Welcome to The Reject Shop's FY 2023 Results Call, thank you for joining us today. All participants are currently on mute. Following the presentation, we will open the call for questions from analysts. To queue for questions, you may press star one on your touchtone keypad. I will now hand over to Clinton Cahn, CEO and CFO of The Reject Shop. Thank you, Lachlan. Good morning, everyone. I'm Clinton Cahn, The Reject Shop CEO and CFO, and it's my pleasure to welcome you to our 2023 full year results conference call. Joining me on the call is Amy Eshuys, our COO, who will join me in answering questions during the Q&A section of this call. I'll start by walking you through the company's FY 2023 results, which are summarized on slides three and four. We have again presented our financial results on both the pre- and post- AASB 16 basis. I should note that all references I make to the prior period refer to the normalized FY 2022 results, which excludes the impact of the 53rd week in FY 2022. The normalized FY 2022 results more accurately reflects the underlying financial performance of the business during FY 2022 and allows for comparison with the FY 2023 financial results. Back to this year's results, which include sales of AUD 819.3 million, which are up 5.8% on the prior period and up 4% on a comp store basis. On a pre-AASB 16 basis, the cost of doing business margin improved by 115 basis points to 36.8% of sales. EBIT was AUD 13.3 million, which was up 93.2%, and net profit after tax was AUD 10.5 million, which was up 115.7%. For completeness, statutory NPAT was AUD 10.3 million, which was up 63.4% on the prior period. We are pleased to have again finished the year with a strong balance sheet. At the end of FY 2023, we had cash of AUD 77.3 million and no drawn debt. In terms of dividends, the board has decided to reinstate the payment of dividends and declare the fully franked dividend of AUD 0.16 per share, comprising a final dividend of AUD 0.065 per share and a special dividend of AUD 0.095 per share. I'll touch on capital management in a bit more detail shortly. Turning to slide five. Comp store sales for the year were up 4%, with the first half up 2.4% and the second half up 5.8%. As cost of living pressures increased throughout the year, customers continued to gravitate towards low-priced consumables that represent great value. We improved in-store availability across a number of consumables categories and continue to see strong sales performance where we offer our customers compelling value, particularly on branded products. You may recall that at our first half results in February, we reported our strongest Christmas trading period on record, and that under the leadership of Amy, a new merchandise strategy has been developed with an improved product offer, which is more closely aligned to our core customer. Pleasingly, these new product ranges started to arrive in store during the second half of FY 2023, and the customer response has been positive, particularly in relation to the new Easter range. During the first quarter of the new financial year 2024, the new and improved kitchen and home ranges have featured in the center aisle of our stores, and the customer response continues to be positive. We're also excited to introduce customers to the new Halloween and Christmas ranges during the second quarter of the new financial year, FY 2024. Moving on to gross profit on slide six. Gross profit was AUD 327.2 million on a pre-AASB 16 basis, which was up 4.4% on the prior period, despite gross margin percentage being down by 50 basis points to 39.9%. The most significant factors that adversely impacted gross margin percentage during the year were, first, the shift in sales mix towards lower-margin consumables. Second, domestic supply chain costs were higher than the prior period, driven by higher DC labor costs, increased domestic freight rates, as well as elevated fuel surcharge levies. Thirdly, and consistent with other retailers, increases in shrinkage have also had an impact. During the year, the company started seeing a reduction in international shipping rates, which peaked during the fourth quarter of FY 2022 and the first quarter of FY 2023 and have since reduced significantly. Some of this lower cost began to flow through to gross profit margin during the second half, with a more material benefit expected to be realized in FY 2024. Finally, I note that gross profit includes approximately AUD 4.2 million in other income, which is income from insurance claims relating to the four stores that were flood damaged during FY 2022 and one store in FY 2023. Approximately AUD 2.4 million of this income relates to the recovery of stock and equipment that was lost as a result of the floods, and AUD 1.8 million relates to lost operating profits from business interruption. No further material flood-related insurance income is expected to be received in FY 2024. Turning to slide seven. Pre-AASB 16 EBIT was AUD 13.3 million, which was up 93.2% on the prior period. The cost of doing business, which comprises store expenses and admin expenses, continues to be well managed