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Operator: Thank you for standing by, and welcome to the Adore Beauty Group H1 FY '26 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Sacha Laing, CEO. Please go ahead.
Sacha Laing: Thank you. Good morning, everybody. My name is Sacha Laing, CEO of Adore Beauty Group. I'm joined today by our new CFO, Marcus Crowe. Thank you for joining us today as we present Adore Beauty's results for the 26 weeks to the ending 28th of December 2025, and we look forward to meeting many of you over the next few days. The group has had a strong start to FY '26 with our maturing omnichannel strategy delivering customer revenue and profit growth in a challenging retail environment. Record underlying profit was driven by operating leverage, disciplined cost management and growing owned brands. Highlights of our half 1 FY '26 results include record underlying EBITDA of $4.1 million on a pre-AASB 16 basis, up 14.5% over the previous year at a margin of 3.7%. This is equivalent to 5.5% under the previous reporting methodology and was in line with our guidance. Marcus will provide more detail on the change in EBITDA reporting methodology later on. Revenue of $111.9 million was up 8.7% compared to the prior corresponding period, and we saw accelerated new customer growth, up 21.8% on the prior year. Gross margin of 35% reflected a strong Black Friday and November, December trading period as we continue to reset our promotional calendar and focus on quality of earnings throughout the balance of the trading period. Turning to our half-year achievements on Slide 3. Alongside improved profitability, we stepped up our omnichannel rollout in half 1 FY '26, opening 10 retail stores across the group. We have 2 further stores opening in half 2 and sites secured and confirmed for a further 4 stores opening in the second half of 2026. Marketing efficiency materially improved as we profitably acquired new customers at the top of the funnel and in-store. In the first half of FY '26, customer acquisition costs more than halved as new customers grew at the fastest rate in over 4 years. Our higher-margin iKOU brand continues to perform well with strong revenue growth and profit growth across all channels and continues to support our long-term profitability targets. We invested in long-term infrastructure to improve our operational efficiency and support our growth ambitions. We've secured a long-term lease for a new semi-automated national fulfillment center, which will be rolling out in the first quarter of FY '27. Through the course of this half, we'll continue with our ERP replacement, which will be live in Q4. And we're developing a custom AI platform to elevate customer experience and internal operational analysis. Slide 4 highlights the group's strong performance across key financial metrics. Our growing retail network, successful promotional events, and the strong performance of our iKOU brand delivered a step-up in revenue. Record earnings reflect operating leverage combined with growing retail media, higher contribution from sales of our own brands, in particular, iKOU, and disciplined cost management. The group achieved a strong profit uplift despite margin pressures arriving from the overperformance and share performance of the Black Friday and Cyber Monday promotional period. The group continues to focus on improved quality of earnings, leveraging growing customer loyalty and app adoption to offset our reduction in broader promotional activity. As shown on Slide 5, Adore Beauty's engaged and loyal customer base is an enduring strength of the business. In the first half of FY '26, members in our Adore Rewards loyalty program contributed 78% of all sales, up from 65% in the prior year, and we have multiple initiatives underway to increase order frequency and share of wallet. Our total active customer base increased by 4.7% over the last year to 850,000 active customers, benefiting from new channels, strong new customer growth, and a targeted customer acquisition strategy. At the same time, we're also growing our contactable database, up more than 14% over the prior year to 1.35 million. This database of qualified potential customers enables us to cost-effectively target and grow our active customer base, supporting marketing efficiency and our FY '27 target of more than 1.25 million active members. Turning to marketing on Slide 6. Profitable new customer growth was a standout for the first half of FY '26, delivering our strongest uplift in new customers in 4 years while significantly reducing marketing spend. New customer growth reflects the success of our retail stores and our refined marketing strategy in introducing Adore Beauty to new customers. New customers increased 21.8% over the prior year as customer acquisition costs more than halved to $33 per customer. As our retail network continues to grow and mature, we expect improved brand awareness and in-store customer acquisition to deliver even further new customer growth as we continue to cycle out unprofitable promotions and therefore, refine our approach to which customers were focusing our acquisition during particularly those high-end promotional periods. I'll now hand over to Marcus to take you through the financials.
