Company Interview / Accent confident in strategy, despite tough retail market

Daniel Agostinelli, CEO of Accent Group (ASX:AX1), shares insights on the company's financial performance amidst a challenging consumer environment. He notes a 33% decline in net profit after tax, despite a 3% increase in sales over the year. Despite the reported losses, Daniel indicates confidence in the firm's business strategy, including selling nonproductive assets and planning 50 new store openings by the end of the financial year. Despite disheartening market numbers, he also reported momentum and growth particularly over the last three to four months.

Acknowledging the pressures of increasing petrol prices, rents and general cost of living, Daniel maintains a positive outlook driven by recent customer trends. He discussed their continued success despite costs, notably with ongoing growth within popular brands such as Skechers, Hoka and UGG. As part of a strategy to mitigate costs, Accent Group (ASX;AX1) is doing a review of its support centre's cost base to initiate effective efficiencies across the organisation.

On the topic of Accent Group's inventory and net debt, Daniel states that inventory is in good shape due to major focus whilst overlooking a marginal increase in net debt. He also articulates the company's continued strong commitment towards paying dividends over the past three years, clarifying that any changes would rely on trade and opportunities to acquire new businesses or brands. Daniel concludes with a nod towards the persistent growth of online sales, revealing a rise to 22% of total sales, while emphasising the need to maintain physical storefronts for brand trust.

Full unedited transcript:

0:11

Wholesale retail distributor accent Group has reported a 33% loss in net profit after tax to $59.5 million. Sales rose 3%, but adjusted earnings were down 20.5% over the year. Accent Group CEO Daniel Agustin Elie, noting a challenging consumer environment and says the group will focus on growth by selling nonproductive assets while opening 50 new stores over full year 25. A total fully franked dividend for the year came in at $0.13 per share, which includes a fully franked final dividend of four and a half cents per share. Shares being sold off today. CEO Daniel Augustine Kelly joining me now to get the story behind those numbers. Your shares being sold off. Daniel, it's always hard when you do flag a challenging consumer environment ahead. Just tell us how you think you fared.

1:04

Um, well, you know, um, uh, as I mentioned on my call this morning with, um, our investors and analysts. Um, you know, we were quite pleased with what we've seen into the, um, first seven weeks of, of this year. Um, you know, the the the market will do what the market does. Um, it was a challenging year. Um, uh, however, um, we've we've maneuvered through we've got our inventories looking very, very strong and we've got some pretty good momentum, particularly in the last, um, 3 to 4 months. And, uh, our job is to ensure we continue, um, to, to, um, continue on, on, on that path. And we're confident we can. So are you seeing a little bit of a better pickup in the start of full year 25? Are you confident that the consumer is going to be resilient despite higher rates?

1:57

We are definitely, um I'm seeing a more positive, um, um, a more positiveness, um, in, in the customers that, um, they're serving. Um, but definitely, um, I'm, I'm sure many, many are challenged, particularly with, you know, um, petrol prices, rents going up, um, and, and all all the normal pressures of cost of living, um, particularly in our sector. But overall, um, it's been um, uh, it's definitely been positive in the last three months. Well, what are you going to do in terms of, I guess, trying to bring down some of your costs? Do you foresee the likelihood of potential staff cuts or store closures?

2:40

Um, in certainly not store closures. Um, and certainly no, no cuts to any of our frontline team in our stores. What we are doing in our support centre is, uh, I guess, reviewing, um, uh, the cost base there and not necessarily just just starting with, um, uh, cost cutting, but rather with what will efficiency look like and how do we do things differently. And given we've had a pretty solid, um, 3.5% comparable growth start to the last seven weeks in particular, and even the a month before that, um, when business does recover, which we expect it will, we're still going to need, you know, the, the key positions to be able to transact that business. I note that you're saying continued growth in the likes of Skechers, Hoka and UGG. Does that sort of tell us that despite cost of living pressures, uh, people do like a brand?

3:37

Absolutely. Um, it's the old saying, particularly in our business, um, um, it's product is king. Um, and if you, if you look at our, um, uh, our Hoka brand, it's amongst the highest price points we have of anything we distribute or sell. Um, and it's very, very strong um, in our stores and indeed in wholesale. Um, so it seems like we've got a bit of a two pronged, uh, economy going on. Um, uh, but we're the product is hot. We are seeing, um, sales, um, uh, rebound, particularly the last seven weeks. You did though, have to close some stores in the period, including a number of Glu stores. When you're looking at these new store openings in full year 25, where are you focusing on?

