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Operator: Good morning, and welcome to the conference call for Tate & Lyle's First Half Pre-closing Statement. Today's call is hosted by Nick Hampton, Chief Executive Officer; and Sarah Kuijlaars, Chief Financial Officer. I will now hand over to Nick Hampton. Nick Hampton: Thank you, operator, and good morning, everyone. Welcome to the conference call. I will make some introductory comments, and then Sarah and I will be happy to take your questions. First, I want to look at the bigger picture. We continue to make very good progress delivering the benefits of the CP Kelco combination. Customers are increasingly recognizing the strength of our combined portfolio, especially our expertise in mouthfeel. And this has led to a very encouraging early cross-selling successes with the value of the pipeline more than doubling in the last 2 months alone. The strong interest our combined offering and reformulation expertise is generating with customers clearly demonstrates the strategic logic of bringing Tate & Lyle and CP Kelco together, and reinforces our confidence in the growth potential of the combined business. While the level of customer engagement is high, we are operating in a tough market and have seen a slowdown in demand as the first half progressed, particularly over the last 2 months, which in turn has slowed our recent performance. We are seeing different dynamics across each region. In the Americas, we expect revenue in the first half to be slightly lower, reflecting softer consumer demand, notably in North America, still have largest market. In Europe, Middle East and Africa, revenue is expected to be mid-single-digit lower despite slightly higher demand. In Asia Pacific, revenue is expected to be broadly in line after absorbing the impact of tariffs, which we continue to navigate well. Against this more challenging backdrop, we are accelerating a series of steps to drive delivery of top-line growth. These include investing in enhanced customer segmentation, further strengthening our customer-facing capabilities such as solution selling, applications and marketing, working even more closely with customers to accelerate innovation through technology and optimizing capacity in our manufacturing network to accelerate productivity. The margin of the CP Kelco portfolio is expected to improve further in the first half. Planned revenue and cost synergies, and delivery of savings from our productivity programme remain on track and demand for sucralose continues to be strong. Overall then, for the first half in constant currency and compared to the pro forma comparatives, we now expect Group revenue to be 3% to 4% lower. Reflecting this top-line softness, the investments we continue to make for growth, and the planned weighting of cost synergies into the second half, EBITDA in the first half is now expected to be high single-digit percent lower. We will provide a more detailed update on the business and the actions we are taking when we announced our half year results on the 6th of November 2025. Turning to the full year outlook. While we anticipate the near-term market demand environment will remain challenging, we expect performance to improve as we move into the fourth quarter. This will be driven by the acceleration of actions we are taking to drive delivery of top-line growth and increasing benefits from the CP Kelco combination, including an acceleration in cross-selling, the migration of distribution relationships to a direct service customer model, and delivery of cost synergies. Therefore, for the year ending 31st of March 2026, in constant currency and compared to pro forma comparatives, we now expect revenue and EBITDA to decline by low single-digit percent compared to the prior year. In summary then, in April, we started to operate as one combined business. Since then, we have made real progress setting up the business for future growth, while also operating in a period of considerable economic volatility. The benefits of the combination appear to see. Looking ahead, the fundamental growth drivers of our business remain strong. Consumer demand for healthier and more nutritious food and drink continues to grow. And our expertise in food and drink reformulation and our leading positions across sweetening, mouthfeel and fortification, mean we are well-positioned to capture this growth. To conclude, we are determined to accelerate top-line growth and are fully focused on successfully delivering the benefits of the CP Kelco combination. With that, I will open up the call for questions. Operator: [Operator Instructions] We will now take our first question from Matthew Webb from Investec. Matthew Webb: I wonder if I could start off by just asking about the split of the revenue decline, both in H1 and expected for the full year between volume and pricing. And I suppose I'm particularly interested in the extent to which the weakness in volume demand has had the knock-on effect on pricing and what sort of the competitor behavior has been as well as a result of that weakness? That's my first question. Nick Hampton: Obviously, overall we're seeing a lack of consumer confidence in sluggish markets and the dynamics across regions are somewhat different. So in North America, we're seeing pretty broad-based category softness fueled by inflation and tariffs, I think. But we're seeing relatively balanced pricing environment, but broadly in line, slightly positive. In Europe, as we said when we did our full year results, we consciously invested some price in driving volume momentum. So in Europe, we're actually seeing a slight volume momentum, but some pricing decline. And in Asia, we're seeing relatively muted demand with some pricing pressure, especially driven by softness in China. Matthew Webb: And then I wonder if you could perhaps try and separate out the impact that tariffs have had here on the reduced guidance. Is that a big factor? And I suppose there, I mean even more about the direct impact of tariffs on you rather than the sort of broader impact of tariffs on consumer demand? Nick Hampton: You're asking the right question, of course, because the second order impact on consumer confidence is difficult to measure but clearly, we're seeing that, especially in North America. And overall, the team is navigating the tariff situation well, given that it's still bumping around a bit, it's relatively uncertain, and we're focused on customer supply security, recovery of tariffs where possible and alternative supply routes. So if you look at it around the world, we said at the full year that it routed about 2% of our revenue shipped into China was being impacted. There's a little bit going the other way. The other thing that's happened is the significant imposition of tariffs on Brazil and [indiscernible] out of Brazil into North America. So we think -- and again, it's very difficult to be precise when you look at supply routes, probably 3% to 5% of our revenue pre -- any mitigation is being impacted by tariffs because of the flow of goods. As I said, we're mitigating that in various ways. So I would think about it in that kind of... Matthew Webb: And then sorry, final question. I mean clearly, the deterioration in the market environment, as you said, has been a relatively recent thing at least has become worse of late. And I wonder, therefore, how much sort of confidence and visibility you've got in the ability to improve your performance in Q4. It just sort of feels like you're slightly swimming against the tide there. How confident can you be that we will see that improvement? Nick Hampton: So we're not assuming any near-term improvement in the market environment until we see that, and we shouldn't be building that into our assumptions. However, what we are clearly going to see in Q4 is the benefits of the combination starting to flow through. So if you remember, we always said the cross-selling benefits, the distribution to direct benefits would only start to flow towards the end of the year and we have very clear line of sight to those. And we're also seeing the pipeline building on our solution selling portfolio because of the benefits of bringing the 2 portfolios together. So we're really assuming any improvement in quarter 4 is coming from the benefits of combination flowing through more fully and the actions we're taking to accelerate growth regardless of the environment we're operating within. Operator: We'll now take our next question from Patrick Higgins from Goodbody. Patrick Higgins: A couple of questions, if I may. Firstly, just in terms of, I guess, that innovation pipeline, and you touched on it there, Mark, but Nick, sorry, but maybe you could just elaborate one of the things we've heard from a lot of customers of yours or peers is the pipeline and the demand from an innovation perspective, particularly in the U.S. as reformulation really starts to kick in, has never been stronger, so I'd be interested to hear your comments on that. And secondly, look, apologies, I didn't hear all of your prepared remarks, but on sucralose, could you maybe just give us a comment in terms of how that business is trending and how much of the softness you've called out today is related to that business? Nick Hampton: So let me take your second question first on sucralose. We're still seeing very strong demand for sucralose, this is what we do. We talked about this a number of times and let me put simply, we're pretty much selling everything we can make. And while there's been some noise on sucralose in the market recently, we're seeing very strong robust demand and continue to see that, so that's pretty clear. On your first point, yes, we are seeing strengthening of the pipeline. And a lot of that is to do with the benefits of bringing the combination together as well. I think the question we're still asking ourselves internally is how fast that pipeline converts in an uncertain consumer environment because what we're seeing at the moment is a lot of relative pricing in the market versus innovation, so the question we can't answer yet is the pace of conversion of that pipeline. The win -- success rate is very good actually in the pipeline when we look at that. When those products come to market, it is still less certain, I would say. Operator: We'll now move to our next question from Joan Lim from BNP Paribas Exane. Yuan Lim: A couple of questions from me, please. So you mentioned you are taking a series of actions with customers. I was wondering if you could help providing more color as to how the conversations look like, what else you're doing with the customers? So that's my first question. And second question was the categories. In terms of categories, I know you said broad-based softness in North America, but I wondered if there were any like beverages or specific categories you could call out in terms of latest color on market trading? Nick Hampton: So let me take the second question first. We're actually seeing pretty consistent softness across our key categories currently. I wouldn't call any out specifically at a sort of macro category level. Clearly, when you go double click one level below into subcategories, we're seeing more slightly healthier demand for the better-for-you type part of the portfolio. But overall, net-net, there isn't a significant difference across the core categories that we always talk about serving and we're obviously continuing to track that closely as we go forward. In terms of what we're doing, the benefits of the portfolio clearly allow us to think differently about how we serve our customers. And a big part of that is, frankly, working through which customers we want to double down our efforts on and where do we see the most growth and how do we deploy our resources with the right ammunition to accelerate growth with the customers where we see most opportunity. So we're doing a lot of work on segmenting our customers both globally and locally to deploy our resources as effectively as possible. And at the same time, making sure that based upon what we're seeing in terms of consumer demand and consumer trends, we're building the ammunition and the solutions focused on those areas of consumer opportunity. And we'll talk more about that when we do our half year results in November. Yuan Lim: Sorry, can I just follow up on that? So you mentioned customers locally and globally. Are you seeing a difference between the local and regional customers and the bigger customers? Nick Hampton: Always when you come across the world, you see different behaviors. I wouldn't call out a specific trend that's global versus regional. It's just more importantly for us, it's about making sure in each region, we're working with the right customers because of how they're building their businesses locally. And that can vary global customers versus regional. Yuan Lim: Because I think the global customers have been losing share to the local and regional, who might be growing faster. So I wonder if there were any... Nick Hampton: Why it's important that we build a balanced focus across all customer types to make sure we're focusing on where we see most growth potential. Yuan Lim: And then on your broad-based category softness, was it just in North America? Or was it across regions? Nick Hampton: Specifically referencing to North America in the more recent months, I mean we are seeing varying cash flow dynamics across the world. In Latin America, we're seeing stability in Brazil, some softness in Mexico. Across Asia, we're seeing relatively muted demand, but there are opportunities in places like health and wellness. In Europe, we're seeing relatively stable demand with opportunities in categories like dairy and clean-label, so the point I made earlier in some way about customer segmentation, you have to look at it region by region and get on the surface where the key trends are. Operator: We'll now take our next question from Alex Sloane from Barclays. Alexander Sloane: Two for me. One is a follow-up in terms of the assumptions in the second half. So it sounds like you're not assuming much in the way of improvement inflection in underlying market conditions from a sort of a volume perspective. What are you assuming in terms of the pricing round? So obviously, I guess, kind of weaker demand probably doesn't bode that well there. So have you been conservative in your assumptions there? And I guess sort of the overarching question there is how confident can we be that this is kind of one and done? Or is there more risk to the revised full year guidance? And then second question, I think in your prepared remarks, you talked about CP Kelco margins moving higher in the first half despite obviously the fact that kind of the group profits are going to be down high single digits. So is it fair to assume that sort of more of this pressure is being felt in the legacy-tight FBS business than CP Kelco? Nick Hampton: So on your first question, Alex, obviously, we're very early in the framework agreements we're building for next year with customers and that process will continue through the next few months. We've been relatively conservative in our assumptions for the contracting round at this point in the year. And as always, we'll give you more color on that as the round evolves. On the CP Kelco margin point, we are seeing improvements at the gross margin level. You have to remember, of course, that we're not measuring profit margins separately across the 2 businesses at the moment because they're integrated. So to some extent, some of the investments we're making in the business sit below the gross margin level. But it would be fair to say that we have seen some pressure on the legacy-tight Lyle business, especially because of the pricing which has put back into the market in the last round. Alexander Sloane: And maybe just if I could squeeze in one more. Just in terms of the Brazil tariff situation, obviously kind of relatively lower I think those kicked in, in August. Could you give a bit more color in terms of how you're mitigating that and what impact that had -- I guess what impact you're assuming that has for the full year? Nick Hampton: So roughly about 1% of our revenue is shipped out of Brazil into North America. We are shifting supply routes to source more out of Europe because we've got [indiscernible] manufacturing in Brazil and in Europe. And obviously, where possible, we're passing tariffs through. So we've assumed a rebalancing between Brazil and Europe and an appropriate level of cost associated with the tariff shipping into the U.S. that's built into the overall assumptions we've given you today. Sarah, do you want to add anything to that? Sarah Kuijlaars: No, I think that's absolutely. I think [indiscernible] maybe linked to that, as we navigate through tariffs, obviously, we are really focusing on having the right products for the customer in the right place which impacts our supply chain. And I think that leads to an inventory level which is not yet optimal. And that will come later. But obviously, it's that -- the prime focus is the right products in the right place for our customers. Alexander Sloane: And sorry, just one more. Obviously, you've done well over the last few years in terms of driving productivity savings. If the outlook actually does deteriorate further, is there more you can look at on this front? Nick Hampton: Absolutely, we will continue to drive productivity hard. As you say, we've got a very successful track record and overall, the program that we announced a couple of years ago is running ahead of target, so we'll continue to double down our efforts on that. And of course, as we learn more about the potential of the combined business, we'll -- I'm sure [indiscernible] more opportunities that will help with fueling the business. Operator: We will now take our next question from Damian McNeela from Deutsche Numis. Damian McNeela: A few for me, please. Firstly, just on the sort of the demand outlook, I think in North America, you're ascribing the slowdown to broadly economic factors. I was just wondering to what extent do you think GLP and consumers just eating less is impacting this? And how we should think about that when we think about our medium-term expectations in that business is the first question? Second question is on sucralose. Now I hear what you said around the sort of current trading of sucralose. But what do you think the risks are around changing regulatory sentiment towards high-intensity sweeteners and how sucralose positioned to deal with that? And then I guess the final question is perhaps for you, Sarah. Given the sort of downgrades we're sort of looking at today and the sort of increased talk about destocking across the sector, how should we think about cash generation for the full year? Nick Hampton: So on the demand outlook, I would say I mean the facts that we're seeing are significant consumer inflation in price in North America. So if you look at the retail sales data, while volume is down, value is up quite significantly. And that's always a big driver of relative demand. On GLP-1, no doubt it's changing the way people eat. And as we talked about in our capital markets event a couple of months ago, we see that as an opportunity for reformulation over time because of the need to provide more nutritionally balanced and dense food for those on GLP-1 and then to provide healthy alternatives when they come off the drug. So we're looking at through the lens of opportunity. And obviously, we'll see how that plays out. When I look at the data, it looks like the price inflation is driving a significant piece of the volume softness in the near term. And on your question on sucralose, there's been a continual [indiscernible] pressure on high-intensity sweeteners for a number of years. And we continue to see the demand for sucralose especially to be very robust and growing across the world. And that's a trend we've seen for the last 10 years. So we're very confident about the outlook for our sucralose business, especially as we are very focused on customers who really value what we do and we are capacity constrained at this point. However, whether a decrease in demand for high-intensity sweeteners, that's the power of the portfolio because we have other sweetening solutions in the business that can replace high-intensity sweeteners and provide the same kind of impact, albeit that there's often a cost trade-off there. So if you take a high-intensity sweetener out, you've got to put something else in and natural sweetener solutions like stevia can really play against that trend should that happen. So I think the portfolio balance here is really important and the way we position that sucralose business is really important when you think about the future. Sarah Kuijlaars: And then Damian, on cash, of course, we continue to focus on cash and continue to focusing on target cash conversion of 75% and the reduction of our leverage. However, as per one of the earlier answers, we've got to acknowledge that the working capital is going to take a bit of time to be optimized because given the volatility in the tariff environment, that doesn't help optimizing our inventory position at the moment; absolutely, we're focusing on getting inventory in the right places to support the customers. And obviously, we'll talk more about where cash lands on November 