Marcus Crowe: Thank you, Sacha. It's a pleasure to be here today as the CFO of Adore Beauty Group, and I look forward to meeting with many of you over the coming days. Before I take you through the P&L, I'd like to quickly explain the change in how we're reporting profit. Given our growing retail footprint and the requirements of AASB 16, we've commenced reporting EBITDA on an underlying and pre-AASB 16 basis. This measure takes account of rental costs and best reflects the underlying performance of an omnichannel business. Adore Beauty Group delivered a solid financial result for the first half of FY '26 with record underlying and statutory EBITDA of $4.1 million and $4.9 million, respectively. Profit growth was driven by higher revenue, combined with increased contribution from margin-accretive owned brands and retail media as well as disciplined cost management. Material marketing efficiency improvements reduced marketing costs by almost 30% with marketing as a percentage of sales down 520 basis points over the prior period to 8.6% of sales. Alongside our store rollout, we're continuing to invest in long-term infrastructure projects that lay the foundations of future operational efficiencies, including a new national fulfillment center, generational ERP update, and in-house AI capability. Turning to our balance sheet on Slide 9. The group is generating positive operating cash flows and has a closing cash balance of $8.2 million as at 28 December, reflecting in part the group's investment in its store network during the period. Capital management remains a focus for the business, and we're exploring funding options to support our growth strategy. Higher inventory reflects typical supply closures over Christmas as well as in-store stock. Happy to take questions at the end of the presentation. But for now, I'll hand back to Sacha.
Sacha Laing: Thanks, Marcus, and great to have you on board. Slide 11 demonstrates the early success of our omnichannel strategy. Our e-commerce business remains a growth driver for the group with the Adore Beauty app and loyalty program continuing to resonate with customers. In the first half of FY '26, the app represented 35% of online sales, up from 25% mix last year, while our Adore Rewards spend and save -- spend and earn loyalty program grew to 509,000 members. These members contributed 77% of all sales in the first half of FY '26, up from 65% in the same period last year. Our retail network is performing well with significantly higher conversion than the e-com business at 11.1% and just under our target of 12% in the long term, with new customers accounting for almost 30% of in-store transactions. More than 670,000 customers have been through the doors of our stores so far, cost-effectively introducing the Adore brand to a substantially broader customer base, improving brand awareness and enabling us to close the customer journey for existing customers. Importantly, store support improved quality of earnings with customers shopping in this channel typically less promotionally driven, and we see that in the margin of this channel. While early days, we have a growing customer base of omni customers shopping both channels, and this valuable cohort contributed to more than 5% of our revenue in the first half. On Slide 12, we see the growing network of our store channel. We continue to deliver against our strategy at pace. We opened 9 stores during the period as well as an additional store in early January. This brings our national network of stores to 18 across the Adore Beauty and iKOU brands, including our first stores in Queensland and South Australia and more than half of these stores opened in the final months of the reporting period. We'll no doubt see a meaningful contribution of these stores as we move into the half 2 and into FY '27. A further 2 stores are opening in the second half of FY '26 with an additional 4 stores secured for later in the calendar year. We are well on track to achieve our targeted network of 25-plus stores by the end of FY '27. Our national retail network broadly -- materially broadens our addressable market to capture the 87% of transactions that occur in a physical retail store, unlocking material revenue growth and potential for the group. Our Adore Beauty store format product and service offering has evolved since our first store opened in Southland just on a year ago. Slide 13 outlines our evolution, growing from an offering of 60 brands at Southland, our first store to now over 120 brands in every store across the country with dedicated treatment spaces and on-staff dermal therapists. To ensure in-store customers have the same access to product knowledge that Adore Beauty is known and famous for, we've invested extensively in product education for our in-store staff. We've also continued to refine the processes that sit behind efficiently run stores from setup and replenishment through to systems automation, IT integration, and operational support. Stores are expected to reach a level of maturity in the first 12 to 18 months as brand awareness improves, and we learn more about the nuances of individual centers. We expect stores to contribute meaningfully from year 2. And of course, omni customers are already providing us to be an incredibly valued cohort with a lifetime value of spend 20% higher than a single channel customer. We're already seeing the benefit of our retail network on the e-com business with an online halo emerging across all store catchments with the strongest improvement in areas where Adore Beauty's existing customer base was underpenetrated. Moving to our iKOU brand on Slide 14. iKOU continues to strengthen under Adore's ownership, delivering strong revenue growth across