savings over our existing operations once we are fully operational. The National Distribution Center is the foundation for Adairs' integrated omnichannel supply chain strategy to better enable customers to shop Adairs how, where, and when they choose, and has the capacity and flexibility to support Adairs' growth well into the future across all channels. Over the first seven weeks of FY 2022, the group has achieved like-for-like sales growth of 5.2% against FY 2021 and 50.5% against FY 2020 after adjusting for the impact of closed stores. Total Adairs sales are down 16.1% on FY 2021, but up 5.5% on FY 2020. This has obviously been significantly impacted by stores closed due to government-mandated lockdowns, with Adairs store sales down 27% on FY 2021, despite losing 40% of the available store trading days. All states and territories, with the exception of New South Wales, have experienced strong sales growth over FY 2020, with the customer responding well to our new ranges. While stores have been impacted, the Adairs online business and Mocka continue to grow. Adairs online sales are up 12.9% on FY 2021 or 131% on FY 2020, and Mocka sales are up 16.1% on FY 2021 or 74% on FY 2020. These are clearly strong results on the back of strong trading periods last year. The gross margin for the group over this period has moderated against FY 2021, however, remains well up on FY 2020. If I move to the outlook, and I start with consumers. While stores being closed as a result of lockdowns will impact the FY 2022 result, we believe the underlying consumer conditions remain positive for the home category. Household savings remain elevated, with households accumulating circa AUD 137 billion of incremental savings over the last 18 months, which is almost equal to one year's worth of discretionary retail spend. Housing market continues to grow strongly, with churn returning to this market, delivering a tailwind for household goods, ongoing travel restrictions continue to support customers transferring a portion of this travel spend towards household improvement, further supporting the home category. Given Adairs' and Mocka's positioning, we expect to continue to benefit from the current environment, which sees customers having an increased focus on their homes as a sanctuary and increasingly a place of work, entertainment, and education. A buoyant home category market continues to provide Adairs and Mocka with a significant opportunity to continue to grow market share and build brand awareness. We note in the outlook side that we expect the gross margin will be impacted by supplier cost price increases caused by increased global demand and the increased cost of sea freight. We expect that these will be offset somewhat by the stronger AUD and our ongoing focus on managing price and depth of discount. Global supply chains have been significantly impacted by COVID, and both Adairs and Mocka see ongoing challenges in production capacity and shipping availability, resulting in longer lead times. As a group, we have attempted to insulate ourselves from some of this risk by carrying additional stock over the first half of the year to allow for these longer lead times. Adairs expects to open two to four new stores and upsize 8- 10 stores over the coming year, with a strong pipeline of opportunities available. CapEx for the year is expected to be in the range of AUD 10 million-AUD 15 million, reflecting the expenditure on these new and upside stores, as well as supporting the ongoing investment in our digital initiatives. Given the inherent uncertainty in the market today as a result of store closures, the board did not consider it appropriate to provide further guidance at this time. Before I finish, I would like to thank a few people. I'd like to start with the Mocka founders, Emma and Cameron, and Rachel and Jeremy. We have got to know them well over the last 18 months or so, and I'm thankful for the way they have helped transition the Mocka business to independent management over this time. They have done an exceptional job in building the Mocka brand into the business it is today, and we look forward to making them proud of the brand they created as we continue to build and grow it over the coming years. I'd like to thank the Adairs and Mocka customers. We get the privilege of being a small part in helping them create a home they love. Our aim every day is to continue to inspire and delight them, and we thank them for their ongoing support. Finally, to the Adairs and Mocka teams. The last 12 months have seen us come through some very different times, and unfortunately, many of the team are back in lockdown as we give this presentation today. Our teams are passionate about our businesses, and this continues to shine through in the way they go about delivering for our customers, despite ongoing challenges and changes as a result of COVID-19. I'd like to thank all team members across Australia and New Zealand for their hard work and dedication. I remain confident that with this great team, we are well-placed to not only manage the current conditions, but put ourselves in a position to capitalize on the new and evolving retail environment, delivering shareholders ongoing profitable growth. I'll now hand over for questions. Thank you. If you wish to ask a question please press star then one on your telephone and wait for your name to be announced. If you do wish to cancel your request please press star then two. If you are on a speaker please pick up the handset to ask a question. Your first question comes from Aryan Norozi from Barrenjoey. Please go ahead. Hi, guys. Just first one for me around Mocka. The second half EBIT margins, I think, were about 17%. I think you guys have historically said that 20% plus mark is a good indicator for balancing growth and profitability. What's