and improved as a percentage of sales by 115 basis points on the prior period. Store expenses reduced to 31.1% of sales compared to 32.6% in the prior period, while admin expenses increased to 5.7% of sales, compared to 5.4% last year. The increase in admin expenses mainly reflects our bolstering talent in our store support center to support our growth plans. In terms of store expenses, store labor, which was 15.4% of sales all the way back in FY 2019, reduced from 13.7% in the prior period to 13.6% this year. We also saw a reduction in store occupancy costs from 14.4% of sales in the prior period to 13.2% this year. The reduction in store occupancy costs was mainly driven by the lower rents negotiated in both FY 2022 and FY 2023, as well as the rent savings achieved following the closure of poor-performing high rent stores in FY 2022. We are proud of the work that our operations and property teams have done over the past three years to significantly reduce our cost of doing business. Other store expenses, which mainly comprise store operating costs and advertising costs, were up approximately 10% on the prior period, mainly driven by higher electricity and maintenance costs across our store network. I also note that store expenses include the operating costs associated with opening and closing stores. These costs totaled approximately AUD 0.9 million in FY 2023, which is down from AUD 3.8 million in the prior period. For context, FY 2023 includes the costs associated with opening 15 new stores, compared to 22 last year, as well as the closure costs and non-cash write-off of assets associated with four store closures, compared to 14 last year. Finally, depreciation was AUD 12.1 million, which is slightly lower than the prior period. On to slide eight. We continue to make good progress in expanding and optimizing our store network. During the year, we opened 15 new stores and consistent with prior openings, these new stores are predominantly neighborhood and strip locations in both metro and country areas. We continue to look for new locations where we can more conveniently serve more Australians and are targeting to open approximately 15 new stores in FY 2024, including approximately seven in the first half. We closed four stores during the year and expect to close a further eight to ten stores during FY 2024. At the end of FY 2023, The Reject Shop's national store network included 380 stores, which is up from 350 stores when we began the turnaround at the end of FY 2020. Turning to slide nine. The company's balance sheet remains strong, with a cash balance of AUD 77.3 million and no drawn debt at the end of FY 2023. This compares to a net cash position of AUD 77.5 million at the end of FY 2022. Inventory closed at AUD 135.6 million, which is up from AUD 113 million at the end of FY 2022. We're comfortable with the level of inventory in the business and are targeting to reduce our inventory balance and improve stock turn during FY 2024. Turning to slide 10. In terms of capital management, as you know already, the company previously announced an on-market share buyback of up to AUD 10 million, which commenced in September last year. During FY 2023, we purchased and canceled approximately 647,000 shares at a cost of around AUD 2.7 million. This buyback concluded yesterday, two days ago, on the 22nd of August, 2023. Today, we are announcing that given our strong balance sheet, we intend to undertake a further on-market share buyback of up to AUD 10 million. This further buyback is expected to commence mid-next month. The board has decided to reinstate its previous dividend policy to maintain a minimum dividend payout ratio of 60% of net profit after tax, subject to the underlying profitability and financial requirements of the company, which will be assessed periodically. Going forward, we'll retain flexibility in deciding how much of the annual dividend is declared as an interim or a final dividend. Today, we are very pleased to declare a final dividend of AUD 0.065 per share and a special dividend of AUD 0.095 per share. This overall dividend of AUD 0.16 per share, which represents approximately 60% of FY 2023 net profit after tax, will be fully franked and will be paid to shareholders in early November. On to slide 11. Pleasingly, comp sales growth during the first seven weeks of FY 2024 is up 4.4%, and total sales growth, which includes new stores, is up 6.4%, as customers respond positively to the new general merchandise range and continue to visit The Reject Shop to save money on branded, everyday, essential items. We are focused on continuing to generate comp sales growth in FY 2024, supported by our new product offering with more great deals and branded consumables, as well as new and exciting general merchandise, all at great value. We look forward to offering our customers compelling value, more special buys, improved newness, and greater variety throughout FY 2024. We also remain focused on opening new stores. We are targeting to improve our profit margin in FY 2024, noting that, like most Australian retailers, our business is subject to a number of