all channels. Growth was driven by greater availability, new brand positioning, and investment in infrastructure and customer service. We opened our sixth iKOU store in the Victorian seaside town of Sorrento in November and have plans to open a further 2 to 3 stores through the balance of this calendar year. We're leveraging our group expertise and know-how to grow and mature the brand with significant operational progress achieved in the first half of FY '26. This includes the rollout of a new e-commerce platform, upgrades to e-mail customer flows, implementing a 7-day customer service experience team, and implementing a platform integration across all channels. Our higher-margin own brands, including iKOU, Viviology, and AB LAB are expected to account for more than 6% of total group revenue for FY '26. On Slide 15, we're continuing to invest in our core online business with technology projects that enhance customer experience and operational efficiency. As shown, our recent platform refresh has improved on-site personalization, search functionality, and recommendations. We're also integrating in-house developed AI across our business from product and customer support through to internal workflow automation and business analysis. These projects are designed to streamline our operations, enhancing customer experience and enabling a much more engaged experience for our teams and for our customers. On Slide 16, efficiency gains further reduce cost of doing business. Our disciplined cost management across marketing, inventory, and operations continue across the business. As I mentioned earlier, marketing costs reduced by almost 30% even as we grew new customers, increased sessions, and invested in above-the-line advertising. Reduced promotional activity is delivering a higher quality of underlying earnings. Inventory health continues to be a focus with a record level of inventory efficiency. More than 60% of our inventory is now within a 60-day window, and our stock turn grew 11.7% on the same period last year. Operationally, we partnered with a new group freight provider from October. We're leveraging AI to improve picking processes and reduce labor costs, and we've laid the foundation for the launch of a new ERP system in Q4 to further improve operational efficiencies. Turning to Slide 17. As part of our investment in infrastructure that drives operational efficiency, we've secured a long-term lease for a larger national fulfillment center in the Melbourne suburb of Broadmeadows. The 6,300 square meter facility is expected to be operational from Q1 FY '27 and will include automated picking and replenishment, unlocking significant operational efficiencies and supporting long-term growth plans. Initial capital outlay of approximately $8 million is predominantly funded by a CBA-backed project-based facility with an expected payback in under 4 years. Turning to our outlook on Slide 19. Our solid half 1 FY '26 performance as we ensured we are on track to deliver our targets moving forward as our strategic initiatives continue to drive customer revenue and profit growth. In FY '26, we expect to deliver underlying group EBITDA of 3% to 4% on a pre-AASB 16 basis. This is equivalent to 5% to 6% under the previous reporting methodology and in line with our guidance. Own brands representing more than 6% of group revenue, new and active customer growth to support our FY '27 target of 1.25 million active customers. Loyalty member and app growth continues to be a focus to offset the reduction in promotional intensity, a national retail network of 20 stores by the end of this half, and we'll launch our new ERP and we'll progress our transition to the new national fulfillment center as well as continuing to implement AI deeply across the business. We entered the remainder of FY '26 with strong momentum, and I look forward to updating you on our progress at the full year. I'll now hand back to our operator to open the call for questions. Thank you.
Operator: [Operator Instructions] Your first question comes from Leo Armati from Bell Potter Securities.
Leo Armati: Just firstly, on gross margin. You've had a history of growing this year-on-year, but obviously, it was down around 120 basis points this half just following that November, December trading period. Just wondering how we view this going into the second half and even further forward just in terms of the need to promote to get that sale.
Sacha Laing: Thanks, Leo. Thanks for your question. So I think we've also provided, obviously, that step-up on FY '24 from a margin perspective of 150 basis points as noted in the investor deck. And that's an important frame of reference. Obviously, there isn't the equivalent of a Black Friday promotional period that has that significant spike that we see in half 1 doesn't exist in half 2. So a much more measured and tempered approach to margin management, obviously, in half 2. We're continuing to see loyalty and our app adoption be a fundamental driver of margin improvement as well as our store network, which is predominantly a full price channel. So we'll continue through half 2 to rebase and remove promotions that were unprofitable in the prior year and focus our energy on our loyalty members and on our store network in driving the improvement of full price revenue throughout the half. That's how you should be thinking about this moving forward. And as I said, the Black Friday promotional period only happens once a year.
Leo Armati: Great. And then just secondly on stores. So I think your Western Australian stores were outperforming the broader network. Is there anything specific as to why that market outperforms? And will you aim to sort of weight those further openings to that market?