driving that? Is it front-loaded cost investment, and you expect the fruits to bear over the next 12 months? Or is it a change in thinking around profitability, please? I think it's a combination of things, Ary. There's an element of additional investment. Doubling the size of a warehouse is obviously investing ahead of the curve to enable us to manage the future growth. We've added team into that business, which we knew will add value over a longer period of time. Over the second half, we probably had a quite lumpy inventory supply chain piece. We had a lot of stock on the water as we gave these results in February. We probably ran a bit feast and famine, which meant that we had to play around with inventory and promotion, so we didn't quite extract the gross margin that we expect we can deliver over the longer term. Equally, we invested a little more in marketing and some of the things that we trialed didn't work quite as well as others. I think that's the nature of a growth business such as this. We continue to remain pretty committed to that range of 18%-20%, we think, which was what we came out with when we started and we first acquired Mocka. It's sort of the range that we think we should be able to operate in. Obviously, the second half was a little bit below that, but I think that's the approach we take going forward. Obviously, as we continue to grow the business and learn what works and what doesn't, we'll continue to adjust that EBIT margin accordingly. We continue to focus on that sort of range as being how we'd like to think we can deliver over the medium term. I think in relation to Mocka as we look forward, particularly the shipping costs are probably a bigger component of our cost of goods sold in Mocka as compared to Adairs. We've probably got a little more gross margin pressure in that business over the short term, but we expect over the medium term, they'll moderate to a more reasonable level. They might not go back to where they were, but we're going to end up with a more reasonable level. We also think that given that market, price increases are probably likely to go through that larger, bulkier goods in terms of homewares, given everyone's having to deal with the same thing. As I said, it's a little bit disappointing where we ended up, but that was largely based on some investments we made and that lumpy stock coming through in that second half. Perfect. Just on the inventory piece, Adairs inventory is up 16% on 2019, Mocka's up 17%. You've obviously flagged that you're holding some safety stock given all the sort of disruption in supply chain. What assumptions have you made for sort of the key second quarter trading period? What's the risk you have to start clearing product to sort of clean up the inventory position, please? Yeah. We've assumed that in most instances, stores will be open to a large degree. We're expecting to have ongoing lockdowns. Obviously, that's the environment we're in. Equally, I think it's important to note in relation to that inventory, a lot of the extra inventory we're holding is largely based on core ranges. We don't expect that we'd have to clear those core ranges should that not be the environment we're trading in. They have a longer shelf life. You think about white sheets, towels, and in the Mocka examples, a lot of our cot ranges are quite their ongoing ranges. That is where we're putting a lot of that inventory. That doesn't say there won't be some clearance that we need to move through should conditions not be there. We've got Christmas, we've got beach towels, we've got those seasonal type products. Overall, we've tried to maintain a balance on that inventory piece to ensure that we're well-positioned. Our stores are going to be open between now and Christmas, but we think we've struck the balance and made sure that we're focused on taking that safety stock in areas where it's less risky. Perfect. The gross margin commentary sounds like it's obviously down year-on-year, but up on two years ago. Last year, same time last year, you were up circa 700 basis points, which is quite phenomenal. What's the view around how much of that you can give back versus retain? I think pre-COVID, in January, margins were up sort of 300 basis points. Should we be thinking sort of half of that goes away? Yeah half continues? Yeah. We spoke at the half that we'd like to retain circa two-thirds of it, but I think the current environment we're trading in probably sees us give a little bit more back. As we think about it today, about half of it, we think we look to put back into price. Equally, we've got those obviously ongoing challenges. We think we can manage the price and depth of promo piece of the puzzle quite well. We're not expecting to have to significantly reinvest in that area, but we think the cost-price pressures are going to be slightly harder to see all of those pass through to consumers in the current market, just given the uncertainty that's out there today. I think if you think about us retaining somewhere between 50% and two-thirds is what our aim will be. Obviously, we'll see how the season trades out. It's seven weeks, the smallest seven weeks of the year. It's pretty hard to tell. There's a lot of moving parts this year, more so than other years. Yeah. Last one around the divvy. I mean, the payout ratio is well below your target or your historical range. Do we interpret that as an indication of your future confidence, or is that just being conservative in general? I think everyone knows that the Adairs management team tends to take a conservative approach to these. I think you can take that as being conservative, and that was our approach. There's plenty of time to think about how those dividends roll out in the future once we get a little more clarity on the trading environment we're