inflationary headwinds, which are putting pressure on our cost base. Turning to slide 12. Our priorities for FY 2024 are simple and are a continuation of our current strategy. Our number one priority is to continue to evolve our merchandise offer by further enhancing our low price position and continuing to differentiate our offer through more special buys, newness, and variety. This will in turn drive comp sales growth through bigger baskets and more frequent visits. I invite you to refer to slides 13 and 14 of our presentation, which include some images of our exciting new product for spring, as well as our branded low-price everyday consumables range. We will continue to expand our national store network with a focus on providing customers with even more convenient locations throughout Australia where they can shop and save. We will continue to manage growth, profit margin, and the cost of doing business in a high inflation environment. Finally, we will continue to explore and invest in strategic projects across the business, which minimize risk and enable efficiencies and growth, particularly in supply chain and technology. To conclude, the new merchandise strategy is tracking in line with our expectations and delivering comp sales growth and EBIT growth in a challenging and uncertain macroeconomic environment. I'm pleased to report that the company achieved its strongest profit results in the last five financial years, delivered solid comp sales growth in FY 2023, and has started FY 2024 with strong positive momentum. It is such a privilege to be given the opportunity to lead a team of over 4,000 dedicated team members across our stores, distribution centers, and store support center, who have each played a key part in delivering these results for our shareholders. I would like to thank each and every one of our team members for their contribution and hard work during FY 2023. In FY 2024, we will continue to grow sales and profit by executing our new merchandise strategy and continuing to expand our store network. We are so excited to surprise and delight customers in FY 2024 with low prices on brands and household essentials, as well as more newness and variety at lower price points across our GM and seasonal offerings. The macro environment is challenging, and our business, like most Australian retailers, is facing a number of cost pressures. I'm pleased that we have the support of a strong balance sheet, which positions us well to navigate through the uncertain macroeconomic and consumer environment. While we are focused on managing the challenges associated with operating in a rising cost environment, we also recognize the important role that The Reject Shop plays in helping our customers save money during a time when so many Australians and their families are facing significant cost of living pressures. As Australia's largest discount variety retailer, and with a track record of helping customers save money for over 40 years, we are committed to ensuring that every visit to The Reject Shop brings joy and savings to our customers. Finally, to our shareholders, thank you for your patience, ongoing support, and long-term commitment to our business. We are determined to continuously improve The Reject Shop's performance and deliver sustainable, long-term value for all of our shareholders. That is the end of our prepared presentation. I'll now hand back to the operator to open the call up for questions. Thank you, Clinton. We will now commence the Q&A session. If you would like to queue for a question, please press star one on your telephone keypad. That is star one on your telephone keypad to queue for a question. Your first question comes from Ben Gilbert of Jarden. Ben, you are now unmuted. Please go ahead. Morning, Clinton. Congrats on the appointment. Just, just interested to understand, just in terms of the trading update and just more broadly, how are you seeing the return to stores that we're seeing out there, increased cross-shopping rates happening through grocery, and how that's benefiting you guys? Specifically, I wonder if you can help us with that comp. What of it's coming from your new ranging versus what's coming from your core grocery staples range? Hi, Ben. Thanks for the question. I think there's a few parts to this. To start with FY 2023, we talked about this at the half, it's similar in the second half. The result was driven by the consumables range as opposed to the general merchandise range. Now, the general merchandise range has been incrementally improving since Easter, so we're really pleased with what we offered during Easter, and we're pleased with how that performed. Mother's Day was, again, strong performance from a general merchandise perspective. Winter again. Then what we're most excited about is during the first seven weeks, we've had this, what we're calling our kitchen and home spring and summer range, which has rotated, pretty much every three weeks over the last eight weeks. That's performed really well as well. Nevertheless, in this environment and with our improved availability, improved breadth of offer, our customers