Sacha Laing: I'll answer that question in 2 parts. Firstly, from a national footprint perspective, we'll continue to roll out stores in all states. And each state has key targeted centers that we're focused on, and there is a couple more in the West for sure, over time. The West as well as geographic areas outside of sort of the core Victorian metropolitan and New South Wales metropolitan areas where we have really strong penetration today from existing customers online represents significant opportunity for us. And so when we talk about those stores in the West outperforming the balance of the portfolio, which, by the way, continues to meet our expectations, it's really about those markets where there's been an under-indexed penetration of Adore online previously. And those customers are really enjoying the brand in the physical experience sense. So that very much talks to our original methodology, which was -- and strategy, which was to bring the brand to customers to introduce the brand to new customers that haven't experienced the brand before. And certainly, in the West, that's what we're seeing.
Operator: [Operator Instructions] Your next question comes from [ Kristina Chareva from Jarden ].
Unknown Analyst: Can you just share how you're seeing more recent trading environment and how your sales performed in January and February and maybe more broadly in second quarter versus first?
Sacha Laing: Yes. So you saw from our results today that we haven't provided a trading update, and that's consistent with our approach over the last 2 years or so. We'll obviously lean in detail to performance on a half-by-half basis. In terms of the result for half 1 and how the Black Friday or quarter 2 traded versus quarter 1, again, we don't break up that level of detail for you. But obviously, based on the overperformance of what is a particularly important trading period through the Black Friday, Cyber Monday period, we did see half 2 overperform relative to half 1 in a total revenue sense. But of course, that continues to be a focus for us as we rebalance our promotional activity moving forward.
Unknown Analyst: And secondly, how are you seeing change in competitive dynamics? And do you believe you're still holding market share?
Sacha Laing: I think more importantly, if I think about our growth at 8.7% relative to the prior period last year, in a market that sees category growth circa 4-odd percent year-on-year compound growth in the beauty industry, our view is that we took meaningful share in the first half at almost a 2x market growth rate.
Operator: There are no further phone questions at this time. We'll now move on to address your webcast question. Your first webcast question asks, what -- what's the expected payback on each store?
Sacha Laing: So we've previously provided guidance on payback in the 1- to 2-year period. And of course, that's dependent on when the store opens in the calendar year. So a store opening closer to, obviously, the Christmas quarter has typically delivered stronger payback is our expectation, and those opening earlier in the year have a longer payback period. But that's been our market provided guidance before -- between 1 to 2 years.
Operator: Your next webcast question asks, is the company on track to achieve its 5% EBIT target in 2027?
Sacha Laing: Thanks for that question. So we haven't updated guidance for 2027. So our existing guidance remains in -- at our last provided guidance. We've introduced a number of meaningful new initiatives over the last 12 months, including our national distribution center, our changes in our relationship with our freight providers as well as introducing new operational processes supporting our ERP. So a number of those initiatives sit as an overlay to our existing 3-year plan, and we'll provide at our full year results an extended view on guidance beyond '27. But for now, we have no update on our existing guidance.
Operator: Your next question asks, can you please walk us through the cash flow statement?
Sacha Laing: Can I ask who the question was from?
Operator: It was a question from [ Eduardo Riquelme ], a private investor.
Marcus Crowe: Yes, no problem. So look, in terms of the presentation deck, we didn't provide a cash flow statement. So there is a cash flow statement in the Appendix 4D, which follows the usual protocols in accordance with the accounting standards. So cash flows from operating activities are presented, which were $2.4 million for H1 2026. You will see that there was some movement in interest period-on-period as we utilize debt during the first half of the year. I think probably the material change that you'll see period-on-period relates to the lease liabilities and the interest component related to those lease liabilities under AASB 16 as we took on an additional 10 stores during the year. Indeed, to contextualize that, I think the rental cost in H1 FY '25 was circa $665,000. It was approximately $2 million in FY '26. So you'll see that impact through the cash flow. Additionally, you'll see material uplift for payments for property, plant, and equipment as we've invested into that store network. Our investment into intangibles, our website app was measured and pretty consistent with the prior year.
Operator: Your next question asks, how is cash going to behave after the iKOU payment, but now with investments in [ VL ] and new store demand?
Sacha Laing: Yes. I mean the iKOU payment was obviously due as contracted in the January end period, which has been complete. And we continue to run the business as planned. So that was certainly expected, planned for and no impact to the way we're running the business. So thanks for the question.
Operator: There are no further questions at this time. I'll now hand back to Mr. Laing for closing remarks.
Sacha Laing: Thanks very much. Thank you, everybody, for joining the call today, and we look forward to meeting many of you with you over the next few days ahead. Thank you.
Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.