4:22

Um, the the majority of the focus will be on, um, uh, Platypus and Skechers, but indeed our new banners, um, nude Lucy has been very strong for us, and we've been very careful where we expand that. Um, we could open 20 of those immediately, but we we won't do that. We want to do justice to the brand. Um, Hoka is another business that is starting to show good signs on standalone, um, uh, within standalone stores. So that'll be growing. And indeed, our style runner business has been very positive. Um, for the last 12 months. So we will continue to expand that banner as well. Why do you think that has been underperformance in Glu, but still strong demand from the athlete's foot?

5:06

Uh, look.

5:08

Big question. Um, we, um, we purchased Glu some, uh, some years ago, I think three years ago. Um, we always knew that some of the legacy rents were were just too high. Um, the sites were too big. Um, like everything you do, we expected to turn turn some of those around, but. But really, um, I guess found ourselves in a situation where that was not the case. And 17 of those stores have been a drag. Um, we've addressed that issue, and we expect to close those 17 stores, uh, by the end of this calendar year. And that would leave us with the remaining stores that will, uh, will be profitable. And at that point, we can then decide, well, is that going to beat the metrics we have for a, um, for, uh, return on investment and return on equity and all those measures? At this stage, those numbers are saying they will, um, we hope to fix, uh, those stores that that

6:08

will be remaining and indeed, um, if need be, we expand it or we will review it and say, well, it's not worth expanding. We've got too many other many two other, um, uh, many other vendors that are, that are producing better than, um, I guess, budgeted. Rose, what is your inventory levels? How are you managing that? And I guess as well, what does your net debt look like?

6:33

Um, our net debt as reported is is is is is marginally up on last year, but we've also opened the heat more stores. Um, so I think that's quite well managed. Um, hence the dividend payout. Um, uh, in terms of our inventory, it's we're in really good shape. Um we we have a major, major focus on inventory. We indeed run inventory academies. Um, where an outside professional party comes in and talks to all of our planners. Um, and, um, we're we're in a good position with inventory across the board, which means, um, that what we've got within the business today, um, should,

7:16

should allow us to, um, um, I guess realize, uh, the margin that we've set in our budgets. Let's talk as well about shareholder return. Always tough when you are seeing challenging, um, conditions, but you have increased or sorry, you have decreased your dividend, I should say, for the year from 17.5 to $0.13 per share. Is it likely that if we continue to see these challenging conditions, those dividends may be cut further?

7:44

Um, well, our policy on, on on dividends has always been if, if we've got, um, you know, reserve cash in the bank, and we're not looking at buying anything of significance. And we can't do any anything good with that money, then we should pay it out to our shareholders. Um, if indeed we find something that we think we can actually get a much stronger return, or at least hit the metrics on our return on, uh, um, return on investment, wherever we deploy that cash, then we will pay less to the dividends. But right now, um, we're on this trajectory, um, where we have been, um, pretty strong payers of, of dividends over the last, particularly the last three years. And we hope to continue that. Um, it'll really depend on, um, you know, obviously what's trade going to do and what opportunities are out there, um, to, to potentially acquire a business or buy a different brand or whatever it may be. But

8:43

right now we're focused on what we've got. Daniel, what sort of trends are you seeing from the consumer in terms of online growth, outpacing bricks and mortar retailers.

8:55

Um,

8:57

the trend for us has been, um, has certainly been, um, positive. Uh, in the last while since Covid, we've really not, um, had a comp stack, uh, for any year. It's been quite positive. Um, we continue to invest in that area and our customers, um, certainly. Um, uh, um, are executing with us online. We now have ten, 10.2 million customers on our database. So it's very strong. Um, and indeed, um, we think that will continue into the future. Right now, we're we're probably up around the 22% of all sales come from online. Um, and, uh, we think that trend will continue to, to strengthen. But at the same time, we, we feel that, uh, in order to make the, our websites work, we need, um, stores in in shopping centres. Um, we shop fronts that people can, um, still touch, still feel and still trust

9:57

the brand.

9:58

And in terms of trusting the brand, we mentioned not having a great shareholder day to day in terms of returns. But over the past five years, people that have held your stock have done quite well. Do you think that there is strong belief in in accent and the growth of your company?

10:14

Um, I think there is at least everyone I talked to, um, tell me they believe in what we're doing. Um, in terms of, um, our investors, um, you know, um, you'd have to say we had a pretty, pretty solid run up to, uh, the last couple of days, as the market did. Um, and, um, you know, there's an adjustment that's going on, I hope once, um, analysts and investors

10:39

look at what we are doing and, uh, really look into, um, uh, the future of what we've got ahead, that they'll once again rate us and buy back in.