operating in. We adopted a lower ratio on a conservative basis to make sure that we balanced both rewarding shareholders for a terrific year, but equally just maintaining the strength of our balance sheet to trade through uncertain times and still consider what other opportunities might be out there on the other side of these uncertain times. Perfect. Thanks, guys. Thank you. Your next question comes from Mark Wade at CLSA. Please go ahead. Good morning, guys. Yeah, brilliant result. Hi, Mark. Playing devil's advocate, what should give us the confidence that this is not as good as it gets? You said something unique there in the number of customers you've attracted new to the brand, something in the behavior of the shoppers, which means they're more likely to stay in the home categories for longer since the onset of COVID. Is there more to it or is this as good as it gets? I think there's always more to it. I think if you think about the size of the market, we're still a relatively small player in relation to the size of the market. I think when we look at it, the beauty of the Linen Lover program is that we continue to grow that year-on-year, and those customers continue to come back. Every year that we keep investing in ulting on more Linen Lovers. When we talk about investing in attracting Linen Lovers, it's not done with a high marketing spend or anything like that. A lot of it's actually converting those customers in-store to become Linen Lovers using the assets that we have, such as our store team. That approach enables us to build that relationship with the customer. I think in that regard, we do have an element of a unique consumer proposition in relation to continuing to build that Linen Lover program. I think unlike potentially other databases and the like that are thrown around as statistics, you've got to remember that every one of those Linen Lovers on that program had to sign up in the last two years and pay the AUD 20. That says they're more highly engaged. They're looking to extract value from the program they've joined. I do think we're well-positioned there. Equally, it comes back a bit to also creating product for them. We are one of the few businesses in Australia that's trying to drive that fashion and trend element in this space at this sort of scale. The product team have done an amazing job again at continuing to meet customer needs and interpret the trends. I say that in a more challenging environment given our inability to travel. We've adapted to different ways of doing that. I think we've got good customer engagement today, and we think the markets, there's still many more Linen Lovers that we can add into that. We've obviously got the stores and continuing to upsize and roll out the larger stores in areas where we're not. I think the exciting thing from there is, as we roll out those stores, we do see more customers shop with us, both in-store and online in that catchment area. That does build an advertising and a brand awareness piece as we build that out. As we continue to invest in creating a more seamless experience, I think we've got a lot of work to do in that space. I think we've got lots of levers. I think FY 2022 in the short term is going to be challenging given the lockdowns and all the rest of it. As I said in my presentation there, I think our strategic pillars and the growth levers we've got, put us in a good position over the medium term to ensure this isn't as good as it gets. We'll continue to focus on customers and product, because I think that is what delivers it over the longer term. There's lots of levers within those two areas for us to continue to pull. That's a really comprehensive reply. Thank you. Just on that matter of the lockdowns, you've seen it in the past as you come out of them, and you feel like you haven't had a lot of demand destruction, as in, like people have just delayed their purchasing behavior. Is that still the current thinking? You haven't permanently lost those sales, and you can still call them back? I think you lose some, to be fair. I think there are some that moment in time, you lose the impulse, right? Someone walks past the store window, sees an amazing product on the bed, buys it, didn't think they were going to buy it and didn't necessarily go looking for it. I think you lose an element of the impulse buy. I don't think you lose them all, and we expect that like we've seen as when other states have come out of lockdown, we do see it revert pretty strongly back into store, in particular. I think we will the longer they go, what we also see is we get a bigger transference to online. Short, sharp lockdowns, we tend not to see an immediate response to online. People think it's going to be three, four, five, seven days. We tend to get a deferral in the first week. After that week gets extended, which seems to be the way lockdowns are just going at the moment, we then start to see online pick up its share. When we come out of it, we see customers come back to store. I mean, I can't remember whether I gave the example on this call at the half, but we regularly see customers come in and they love to see the store team again. We had people deliver cakes to the store team, last time we reopened. Our stores are missed and are well-loved by our customers. We expect to see good growth come back when they do reopen, and we probably have those little windows there where you get a bit of a bubble as those stores reopen over the half. I think for us, we're in a good position, and we expect that we will see some of that return, but equally, Mark, it's fair to say that, the longer they go on, the harder it is to pick up those, particularly those impulse sort of components of those sales that you would normally get just with customers walking around shopping centers. All right. Credit to the