6 for our H1 results. Operator: [Operator Instructions] We'll now move to our next question from Lisa De Neve from Morgan Stanley. Lisa Hortense De Neve: I have 2 questions, and one is a bit of a follow-up on the demand comments you've made. So can I just ask you to which extent -- I mean, CPGs are being here much more cautious in their purchases and are either mimicking the underlying market? Or are they actually being a lot more cautious than perhaps the softness we're seeing in the market? I'm just trying to understand and disentangle what's driving this demand weakness? Because my understanding is that the North American market and global food and beverage market is trending broadly flattish with CPGs, the big ones being down. And I'm just trying to understand, is it just CPGs being even more cautious on their purchases and managing their inventories? Is it specific ingredients that -- where you see softer demand? I mean it would be great to get a little bit more granularity on this. And then secondly is a bit of a follow-up on the free cash flow question. In the light of the sort of softer year for you, and it's very much across the sector, but just talking about you, I mean, how committed are you to the dividend? Nick Hampton: So on your point on CPG and overall demand, we've clearly seen a decline in volumes in North American retail in the last quarter. So that's a clear trend we're seeing. Whether that's then impacting customers' inventory levels and how they think about that is a bit early to tell. But we're certainly seeing a reduction in demand in the near term. As you rightly correct, more broadly across the [indiscernible], things are relatively more stable, not growth but stable. Now that's a gross generalization because you have to look market by market. But the thing we've really seen in the recent couple of months or so is a notable slowdown in North America. On your question on the dividend, the Board has a very clear capital allocation structure framework and has been committed to a progressive dividend for the last 10 to 15 years. So we're absolutely committed to the dividend, and the Board will continue to appraise the capital allocation framework as normal as we go forward. Operator: It appears there are currently no further questions today. So with this, I'd like to hand the call back over to Nick Hampton for any additional or closing remarks. Over to you, sir. Nick Hampton: Thank you, operator, and thank you for your questions. So in summary, we continue to make good progress delivering the benefits of the CP Kelco combination. Customers are increasingly recognizing the strength of our combined portfolio and the cross-selling pipeline has more than doubled in value over the last 2 months. A slowdown in market demand has impacted our recent performance, and we are accelerating actions to drive a top-line growth. Looking ahead, the fundamental growth drivers of our business remain strong. Consumer demand for healthier and more nutritious food and drink continues to grow, and our expertise in food and drink reformulation mean we are well positioned to capture this growth. We are determined to accelerate top-line growth and are fully focused on successfully delivering the benefits of the combination. Thanks for your time and questions, and I wish you all a very good day. Operator: Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.
Operator: Good morning, and welcome to the Acuity Fiscal 2025 Fourth Quarter and Full Year Earnings Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Charlotte McLaughlin, Vice President of Investor Relations. Charlotte, please go ahead. Charlotte McLaughlin: Thank you, operator. Good morning, and welcome to the Acuity Fiscal 2025 Fourth Quarter and Full Year Earnings Call. On the call with me this morning are Neil Ashe, our Chairman, President and Chief Executive Officer; and Karen Holcom, our Senior Vice President and Chief Financial Officer. Today's call will include updates on our strategic progress and on our fiscal 2025 fourth quarter and full year performance. There will be an opportunity for Q&A at the end of this call. As a reminder, some of our comments today may be forward-looking statements. We intend these forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as detailed on Slide 2 of the accompanying presentation. Reconciliations of certain non-GAAP financial metrics with their corresponding GAAP measures are available in our 2025 fourth quarter earnings release and supplemental presentation. Both of which are available on our Investor Relations website at www.investors.acuityinc.com. Thank you for your interest in Acuity. I will now turn the call over to Neil Ashe. Neil Ashe: Thank you, Charlotte, and thank you all for joining us this morning. Our fiscal 2025 fourth quarter performance was strong. We grew net sales, expanded our adjusted operating profit and adjusted operating profit margin and increased our adjusted diluted earnings per share. Throughout fiscal 2025, we have demonstrated our ability to deliver growth and consistent operating performance that created stakeholder value and compounded shareholder wealth. Acuity Brands Lighting delivered sales growth and improved adjusted operating profit and adjusted operating profit margin in the fourth quarter. This performance was driven by the execution of our strategy and the aggressive actions taken over the last 2 quarters to manage margins despite the dilutive impact of the combination of higher tariff costs and corresponding price increases. We have the most dynamic and resilient supply chain in the industry, and we have adapted faster and more effectively than our competitors. We have leveraged our multinational footprint to move away from higher tariff environments and optimize our supplier relationships. We accelerated productivity efforts, including the evaluation of operating expenses and our organizational structure and ABL, and we continue to strategically manage price. I have spent the last couple of quarters describing how our electronics portfolio is a unique offering in the marketplace, extending from the drivers that power our luminaires to the sensors, controls and software which control light in a space and connect with the cloud seamlessly through our Atrius DataLab. We're developing market-leading solutions that drive productivity for us and for our partners. A good example of this is the TLS, Twist-to-Lock sensor by SensorSwitch that offers time-saving solutions to contractors. TLS is an occupancy sensor designed for industrial spaces like warehouses and manufacturing facilities. It gives contractors the ability to easily add controls to any project, saving time and reducing complexity on the job site without the need for wires or separate installation. Our visual suite of applications are automating manual processes across the key phases of a project, design, installation and optimization. These digital tools are designed to boost productivity, encourage collaboration and build contractor preference. Visual lighting and visual control help designers create lighting solutions by mapping digital floor plans, automating design audits and offering smart recommendations. Visual installer gives installers real-time access to their design plans, enabling collaboration that results in an accelerated install and programming time line. And Visual Cloud optimizes project management, providing site access and team contacts, leading to simplified collaboration and an overall reduction in costs. This end-to-end support improves the end user experience through increased productivity and lower costs. As part of our ABL growth algorithm, we are making organic investments for future growth, prioritizing verticals where we have not historically competed or where we are underpenetrated. This year, we strengthened our offerings across health care by launching the care collection and developing our Nightingale range of products. Care Collection is a curated portfolio of lighting and lighting control solutions that have been designed for use in a health care environment, making it quicker and easier for customers and agents to select the products that they need. We introduced the Nightingale brand to expand our health care offering into in-room patient care. Our team developed a series of lighting solutions that combines the functional needs of caregivers with the environmental needs of patients. In addition to Nightingale Embrace that we previewed last quarter, we launched Respond and Observe. Respond is a multifunctional patient bed luminaire with ambient, exam, night observation and reading modes. Respond can be paired with sensor switch. Observe is a skylight that can be used in common areas and patient rooms and can switch between exam, ambient and sky modes also using sensor switch. Nightingale has already received recognition from the industry. In the fourth quarter, it was one of several of our brands that were highlighted by the IES Industry Progress report awards that celebrates advancements in lighting products, research publications and design tools from the past year. Other products recognized include the IVO cylinders and Deep Regressed Downlights, HOLOBAY by Holophane, REBL Round High Bay and Wander Pathway by Hydrel. Now switching to Acuity Intelligent Spaces, which had another strong performance this quarter. Through Atrius, Distech and QSC, we have unique and disruptive technologies that are driving productivity for people experiencing spaces and for the people who are providing those spaces. Atrius and Distech control the management of the space, and QSC manages the experiences in that space. Over time, we will use the data that they generate to enhance productivity outcomes through data interoperability. During the quarter, Atrius, Distech and QSC each delivered strong results and are continuing to collaborate to explore new and interesting ways of working together. QSC is building the industry's most innovative full-stack AV platform that unifies data, devices and a cloud-first architecture to deliver real-time action, experiences and insights. The addition of QSC has evolved the geographic footprint of our AIS business, accelerating our multinational expansion. One of the markets where we have already benefited from this is India, where we compete commercially and have an experience center that we expanded during the quarter. The center includes product demonstrations for various room types in high-impact spaces as well as design workshops and training for our ecosystem partners. This center also serves as a hub for Intelligent Spaces to develop collaborative use cases for future workspaces and is the first experience center to feature the integrated Acuity Intelligent Spaces offering. Now I want to take a moment to review where our business is today and our view of how we are positioned for the future. Acuity Inc. is a leading industrial technology company comprised of Acuity Brands Lighting, which is the best-performing lighting and lighting controls company in the world, and Acuity Intelligent Spaces, which is a dynamic and growing building management and full stack AB business. We have transformed the company from principally a luminaires business to a data and controls and luminaires business, and position ourselves well for long-term growth. Fiscal 2025 was an important year for us. We renamed our company, Acuity Inc., reflecting our evolution and aligning to our strategy of using technology to solve problems and create impactful experiences that shape how people live, work and connect. We continue to make our Acuity Brands Lighting business more predictable, repeatable and scalable. We realigned the business into luminaires and electronics and delivered improved financial performance. ABL is a high-quality strategic asset and a core pillar of our company. In Acuity Intelligent Spaces, we acquired and integrated QSC. We have scaled AIS into a larger part of our overall company. At Acuity, we are doing things differently. Our values are at the core of who we are, guiding how we serve our customers, associates and communities. Each of our associates understands how we create value. We grow net sales, we turn profits into cash and we don't grow the balance sheet as fast. And we are empowered by our better, smarter, faster operating system to work in a structured and consistent way. The combination of these things allows us to operate more productively with greater distribution of responsibility and accountability throughout the company. It is how we are able to react aggressively to changes in the macro environment this year and how we were able to quickly and successfully integrate QSC. In Acuity Brands Lighting, we are focused on product vitality, elevating service levels, using technology to improve and differentiate both our products and how we operate the business and driving productivity. Our growth algorithm is clear. We will grow with the market, we will take share, and we will enter new verticals, and we have the opportunity to continue to expand margins. In Acuity Intelligent Spaces, we are making spaces smarter, safer and greener. We have unique and disruptive technologies that are driving productivity for people experiencing spaces and for the people who are providing those spaces. Our focus in AIS will continue to be on growth with the opportunity for margin expansion. We are effective capital allocators. We have grown our business organically and through acquisitions. We have rewarded our shareholders with increased dividends, and we have been opportunistic in repurchasing more of our outstanding shares. Acuity is positioned for long-term growth. We are innovators, disruptors and builders who are creating stakeholder value and compounding shareholder wealth. Now I'll turn the call over to Karen, who will update you on our fourth quarter performance. Karen Holcom: Thank you, Neil, and good morning, everyone. We ended fiscal 2025 with strong fourth quarter performance. We grew net sales, improved our adjusted operating profit and adjusted operating profit margin and increased our adjusted diluted earnings per share. For total Acuity, we generated net sales in the fourth quarter of $1.2 billion which was $177 million or 17% above the prior year. This was driven by growth in both business segments and includes 3 months of QSC sales. During the quarter, our adjusted operating profit was $225 million, up $47 million or 26% from last year. This improvement was due to the growth of AIS, including the acquisition of QSC and the result of actions taken at ABL to control operating expenses. Adjusted operating profit margin during the quarter expanded to 18.6%, an increase of 130 basis points from the prior year. This quarter, there are a few additional non-GAAP adjustments to call out. First, there is a noncash charge of approximately $31 million, resulting from the derisking of our qualified pension plans in the United States and Mexico. As we said last quarter, over the last few years, we have taken steps to simplify and minimize the future impact of our pension obligations on the company. Through our investment policies and capital allocation decisions, these pension plans were overfunded. And as a result, we transferred the majority of the related obligations to a third party. Our U.K. pension plan transfer is anticipated to be completed in the first quarter of fiscal 2026, and we expect to take an additional noncash GAAP charge of around $10 million at that time. This quarter, we also recognized a onetime tax benefit of $8 million. After non-GAAP items, our adjusted diluted earnings per share was $5.20, which was an increase of $0.90 or 21% over the prior year. ABL delivered sales of $962 million, an increase of $7 million or 1% versus the prior year driven by growth in our independent sales network of $25 million or 4%, partially offset by declines in corporate accounts and our direct sales network. Adjusted operating profit increased $22 million to $194 million, and we delivered adjusted operating profit margin of 20.1% which was up 210 basis points compared to the prior year. This improvement was driven largely by the intentional actions we took in the third quarter to reduce operating costs and our increased focus on productivity. Now moving to Acuity Intelligence Spaces. Sales for the fourth quarter were $255 million, an increase of $171 million. Atrius and Distech combined grew approximately 13%, while QSC grew approximately 15% year-over-year. Adjusted operating profit in Intelligent Spaces was $55 million with adjusted operating profit margin of 21.4%. Now turning to our cash flow performance. During the fiscal year, we generated $601 million of cash flow from operations, which was $18 million lower than last year, primarily due to the acquisition-related items, the timing of tariff payments and accelerated inventory purchases driven by the tariff policy. In fiscal 2025, we continue to allocate capital effectively and consistent with our priorities. We invested for growth in our existing businesses, allocating $68 million to capital expenditures. We invested over $1.2 billion in acquisitions and repaid $200 million of our term loan, including an additional $100 million this quarter. We increased our dividend by 13% and allocated around $119 million to repurchase approximately 436,000 shares at an average price of around $270. Since the beginning of the fourth quarter of fiscal 2020, we have repurchased approximately 10 million shares at an average price of around $150 per share, which was funded by organic cash flow. This amounts to about 25% of the then outstanding shares. I now want to spend a few minutes on our outlook for 2026. Consistent with our prior practice, we are going to provide annual guidance anchored around net sales and adjusted diluted earnings per share. We will also provide you with certain assumptions, which you can find in the supplemental presentation available on our website after the conclusion of this call. For full year fiscal 2026, our expectation is that net sales will be within the range of $4.7 billion and $4.9 billion for total AYI. This is based on the assumption that ABL will deliver low single-digit sales growth and AIS will generate organic sales growth in the low to mid-teens. We expect to deliver adjusted diluted earnings per share within the range of $19 to $20.50. In summary, we delivered strong performance in fiscal 2025. We grew net sales, improved margins and increased adjusted diluted earnings per share. We generated strong cash flow from operations and allocated capital effectively. We are positioned well to deliver another strong year in fiscal 2026. Thank you for joining us today. I will now pass you over to the operator to take your questions. Operator: Our first question comes from Chris Snyder at Morgan Stanley. Christopher Snyder: Maybe starting with a bigger picture question here, Neil. It's been maybe almost 8 months since the QSC acquisition. It seems like integration is going really well. Can you kind of just talk about the M&A pipeline? And if there are categories within kind of the smart building ecosystem that is attractive to the company? Neil Ashe: Yes. Thanks, Chris. Well, first off, obviously, we're pleased with the addition of QSC to the portfolio. As you know, we have a different theory of the case for Acuity Intelligent Spaces is that we can consolidate the data state of a built space, how the building operates, the experiences in that building, who is in that building, other elements of that data state. So we have a consistent pipeline of potential acquisitions that would continue to expand that portfolio as well as opportunities to continue to expand organically in that portfolio. So we feel like the path of travel for Intelligent Spaces is pretty clear. Both with deploying capital as well as organically. Christopher Snyder: I appreciate that. And then maybe just following up with more of a near-term one on the quarter itself. If we look at ABL, it seems like the sequential ramp in Q4 came in below seasonality despite incremental price, I would imagine quarter-on-quarter coming through. That is just a function of the pull forward that you guys highlighted on Q3? Does it signal that some of the end markets are softening. And then just kind of any color or thoughts on the channel inventory level as we start fiscal '26. Neil Ashe: I'll start, Karen, add anything that I leave off. So you'll remember back in the last call, we suggested that it would be prudent to evaluate the second half of the year given the changes in tariff policy, the resulting actions we took to modify the supply chain to reduce operating expenses and then the corresponding price increases as well. So basically, if you take the third quarter plus the fourth quarter, ABL is exactly where we expected it to be. And I think we can be proud of the performance that the unit has delivered through all of these. As you pick apart the disaggregated revenue, we have remained strong with both the independent sales network, combined with our direct sales network. So really around the project business in the quarter and in the year, the corporate accounts business was down versus last year. So as we've said consistently, that's a really good piece of business, but it's not a very consistent piece of business because it relies on the capital decisions