are continuing to favor the consumables range. We're seeing very strong growth in consumables. I think what's pleasing, though, is the trading update overall up 6.4%, comp 4.4%. That's been pretty consistent since March. March to June and July to today, that trend has been pretty consistent. What's shifted, though, Ben, is we're seeing an uptick in transactions, and we're seeing that sales growth be driven by unit growth as opposed to ASP growth. That's really pleasing on both consumables and general merchandise. We look to the U.S., and you look at the dollar stores over there, they've obviously had a cracking 12, 18 months. Is there anything that gives you sort of, I'm not taking away, it's obviously a good update, but is there anything that sort of gives you some, some comfort, or do you take a view that we should see that consumables rate accelerated and further as people cross shop? Are you working more directly with local suppliers now in FMCG land to get better terms, get more direct sourcing? Hi, Ben. I think I'll answer your second part of the question there. We have really improved our relationships directly with the national brands, and that has been a focus for the last year, so that we can bring to our customers more brands, more range extensions in the consumable areas, and also better value, so that we can encourage them to cross-shop and come to us for their consumables. That is definitely a focus for us and something that we do attribute our growth in consumables in. I think the first part of your question, which was really around what we're seeing overseas in dollar stores over there, I do think that they are a good example for us to follow. I do think that, there is learnings that we can take from them and that we are expecting, based on our current merchandise strategy and what we're doing in consumables and general merchandise, to have more upside as they have. To add to that, Ben, the growth in consumables has been pretty consistent, first half, second half, then year to date. That's been pretty consistent. We are seeing, we're seeing a shift in the general on the general merchandise side as the new product starts to come through. Our hope is, I think trying to predict the mix going forward in the, in the short to medium term is really challenging, given the consumer environment. We know we're relevant on the consumers, on the consumable side. What we're really focused on is offering a really compelling general merchandise, high-margin general merchandise range at low price points, into the next six to 12 months as that incrementally improves, particularly now, Halloween and Christmas being an opportunity for that range as well. Thanks. Just a final one for me. It seemed like a pretty well-sourced article that came out a month or so ago talking about Dollarama and people appointed to sort of support you guys. Is there any comment you can give us on that? Obviously, you guys didn't make any announcement or any response at that stage just in terms of the potential Dollarama approach or any approaches. Yeah, thanks for the question, Ben. It's, it's not our practice to respond to press speculation. We're not in discussions with any party regarding M&A. Look, as I've said many times, and we've said many times before, the discount variety sector presents a significant opportunity for growth over the medium to long term, and we think we're really well positioned to capture that growth. I think we're starting to demonstrate that. It wouldn't surprise me if others, whether it's domestically or offshore, see the same opportunity that we see. Ben, we're focused on our business. We're confident in the standalone value proposition of TRS, and we have a positive outlook, particularly in light of some of the early trading and the way the new merchandise strategy is performing, and as we continue to roll out stores. That, that's all there is to say on that. Fantastic. Thanks, guys. Appreciate it. Thanks, Ben. Thank you, Ben. The next question comes from James Bales of Morgan Stanley. James, please go ahead. Oh, hi, guys. Congratulations on the result and on the appointment, Clinton. I guess, if I had a couple of things I'd just like to check. Firstly, the comp for the first six weeks looks strong, and you basically said that that is something that has been very consistent. When we think about going into Christmas, can you sort of give us a sense of the lead indicators that you'd look at in terms of whether the buying that you've done this year and how that compares to the previous years stacks up in a relative sense? I'll try and answer that in a few parts, Ben, and, and Amy might chip in, too. The momentum has been consistent. Just to remind you, the first half comps, a COVID period, so the comp's not particularly relevant. I think we also called out the first half, that the general merchandise range needed improvement. January and February were skewed by Omicron in the prior period. Really, from March, we started to improve the product offering more meaningfully. That being said, we're less than 50% of the way there. There's been a lot of progress