whole team. Well done on a amazing job. Thank you. Thanks, Mark. Thanks, Mark. Thank you. Your next question comes from Apoorv Sehgal from UBS. Please go ahead. Good morning, Mark, Ash, and Jamie. My first question on the stat that store sales in the first seven weeks are down 27%, versus 40% of store trading days closed. Do you think you've potentially won further market share in these last seven weeks? Potentially. It's hard to work out. It's really hard to work out. You haven't got a lot of direct competitors providing similar sorts of numbers in that sort of trading window, when you think so much of this category is still shopped in department stores and obviously there's a bunch of private players out there. I think we've done a reasonably good job of things like call and collect, helping to ensure that we maximize the opportunity. I think that continues to be what we aim to do. Whether we've grown market share, anyone's guess, to be honest. I'm probably more focused at the moment on just thinking about how we continue to manage this trading conditions to the very best of our ability within our own circle, rather than think too much about, is that are we winning or losing share, just given the number of moving parts that we're obviously dealing with on a, unfortunately, week-to-week basis. Yeah, sure. That's clear. How are you seeing the competitive environment over the last couple of months in terms of promotional activity, any discounting, and overall marketing intensity? Yeah. Well, I think the marketing intensity's there. We're definitely seeing strength in increasing costs in that digital marketing space. We've seen a lot of the retailers go back to a more traditional style of depth of promo, length of promo, and those elements. We've certainly continued our approach that that's not what we want to do. We want to balance that out. We've been reducing that and continue to stay strong to that strategy, probably despite the trading conditions that we're seeing. It means that we play around with it a little bit. We think that's still the right long-term decision for the brand. We've seen the department stores ran a far more traditional mid-season sale. That ran through the normal period, if not slightly longer at some instances. Our friends at Bed Bath N' Table have pretty much done what they normally do. I would say that we've returned to a more normal trading, retail trading environment, in relation to depth of promo and length of promo. We have endeavored to maintain our approach to try and both reduce the length of time we're on full store promos and equally keep managing that depth of discount. As I said previously, we've definitely learned some elements around which categories need that stronger discount and which are a bit more commodity, and therefore, we've had to give a bit back in those areas, but equally capitalizing on the uniqueness of our designs and ensuring we maximize the opportunity in that space has been something that we've maintained focus on. Yeah, the competitive environment is probably back to normal and just like we've seen in the past. It's no different. I would argue perhaps it's a little more expensive in that digital space, though. Thanks for the detail. Just one final question from me. Any color on recent rental negotiations and how you see the environment for that, and therefore the outlook for occupancy costs into FY 2022? Well, we continue to see. It depends on the store. I've always said this. Stores fall into three categories. You've got great stores, and if you've got a great store, you are unlikely to get significant rent reduction or change in that space. We're seeing some good deals in around shopping center and potentially some of those more B-grade shopping center stores, and working through those. As that comes through the numbers, but it takes time, right? You're not going to see a significant change in the rental expense in the short term, just given the nature of how many stores are there and the way these reductions sort of flow through. I wouldn't sit there suggesting that you start modeling a significant reduction in occupancy costs in FY 2022. Obviously, there's ongoing thoughts and discussions going on at the moment around rental rebates and COVID-related lockdowns and all the rest of that have got a lot of water to go under the bridge. I think what we're going to see actually over this half is a deferral and a delaying of some of those renewals, whilst landlords have to deal with, obviously, the impact of these lockdowns. What we find is most landlords have to. We all go back to managing the day-to-day and what's happening in the market today, and some of the longer term stuff gets kicked down the road a bit. There are rental reductions out there, but I wouldn't be expecting significant changes to our occupancy costs in the short term. Very good. Thanks, Mark. No worries. Thank you. Your next question comes from Jo Little at Morgans. Please go ahead. Good morning, Mark and Ash. Most questions have been asked, but just you make a point that you continue to assess potential acquisition opportunities in the slide deck. What does the perfect or the right acquisition look like for you? Is it a startup? Is it established? Online only? Core product? Does it have to be profitable, et cetera? That's a big question, Jo. When I think about it'll be home. It'll have enough scale and size about it to move the needle over the medium to long term. It needs to have great growth prospects. It can either be online only with a thought that, how might we turn it into an omni-channel business or an existing omni-channel business? You think about what we think about when we look at our, I guess, proven and resilient business model, as we call it. We think about they need to develop and design their own product, vertically