of a concentrated group of customers. So taken on the whole, I think the ABL performance is really strong, both from a top line as well as from a margin perspective. Our belief is that we have outperformed the industry. So numbers will come out over time, but our belief is that we've outperformed the industry. Operator: Our next question comes from Tim Wojs with Baird. Timothy Wojs: Maybe just a bigger question to start off with Neil. Just on AIS. I guess as you've kind of thought about kind of integrating the front of the house with QSC and kind of the back of the house with Distech and Atrius. What are some of the key kind of milestones that we should look for? We think about as you kind of maybe develop a more wholesome solution. Neil Ashe: Yes. Thanks, Tim. So just to kind of continue to build on the strategy there. Basically, we have outstanding and disruptive technology that is powered both in -- on the control side and Distech as well as in QSC. Those businesses on a stand-alone basis will continue their path of taking share in their specific pieces of the market. Atrius DataLab then is the data integration effort that we are undertaking to combine those data elements for, as you point out, the front of the house or the back of the house or IT and OT combination as some others are using so that we can deliver unique experiences and outcomes in those spaces. What's really interesting to us is the power of our controls platform. So the build space by definition, each building is different and so having that position in the space is incredibly valuable. So from a milestones perspective, you can expect that each of the 3 businesses will continue their organic development, number one. Number two, you can look for us to start to commingle some of their products in their implementation and application and then over time, you'll start to hear end users and customers start to talk about the ability to do things that they didn't realize were possible through the combination of both of these hardware solutions as well as the data and software solutions that we're developing. Timothy Wojs: Okay. That's helpful. And then just kind of a 2-part around guidance. I guess the first is within the low single-digit ABL guide, is there a way to just contextualize how much price is just given all the moving pieces with tariffs. And then second, just on margins, I'm kind of backing into kind of an implied adjusted EBIT margin of 17% to 18%. Just is that kind of the ballpark level there on margins? Just anything to call up below the line? Karen Holcom: Yes. Let me hit the one on ABL and the price first. So just to take a step back, Tim, over the past few years, we've been really strategic about pricing at ABL and focusing on the value that our products are bringing to the end user. And yes, we've had several price increases over the past couple of quarters to offset the increase in the tariffs. But we didn't take these peanut butter over our portfolio of Contractor Select, Design Select and made the order. We've taken some prices up and some prices down depending on where we've seen opportunity to be strategic in the marketplace. So I would sum it up by saying all the pricing actions have been about in the low- to mid-single digits, intending to offset the dollar impact of those tariffs. Neil Ashe: Okay. And then I want to take, Tim, the opportunity. We like to use the full year call to kind of contextualize where I think we are on a long-term basis. And so I don't want to miss the opportunity to highlight the dramatic margin improvement in the company and then in the lighting business specifically. So from where we've come from fiscal '19, fiscal '20 to where we are today is pretty dramatic and is significantly in advance of the competition. As a point of disclosure, we took the decision this -- with the end of this year and then going forward to provide both gross margin and operating profit margin at the segment level so that you will understand the performance of those businesses even more clearly. And the path of travel is very clear, as I said earlier, we continue to take share. We continue to expand margins in both the lighting and lighting controls and on the AIS side. Obviously, expectations will continue to rise and they will converge with our performance over time, and we're -- but we feel really, really good about where we are. Operator: Our next question comes from Ryan Merkel with William Blair. Ryan Merkel: So Neil, the market has been soft for a while here, flat to down. Any signs that orders and demand is improving or do you think we need lower interest rates before you start to see an uplift in the lighting market? Neil Ashe: Yes, Ryan. On the lighting side, so we've been waiting for economic kind of stability for a while now, and we continue to grind out performance in the absence of that economic stability. So as you know, we were pretty data intensive. So as we look forward, our expectation from a kind of economic context perspective is that it's really more of the same. And we don't have -- we are not modeling in expectations of improvement at this point. So I think the -- I'm not an economist, obviously. And so I'm not going to put a finger on what I think the drivers are of that change. But I will emphasize that our growth algorithm on the ABL side is really clear. And we're demonstrating that in a tepid economic environment like this one, we can perform. So with the combination of the market performance, the taking share and expanding in new verticals, we're generating the -- we're demonstrating rather the ability to consistently kind of grow. As you saw in the third quarter, if we get a little bit of a tailwind through market growth, that just adds obviously to that and would be an accelerant. But it's a -- we're demonstrating, I think the emphasis here is we're demonstrating the ability to continue to deliver these results no matter the context. Ryan Merkel: All right. So to put it in my own words, it doesn't sound like a lot has changed on the market. And for ABL to be up low-single-digits for '26. It assumes the market is flat to down. Is that fair? Neil Ashe: I would say that's fair. It's more us than the market in our expectation. Ryan Merkel: Right. Okay. And then I had a question on gross margins for the outlook. I know you won't give specifics, but I think the Street is modeling gross margins in '26 down a little bit. Now I know you've done some productivity things. And I think on the last call, you said you thought you could return gross margins to 50% using productivity. So just any color on gross margins and if 50% is still a reasonable target at some point to get back to? Neil Ashe: So let's break that down into kind of its component parts. So there's the whole company, which is -- which will continue to expand on 2 fronts. One is mix; and two, is continued improved performance at ABL. So as I've said, the -- we're moving down that direction. We'll continue to move down that direction. As Karen indicated in her prepared remarks, the dollar impact of the combination of tariff cost and price increase is neutral. The margin percentage impact is negative. So that takes back the -- some of the margin expansion for a period of time at ABL. So that's in the -- depending on how the periods fall out, that's in the 50 to 100 basis points of impact kind of range. So we need to digest that as we continue to move forward. But the strategy and our longer-term expectations remain the same and are clear. Operator: Our next question comes from Joe O'Dea with Wells Fargo. Joseph O'Dea: Wanted to start on QSC. Any color on the margins in the fourth quarter? It looks like it could have been kind of around 20% and legacy AIS around 23%. So really, just looking if that's kind of a reasonable expectation and then understanding the steps that you've taken. So it looks like you've already moved those QSC margins from mid-teens to low 20s. And then how you think about the time line on the path to get them to kind of align with legacy margins? Karen Holcom: Yes. Thanks, Joe. As Neil mentioned earlier, we really are pleased with the progress of QSC as they become part of Acuity and of AIS. So, we've seen really strong performance across all of AIS. And when we did the acquisition, we expected that we would bring QSC's performance more in line with the legacy business, which is really what we've demonstrated over the past 2 quarters. They've had strong sales growth this quarter and last quarter. And so that's contributed to the margin improvement. And then they've also benefited from adopting our better, smarter, faster operating system and ways of working, which has helped them drive productivity not to add additional cost to get that growth. So I think the margin is strong. We're really pleased with where we are and our focus on AIS is going to continue to be on growth. And over time, we will make some investments to deliver that mid-teens type growth. Joseph O'Dea: You still see QSC as a margin expansion opportunity in '26? Karen Holcom: Over time, I think it will be. It will continue to expand. But again, the focus will be on growth in AIS in total. Joseph O'Dea: Okay. And then, Neil, you made some comments around the cost side of things and talked about a dynamic supply chain advantage that you have that you moved away from higher tariff environments. And also, it sounds like some cost actions, in particular, within ABL. So can you just elaborate on some of the steps that you've taken on the cost side, inclusive of sizing what China as a percent of sourcing now versus where it was previously? Neil Ashe: Yes. So let's start with material pricing. Obviously, that has -- that's where the impact of the tariff is. So we've moved, I think the majority of that away to either other Asia or -- and as much of that obviously to within our footprint as we can. So that remains -- so -- and we did that basically within the first month after -- well, in the month of April after the April 2 announcements. So that was accelerated and impactful. I don't have an exact percentage of the material spend that is -- that we currently get from China, but obviously, we've taken that way down. Over the last 5 years, our total exposure to China is in the range of 20%-ish of what it was at one point. So we've dramatically changed that. So on the sourcing side, we are as we've indicated, dynamic on how we're sourcing. And that really applies to all of our components. And we've got interesting work underway to continue that process, which we're really pleased with. And then on the ABL side, we took the opportunity in the third quarter to reevaluate our operating expenses and our organizational structure as a result of sales not materializing the way that we had predicted that they would for the back half of the year. So we took the opportunity to accelerate some productivity efforts that we had underway, so specific projects, which were intended to deliver productivity. And second, we reevaluated the organizational structure and eliminated a chunk of employees to realize some of those cost savings. So again, as I said earlier, I'm pleased with the work that the team has done there in this environment to deliver these results. Joseph O'Dea: And then sorry, just a clarification. The pull-forward impact you talked about in Q3, is that isolated to the back half of last year and really no anticipated impact on '26. Neil Ashe: Basically, so I'll just reprise what we said on the last call, which is that when we have an order ahead of that like that happened in Q3, essentially what happens is backlog swells a little bit, and then we ship that on a relatively consistent basis over the following period. So there's a little bit of that, that happens between the fourth quarter and the first quarter as well. But on a normalized basis, we are basically where we expect, like on a consistent basis to be. Operator: Our next question comes from Christopher Glynn with Oppenheimer. Christopher Glynn: Nice to tune in to the continuing exciting story and developments here. So considering markets are relatively listless out there, directionless, you have a pretty confident revenue guide. I understand what you're talking about taking share. It's been a consistent story. But I'm wondering if, aside from product, if you could talk about on a more granular level, any angles or zones in the commercial RFP environment where you feel are the most demonstrative of relative competitive momentum. Neil Ashe: Yes. Thanks, Chris. So back to the growth algorithm for a second, the market taking share and new verticals. So the new vertical performance is obviously really strong. And as we look forward, we'll continue to be health care refuel and sport lighting are each opportunities for us to continue to add to that. That's probably in the order of, I don't know, 50 to 100 basis points of addition to the top line on a net basis. Then on the take-share front, our Contractor Select portfolio performed really well in the fourth quarter. And so we're being aggressive with the changes in the marketplace there to press our advantage there. And then I'd highlight something that we haven't talked about in a long time, where we've had real strength, but is in the specifier -- in our specifier brands, which have also performed well and are taking share. So, to your broader context of the overall puzzle, it's -- we're executing pretty effectively across the ABL portfolio. So we're delivering, as we said, these results in a relatively tepid end market environment. Operator: Our next question comes from Brian Lee with Goldman Sachs. Brian Lee: I had a couple of questions. Just first on guidance. I know a lot of questions on the margins. I appreciate you guys breaking out the segment margins here. But I guess it does beg the question. There's a lot of moving pieces, both in ABL and also kind of some of the comments around AIS building for growth, maybe the margin expansion story in the near term. So thinking about this directionally, it almost sounds like ABL, you're holding the line on margins, maybe seeing a bit of expansion into '26 and then AIS really focused on growth, but do we see a little bit of backsliding on the gross margins just in that segment? And if that is the case, kind of what are some of the moving pieces there? Is it just increased investment growth or what are some of the drivers around that margin profile? Neil Ashe: Right. I'm not sure what you mean about so many moving pieces. So I'll just break it down pretty simply. So ABL for the last 5 years and for the next 5 years, we'll continue to move forward on productivity improvements that are driving margin. The impact there at ABL is the percentage margin impact of the combination of tariff costs and price increases. So that, as I indicated earlier, on a full year basis would be in the range of 100-ish basis points as we continue to drive dollar margins. And so that's what we were trying to explain pretty clearly. I think Karen also was really clear on where AIS is going. So we're growing in the low to mid-teens. We have a continued margin expansion opportunity. When faced with the choice between expanding margins or continuing the growth, we will invest for growth. And so when you sum those across the enterprise for FY '25, obviously, we had a really strong performance where we demonstrated the dexterity in ABL and the power of QSC joining our enterprise and their margin expansion. And over the next kind of year or years, we would expect that general direction to continue. Brian Lee: Okay. Fair enough. But just triangulating, I mean, obviously, the tariffs or the impact on ABL. But for AIS, the deliberate strategy to focus on growth in the near term it does sound like we shouldn't necessarily be expecting margin expansion in that segment over the next 12 months, but on a longer-term basis, clearly, direction is still higher. Is that fair? Neil Ashe: Well, Brian, we've added 500 basis points of margin to QSC in 8 months. So I feel like we're kind of directionally in a pretty good place. So yes, we will continue to grow AIS, and those margins will continue to grow over time. Brian Lee: Okay. And then on the data monetization front, it sounds like there's a lot of opportunity there. I don't know if you've ever anticipate being able to break that out or wanting to break that out at a high level. Can you kind of speak to sort of what data monetization opportunities you either currently have or expecting to sort of be able to execute toward in that AIS segment? If any quantification, that would be great as well. Neil Ashe: Yes. So short-term and long-term with AIS as I indicated, both with all of the Atrius Distech and QSC we're -- our control position and our portfolio are incredibly strong in their respective areas, and those will continue to grow. The initial impact of data will be through the outcomes we are delivering as we expand those experiences. So there are specific software opportunities that we're in the marketplace with now and the more that will be coming over the course of the next 12 to 24 months. And then finally, the data monetization will over time, manifest in 2 ways. One will be the continued acceleration of that software-focused revenue and the outcomes that they deliver. And maybe over time, we introduce data-specific products. But in the immediate term, we will continue where we're growing, which is around our control platforms and the increased impact of software on those over the next 12 to 24 months. Operator: Our next question comes from Jeffrey Sprague with Vertical Research Partners. Jeffrey Sprague: Just a couple of loose ends or points of clarification for me, I guess, after all that. First, just on kind of the tariff situation, Neil or Karen, given that you guys have taken so many counteractions, sourcing otherwise, are you in a position now relative to your competitors that I guess, for lack of a better phrase, your pricing for tariffs, you're no longer exposed to as we roll into 2026. Is there sort of an embedded margin opportunity there? Neil Ashe: Yes, Jeff, that's a good question. So we've been relatively conservative in our expectations to this. So we're trying to mitigate as much of the tariff impact from either productivity or transitions as you've described, first. And we've minimized that in pricing impact, second. So the -- as Karen indicated that when we talk about pricing strategically, that means some places we're taking prices up, and some places we're taking pricing down. So what we're balancing is trying to optimize share gain for margin expansion opportunity. The margin expansion opportunity, we are confident in over the kind of the foreseeable future. So we'll really try and dial that as an opportunity to -- if we had a bias there, we would take some more share probably as opposed to add an incremental margin piece at ABL. Jeffrey Sprague: Right. And then I guess, conversely, you're never going to stop pushing for productivity. But was there anything in these actions in 2025 that are sort of temporary in nature that need to come back from a cost standpoint as we look into '26, particularly if the top line is beginning to pick up? Neil Ashe: So not specifically the actions that we took. Those are accelerated productivity and kind of permanent changes, not short-term Band-Aid. On the OpEx side, we will continue to invest in technology. So -- and so as I've said on some calls in the past, so the geography of the -- specifically on the ABL side, the income statement may continue to change a little bit as the technology expenses are in OpEx, which drive gross margin impact over time. So -- but we're -- so that would be the balance. So yes, the changes that we made are effectively permanent. Now we move into the next cycle, merit increases, health care cost increase, all that kind of exciting stuff. But the investment areas, especially on the ABL side, are going to be in technology to drive productivity. Jeffrey Sprague: And then just finally for me, just on inventories, Neil or Karen. Your days inventories have been moving up, tried to scrape out the QSC impact best I could. But still seems somewhat elevated, maybe speak to where we're at relative to what normal inventory should be? Is there any kind of absorption benefit or anything that's occurred here that needs to normalize as we look into next year? Karen Holcom: Yes. Jeff, there's really 2 things going on with inventory. The first would be just the elevated cost and the inventory from the impact of the tariffs. So you're seeing a higher dollar amount of inventory that's impacting the total, but then also and more impactful is we've also had to -- decided to bring in some of the inventory that we could to protect us from some of the higher cost over time from the increasing tariffs. So it's really those 2 things that play a little bit of higher cost of inventory and bringing some more in to deal with the elevated tariff costs. You'll see that play down over the course of this year. So it shouldn't remain at the elevated levels that we are at the end of August. Operator: And I'm showing no further questions in queue at this time. I'd like to turn the call back to Neil Ashe for any closing remarks. Neil Ashe: Great. Well, first of all, thank you all for joining us today. As we've indicated, we believe fiscal 2025 was a strong year for Acuity. We operated effectively in a relatively dynamic environment. The performance at ABL continues to be, by far, the best in the world and we're confident in its ongoing continuous improvement. On the AIS side, we're really excited about what we're building here. We -- with Atrius, with Distech and QSC and then the combination of those 3 things, we think we're building an innovative and disruptive business that has the potential to do some pretty exciting things in the future. So with all that taken together, we're pleased with '25. We're hard at work already on '26. We appreciate your interest, and we look forward to talking to you again in the next quarter. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to The Warehouse Group Limited FY '25 Annual Results. [Operator Instructions] I would now like to hand the conference over to Dame Joan Withers, Chair of The Warehouse Group. Please go ahead. Joan Withers: [Foreign Language] and good morning, everyone. Welcome to The Warehouse Group's full year results presentation. First, to Slide 3, the chairs update. Thank you all for joining us today. I'm Joan Withers. I'm Chair of the Board. And on the call with me today are Mark Stirton, our Group Chief Executive Officer; and Stefan Knight, our Group Chief Financial Officer. During the presentation today, I'll begin with the chairs update. Then I'll hand over to Mark to give an overview of the group's performance, the work that is underway to restore profitability, and he'll also talk to our outlook. Stefan will then share a more in-depth summary of our financial results. And as always, there will be an opportunity to ask questions at the end of the presentation. To Slide 4, the year in review. FY '25 has been another challenging year for the company, shaped by extremely tough economic conditions and a sharp decline in consumer confidence. With unemployment rising and households tightening their budgets, discretionary spending has slowed significantly. Retail competition has also become increasingly intense. Despite these headwinds, group sales held steady. Reported sales were up 1.6%, reaching $3.1 billion. It is important to note that FY '25 included an additional trading week, so on a like-for-like basis, sales were flat, which reflects resilience in a difficult market. The real pressure came through in our margin performance gross profit margin declined, particularly in the Warehouse, driven by a highly promotional environment and changes in category mix. While we made progress on cost control, there was not enough to offset the margin decline. Operating profit came in at $1.3 million, and we have reported a net loss of $2.8 million. Given this financial performance, the Board has elected not to declare a dividend for FY '25. That is deeply disappointing, and I want to acknowledge the impact on our shareholders. We continue to take decisive action to restore profitability so we can once again deliver value back to our shareholders. During FY '25, under John Journee's leadership as interim Group Chief Executive Officer, we made the important changes that were foreshadowed last year. We have reshaped the organization and returned to a brand-led model with better execution across core retail capabilities. These necessary changes are already making a difference, particularly in the Warehouse. Customers are responding well to our refreshed ranges and to sharper pricing, and we saw a stronger sales performance in the second half. Cost management has also improved across the organization and CapEx and project expenditure have reduced significantly. Mark Stirton stepped into the role of Group Chief Executive Officer on the first of August this year, following 16 months in the group CFO role. The Board is confident in his ability to take the business forward and Mark brings commercial strength, strategic clarity, a sharp focus on execution and highly relevant retail experience with the Mr Price Group in South Africa. So while meaningful progress has been made, there is still much more work to do. But our direction is clear. The leadership is strong and the initial signs of progress are encouraging. I'll now hand over to Mark. Mark Stirton: Thank you, Joan, and good morning, everyone. I'm Mark Stirton, Group Chief Executive Officer. It is a privilege to speak to you today in my first results presentation as CEO. I want to begin by thanking Dame Jones and our incoming Chair, John Journee for their steadfast support as I've stepped into the role. I'm grateful for their leadership as we continue to navigate this important phase of the group. FY '25 has been a reset year for our business, a year of discipline, simplification and laying the groundwork for sustainable growth. We have made tough decisions, simplified our structure and focused on execution. While our financial performance is not yet where it needs to be, we have built momentum and are moving with speed into FY '26. As Joan spoke to, the New Zealand economic environment remains extremely challenging and this backdrop has had a direct and significant impact on our margins. GDP fell 1.1% over the year to June, and GDP per capita dropped similarly. Unemployment is rising now at 5.2% nationally and in Auckland, our biggest market, it has reached 6.1%, the highest in 8 years. Inflation is sitting at 2.7%, right at the top of the Reserve Bank's target band. Interest rates have come down by 225 basis points since last September, but the relief has not yet been enough to offset the pressure felt by households. Cost of living increases have been sharp. Local authority rates are up more than 12%. Electricity is up over 8% and housing costs remain elevated. These are not small shifts. They are having a material impact on how customers spend. Consumer confidence fell to 92 in August, the lowest level in 10 months. That is not just a number, it reflects how people are feeling. And when confidence is low, discretionary spend is the first thing to go. Retail competition has intensified and the fight for share is tougher than ever and led to a highly promotional environment. FY '25 was a reset year for the group. We reshaped our operating model, returned to retail ways of working. We reset pricing, improved product and introduce tighter controls on cost and capital. These changes were necessary to position the business for long-term recovery and growth. Despite the economic headwinds I outlined earlier, our sales held steady -- that result is significant. It reflects strong customer response to the changes we've made across our brands. I want to acknowledge the team in a year like this, holding ground is no small feat. Traffic conversion improved and unit sales growth was strong across all three brands. We saw encouraging sales momentum in the second half, particularly in the Warehouse and Noel Leeming. Profitability, however, was impacted. Gross margin declined by 140 basis points, which materially affected the group's bottom line. In the warehouse, price resets, combined with a shift in category mix towards lower-margin products placed pressure on margins. In the second half, category mix improved. Unit growth for the year lifted across the group by 4.6%, supported by sharper pricing and more relevant on-trend products. Key categories such as home, apparel, toys and beauty performed well, and we launched several new brands as part of our range refresh. Cost control remains a clear focus and grew slower than sales. Our cost of doing business decreased 40 basis points to 32.2% of sales despite inflationary pressure experienced on rent, utilities and employee costs. Costs within our control, like head office costs were down 7.8% and depreciation down 7.4% compared to the prior year. We exercised discipline in capital management. Projects were rationalized, elevated IT spend tapered off and capital expenditure reduced to $12.4 million, down from $39 million in FY '24. Our brand-led strategy is gaining traction. We delivered more targeted and engaging marketing, improved store experiences, launched new ranges and introduce new layouts such as the Beauty Zone. We now have a new leadership team in place, aligned on our goals, focused on execution and committed to rebuilding profitability and unlocking the full potential of our brands. Even in the year is challenging as FY '25 we remain committed to looking after our people, our communities and our environment. It's fundamental to who we are as The Warehouse Group and part of our DNA. We maintained 100% gender pay equity and our employee Net Promoter Score rose to 36, up from 18.2 last year. That's a strong signal that our teams feel more engaged as we work to build a high-performance culture. Together with our customers, we raised $2.4 million for New Zealand charities. That impact matters, especially in a year when many households and communities were doing it tough. We also made strong progress on our environmental commitment. 66% of private label sales now use sustainable packaging. Our Scope 1 and 2 emissions are down 45% compared to FY '23. More than 150 stores and sites are now powered by Lodestone Energy solar farms, and we've diverted 79% of operational waste from landfill. These are meaningful steps that reflect our long-term commitment to sustainability and our belief that doing good is not separate from doing good business. As we look ahead, one thing is clear. The potential of our brands is enormous and this slide reflects the scale of opportunity we have in front of us. Our private label portfolio remains a core strength with 27 well-established brands that deliver quality and value and when repositioned, will be a key source of growth for our future. H&H, our apparel brand is a staple in millions of Kiwis' wardrobes. And in FY '25, we sold over 37 million Living and Co Home products, a clear sign of the trust customers place in our brands. Veon, our private label TV brand is now the second largest TV brand in New Zealand, showing we can lead in categories beyond everyday essentials. This year, we introduced Poppi, a fresh, affordable beauty brand designed for younger customers. Its early success reflects our ability to spot trends and respond quickly and at scale. The Warehouse has made significant gains in consumer brand preference, which is a difficult dial to shift. In FY '25, we reclaimed the #1 spot in consumer preference for toys with toy sales up 8% for the year. We also shifted consumer preference across several key categories. Home was up 5%, apparel was up 2%, pet care was up 5% and party and suppliers up 6% and sports and outdoors up 5%. These shifts reflect the impact of our products, pricing, marketing and visual merchandising improvements. Our reach remains a strategic advantage. Over 85% of TVs live within a 20-minute drive of one of our stores. And 1 in 3 New Zealanders visit our stores each week. I'm delighted to share that this morning, we are opening the doors on a new Warehouse stationery store in Central Wellington on Tory Street with a refreshed look and layout. These strengths give us confidence they show that our strategy is gaining traction and reinforce the opportunity ahead as we continue to unlock the full potential of our brands. Since stepping into the CEO role in August, I've focused on setting the playing field. In my first two months, I've aligned the organization around clear goals and performance expectations and set the direction for the group. Our group purpose is to build exceptional retail brands that customers love, our teams take pride in and deliver sustainable shareholder returns. Our group ambition is to get back to being a highly desired retail stock to own. Our strategy will be anchored in restoring profitability and positioning the business for sustainable growth. Our group values, "Think Customer, "Do Good" and "Own It" continue to guide our culture and decision-making. Our strategy will revolve around strengthening and growing our three New Zealand retail brands, enabling each to lead in this market while leveraging shared services, platforms and capital efficiencies. Later in FY '26, we will share a longer-term strategy for the group and individual brands. To improve execution across the organization, we've made several key appointments to the executive team. We struck a strong balance. We've promoted exceptional internal talent, brought in fresh capability and retained experienced leaders to ensure continuity. Stefan Knight joined as Group Chief Financial Officer in August, bringing deep expertise in finance and performance. He's sharpening our focus on cost control, margin improvement and operational discipline. Shayne Tong also joined in August as Group Chief Digital and Transformation Officer. He will lead our digital transformation and systems modernization. We've also promoted two outstanding internal leaders. Carrie Fairley is now acting Chief Merchandise Officer for the Warehouse and the Warehouse Stationery and Silv Roest has been appointed Group Chief Legal and Corporate Affairs Officer. This team is aligned, focused and ready to drive the next phase of our strategy. I will now hand over to Stefan to take you through our financial performance. Stefan Knight: Thank you, Mark and Joan, and good morning, everyone. My name is Stefan Knight, and I'm the CFO. For those on the call, I haven't met, I joined the Warehouse Group in August this year, and I spent my first few weeks getting around the business visiting some of our stores, the distribution centers and meeting the team. Joan and Mark have laid out where we are, and it's no secret that we are facing economic headwinds that are challenging our business. But having seen what I have since starting, I'm encouraged by the changes we are already putting in place and the enthusiasm of the team. We are absolutely focusing on the right things what we can change and control and to turn around the profitability of the group. Before we get into the numbers, I would just remind you of the anomaly in this year's reporting period. So FY '25 was a 53-week financial year ending Sunday, the third of August 2025 compared to 52 weeks in FY '24. Where appropriate, we've competed FY '25 revenue on a 52-week same-store sales basis with FY '24 so this removes the final 53rd week of FY '25. It excludes online and Noel Leeming commercial and the impact of opening and closing of stores in each period. All the other financial commentary is unadjusted and compares 53 weeks in FY '25 with 52 weeks in FY '24. So you can refer to Appendix Slide 27 for a sales summary by brand and we've -- in that slide, we've laid out the 53 weeks reported, the 52 weeks like-for-like and also a 52-week same-store sales basis. So on to Slide 13. As mentioned, top line reported sales increased 1.6%, and this was flat on a 52-week same-store basis. So really pleasing to be able to hold sales in such a tough economic environment. This was underpinned by a movement of two halves. Sales declined 1.6% in the first half but delivered a turnaround in H2 with sales growth of 1.6% on a like-for-like 26-week basis, removing the 53rd week of the year. Within the warehouse, our everyday low price reset earlier in the financial year and the hard work our buying teams have done to deliver on trend products have contributed to group units sold up 4.6%, which was then offset by group average sales price decline of 4.4%. Tough retail conditions were felt throughout the period in a low economic growth environment and have resulted in gross profit margin declining 140 basis points in the year. Although the declines in margin were less in H2 than what we've seen in H1. Overall, group gross profit margin decline was further impacted by the relative strength of Noel Leeming sales contribution. To offset these margin impacts, we are focused on controlling what we can. While cost of doing business was up 0.2%. This is largely due to the 53rd week, with cost of doing business growth slower than sales growth and reducing 40 basis points as a percentage of sales. So looking at group gross margin in more detail as this has been the biggest impact on profitability this year. As Mark has alluded to, the competitive retail environment, combined with the cost of living crisis has continued to put pressure on retail pricing and margins in the year. Group gross profit margins decreased due to four key contributors: A strategic price reset of everyday low prices, particularly in the warehouse; secondly, lower inventory sell-through resulting in increased clearance activity; third, growth in sales from lower margin categories; and finally, sales growth in Noel Leeming contributing to a higher percentage of group gross margin. FY '25 H2 did see a reduction in the decline in margin from improved inflow margin in category mix. FY '26 will target further margin improvement as the strategic reset of everyday low prices move through the buying cycle with an increased focus on home and apparel in the Warehouse. So on to cost of doing business on Slide 15. We've seen in the last year that controlling operating costs would be a huge focus for us, and we are pleased to say that we've made some progress this year. While cost of doing business increased 0.2% in the year, this is largely attributable to the 53rd week. Cost of doing business was held below sales growth, resulting in a 40 basis point improvement as a percentage of sales. Employee expenses increased 2.8%, primarily due to the extra week and higher wage rates. But while we saw the increase in employee expenses at a brand level across stores and distribution centers, head office employee expenses decreased by 6.8%. Depreciation and amortization decreased 7.4% as large capital projects, which have been capitalized roll off. Lease expenses increased 2.7% but held relatively flat on a 52-week basis, below inflation and a testament to our property team managing our store and property assets. Across the group, brand-specific costs increased, namely in store labor, buy now and pay later commissions and DC operating costs. But the hard work we have done improving our retail operating model, improving efficiencies and reorganizing our ways of working has decreased overall head office costs by 7.8%. And now moving on to the brands and starting with the Warehouse on Slide 16. Sales increased 1.4% on a reported year basis and increased 1.2% on a 52-week same-store sales basis compared to FY '24. As seen across all brands, we've seen an improvement in sales in the second half. So while sales declined 2.2% in the first half, sales recovered in the second half with growth of 2% based on 26 weeks. Foot traffic conversion increased 2.5% and the number of units sold increased across most categories, including home and apparel. While average selling price increased in FMCG, this decrease in home and apparel resulting in average selling price down 4.5% across the brand and contributing to overall lower basket value and lower gross profit margin. Gross profit margin decreased 180 basis points, and I'll go through this in more detail on the next slide. So while we drove savings in some cost of doing business areas, including head heat office costs, this was not enough to offset the significant decline in gross profit margin, resulting in an operating profit decline from profit of $17.7 million in FY '24 to an operating loss of $12.2 million in FY '25. This is a disappointing result, and we are acutely focused on driving improvement in both gross profit margin and the cost of doing business to return to profitability here. The group reluctantly closed two Warehouse stores during the year, Pakuranga and Tory Street, exiting these locations due to lease reviews and external factors outside our control. Looking at the warehouse gross profit margin movement in more detail on Slide 17. This is where the decline in the Warehouse and the group operating profit came from. As mentioned, we invested in an everyday low price reset in the Warehouse earlier in the financial year. When you do this after you've already bought the product 6 to 12 months ago, that has an immediate impact on your margins, and that is what we've seen this year. But this is now moving through the buying cycle and that reset pricing impact will reduce. The pricing reset does mean we have seen less promotional activity compared to last year but the highly competitive retail market, combined with some slow-moving inventory sell-through, particularly in winter apparel, increased the clearance activity required. Pricing, clearance and promotional activity had a combined negative impact of 1.3% on gross margin. We've talked about category mix and the fact that consumer spending was weighted towards everyday categories like FMCG and less towards discretionary spending like home and apparel, and that had a negative impact of 0.8%. Rebates from suppliers did increase in the year, improving margin, thanks to increased unit sales in FMCG and toy categories. And lastly, increased freight and container detention costs eroded margin by a further 0.3%. So now moving to Warehouse Stationery on Slide 18. Sales were down 2.5% on a reported year basis and down 3.2% on a 52-week same-store sales basis compared to FY '24. While sales declined 6.8% in the first half, the second half showed an improving trend with a 1.6% decline compared to FY '24 H2 based on 26 weeks. Print and create categories continue to grow and at strong margins, achieving another