made, particularly over the last seven weeks. We have rearranged, we've rearranged party, we've rearranged hardware and garden, kitchen accessories, stationery stuff this week. The newness in the center aisle over the last, over the last eight weeks has been so different to what we've been doing over the last few years. What's been pleasing is since that point in time, and Easter was totally different as well. Since that point in time, the growth has been pretty consistent. It's 4% comp. What has been evolving, though, is unit growth. If you were to ask me, and I'm interested in Amy Eshuys' view as well, is my, my view would be the growth we're seeing in transactions, the growth we're seeing in units, the way the customer is responding to our offer, the attention we're getting, the attention we're getting and the feedback we're getting from our customers is, is, are all really positive signs. We're feeling confident going into Halloween and Christmas, that those ranges will resonate with our customers well. Yeah, I think, James, I'll just add to that. Based on the results that we had in Easter in the general merchandise range, Christmas and Halloween is an extension of Easter, obviously in a much bigger way. The results that we saw from specific items has really been a good indication to us around what we should expect for Halloween and Christmas. Then also, I think, in general, as Clinton said, from everything that we've put in our stores from March onwards, it is performing to our expectations. What we have coming in our merchandise strategy is just more of what we have now, more critical mass. We have been able to use those benchmarks as a n indicator of what's to come. Okay, great. That's really helpful. Then I guess on gross margin, you sort of talked to the normalization of freight being a tailwind, but also some headwinds in terms of benefits from non-recurring insurance items. Can you maybe help us understand how those two factors are expected to net out in the next 12 months? Yeah, James, there are so many things that are influencing gross profit margin. You're right. Going forward, there'll be a benefit from shipping over the last 12 months, and we expect this to persist. The mix, let me start with the last 12 months. The mix into consumables has brought margin down. Our sense is that stays the same over the next little while, but it's hard to say. That one's a bit of an unknown. Domestic supply chain costs are materially up, and you've heard others speak about this, materially up in the last 12 months and continue to escalate. That's going to be a headwind for margin. There are the tailwind shipping, and then there's headwind. I think another opportunity for us, as we've discussed in the past, is as the general merchandise range resonates, that hopefully will start to improve margin as well as the mix starts to shift, but that could be 12 months away. The best answer I can give you, James, is we're targeting gross profit margins in FY 2024 of 40%-40.5%. Given the inflation happening across the cost base, we want to be closer to that 40.5%. That there's lots of pluses and minuses in there. The other one I missed out on, the shrink. The shrinks, as you've heard other retailers talk about, have gone back to pre-COVID levels. That's, that's been a headwind year-over-year. Okay, got it. On inventory, I just wanted to clarify, what your comments were there. Do you expect improving inventory, year-on-year in FY 2024 in absolute dollars? That is a reversal of the sort of increase in working capital you saw this year? Yeah. Or is that as a percentage of sales? No, we've, we've seen it in absolute dollars, James. So inventory is probably higher than we would have expected. The reason for that is predominantly in our consumables range. To go back to the end of June, we bulked up quite materially for our cleaning event. It's really important, given the strong demand, given consumables are outperforming our expectations, we're pumping a lot of stock through to support the sales there. It's predominantly on the consumable side, not the general merchandise side. I think the other thing that's going to help us there is on the general merchandise side, the shipping coming down, the average unit cost comes down year-on-year as well. In dollar terms, I'd expect that to come down. What could be the offset to that? Stronge r than expected demand, particularly in consumables, and then obviously, as we grow the store network or inventory into the business. Just one question on that store network. There's a higher number of closures forecast for this year. What is the aggregate profit contribution from those stores that you expect to close? We don't, we don't disclose that level of detail, James. There is, our worst-performing store is in that nine. It's been a significant drag on profit over the last few years, so we're looking forward to closing that one. Then there's a few stores in there that we want to close, and there's a few stores in there we wish we weren't closing. As, as you know, from time to time, landlords will remix their centers, and there's consequences to