source. We think all of those things are key strengths in a retail business, direct to consumer. As you start to play that out, there's probably plenty of brands out there that potentially fall into that bucket. Equally, I think some of the challenge is in the businesses that we've I said last time, I think every homewares business in Australia was for sale somewhere between February and June of last year. Trying to work out what the sustainable earnings of a lot of those businesses is quite challenging. Therefore, given our conservative nature, we tend to pull away pretty quickly from a lot of them if the expectations are too high. I think that gives us some element of it needs to be well priced and on traditional sort of metrics, given our love of EBIT and cash flow. Okay, great. Thank you. Just in terms of that AUD 7 million impact short term, should we just run that through at the gross margin? Are you actually paying rent in your stores that are closed today and that deferral conversation happens down the track? Yeah, I think that's fair. We're in negotiations or discussions with them, and at the moment, I'd wash it through, pretty much through the P&L, pretty directly at a gross margin level, given we'll continue to pull levers, but, as we sit today, we haven't got any of those levers in the bag. Therefore, you should assume that the only cost we've really taken out is a level of team in those stores that are impacted by the lockdown. You think about our casual workforce and the like, and we've obviously had to stand a lot of those guys down, given the current circumstances, don't see them having any meaningful work to do as opposed to we wanted to do it. It's just there's not enough to do in stores while we're just running the call and collect model. That's really the only significant saving that we've banked in the first seven weeks, and the rest of that will be an ongoing negotiation, no doubt. Yep. Perfect. If you just look at the comps outside of the store impact, it's quite encouraging. I'm presuming a market like W.A. least impacted, West Coast is probably going to be one of your strongest markets. Would that be fair? Are you seeing quite healthy single-digit comps in a market like that? I think WA is definitely a good example of a market that's largely operating more normally. We're quite comfortable that our store sales have stacked up really well against FY 2021 in that market. That gives us great confidence that the product itself is resonating. If we had all stores open, obviously these numbers would be a bit different for the first seven weeks. Yeah, no, we've seen good like for likes in WA as compared to other states. That low single digit is about the area where you should be thinking. Equally, word of caution, first seven weeks of the year, really small time, all the stuff that I normally put around it. To be fair, it's one of the few markets we've got real visibility as to whether the product's resonating, and it's definitely one that we're probably a little more focused on at the moment, given it gives us some direct line of sight as to success of product, as opposed to trying to manage the overarching business, given the lockdowns in other states. Okay. Thanks, Mark. Thanks, Ash. Thanks, Jo. Thank you. Your next question comes from Wilson Wong at Jarden. Please go ahead. Hi, guys. Can you just quantify the savings on the wages from the store closures in FY 2021? How do you think about it in terms of the net change in FY 2022, just given the reduction from the current lockdown as well? Ooh, Ash, you want to have a go at that? I think it's probably better to look at it from a wages to sales ratio. We look to try and run the stores, so if we go into a lockdown like Mark just mentioned before, where we've had to stand the team down, we look at what are the minimum hours we need for safety and what are the hours that we need to maintain an acceptable level of productivity. We will flex the wages up quickly as sales demand increases because our business is very much focused on service and driving high returns or sales per hour. I think you're better off looking at it from a labor productivity perspective and we're continuing to manage that carefully and do what we need to do to get the same levels of productivity out of our team as possible. Okay. That's clear. Just my second question is just around, I guess, which product categories have been prominent, I guess, in the first seven weeks of trading in this financial year? Can you give us a sense of sort of the level of repeat customer sales you're seeing more recently? In terms of product categories, obviously the bigger ones have probably followed the trajectory of the numbers that you see in there, given something like bed linen and it's 40% of the business, it largely trades in line with whatever numbers we publish. Those first seven weeks, you're largely seeing some of our core categories trade to those sorts of levels or slightly behind those levels because we've seen good growth out of, in particular, home decor and some of our category expansion and investments we've made in things like home storage has been a great investment that we made and we started to build our home storage category in February, March, and that continues to trade well. Tabletop's been amazing as we start to invest in that. Areas where we've really thought about and invested in product width and depth are obviously trading well. We've actually seen kids trade really well over the first seven weeks as compared to last year. I think the beauty of that is the areas that we are investing both people and inventory have traded well and ahead of the rest of the business. We're pretty confident that, having a look at our W.A. numbers, that when we get stores reopened, our core categories should bounce