record sales year but were offset by a decline in higher value office furniture in computers. We know New Zealand businesses are finding it tough and business components are still not overly positive. Our BizRewards channel sales underperformed as these SME customers manage their costs. But we continue to have a powerful base in this area of 12,000 active customers. Warehouse Stationery gross profit margin decreased 110 basis points due to the reduction in everyday low prices throughout this brand also and higher sales and lower margin categories. While cost of doing business held flat, the decline in margin and increase in cost of doing business as a percentage of sales contributed to the decline in operating profit from $12.9 million to $8.2 million. During the year, we moved the Warehouse Stationery stand-alone store in Sylvia Park to within the Warehouse store next door, and both these stores continue to perform well. So moving to Slide 19 in Noel Leeming. Noel Leeming has recovered its sales momentum after the decline in FY '24 with sales growth of 3.3% on a reported 53-week-year and sales growth of 1.4% on a 52-week comparable period. Noel Leeming and Commercial experienced significant growth in the year, up 40% on prior year. 52-week same-store sales, excluding Noel Leeming and commercial, which are not transacted in store, declined 1.6% compared to FY '24. Sales were resilient with sales growth of 0.8% in the first half, improving further to sales growth of 2% in the second half. Sales increased in gaming, small appliances and computers, but decreased in big ticket items such as TVs as customers continue to be purposeful with discretionary spending. Gross profit margin held relatively steady decreasing 20 basis points as a result of the competitive market and higher sales and lower margin categories. So our sales were relatively strong. The small decline in margin and an increase in brand cost of doing business impacted operating profit decreasing to $11.7 million. So on to the balance sheet and looking at movement in net debt and working capital. Inventory increased slightly on prior year but was split between inventory on hand, which was down 4.3% in goods and transit, which was up 59%. Group weighted average stock turn held steady at 4.6x while aged inventory did increase to 23.1%, but this is primarily a continuity product. The graph on the left shows the movement in net debt from $50.7 million last year to $96.1 million at this financial year-end. Operating cash flow of $72.3 million comprises of trailing EBITDA of $197 million, the movement in working capital of $81 million and bank and lease interest paid of $44 million. The biggest impact here was working capital. And as you can see in the table, the biggest impact within that was the movement in trade payables. Trade payables decreased $84.5 million due to the month-end supplier payment in the 53rd week of the FY '25 financial year. Due to the timing of year-end and significant cash outflow in the 53rd week, net debt would have been approximately $13 million at year-end had it been at the same time as FY '24. As a result of the reduction in operating cash flow and timing of the payments I've just described, cash conversion ratio was minus 50.5% and free cash flow was minus $45.2 million. Adjusting for the timing of net cash outflows in that 53rd week, cash conversion ratio would have been approximately 80% and free cash flow would have been approximately $38 million. So moving to Slide 21 in capital expenditure. Capital expenditure has been managed tightly this year following five years of elevated capital and project expenditure, particularly in IT and replacing legacy core systems, we're pleased to see this come to an end. Total project expenditure was $21 million in FY '25, significantly below FY '24 spend of $73.4 million and below the FY '25 spend we indicated at the half year. A number of nonessential information system projects have been deferred while store development projects have come in below budget. Within project expenditure, capital expenditure comprised $12.4 million compared to $39 million in FY '24. Our future investments will focus on improving merchandise buying and planning capabilities to lift margins and strengthen inventory management, implementing new automation in our distribution center to improve our efficiencies and enhancing our store customer experiences. And lastly, touching on earnings and dividends on Slide 22. It is clear that earnings and shareholder returns in the form of dividends and not where we want or need them to be. We have faced significant economic headwinds this year but have also invested in price and categories to set ourselves up for success in the future. We are committed to significantly improving financial performance and profitability in order to return to paying sustainable dividends. And with that, I'll hand back to Mark. Thank you. Mark Stirton: Looking ahead, we believe the retail environment will remain challenging. Low consumer confidence and ongoing cost of living pressures continue to impact household spending, and we expect these conditions to persist through the remainder of 2025. Trading for the first 7 weeks of FY '26 show sales and growth profit at similar levels to last year. Foot traffic is slightly down, but conversion is up across the group which reflects the strength of our offer and the improvements we're making in stores. With our new leadership team now in place and direction set, our recovery in FY '26 is about disciplined delivery. We are targeting margin recovery, cost reduction and working capital unlocks. Margin recovery will depend on scaled improvements in higher-margin categories, particularly in the warehouse. Cost management remains a priority with work underway to reduce our cost of doing business to below 31% of sales. Capital investment will be directed to the most impactful projects and we are actively pursuing selected space growth opportunities. As I mentioned earlier, later in FY '26, we will share further detail on our refreshed strategy for the group and our brands. Before I close and hand back to Dame Joan, I want to thank our team for their resilience and commitment and our customers for their continued support and our shareholders for their trust and patience. We have the right foundations in place, and we are now accelerating our progress. Thank you. Joan Withers: So before we move to questions, I want to take a moment to acknowledge that this is my final annual results presentation as Chair of the Warehouse Group. Although I'll formally step down after the Annual Shareholders Meeting in November. This is the last time I will lead a full year result for the organization. Over the past 9 years, I've had the privilege of leading this iconic New Zealand business through times of strong positive momentum and through some of the most difficult challenges we have faced. The past few years have been especially tough. I know the impact on our shareholders has been profound, and I want to acknowledge that directly. It has weighed heavily on the Board and on me personally. Despite these challenges, I remain proud of the resilience of this company. We are not yet where we want to be, but we are making progress. We have clearer focus, stronger leadership and a renewed determination to deliver for our customers and our shareholders. I am delighted that John Journee will succeed me as Chair. His appointment brings continuity and confidence as the group moves into its next phase of growth. To our shareholders, our customers, our team members and my fellow directors, thank you. Your support, your belief and your commitment have meant a great deal to me. It has been an honor to serve as Chair, and I look forward to supporting a smooth transition over the coming months. Thank you. Now we'll move to questions. Operator: [Operator Instructions] And your first question today will come from Guy Hooper with Jarden. Guy Edward Hooper: I know It's just -- buying -- particularly planning had been a challenge in recent years. And I know I should've called it out as a focus for improvement for next year. Just with aged inventory up and inventory levels flat generally year-over-year. What can we expect to see in terms of clearance levels still required through the first half of next year? And then just more generally, the direction of working capital? Joan Withers: I'll hand that over to Mark, but I think most of our aged inventory is in the continuity space, but we've definitely been discussing that, Guy. Mark Stirton: It's a great question. As we've discussed many times, the planning discipline is a key focus of mine, and it is part of the working capital unlock that we've spoken about before. And we've got a new leader in there that is doing good work so far and he's already starting to make a difference. So I think that is encouraging. We also made some changes in our buying team. You would have seen our leadership change there. I'm really positive about that change and what's going to happen through the combination of that buying and planning role and the strong buying and planning leadership. So working capital unlock, we are definitely not at the stock levels we should be. On the aged element, the continuity -- like Joan mentioned that over six months sort of inventory is mostly continuity product. What we mean by that is it's on replan, which means it's the same product would be bought over many times. And so all you need to do there is actually just cut your forward order book so that you don't buy more. So it's not sort of things that go off if you want to put that in inverted commerce. So that's -- we're managing that actively as we're obviously managing the sales line because as the sales line is still in these type sort of conditions, we have to manage our forward order book. I hope that answers your question. Guy Edward Hooper: Yes, it certainly does. And maybe just follow-up or some additional color. I mean where should that aged inventory number be then? I mean 20% suggests there's quite a lot of extra. I mean, if you just look at the inventory number, that's close to, I guess, $100 million of maybe excess inventory. I mean, does that give us a sense of what the working capital unlock could look like? Mark Stirton: I definitely think so. Guy, I think you have a business like ours with that level of over six months inventory is not where I would want to run the business, and it's definitely a key focus area of mine. A good business should be a very little past six months, and we shouldn't have very much over six months. So that's a key focus for that unlock, you're 100% right. And that would take us out of debt. Guy Edward Hooper: Yes. No, that's some use some color. Joan, the consumer preference shifts that you've called out all look fairly positive and are in categories you've called out as focus previously. Can you give us a bit of a sense of maybe where those consumer preferences or consumer perceptions of the brand have kind of gone over the last couple of years and maybe where they're coming from year-on-year? Mark Stirton: I think what happened, the apparel and home wear categories for us essential to our contribution for the business. And those two categories really got a little bit boring and predictable and stale. And what happened there is that we took a lot of color out. We took a lot of -- let's call it trend, we're never going to be a high-fashion business, but we definitely need to have a level of trend in our business. And said I felt our customers were seeing too much of the same thing over and over again. And so what we've done is we've injected new options into the assortments which has now started to show a lot more life and customers are starting to see those new trends, new colors coming through, some in apparel, they call it silhouettes, which is really the shape of the garments are changing. So we're getting a lot more trend there. I think what is really exciting is how -- and it's actually taken us all by surprise, and it's going to be a big area of focus for us in the future is really our health and beauty section of our business. It's really a space that we deserve to play in, and we haven't really done justice to the opportunity, and that's a key focus of mine into the coming months is really how we're putting that, the team actually in the midst of -- I've just been overseas on a big buying trip. So we're putting a really comprehensive range across which I'm quite excited about. I think it's -- we will have a great offer and we're going to change our in-store experience on that. As you know, Guy, that's a huge category. I think out of all core retail at the moment. I think Health and Beauty is growing at about 12%. So when you think about the rest of core retail is growing at very pedestrian level. So that is a huge unlock for us, and we're really barely participating. But the growth that we are seeing and the ranges like Poppi, we spoke about, [ Days ], which is another brand that we've just launched from one of our suppliers. It's going really, really strongly. And so we're starting to get a lot more of that the younger customer coming in, and that's really for us a key unlock that we can get the younger customer in through the doors looking at our beauty, then we can start to introduce them to our power ranges and stuff. And as those refresh, we're hoping there's a multiplier effect across. I think at home, we haven't done justice to. We've actually got a really good product, but we're not displaying it well enough. Our visual merchandising standards need to improve. And that's really the storytelling in our stores. Our customers are telling us our stores. We like you, but you're a bit boring and you're a bit functional. And so that's the big job to do for us. It's not -- I'm not suggesting we're going to have huge CapEx projects. But actually, there's a lot of treatments you can just do into your store that's more decorative than it is necessarily big capital projects. And that's really, I think, once we get that more excitement back into our stores, I believe that our customers -- we've got the fit. We've got -- and once people start talking about us in a positive way because of the changes we want to make. I'm really hopeful that, that will come through strongly. Guy Edward Hooper: That's good to hear. In terms of the allocation of categories across the first space, particularly within red. I mean you're calling out a few areas that you're increasing or targeting improvements in one area that has been growing in recent years as FMCG. Can you give us a little bit of an update about how you're thinking about that category in that store? Mark Stirton: Yes, FMCG is part of, obviously, our biggest store mix, because we are a multi-category business. We obviously have to make sure we're managing space for every category. It has done really, really well for us. But FMCG for us is not just grocery. It's -- we actually got pet, We include pets in there, we include baby. Both of those have done really, really well. And you would have seen, as I called out, the net preference uplift, you had seen that both those preferences have increased a lot. And within that FMCG, we sort of loosely -- we're calling at grocery. And as these other categories have emerged, they're actually starting to really perform well. And again, health and beauty is included in that grocery category. So I think we will -- we alluded to in next year, we'll come out with a proper strategy on each of the brands. And we are, at the moment, looking at a merchandise strategy, which will basically shape up each job to do for every category. And once I've got that, I can give you a better answer. Operator: Your next question today will come from Kieran Carling with Craigs Investment Partners. Kieran Carling: First question from me is good to see sales stabilizing over the second half. But if we look at your cost of doing business finished the year broadly flat after being down in the first half. You've sort of called out cost reduction as a priority. But beyond that $40 million relating to the simplified tech stack over the next five years, are there any other levers that you can be pulling? And can you give us a bit of a steer on how cost of doing business is expected to track in FY '26? Mark Stirton: Yes, I'll take that, and then I'll hand over to Stefan if he wants to add some more color. You're right, we did -- we've done a good job on our sale at our SSO level, which is what we call our support center level. We said this was down 7.8%, which is no mean feat. We've really looked at roles, we've looked at the way we spend money across the group really started to rationalize a lot of excess parts of the business, which are discretionary in nature. Stef's got a program on at the moment, which is we're really going to start to delayer the business even further at a cost layer basis, just really looking at what's actually driving some of these costs in a deeper way. And the relationship with TCS is really to help us deliver that what they're going to bring to the party is a lot more capability that actually help us unlock a lot of the opportunities that are deeper in the business. So we're going through an exercise with them that will address not only the systems, the process and the people, elements of all of our whole ecosystem, which will then give us a greater sort of insight as to how we can extract cost out of the business, Kieran. But at a brand level, we -- there is some constraints around our leases because obviously, those are contractual mostly in nature, whilst we've obviously negotiated hard and as Stef alluded to, the fact that we've done well in that regard. And this year, our employment costs at a store level, obviously, bargaining related. And so we've got some contractual commitments there that we're trying to -- we obviously got to manage within. But all other costs at the store-related level, we look at extremely hard. And if we gave you that color, you would see that there is quite good reductions in that regard. So we're looking at it across the board. And as we said, we're trying to target below that 31 level in the medium term. So at this stage, I can't give you more than that. So Stef, I don't know if you want to add anything more? Stefan Knight: Yes. Thanks, Mark. Kieran, really, when we're thinking about the cost reduction, I guess there's two areas that we're -- looking at the brand costs, as Mark mentioned, a lot of that is harder to implement things like wage levels are impacted by click to bargain agreements and leases are longer term. So our focus is very much in the SSO space. If you look at the reductions that have been made over the last year, it's quite significant in years like employee costs, they're down 6.8%. Licensing is already down a level and also things like the exit of the market has been a driver. So when we look ahead, we'll be continuing to look for further opportunities in those space. The other thing I would point out is it's not just in the cost of doing business. Clearly, the other place where margin improvement would come from is active in around our gross margin improvement. And there's some pretty significant programs we're look at in the cost of goods sold, so very much around sourcing strategies, which Mark has already talked a bit to around which we are buying, particularly ongoing stock flow management, and ultimately, that should deliver lower clearance levels. So a combination of those factors are all the things that we are acutely rapidly focused on. Kieran Carling: I guess just regarding your comment around getting to below 31% of sales in the medium term. if I could recall correctly, at the half year result, you were talking about that goal in the near term. Is that more just a function of the sales trajectory of the group not being as strong as you're expecting? Or have you sort of missed on some of the cost out that you were predicting? Mark Stirton: No, I think it is a bit of the top line, Kieran. I mean, when you're in at the tough top line, like you said, I think it's we did well to keep the top line positive, which in this environment is tough. But yes, it is obviously infinitely harder if you've got inflationary pressures on all your costs and your sales aren't holding abreast of that. You do have a negative influence on your -- on that ratio. But we're not standing back and thinking that that's the only thing in our control. If you actually just look and you step back, irrespective, the business is making 32.2% margin and it's 32-point something on cost, and that's just not an acceptable shape even if you just do a standstill evaluation. So we're looking very hard at the cost layer irrespective. But like Stef said, it can all come from cost. We should be earning much better GP margins, and that is a function of each of the brands is looking -- steering hard into that. And that's a combination like what Stef said. When you have [indiscernible], I think I alluded to it, when you've got stock that's sitting in age buckets like we have. And there's inefficiencies all around your business. There's an efficiency through your DC, there's inefficiencies through your supply chain. There's working capital cost of holding stuff all of that, as we improve our planning and buying part of our business, which is really about our stock