that. We just focus on making sure we replace those stores. Those ones that are closing, are they a net positive contribution that you're losing or are you suffering losses there? No, it'll be a net positive contribution, but thankfully, quite well offset by the big loss maker in there. Okay, great. Thanks for the help. Thank you, James. Our next question comes from James Casey of Ord Minnett. James, you're now unmuted. Oh, good morning. I jumped on the call late, I apologize if you've addressed these two issues. The first one was just on the amount of inflation in the FY 2024 trading update you provided today. Hi, James. significantly below what there was in FY 2023, so it's very low single digits. Surprisingly, there's, it's, it's roughly 3/4 units growth, 1/4 AC growth. Okay, great. Then I'm sure you addressed this, but just an update on the distribution center network. Sure. I probably just want to add one thing to the comment I just made is there's actually still quite strong, there's still quite strong price growth in the consumables range. It's the general merchandise range where we're seeing ASP decline for two reasons. One is shipping costs coming down, and the other is it's s omething we should have been doing some time ago, is we are introducing more products at lower price points. That's driving that as well. Your question around the DCs, we've got three DCs. The DC with the soonest expiry is our DC in Perth. That DC has been renegotiated and renewed for a further five years. We're pleased with that one. The next DC to expire is Queensland in February 2025, and then Melbourne in November 2026. We're working on our plans around those. Okay. Would we expect an update on that near term or long term? Potentially to half, potentially to half year. We'll update as we work through that. I think there's a number of considerations. We wanna make sure we rightsize our network for the future and support our growth plan. To the extent there's an update, we'll let you know. Yeah, okay. Maybe just one last one. I was just curious on adding the buyback, putting the buyback back into play in terms of your capital management. Yeah, I think there's a few pieces to this one, James. We've got a strong balance sheet. There, it's something that has a great deal of flexibility, so it gives us flexibility over a 12-month period. We get, you know, we canvas feedback from our shareholders as well. Yeah, we've got a strong balance sheet. We, I know our share price is moving around a lot, but we still think the company is undervalued as well, so there's an opportunity to continue buying shares. Okay. All right, I'll leave it there. Well done there. Well done to you both. Thanks, James. I know you didn't ask the question, but in case there aren't any further questions, I might just take the opportunity to talk through the cost of doing business very quickly, just so everyone has the same information. As we said, firstly, just to start with gross profit margin, our expectation is 40%-40.5% in FY 2024, and as I said, we're targeting at 40.5%, closer to 40.5%, noting that there's so many moving pieces in that and it will be a challenge. On the admin cost side, we expect admin costs to be about AUD 50 million in FY 2024, and that's mainly being driven by salaries and incentives, as well as some further investment in IT and insurance premiums increasing. Labor, we hit our target this year of 13.6%, which is of sales, which is really pleasing. That will go up next year to 14% is our expectation. The Fair Work Commission's minimum wage increase for awards of 5.75% gets passed through. Like everyone else, we've got payroll tax in Victoria, and we've got the superannuation increasing. We are investing more hours into our stores to deal with a lot of the changes in merchandise and also to offer an incrementally improved customer experience through the seasonal period. That's pushing that up to 14%. We're really proud of our effort on rents, so that's come from 14.4% to 13.2% this year. Our expectation is we can hold that flat at 13.2%. Other store costs, there's a fair bit of inflation there. They came out at about 4.2% of sales this year. We're gonna work hard to keep that flat as well at 4.2%. Opening, closing costs, we expect, will be about AUD 2 million in FY 2024, with those 15 openings and eight to 10 closures. It's actually the eight to 10 closures that have a greater impact on the P&L through closing costs and the write-off of assets, which is a non-cash item. Then finally, depreciation, AUD 12.1 million, again in FY 2024. Finally, CapEx, expecting to spend around AUD 12 million-AUD 15 million this year, predominantly driven by new stores. Just a reminder, if you would like to ask a question, that is star one on your telephone keypad. As there are no further questions at this time, I'd like to hand back to Clinton for closing remarks. Thanks, Lachlan, and thank you for your questions, and thank you all for joining us today. We look forward to updating you again at our AGM in October, and have a great day. That concludes The Reject Shop FY 2023 Results Call. You may now disconnect.