back relatively well, which sets us up well for both continuing to drive the business forward and obviously identifying those growth categories and seeing good performance in those is encouraging for us to continue to build that out over the coming years. My last question is just around, I guess, the investment strategy for Mocka under the new CEO. Any sort of indication on that and I guess the size of the investment and infrastructure that you flagged? Look, we don't think we need to invest super heavily to deliver ongoing growth in Mocka. That's why we talk to trying to maintain that EBIT margin. That might dip in the short term if we think there's an opportunity to invest more in people and talent to get us the longer-term opportunity. Obviously, that was one of the key conversations we had with the founders at the time in that we wanted to invest more quickly and more heavily, and given the nature of the earn-out, that led us to not being aligned on timing and horizons in some of those investments. At this stage, given in particular that Vanessa hasn't started, it's hard for us to give you a lot of color on that. It's definitely an ongoing conversation that I expect we might be able to give more color at the half once Vanessa's definitely spent a bit more time in the business and together, we've worked up that strategy and made sure that we're comfortable with it. We obviously have an underlying strategy, but we're really keen for her to get her feet under the desk and start to understand how it all works today and where those key investments need to be made to continue to build out that business under her leadership going forward. Thanks, guys. That's helpful. Thank you. Your next question comes from Damian Hector, a private investor. Please go ahead. Hi guys. I'm glad I got a question in. Congrats on the good work. I've just got two questions. 1 on your Linen Lovers membership. In raw numbers or percentage terms, could you maybe share what the growth has been year-on-year? Second, you mentioned data analytics. Are they maybe your top three or five priorities? Have you set them in stone on how you're planning to use data and analytics to drive measures you have in mind? Yes. Let me answer the first one In terms of our Linen Lover membership, over the last five years, the CAGR of that is 14.5% per annum, and last year was largely in line with that. We think that was probably impacted by, in particular, the Melbourne store closures over the first half. We know that stores deliver a greater proportion of Linen Lovers to the program, as I said before, given the great work that the store team do in talking to customers and convincing them or selling to them the benefits of that membership program. We see that as a continued strategy for us and something that I think will be impacted by the store closures. Over the longer or medium term, we should continue to be able to grow at those sorts of 10%-15% per annum. In terms of the data and analytics, what we've started our investment on is, I think, doing a lot of work in building our views of customers and how we start to build out what we call our customer data platform and single source of truth. Initially, we see a lot of benefit coming from that in relation to personalization and more targeted segmenting of our customers, such that they get more inspiration and offers that are relevant to them as opposed to a larger batch and blast sort of approach. Whilst we do segment and target specific customer groups today, a lot of that is manual and quite time intensive. The first element of investment should start to see us be able to improve that. I think the beauty of data and analytics is whilst I've got a number of ideas, I wouldn't want to share them now because I think as we build out that platform and that program, we'll be using the data to help drive those ideas and really dig into those ideas as opposed to and maybe proving my hypothesis right or wrong as we look forward. I think the first one you will see is personalization, product recommendations, and some of that taking the data we've got, which is obviously extensive, and putting it to better use, which should improve both the customer experience, and I think we can also get an improvement in efficiency in our digital marketing costs as that starts to come on to make sure that we're targeting the right customers with the right sorts of product and potentially deals. I hope that gives you some inclination as to where we're going. We've got a long road to walk there, which is both exciting in the relation to future opportunities for the brand. Equally, I think we've got a really clear short-term target that we're going after in that space. Okay. Thank you. Thank you. Your next question comes from Graham Douglas from Aitken Investment. Please go ahead. A great result, guys. Thank you so much. Much appreciated. Okay. No, very helpful. I've got a question looking a little bit further down the track, and it really concerns when the economy starts to open up a bit for travel. I mean, at the moment, we've got a situation where there's AUD 60 billion, AUD 70 billion sloshing around trying to find a bit of enjoyment. No doubt, looking at my own wife, your place is good as any to get some enjoyment. That money's going to start to flow out of the country. When that eventually does in the next year or two, how do you see that shaping the business and the numbers we're seeing now? Well, I think when we sit here today, we know that is likely to occur at a point in time. As you say, that money is looking for a home. A lot of it is obviously ending up in that savings bucket as well, a lot of it's also looking for a home. With that in mind, that's why we focus on, in particular, the Linen Lover program. My view on that, Graham, is that what we can do today to