flow. And all of the consequential costs that relate to that will also start to drop out the business. And I'm really positive that, that is actually a large portion of also what's holding up these costs of doing business. Kieran Carling: No, that's very helpful. And then I guess just talking about that aged inventory, and I guess to elaborate on Guy's point. I mean aged inventory is up. You had a bit of a price reset in red, and that's all played into some of that gross margin reduction through '25. But can you just talk us through your expectations for gross margin in '26 and how much of that inventory sell down is still to come? Mark Stirton: I think, Guy, in this year, we -- what we did is we provided for a large chunk of that aged inventory. I think if -- when you look at our financial results, you would have seen that we've improved what we've added more to our provisions. And that's a function of, obviously, the risk that potentially is already in that. So if you think about it, some of that's already baked into the provisioning that we've already got. But you shouldn't have to mark down continuity-based product. If it's a white sheet, it's a white sheet all day long. So we don't believe there's huge clearance that's anticipated into the assortment. The only thing that I would caution is that when you're in a tight environment and you need what they call open to buy in planning, when your stock, all your money sitting in the wrong stock, it all comes down to how quickly you can sell that stock in order to give yourself money to buy new stock. And that sometimes is the catalyst to induce a markdown that we might need. I don't think at this point, we will need it. Obviously, you can never have a crystal ball into the future, and you don't know how the key trading period, this golden quarter or trade. But that's a key -- that will be a key influence in terms of whether we have extra clearance or not. But we're not anticipating high level of clearance. Our budget doesn't foresee that. But we are trading in tough conditions than we anticipated. So there's a function that is coming through in the -- as Stef alluded to, in the first 7 weeks, it is really tough when we're still having to get through inventory, particularly the winter inventory from last year, which is now the winter inventory is pretty much done. Kieran Carling: What do you think of a base case then would sort of be looking at flat gross profit margins? Or are you able to sort of give any indication of that? Mark Stirton: We haven't given guidance. So I don't want to -- yes, I can't say anything at this point, yes. Kieran Carling: Okay, sure. And then maybe just the final one. In your outlook statement, you've talked about profitability recovery being dependent on scale improvement and higher margin categories. Can you just elaborate a bit on that? And talk about what steps you need to take to make that happen? Mark Stirton: Yes. I think what's -- when I alluded to, I think in the Red business, what were the [ red sheds ] what we have alluded to is that our home and apparel categories are nearly 50% of our turnover. So when those are not performing at the levels we anticipate the way we expect them to perform at. They have a disproportionate influence on our margins. So what we're doing is the key gold work, which we've been speaking of for a while now, but because of the buying cycles and how long it takes to actually get new products in, remember that you buy seasons ahead of time in the manufacturing, that takes a while to get through the system. So we still will be experiencing some of that now. And I'm hoping by winter next year, we will really be in our strides in the place we really want to be. But we've -- this summer, we're going to trade probably trade on similar sort of levels with really managing our stock and our clearance levels. So that's a key part of the unlock of the GP, you mentioned a little bit earlier in those categories. But we're doing a lot of work on our sourcing. There's also a lot in the type of products we are offering, and we're going to get into much better sort of assortments on home and apparel products, which have better margin. So hopefully, there's a mix element that comes through on both of those scores. Stefan Knight: Can I just add a point to -- Also, I'd just add on Noel Leeming, if you look at the composition of the sales this year, it's been quite heavily skewed towards some of those the smaller items, which really reflects the pressure that our customers are under given the economic environment, so much more small appliances. Obviously, the higher margin areas for us are things like TV and White wear and with forecast interest rate drops, it will be really interesting to see how that plays through into the economy. So that's something we're keeping a really active eye on because that will be a key part of what we need to see to help drive that turnaround. Mark Stirton: And the same actually story, Stef is on the blue business. A big portion of the blue sales this year that got affected was our furniture sales. We know we are a big office furniture business in the country, and that office furniture has been really an -- albeit that we actually hold market share, we actually gain market share on furniture, but it was in a declining market. So as that sort of comes back online and small businesses feel more confident, they'll update their offices and with the destination for that. So all of these are mix issues that we're fighting against, which hopefully, as economy improves, those will all be in our favor. Operator: Your next question today will come from Paul Koraua with Forsyth Barr. Paul Koraua: Sorry, I'm going to dig in on the margins again, if that's all right. And it really comes down to red, if you look at that Slide 17 that you guys provided on the gross margin waterfall between '24 and '25 and you look at the EDLP reset, that feels like that's a structural shift in group margins. The category mix, yes, you guys are doing some stuff to work on apparel and home, but that takes, as you say, a few years to wash through. So it does feel like the margin story for '26 is still going to remain under some pressure? And I guess the clearance is anything that constrained? Is that sort of a fair synopsis of what's happening? Mark Stirton: Yes, I think that's fair. The clearance part is probably more than 50% or just over 50% of the 1.3%. So -- and then the sort of the price resets was probably the other 50%. So the price resets you can get back through better buying and that sometimes can take half a season. But like you say, you obviously trade for a full year. So some of that is taking a little bit longer to extract because you've got to find different supply bases, you got to do those sort of things, but that's all opportunity for the future. And then the clearance is a function of your planning and buying better and tiering at the rates that you anticipated. So that's within your gift if you buy better and you buy the right quantities. So the mix issue like you said as you get the home and apparel stronger, remember the dollar version, the dollar contribution of those two categories to GP is significant. So you have to sell a lot less T-shirts than you have to sell grocery, for instance, at much lower margins. So if you get right and you get your offering right, it can swing for you really nicely. So yes, I hope that answers your question. Paul Koraua: Yes. That sort of does, and it sort of leads to my next question, right? So if we're thinking about -- you guys made a loss in red this year and gross margins have come down and it feels like there's structurally going to be lower going forward. And you guys have lost a little bit of leverage on the cost base, so your cost of doing business as a percentage of sales in red is up at 36%. Like what is the path to profitability here? Are we -- do we have to wait for sales to come back to regain leverage on that cost base? Because as you sort of alluded to, you can't really take cost out at the brand level. Or is this -- because I sort of struggle to see how this makes any sort of operating profit over the near term anyway. Mark Stirton: Yes. I mean it has to be a sales story. You can't save yourself to prosperity, but we've obviously got costs within our base that we've got to -- we can still extract -- because remember, some of it's contractual, not just lease contractual, but there's other contractual elements that you obviously are stuck into, which will obviously move. But the GP story is critical to this business and the turnaround of this business. And I think that's what I alluded to in my outlook is the GP -- you hit the nail on the head, it's contingent on us nailing these home and apparel categories and categories like beauty, for instance, is significantly different margins to our FMCG part. So while our FMCG part or the broader FMCG part of which food is quite a high contributor. While that continues to grow and outstrip the growth of those other categories, it has a disproportionate influence on the business. So my job is to make sure that we're scaling that or we will appropriately putting that in its right cadence and growing the other categories. Paul Koraua: Yes. And then maybe how are you guys thinking about the home category in red and where you want to position that business in light of IKEA opening later this year? Mark Stirton: Yes. I think we've been on Home wares for quite a while, and I feel that the more I will ground our stores, the more I'm more confident that our offer is a great offer. And IKEA is particularly strong in furniture. It is part of our offer. It's not the main part of our offer. And so I think whilst we also recognized last year, IKEA has been coming for some time now. And we've been doing some work on our ranges to try and combat their influence, but they're a great business. They're in one location, and they do have distribution points around the country. But I think maybe our advantage at the moment is that we've got the 86 stores that sell furniture and sold those same products. So for us, they're a great competitor and they help us get better. So we're just seeing it as that. Operator: There are no further questions at this time. I'll now hand back to Joan for closing remarks. Joan Withers: So thank you all very much for joining this morning's call. And I'm sure, like me, you'll be watching the group's progress through this upcoming peak season that we're about to enter into. And I guess we're all hoping for exactly the same thing that the economic situation in New Zealand improve some rapidly and gives us the sort of 2026 that we all need it to be. But thank you very much for your ongoing attention. Thank you. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to The Warehouse Group Limited FY '25 Annual Results. [Operator Instructions] I would now like to hand the conference over to Dame Joan Withers, Chair of The Warehouse Group. Please go ahead. Joan Withers: [Foreign Language] and good morning, everyone. Welcome to The Warehouse Group's full year results presentation. First, to Slide 3, the chairs update. Thank you all for joining us today. I'm Joan Withers. I'm Chair of the Board. And on the call with me today are Mark Stirton, our Group Chief Executive Officer; and Stefan Knight, our Group Chief Financial Officer. During the presentation today, I'll begin with the chairs update. Then I'll hand over to Mark to give an overview of the group's performance, the work that is underway to restore profitability, and he'll also talk to our outlook. Stefan will then share a more in-depth summary of our financial results. And as always, there will be an opportunity to ask questions at the end of the presentation. To Slide 4, the year in review. FY '25 has been another challenging year for the company, shaped by extremely tough economic conditions and a sharp decline in consumer confidence. With unemployment rising and households tightening their budgets, discretionary spending has slowed significantly. Retail competition has also become increasingly intense. Despite these headwinds, group sales held steady. Reported sales were up 1.6%, reaching $3.1 billion. It is important to note that FY '25 included an additional trading week, so on a like-for-like basis, sales were flat, which reflects resilience in a difficult market. The real pressure came through in our margin performance gross profit margin declined, particularly in the Warehouse, driven by a highly promotional environment and changes in category mix. While we made progress on cost control, there was not enough to offset the margin decline. Operating profit came in at $1.3 million, and we have reported a net loss of $2.8 million. Given this financial performance, the Board has elected not to declare a dividend for FY '25. That is deeply disappointing, and I want to acknowledge the impact on our shareholders. We continue to take decisive action to restore profitability so we can once again deliver value back to our shareholders. During FY '25, under John Journee's leadership as interim Group Chief Executive Officer, we made the important changes that were foreshadowed last year. We have reshaped the organization and returned to a brand-led model with better execution across core retail capabilities. These necessary changes are already making a difference, particularly in the Warehouse. Customers are responding well to our refreshed ranges and to sharper pricing, and we saw a stronger sales performance in the second half. Cost management has also improved across the organization and CapEx and project expenditure have reduced significantly. Mark Stirton stepped into the role of Group Chief Executive Officer on the first of August this year, following 16 months in the group CFO role. The Board is confident in his ability to take the business forward and Mark brings commercial strength, strategic clarity, a sharp focus on execution and highly relevant retail experience with the Mr Price Group in South Africa. So while meaningful progress has been made, there is still much more work to do. But our direction is clear. The leadership is strong and the initial signs of progress are encouraging. I'll now hand over to Mark. Mark Stirton: Thank you, Joan, and good morning, everyone. I'm Mark Stirton, Group Chief Executive Officer. It is a privilege to speak to you today in my first results presentation as CEO. I want to begin by thanking Dame Jones and our incoming Chair, John Journee for their steadfast support as I've stepped into the role. I'm grateful for their leadership as we continue to navigate this important phase of the group. FY '25 has been a reset year for our business, a year of discipline, simplification and laying the groundwork for sustainable growth. We have made tough decisions, simplified our structure and focused on execution. While our financial performance is not yet where it needs to be, we have built momentum and are moving with speed into FY '26. As Joan spoke to, the New Zealand economic environment remains extremely challenging and this backdrop has had a direct and significant impact on our margins. GDP fell 1.1% over the year to June, and GDP per capita dropped similarly. Unemployment is rising now at 5.2% nationally and in Auckland, our biggest market, it has reached 6.1%, the highest in 8 years. Inflation is sitting at 2.7%, right at the top of the Reserve Bank's target band. Interest rates have come down by 225 basis points since last September, but the relief has not yet been enough to offset the pressure felt by households. Cost of living increases have been sharp. Local authority rates are up more than 12%. Electricity is up over 8% and housing costs remain elevated. These are not small shifts. They are having a material impact on how customers spend. Consumer confidence fell to 92 in August, the lowest level in 10 months. That is not just a number, it reflects how people are feeling. And when confidence is low, discretionary spend is the first thing to go. Retail competition has intensified and the fight for share is tougher than ever and led to a highly promotional environment. FY '25 was a reset year for the group. We reshaped our operating model, returned to retail ways of working. We reset pricing, improved product and introduce tighter controls on cost and capital. These changes were necessary to position the business for long-term recovery and growth. Despite the economic headwinds I outlined earlier, our sales held steady -- that result is significant. It reflects strong customer response to the changes we've made across our brands. I want to acknowledge the team in a year like this, holding ground is no small feat. Traffic conversion improved and unit sales growth was strong across all three brands. We saw encouraging sales momentum in the second half, particularly in the Warehouse and Noel Leeming. Profitability, however, was impacted. Gross margin declined by 140 basis points, which materially affected the group's bottom line. In the warehouse, price resets, combined with a shift in category mix towards lower-margin products placed pressure on margins. In the second half, category mix improved. Unit growth for the year lifted across the group by 4.6%, supported by sharper pricing and more relevant on-trend products. Key categories such as home, apparel, toys and beauty performed well, and we launched several new brands as part of our range refresh. Cost control remains a clear focus and grew slower than sales. Our cost of doing business decreased 40 basis points to 32.2% of sales despite inflationary pressure experienced on rent, utilities and employee costs. Costs within our control, like head office costs were down 7.8% and depreciation down 7.4% compared to the prior year. We exercised discipline in capital management. Projects were rationalized, elevated IT spend tapered off and capital expenditure reduced to $12.4 million, down from $39 million in FY '24. Our brand-led strategy is gaining traction. We delivered more targeted and engaging marketing, improved store experiences, launched new ranges and introduce new layouts such as the Beauty Zone. We now have a new leadership team in place, aligned on our goals, focused on execution and committed to rebuilding profitability and unlocking the full potential of our brands. Even in the year is challenging as FY '25 we remain committed to looking after our people, our communities and our environment. It's fundamental to who we are as The Warehouse Group and part of our DNA. We maintained 100% gender pay equity and our employee Net Promoter Score rose to 36, up from 18.2 last year. That's a strong signal that our teams feel more engaged as we work to build a high-performance culture. Together with our customers, we raised $2.4 million for New Zealand charities. That impact matters, especially in a year when many households and communities were doing it tough. We also made strong progress on our environmental commitment. 