Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue increased by 26% to $498 million, driven by growth in both repeat and first-time customers.
- Market share grew by 31%, reaching 2.3% of the overall furniture and homewares market.
- EBITDA of $13.1 million, excluding one-off costs, at the high end of guidance with all margins within or above target ranges.
- Closing cash balance in excess of $100 million with no debt, fully funding growth plans.
- AI initiatives driving more than 10% conversion rate improvements and realizing around $4 million in annualized cost savings.
Negative Points
- Facing headwinds of lower average order values as customers migrate to lower-priced items.
- High level of promotional activity impacting margins.
- Customer acquisition costs (CAC) increased due to $10 million spent on brand marketing activities.
- Effective tax rate higher than usual due to non-cash write-down of external AI software investment.
- Unprompted brand awareness remains below 10%, indicating room for improvement in brand recognition.
Q & A Highlights
Q: To what extent were there gaps in the product range that meant the business couldn't translate a visit to the website to a transaction, and are there opportunities to push conversion higher through broader arrangements or entrance into new categories?
A: (Mark Coulter, CEO) Be careful of comparing year-on-year conversion rates due to background noise like the macro environment. We look at conversion rates in practice by comparing traffic samples exposed to initiatives versus those not exposed. Despite a tough year, our conversion rate improved by 10% due to AI efforts. There's significant opportunity to improve conversion rates through product and price gaps, better customer experience, and enhanced service levels.
Q: How different do app users behave compared to customers using the website?
A: (Mark Coulter, CEO) App users are generally better customers, showing higher lifetime value, conversion rates, and engagement. The app itself leads to better customer behavior due to its faster, more user-friendly experience. We've observed that the same customer transacts more and engages better post-app installation.
Q: Can you explain the decline in GP margin in the second half and the factors influencing it?
A: (Mark Tayler, CFO) The first half was slightly ahead of expectations, while the second half was more normalized. We're getting competitive pricing from dropship suppliers and factories. Freight rates are rising but are contracted through FY25, providing some coverage. The overall margin profile remains strong.
Q: Can you talk through the trading update and the key components driving revenue growth?
A: (Mark Coulter, CEO) The positive momentum from FY24 has continued into FY25, with no significant changes in underlying drivers. Growth is driven by both new and repeat customers.
Q: Is there any change in the timing or strategy for marketing investment in FY25?
A: (Mark Coulter, CEO) The marketing strategy will be slightly different from last year. We are currently running a TV campaign and working with a media mix modeling agency to optimize our channel mix. The next burst of campaigns will be more heavily weighted towards H2, based on the insights we gather.
Q: How are you thinking about growth rates through the first half of FY25 given tougher comps?
A: (Mark Coulter, CEO) The 26% growth in FY25 is off a positive comp. While comps will get harder, the market is showing green shoots, and we expect to continue strong double-digit growth throughout the financial year.
Q: Should we expect an increase in marketing spend in FY25 to maintain revenue growth?
A: (Mark Tayler, CFO) The strong end to FY24 provides optionality for increased marketing spend in FY25. We will maintain our gross margin and leverage our fixed cost base, allowing flexibility to invest in marketing or other areas as needed.
Q: How should we interpret the appointment of an investment banker as CFO in terms of M&A likelihood?
A: (Mark Coulter, CEO) M&A is not factored into our $1 billion target, which we believe we can achieve organically. Cameron Barnsley’s appointment as CFO brings valuable experience, but M&A will only be pursued if it makes strategic and financial sense.
Q: Can you provide more details on the traction of your private label range in home improvement?
A: (Mark Coulter, CEO) Our private label products in home improvement, such as bathroom vanities and ceiling fans, are seeing strong demand. We are expanding carefully, using data to guide inventory decisions and ensuring quality and affordability.
Q: What are the key swing factors for margin improvement from FY26 onwards?
A: (Mark Tayler, CFO) The ramp-up in margins will depend on market conditions and our strategic decisions. We aim to achieve over 15% EBITDA margins in the long term, but the pace will be influenced by online adoption rates and market dynamics.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