best put us in the position to manage when that starts to come off, is to build out our relationship with our customers, put more people into the Linen Lover program. With that, we have the ability to obviously talk to and market to those customers who have engaged with us over that period, and continue. What we find with customers is once they start, and maybe your wife's a good example of this, they don't tend to stop, even though these other things come into it. They might defer or delay, and we might have slightly less transactions a year or we could have those sorts of things happening. As we build that database, what we find is when I talk to customers, they've always got the next idea that they want to move to in their home. The home is never complete, and that's the beauty of, I guess, selling into homes and thinking about the home category. With our team also then thinking about the fashionability, we know that changes over time and colors change and themes change. Those people who are highly engaged in this space will continue to invest in that space to maintain on trend, and they see it as a really important part of who they are and should, I expect, still be able to do some of the other stuff. There will be a period, no doubt, where that happens. When I sit here today, the number one thing for us to do as a business, and this is what we've been very focused on, is continue to grow our loyalty program and the members within that loyalty program, because that gives us the best opportunity to talk to them when market conditions change for whatever reason that might be. That is something we can do proactively now, build that relationship, become their brand of choice, such that when that changes, what we might find is some of that shift happens, but we still maintain our share, and we might take an increasing share of their wallet as opposed to today, perhaps it's being spread around four or five retailers and we're not getting it all, but in the future, perhaps that's another way to mitigate that. That's how we think about it today. We're really focused on how we continue to grow those Linen Lovers and how the other one for us is that category range expansion, which allows us to do more for customers, which I think helps build that brand loyalty, that we become their brand of choice for everything home as we build out our categories. Equally, that allows us to access more of that market share and more of their spend per annum as they spend across a variety of areas in their home. Those two pillars, they're our biggest opportunity for growth and also, I think our biggest defense against those times when, I guess, the world returns to somewhat more normal. I'm just not sure when that is at the moment. Okay. One other question. When you started to put together the new warehouse, you flagged that there would be some savings there between AUD 3 million-AUD 5 million. Are you still expecting that to come up? If so, will that come up in FY 2022? Yeah, we still expect to deliver roughly AUD 3.5 million per annum savings. That's come down a bit from the top line because we're putting more product through it as part of that. Equally, we've had a bit of a shift clearly in percentage of online. The good thing is that the facility, we made sure that it was more than capable of handling any shifting channel. We're very comfortable that the facility is set up to support our online business in the way that it is today and the way we expect to see it in the future. Yeah, you will see that AUD 3.5 million. It'll obviously be a bit pro rata for FY 2022. Yeah. I have no doubt that probably first half you won't see heaps of it, given there's always a few teething problems whenever you go live with something like this. It's so far so good, but I want to make sure the team know that we're expecting that they probably have a few things that might go wrong over the next little while. Equally, I'm really comfortable that we're in a great position and that those savings will come through as soon as we get that operation on a BAU sort of basis. At this point, I'd also just like to shout out, I think the team in Adairs have done an amazing job and partnering with someone like DHL, we see the real value in that and we've been really impressed with what they've brought to the table. We think we're in a really good position. One last question then. Given the situation in Asia, with COVID running pretty rampant through there, if that continues, how do you see that on your stock position and your ability to get new product through? I know you've got stock in your warehouse. Yeah That's only going to go so far. If you assume a 50% margin, well, it's like AUD 120 million-AUD 130 million worth of sales, That's a long way short. Therefore, how do you see the situation playing out to make sure you've got what you need in the quantities you need where you need it? Yeah. Look, to be honest, I think it's going to be pretty lumpy over the next little while. There's a combination of supply chain challenges, capacity challenges at suppliers, et cetera. As you pointed out, we have tried to isolate the business a bit from that by carrying some more inventory. It does have the ability to impact our fashion coming in. What it comes back to, though, is we've just got to work with our suppliers as closely as we can to understand where they're at and how they're dealing with it in their specific area and region. As a business, I think the beauty of being in a retail business is we never expect everything to go right. Therefore, we're well prepared to think about how we change, adapt, move away from, "All right, that was the promo we were going to run. That was the product we thought we were going to get. It's going to be late. How do we adjust our marketing and promotional plans? For us, what