66% of private label sales now use sustainable packaging. Our Scope 1 and 2 emissions are down 45% compared to FY '23. More than 150 stores and sites are now powered by Lodestone Energy solar farms, and we've diverted 79% of operational waste from landfill. These are meaningful steps that reflect our long-term commitment to sustainability and our belief that doing good is not separate from doing good business. As we look ahead, one thing is clear. The potential of our brands is enormous and this slide reflects the scale of opportunity we have in front of us. Our private label portfolio remains a core strength with 27 well-established brands that deliver quality and value and when repositioned, will be a key source of growth for our future. H&H, our apparel brand is a staple in millions of Kiwis' wardrobes. And in FY '25, we sold over 37 million Living and Co Home products, a clear sign of the trust customers place in our brands. Veon, our private label TV brand is now the second largest TV brand in New Zealand, showing we can lead in categories beyond everyday essentials. This year, we introduced Poppi, a fresh, affordable beauty brand designed for younger customers. Its early success reflects our ability to spot trends and respond quickly and at scale. The Warehouse has made significant gains in consumer brand preference, which is a difficult dial to shift. In FY '25, we reclaimed the #1 spot in consumer preference for toys with toy sales up 8% for the year. We also shifted consumer preference across several key categories. Home was up 5%, apparel was up 2%, pet care was up 5% and party and suppliers up 6% and sports and outdoors up 5%. These shifts reflect the impact of our products, pricing, marketing and visual merchandising improvements. Our reach remains a strategic advantage. Over 85% of TVs live within a 20-minute drive of one of our stores. And 1 in 3 New Zealanders visit our stores each week. I'm delighted to share that this morning, we are opening the doors on a new Warehouse stationery store in Central Wellington on Tory Street with a refreshed look and layout. These strengths give us confidence they show that our strategy is gaining traction and reinforce the opportunity ahead as we continue to unlock the full potential of our brands. Since stepping into the CEO role in August, I've focused on setting the playing field. In my first two months, I've aligned the organization around clear goals and performance expectations and set the direction for the group. Our group purpose is to build exceptional retail brands that customers love, our teams take pride in and deliver sustainable shareholder returns. Our group ambition is to get back to being a highly desired retail stock to own. Our strategy will be anchored in restoring profitability and positioning the business for sustainable growth. Our group values, "Think Customer, "Do Good" and "Own It" continue to guide our culture and decision-making. Our strategy will revolve around strengthening and growing our three New Zealand retail brands, enabling each to lead in this market while leveraging shared services, platforms and capital efficiencies. Later in FY '26, we will share a longer-term strategy for the group and individual brands. To improve execution across the organization, we've made several key appointments to the executive team. We struck a strong balance. We've promoted exceptional internal talent, brought in fresh capability and retained experienced leaders to ensure continuity. Stefan Knight joined as Group Chief Financial Officer in August, bringing deep expertise in finance and performance. He's sharpening our focus on cost control, margin improvement and operational discipline. Shayne Tong also joined in August as Group Chief Digital and Transformation Officer. He will lead our digital transformation and systems modernization. We've also promoted two outstanding internal leaders. Carrie Fairley is now acting Chief Merchandise Officer for the Warehouse and the Warehouse Stationery and Silv Roest has been appointed Group Chief Legal and Corporate Affairs Officer. This team is aligned, focused and ready to drive the next phase of our strategy. I will now hand over to Stefan to take you through our financial performance. Stefan Knight: Thank you, Mark and Joan, and good morning, everyone. My name is Stefan Knight, and I'm the CFO. For those on the call, I haven't met, I joined the Warehouse Group in August this year, and I spent my first few weeks getting around the business visiting some of our stores, the distribution centers and meeting the team. Joan and Mark have laid out where we are, and it's no secret that we are facing economic headwinds that are challenging our business. But having seen what I have since starting, I'm encouraged by the changes we are already putting in place and the enthusiasm of the team. We are absolutely focusing on the right things what we can change and control and to turn around the profitability of the group. Before we get into the numbers, I would just remind you of the anomaly in this year's reporting period. So FY '25 was a 53-week financial year ending Sunday, the third of August 2025 compared to 52 weeks in FY '24. Where appropriate, we've competed FY '25 revenue on a 52-week same-store sales basis with FY '24 so this removes the final 53rd week of FY '25. It excludes online and Noel Leeming commercial and the impact of opening and closing of stores in each period. All the other financial commentary is unadjusted and compares 53 weeks in FY '25 with 52 weeks in FY '24. So you can refer to Appendix Slide 27 for a sales summary by brand and we've -- in that slide, we've laid out the 53 weeks reported, the 52 weeks like-for-like and also a 52-week same-store sales basis. So on to Slide 13. As mentioned, top line reported sales increased 1.6%, and this was flat on a 52-week same-store basis. So really pleasing to be able to hold sales in such a tough economic environment. This was underpinned by a movement of two halves. Sales declined 1.6% in the first half but delivered a turnaround in H2 with sales growth of 1.6% on a like-for-like 26-week basis, removing the 53rd week of the year. Within the warehouse, our everyday low price reset earlier in the financial year and the hard work our buying teams have done to deliver on trend products have contributed to group units sold up 4.6%, which was then offset by group average sales price decline of 4.4%. Tough retail conditions were felt throughout the period in a low economic growth environment and have resulted in gross profit margin declining 140 basis points in the year. Although the declines in margin were less in H2 than what we've seen in H1. Overall, group gross profit margin decline was further impacted by the relative strength of Noel Leeming sales contribution. To offset these margin impacts, we are focused on controlling what we can. While cost of doing business was up 0.2%. This is largely due to the 53rd week, with cost of doing business growth slower than sales growth and reducing 40 basis points as a percentage of sales. So looking at group gross margin in more detail as this has been the biggest impact on profitability this year. As Mark has alluded to, the competitive retail environment, combined with the cost of living crisis has continued to put pressure on retail pricing and margins in the year. Group gross profit margins decreased due to four key contributors: A strategic price reset of everyday low prices, particularly in the warehouse; secondly, lower inventory sell-through resulting in increased clearance activity; third, growth in sales from lower margin categories; and finally, sales growth in Noel Leeming contributing to a higher percentage of group gross margin. FY '25 H2 did see a reduction in the decline in margin from improved inflow margin in category mix. FY '26 will target further margin improvement as the strategic reset of everyday low prices move through the buying cycle with an increased focus on home and apparel in the Warehouse. So on to cost of doing business on Slide 15. We've seen in the last year that controlling operating costs would be a huge focus for us, and we are pleased to say that we've made some progress this year. While cost of doing business increased 0.2% in the year, this is largely attributable to the 53rd week. Cost of doing business was held below sales growth, resulting in a 40 basis point improvement as a percentage of sales. Employee expenses increased 2.8%, primarily due to the extra week and higher wage rates. But while we saw the increase in employee expenses at a brand level across stores and distribution centers, head office employee expenses decreased by 6.8%. Depreciation and amortization decreased 7.4% as large capital projects, which have been capitalized roll off. Lease expenses increased 2.7% but held relatively flat on a 52-week basis, below inflation and a testament to our property team managing our store and property assets. Across the group, brand-specific costs increased, namely in store labor, buy now and pay later commissions and DC operating costs. But the hard work we have done improving our retail operating model, improving efficiencies and reorganizing our ways of working has decreased overall head office costs by 7.8%. And now moving on to the brands and starting with the Warehouse on Slide 16. Sales increased 1.4% on a reported year basis and increased 1.2% on a 52-week same-store sales basis compared to FY '24. As seen across all brands, we've seen an improvement in sales in the second half. So while sales declined 2.2% in the first half, sales recovered in the second half with growth of 2% based on 26 weeks. Foot traffic conversion increased 2.5% and the number of units sold increased across most categories, including home and apparel. While average selling price increased in FMCG, this decrease in home and apparel resulting in average selling price down 4.5% across the brand and contributing to overall lower basket value and lower gross profit margin. Gross profit margin decreased 180 basis points, and I'll go through this in more detail on the next slide. So while we drove savings in some cost of doing business areas, including head heat office costs, this was not enough to offset the significant decline in gross profit margin, resulting in an operating profit decline from profit of $17.7 million in FY '24 to an operating loss of $12.2 million in FY '25. This is a disappointing result, and we are acutely focused on driving improvement in both gross profit margin and the cost of doing business to return to profitability here. The group reluctantly closed two Warehouse stores during the year, Pakuranga and Tory Street, exiting these locations due to lease reviews and external factors outside our control. Looking at the warehouse gross profit margin movement in more detail on Slide 17. This is where the decline in the Warehouse and the group operating profit came from. As mentioned, we invested in an everyday low price reset in the Warehouse earlier in the financial year. When you do this after you've already bought the product 6 to 12 months ago, that has an immediate impact on your margins, and that is what we've seen this year. But this is now moving through the buying cycle and that reset pricing impact will reduce. The pricing reset does mean we have seen less promotional activity compared to last year but the highly competitive retail market, combined with some slow-moving inventory sell-through, particularly in winter apparel, increased the clearance activity required. Pricing, clearance and promotional activity had a combined negative impact of 1.3% on gross margin. We've talked about category mix and the fact that consumer spending was weighted towards everyday categories like FMCG and less towards discretionary spending like home and apparel, and that had a negative impact of 0.8%. Rebates from suppliers did increase in the year, improving margin, thanks to increased unit sales in FMCG and toy categories. And lastly, increased freight and container detention costs eroded margin by a further 0.3%. So now moving to Warehouse Stationery on Slide 18. Sales were down 2.5% on a reported year basis and down 3.2% on a 52-week same-store sales basis compared to FY '24. While sales declined 6.8% in the first half, the second half showed an improving trend with a 1.6% decline compared to FY '24 H2 based on 26 weeks. Print and create categories continue to grow and at strong margins, achieving another record sales year but were offset by a decline in higher value office furniture in computers. We know New Zealand businesses are finding it tough and business components are still not overly positive. Our BizRewards channel sales underperformed as these SME customers manage their costs. But we continue to have a powerful base in this area of 12,000 active customers. Warehouse Stationery gross profit margin decreased 110 basis points due to the reduction in everyday low prices throughout this brand also and higher sales and lower margin categories. While cost of doing business held flat, the decline in margin and increase in cost of doing business as a percentage of sales contributed to the decline in operating profit from $12.9 million to $8.2 million. During the year, we moved the Warehouse Stationery stand-alone store in Sylvia Park to within the Warehouse store next door, and both these stores continue to perform well. So moving to Slide 19 in Noel Leeming. Noel Leeming has recovered its sales momentum after the decline in FY '24 with sales growth of 3.3% on a reported 53-week-year and sales growth of 1.4% on a 52-week comparable period. Noel Leeming and Commercial experienced significant growth in the year, up 40% on prior year. 52-week same-store sales, excluding Noel Leeming and commercial, which are not transacted in store, declined 1.6% compared to FY '24. Sales were resilient with sales growth of 0.8% in the first half, improving further to sales growth of 2% in the second half. Sales increased in gaming, small appliances and computers, but decreased in big ticket items such as TVs as customers continue to be purposeful with discretionary spending. Gross profit margin held relatively steady decreasing 20 basis points as a result of the competitive market and higher sales and lower margin categories. So our sales were relatively strong. The small decline in margin and an increase in brand cost of doing business impacted operating profit decreasing to $11.7 million. So on to the balance sheet and looking at movement in net debt and working capital. Inventory increased slightly on prior year but was split between inventory on hand, which was down 4.3% in goods and transit, which was up 59%. Group weighted average stock turn held steady at 4.6x while aged inventory did increase to 23.1%, but this is primarily a continuity product. The graph on the left shows the movement in net debt from $50.7 million last year to $96.1 million at this financial year-end. Operating cash flow of $72.3 million comprises of trailing EBITDA of $197 million, the movement in working capital of $81 million and bank and lease interest paid of $44 million. The biggest impact here was working capital. And as you can see in the table, the biggest impact within that was the movement in trade payables. Trade payables decreased $84.5 million due to the month-end supplier payment in the 53rd week of the FY '25 financial year. Due to the timing of year-end and significant cash outflow in the 53rd week, net debt would have been approximately $13 million at year-end had it been at the same time as FY '24. As a result of the reduction in operating cash flow and timing of the payments I've just described, cash conversion ratio was minus 50.5% and free cash flow was minus $45.2 million. Adjusting for the timing of net cash outflows in that 53rd week, cash conversion ratio would have been approximately 80% and free cash flow would have been approximately $38 million. So moving to Slide 21 in capital expenditure. Capital expenditure has been managed tightly this year following five years of elevated capital and project expenditure, particularly in IT and replacing legacy core systems, we're pleased to see this come to an end. Total project expenditure was $21 million in FY '25, significantly below FY '24 spend of $73.4 million and below the FY '25 spend we indicated at the half year. A number of nonessential information system projects have been deferred while store development projects have come in below budget. Within project expenditure, capital expenditure comprised $12.4 million compared to $39 million in FY '24. Our future investments will focus on improving merchandise buying and planning capabilities to lift margins and strengthen inventory management, implementing new automation in our distribution center to improve our efficiencies and enhancing our store customer experiences. And lastly, touching on earnings and dividends on Slide 22. It is clear that earnings and shareholder returns in the form of dividends and not where we want or need them to be. We have faced significant economic headwinds this year but have also invested in price and categories to set ourselves up for success in the future. We are committed to significantly improving financial performance and profitability in order to return to paying sustainable dividends. And with that, I'll hand back to Mark. Thank you. Mark Stirton: Looking ahead, we believe the retail environment will remain challenging. Low consumer confidence and ongoing cost of living pressures continue to impact household spending, and we expect these conditions to persist through the remainder of 2025. Trading for the first 7 weeks of FY '26 show sales and growth profit at similar levels to last year. Foot traffic is slightly down, but conversion is up across the group which reflects the strength of our offer and the improvements we're making in stores. With our new leadership team now in place and direction set, our recovery in FY '26 is about disciplined delivery. We are targeting margin recovery, cost reduction and working capital unlocks. Margin recovery will depend on scaled improvements in higher-margin categories, particularly in the warehouse. Cost management remains a priority with work underway to reduce our cost of doing business to below 31% of sales. Capital investment will be directed to the most impactful projects and we are actively pursuing selected space growth opportunities. As I mentioned earlier, later in FY '26, we will share further detail on our refreshed strategy for the group and our brands. Before I close and hand back to Dame Joan, I want to thank our team for their resilience and commitment and our customers for their continued support and our shareholders for their trust and patience. We have the right foundations in place, and we are now accelerating our progress. Thank you. Joan Withers: So before we move to questions, I want to take a moment to acknowledge that this is my final annual results presentation as Chair of the Warehouse Group. Although I'll formally step down after the Annual Shareholders Meeting in November. This is the last time I will lead a full year result for the organization. Over the past 9 years, I've had the privilege of leading this iconic New Zealand business through times of strong positive momentum and through some of the most difficult challenges we have faced. The past few years have been especially tough. I know the impact on our shareholders has been profound, and I want to acknowledge that directly. It has weighed heavily on the Board and on me personally. Despite these challenges, I remain proud of the resilience of this company. We are not yet where we want to be, but we are making progress. We have clearer focus, stronger leadership and a renewed determination to deliver for our customers and our shareholders. I am delighted that John Journee will succeed me as Chair. His appointment brings continuity and confidence as the group moves into its next phase of growth. To our shareholders, our customers, our team members and my fellow directors, thank you. Your support, your belief and your commitment have meant a great deal to me. It has been an honor to serve as Chair, and I look forward to supporting a smooth transition over the coming months. Thank you. Now we'll move to questions. Operator: [Operator Instructions] And your first question today will come from Guy Hooper with Jarden. Guy Edward Hooper: I know It's just -- buying -- particularly planning had been a challenge in recent years. And I know I should've called it out as a focus for improvement for next year. Just with aged inventory up and inventory levels flat generally year-over-year. What can we expect to see in terms of clearance levels still required through the first half of next year? And then just more generally, the direction of working capital? Joan Withers: I'll hand that over to Mark, but I think most of our aged inventory is in the continuity space, but we've definitely been discussing that, Guy. Mark Stirton: It's a great question. As we've discussed many times, the planning discipline is a key focus of mine, and it is part of the working capital unlock that we've spoken about before. And we've got a new leader in there that is doing good work so far and he's already starting to make a difference. So I think that is encouraging. We also made some changes in our buying team. You would have seen our leadership change there. I'm really positive about that change and what's going to happen through the combination of that buying and planning role and the strong buying and planning leadership. So working capital unlock, we are definitely not at the stock levels we should be. On the aged element, the continuity -- like Joan mentioned that over six months sort of inventory is mostly continuity product. What we mean by that is it's on replan, which means it's the same product would be bought over many times. And so all you need to do there is actually just cut your forward order book so that you don't buy more. So it's not sort of things that go off if you want to put that in inverted commerce. So that's -- we're managing that actively as we're obviously managing the sales line because as the sales line is still in these type sort of conditions, we have to manage our forward order book. I hope that answers your question. Guy Edward Hooper: Yes, it certainly does. And maybe just follow-up or some additional color. I mean where should that aged inventory number be then? I mean 20% suggests there's quite a lot of extra. I mean, if you just look at the inventory number, that's close to, I guess, $100 million of maybe excess inventory. I mean, does that give us a sense of what the working capital unlock could look like? Mark Stirton: I definitely think so. Guy, I think you have a business like ours with that level of over six months inventory is not where I would want to run the business, and it's definitely a key focus area of mine. A good business should be a very little past six months, and we shouldn't have very much over six months. So that's a key focus for that unlock, you're 100% right. And that would take us out of debt. Guy Edward Hooper: Yes. No, that's some use some color. Joan, the consumer preference shifts that you've called out all look fairly positive and are in categories you've called out as focus previously. Can you give us a bit of a sense of maybe where those consumer preferences or consumer perceptions of the brand have kind of gone over the last couple of years and maybe where they're coming from year-on-year? Mark Stirton: I think what happened, the apparel and home wear categories for us essential to our contribution for the business. And those two categories really got a little bit boring and predictable and