it means today is we have a bunch of plan Bs. I'm not concerned that we run out of inventory. I think today, I haven't got anything coming to me that says that our suppliers are in a spot where they are going to have to close down for a significant period of time or anything like that. I am concerned that our supply will be a bit lumpy, and therefore, what we've done with that is made sure we've got the relevant plan Bs ready to go and thought about that, and even just thought about what's the right investment to make in marketing and promotions and those elements, such that we provide ourselves with the greatest flexibility to adapt to the environment as it plays out. Yeah, as I said, I'm not concerned about running out of inventory. I also don't expect it to run exactly to the plan I've got today, and therefore, we've built contingency around that. Okay. All right, great. Thank you very much, Mark. Appreciate your time. Thanks, Graham. Thank you. Our next question comes from Peter Cooper, a shareholder. Please go ahead. Good morning, Mark, Ash, and Jamie. Congratulations on a great result in exceedingly difficult circumstances. Just a quick question from me in terms of talent. What are you doing to, firstly, retain the talent in the business? Secondly, what are you doing to attract talent into this growing business? Good question. I'll start with retain, because I think we've got a great team and how do we continue to retain and develop that team? We are actually investing relatively heavily compared to prior years in our ability to add talent through training and education of those key leaders within our business. We're working actually with a program with the Melbourne Business School. We've got a number of other initiatives happening in here where we're looking to add capability to our existing team and give them the right level of challenge within their role, and equally the right level of training and development outside of that role to help them fulfill their total opportunity. I think, as you say, the business is growing, and what we want to do is build a really solid, not only management team, but next level down that continues to drive our strategy going forward. With that, in relation to attracting, that comes back to making sure that we're in market and that we're providing the right both environment for our team to operate in. Equally thinking about things like flexible working conditions, which has become something that's a little more wanted by potential candidates and understanding how that all works. I think over the time, the one thing we've made sure of throughout COVID-19 is communication with our team has been really important, whether we know the answer or not. Equally supporting the team from working from home, through to providing them with incentives when we are delivering such results as these. We've tried to make sure that we have looked after the existing team as well as we can. With that, we're obviously hopeful, and we expect that that word of mouth as to how well the team have been looked after during the last 12 or 18 months continues to get out there and we move towards becoming an employer of choice in this space. There's no doubt at the moment that attracting great talent is potentially harder given lack of borders, movement around is restricted, all of those sorts of things. We think we're in a good position, and we'll continue to invest in that. I think particularly the learning and development opportunities for our existing team. Building great talent from within is something that we think is a great opportunity for the business to build on the strength of the team we have today and create future retail leaders from within our business. Thanks, Mark. Just 1 final question from me. It's in relation to the Adairs brand. Are you looking to develop any new categories within Adairs itself? Well, we continue to think about how we build out that category range expansion. As I've said, we've been really happy with our tabletop, our home storage over the last little while. We think we've got more room to go on those. Kids is amazing. We've played around with our Mark Tuckey furniture, which is actually delivering some terrific results as well. I think what you'll see from us, Peter, is an ongoing, slow and test and learn approach to our category range expansion, building out the business whilst maintaining those heroes of bed linen, bedding, cushions, and throws. We're getting the balance right of not trying to confuse customers about why you come to Adairs, but equally start to build out more and more options in some of these other categories to enable them to decorate the home. I wouldn't sit here today say there's a silver bullet, this category is going to deliver big numbers over the next three to four years. I think any one of those categories that we're trialing and learning in, we see great opportunity in all of them to add significant sales and obviously profitability to the group over that three to four-year time horizon. Thanks very much, Mark, and again, congratulations on a great result. Thanks, Peter. Thank you. That does conclude our question and answer session. I'll now hand back for closing remarks. Thanks, everyone, for attending today. Apologies to those that didn't get a chance to ask a question. They can reach out to Jamie directly if they want to follow that up. Again, thank you all for attending. We look forward to what is an interesting time in retail. We'll continue to react and adapt to the changing circumstances. We expect to continue to delight our customers over this half and deliver what will be a good result given the circumstances that we're trading in. Thanks, everyone. Thank you, everyone. That does conclude our conference call today. 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