stale. And what happened there is that we took a lot of color out. We took a lot of -- let's call it trend, we're never going to be a high-fashion business, but we definitely need to have a level of trend in our business. And said I felt our customers were seeing too much of the same thing over and over again. And so what we've done is we've injected new options into the assortments which has now started to show a lot more life and customers are starting to see those new trends, new colors coming through, some in apparel, they call it silhouettes, which is really the shape of the garments are changing. So we're getting a lot more trend there. I think what is really exciting is how -- and it's actually taken us all by surprise, and it's going to be a big area of focus for us in the future is really our health and beauty section of our business. It's really a space that we deserve to play in, and we haven't really done justice to the opportunity, and that's a key focus of mine into the coming months is really how we're putting that, the team actually in the midst of -- I've just been overseas on a big buying trip. So we're putting a really comprehensive range across which I'm quite excited about. I think it's -- we will have a great offer and we're going to change our in-store experience on that. As you know, Guy, that's a huge category. I think out of all core retail at the moment. I think Health and Beauty is growing at about 12%. So when you think about the rest of core retail is growing at very pedestrian level. So that is a huge unlock for us, and we're really barely participating. But the growth that we are seeing and the ranges like Poppi, we spoke about, [ Days ], which is another brand that we've just launched from one of our suppliers. It's going really, really strongly. And so we're starting to get a lot more of that the younger customer coming in, and that's really for us a key unlock that we can get the younger customer in through the doors looking at our beauty, then we can start to introduce them to our power ranges and stuff. And as those refresh, we're hoping there's a multiplier effect across. I think at home, we haven't done justice to. We've actually got a really good product, but we're not displaying it well enough. Our visual merchandising standards need to improve. And that's really the storytelling in our stores. Our customers are telling us our stores. We like you, but you're a bit boring and you're a bit functional. And so that's the big job to do for us. It's not -- I'm not suggesting we're going to have huge CapEx projects. But actually, there's a lot of treatments you can just do into your store that's more decorative than it is necessarily big capital projects. And that's really, I think, once we get that more excitement back into our stores, I believe that our customers -- we've got the fit. We've got -- and once people start talking about us in a positive way because of the changes we want to make. I'm really hopeful that, that will come through strongly. Guy Edward Hooper: That's good to hear. In terms of the allocation of categories across the first space, particularly within red. I mean you're calling out a few areas that you're increasing or targeting improvements in one area that has been growing in recent years as FMCG. Can you give us a little bit of an update about how you're thinking about that category in that store? Mark Stirton: Yes, FMCG is part of, obviously, our biggest store mix, because we are a multi-category business. We obviously have to make sure we're managing space for every category. It has done really, really well for us. But FMCG for us is not just grocery. It's -- we actually got pet, We include pets in there, we include baby. Both of those have done really, really well. And you would have seen, as I called out, the net preference uplift, you had seen that both those preferences have increased a lot. And within that FMCG, we sort of loosely -- we're calling at grocery. And as these other categories have emerged, they're actually starting to really perform well. And again, health and beauty is included in that grocery category. So I think we will -- we alluded to in next year, we'll come out with a proper strategy on each of the brands. And we are, at the moment, looking at a merchandise strategy, which will basically shape up each job to do for every category. And once I've got that, I can give you a better answer. Operator: Your next question today will come from Kieran Carling with Craigs Investment Partners. Kieran Carling: First question from me is good to see sales stabilizing over the second half. But if we look at your cost of doing business finished the year broadly flat after being down in the first half. You've sort of called out cost reduction as a priority. But beyond that $40 million relating to the simplified tech stack over the next five years, are there any other levers that you can be pulling? And can you give us a bit of a steer on how cost of doing business is expected to track in FY '26? Mark Stirton: Yes, I'll take that, and then I'll hand over to Stefan if he wants to add some more color. You're right, we did -- we've done a good job on our sale at our SSO level, which is what we call our support center level. We said this was down 7.8%, which is no mean feat. We've really looked at roles, we've looked at the way we spend money across the group really started to rationalize a lot of excess parts of the business, which are discretionary in nature. Stef's got a program on at the moment, which is we're really going to start to delayer the business even further at a cost layer basis, just really looking at what's actually driving some of these costs in a deeper way. And the relationship with TCS is really to help us deliver that what they're going to bring to the party is a lot more capability that actually help us unlock a lot of the opportunities that are deeper in the business. So we're going through an exercise with them that will address not only the systems, the process and the people, elements of all of our whole ecosystem, which will then give us a greater sort of insight as to how we can extract cost out of the business, Kieran. But at a brand level, we -- there is some constraints around our leases because obviously, those are contractual mostly in nature, whilst we've obviously negotiated hard and as Stef alluded to, the fact that we've done well in that regard. And this year, our employment costs at a store level, obviously, bargaining related. And so we've got some contractual commitments there that we're trying to -- we obviously got to manage within. But all other costs at the store-related level, we look at extremely hard. And if we gave you that color, you would see that there is quite good reductions in that regard. So we're looking at it across the board. And as we said, we're trying to target below that 31 level in the medium term. So at this stage, I can't give you more than that. So Stef, I don't know if you want to add anything more? Stefan Knight: Yes. Thanks, Mark. Kieran, really, when we're thinking about the cost reduction, I guess there's two areas that we're -- looking at the brand costs, as Mark mentioned, a lot of that is harder to implement things like wage levels are impacted by click to bargain agreements and leases are longer term. So our focus is very much in the SSO space. If you look at the reductions that have been made over the last year, it's quite significant in years like employee costs, they're down 6.8%. Licensing is already down a level and also things like the exit of the market has been a driver. So when we look ahead, we'll be continuing to look for further opportunities in those space. The other thing I would point out is it's not just in the cost of doing business. Clearly, the other place where margin improvement would come from is active in around our gross margin improvement. And there's some pretty significant programs we're look at in the cost of goods sold, so very much around sourcing strategies, which Mark has already talked a bit to around which we are buying, particularly ongoing stock flow management, and ultimately, that should deliver lower clearance levels. So a combination of those factors are all the things that we are acutely rapidly focused on. Kieran Carling: I guess just regarding your comment around getting to below 31% of sales in the medium term. if I could recall correctly, at the half year result, you were talking about that goal in the near term. Is that more just a function of the sales trajectory of the group not being as strong as you're expecting? Or have you sort of missed on some of the cost out that you were predicting? Mark Stirton: No, I think it is a bit of the top line, Kieran. I mean, when you're in at the tough top line, like you said, I think it's we did well to keep the top line positive, which in this environment is tough. But yes, it is obviously infinitely harder if you've got inflationary pressures on all your costs and your sales aren't holding abreast of that. You do have a negative influence on your -- on that ratio. But we're not standing back and thinking that that's the only thing in our control. If you actually just look and you step back, irrespective, the business is making 32.2% margin and it's 32-point something on cost, and that's just not an acceptable shape even if you just do a standstill evaluation. So we're looking very hard at the cost layer irrespective. But like Stef said, it can all come from cost. We should be earning much better GP margins, and that is a function of each of the brands is looking -- steering hard into that. And that's a combination like what Stef said. When you have [indiscernible], I think I alluded to it, when you've got stock that's sitting in age buckets like we have. And there's inefficiencies all around your business. There's an efficiency through your DC, there's inefficiencies through your supply chain. There's working capital cost of holding stuff all of that, as we improve our planning and buying part of our business, which is really about our stock flow. And all of the consequential costs that relate to that will also start to drop out the business. And I'm really positive that, that is actually a large portion of also what's holding up these costs of doing business. Kieran Carling: No, that's very helpful. And then I guess just talking about that aged inventory, and I guess to elaborate on Guy's point. I mean aged inventory is up. You had a bit of a price reset in red, and that's all played into some of that gross margin reduction through '25. But can you just talk us through your expectations for gross margin in '26 and how much of that inventory sell down is still to come? Mark Stirton: I think, Guy, in this year, we -- what we did is we provided for a large chunk of that aged inventory. I think if -- when you look at our financial results, you would have seen that we've improved what we've added more to our provisions. And that's a function of, obviously, the risk that potentially is already in that. So if you think about it, some of that's already baked into the provisioning that we've already got. But you shouldn't have to mark down continuity-based product. If it's a white sheet, it's a white sheet all day long. So we don't believe there's huge clearance that's anticipated into the assortment. The only thing that I would caution is that when you're in a tight environment and you need what they call open to buy in planning, when your stock, all your money sitting in the wrong stock, it all comes down to how quickly you can sell that stock in order to give yourself money to buy new stock. And that sometimes is the catalyst to induce a markdown that we might need. I don't think at this point, we will need it. Obviously, you can never have a crystal ball into the future, and you don't know how the key trading period, this golden quarter or trade. But that's a key -- that will be a key influence in terms of whether we have extra clearance or not. But we're not anticipating high level of clearance. Our budget doesn't foresee that. But we are trading in tough conditions than we anticipated. So there's a function that is coming through in the -- as Stef alluded to, in the first 7 weeks, it is really tough when we're still having to get through inventory, particularly the winter inventory from last year, which is now the winter inventory is pretty much done. Kieran Carling: What do you think of a base case then would sort of be looking at flat gross profit margins? Or are you able to sort of give any indication of that? Mark Stirton: We haven't given guidance. So I don't want to -- yes, I can't say anything at this point, yes. Kieran Carling: Okay, sure. And then maybe just the final one. In your outlook statement, you've talked about profitability recovery being dependent on scale improvement and higher margin categories. Can you just elaborate a bit on that? And talk about what steps you need to take to make that happen? Mark Stirton: Yes. I think what's -- when I alluded to, I think in the Red business, what were the [ red sheds ] what we have alluded to is that our home and apparel categories are nearly 50% of our turnover. So when those are not performing at the levels we anticipate the way we expect them to perform at. They have a disproportionate influence on our margins. So what we're doing is the key gold work, which we've been speaking of for a while now, but because of the buying cycles and how long it takes to actually get new products in, remember that you buy seasons ahead of time in the manufacturing, that takes a while to get through the system. So we still will be experiencing some of that now. And I'm hoping by winter next year, we will really be in our strides in the place we really want to be. But we've -- this summer, we're going to trade probably trade on similar sort of levels with really managing our stock and our clearance levels. So that's a key part of the unlock of the GP, you mentioned a little bit earlier in those categories. But we're doing a lot of work on our sourcing. There's also a lot in the type of products we are offering, and we're going to get into much better sort of assortments on home and apparel products, which have better margin. So hopefully, there's a mix element that comes through on both of those scores. Stefan Knight: Can I just add a point to -- Also, I'd just add on Noel Leeming, if you look at the composition of the sales this year, it's been quite heavily skewed towards some of those the smaller items, which really reflects the pressure that our customers are under given the economic environment, so much more small appliances. Obviously, the higher margin areas for us are things like TV and White wear and with forecast interest rate drops, it will be really interesting to see how that plays through into the economy. So that's something we're keeping a really active eye on because that will be a key part of what we need to see to help drive that turnaround. Mark Stirton: And the same actually story, Stef is on the blue business. A big portion of the blue sales this year that got affected was our furniture sales. We know we are a big office furniture business in the country, and that office furniture has been really an -- albeit that we actually hold market share, we actually gain market share on furniture, but it was in a declining market. So as that sort of comes back online and small businesses feel more confident, they'll update their offices and with the destination for that. So all of these are mix issues that we're fighting against, which hopefully, as economy improves, those will all be in our favor. Operator: Your next question today will come from Paul Koraua with Forsyth Barr. Paul Koraua: Sorry, I'm going to dig in on the margins again, if that's all right. And it really comes down to red, if you look at that Slide 17 that you guys provided on the gross margin waterfall between '24 and '25 and you look at the EDLP reset, that feels like that's a structural shift in group margins. The category mix, yes, you guys are doing some stuff to work on apparel and home, but that takes, as you say, a few years to wash through. So it does feel like the margin story for '26 is still going to remain under some pressure? And I guess the clearance is anything that constrained? Is that sort of a fair synopsis of what's happening? Mark Stirton: Yes, I think that's fair. The clearance part is probably more than 50% or just over 50% of the 1.3%. So -- and then the sort of the price resets was probably the other 50%. So the price resets you can get back through better buying and that sometimes can take half a season. But like you say, you obviously trade for a full year. So some of that is taking a little bit longer to extract because you've got to find different supply bases, you got to do those sort of things, but that's all opportunity for the future. And then the clearance is a function of your planning and buying better and tiering at the rates that you anticipated. So that's within your gift if you buy better and you buy the right quantities. So the mix issue like you said as you get the home and apparel stronger, remember the dollar version, the dollar contribution of those two categories to GP is significant. So you have to sell a lot less T-shirts than you have to sell grocery, for instance, at much lower margins. So if you get right and you get your offering right, it can swing for you really nicely. So yes, I hope that answers your question. Paul Koraua: Yes. That sort of does, and it sort of leads to my next question, right? So if we're thinking about -- you guys made a loss in red this year and gross margins have come down and it feels like there's structurally going to be lower going forward. And you guys have lost a little bit of leverage on the cost base, so your cost of doing business as a percentage of sales in red is up at 36%. Like what is the path to profitability here? Are we -- do we have to wait for sales to come back to regain leverage on that cost base? Because as you sort of alluded to, you can't really take cost out at the brand level. Or is this -- because I sort of struggle to see how this makes any sort of operating profit over the near term anyway. Mark Stirton: Yes. I mean it has to be a sales story. You can't save yourself to prosperity, but we've obviously got costs within our base that we've got to -- we can still extract -- because remember, some of it's contractual, not just lease contractual, but there's other contractual elements that you obviously are stuck into, which will obviously move. But the GP story is critical to this business and the turnaround of this business. And I think that's what I alluded to in my outlook is the GP -- you hit the nail on the head, it's contingent on us nailing these home and apparel categories and categories like beauty, for instance, is significantly different margins to our FMCG part. So while our FMCG part or the broader FMCG part of which food is quite a high contributor. While that continues to grow and outstrip the growth of those other categories, it has a disproportionate influence on the business. So my job is to make sure that we're scaling that or we will appropriately putting that in its right cadence and growing the other categories. Paul Koraua: Yes. And then maybe how are you guys thinking about the home category in red and where you want to position that business in light of IKEA opening later this year? Mark Stirton: Yes. I think we've been on Home wares for quite a while, and I feel that the more I will ground our stores, the more I'm more confident that our offer is a great offer. And IKEA is particularly strong in furniture. It is part of our offer. It's not the main part of our offer. And so I think whilst we also recognized last year, IKEA has been coming for some time now. And we've been doing some work on our ranges to try and combat their influence, but they're a great business. They're in one location, and they do have distribution points around the country. But I think maybe our advantage at the moment is that we've got the 86 stores that sell furniture and sold those same products. So for us, they're a great competitor and they help us get better. So we're just seeing it as that. Operator: There are no further questions at this time. I'll now hand back to Joan for closing remarks. Joan Withers: So thank you all very much for joining this morning's call. And I'm sure, like me, you'll be watching the group's progress through this upcoming peak season that we're about to enter into. And I guess we're all hoping for exactly the same thing that the economic situation in New Zealand improve some rapidly and gives us the sort of 2026 that we all need it to be. But thank you very much for your ongoing attention. Thank you. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Cal-Maine Foods First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. I will now turn the call over to Sherman Miller, President and Chief Executive Officer of Cal-Maine Foods. Please go ahead. Sherman Miller: Good morning, and thank you for joining us today. We appreciate your interest in Cal-Maine Foods and the opportunity to share our results and outlook. This is an important milestone for us as it marks our first ever earnings call. It's an important part of our commitment to a more robust Investor Relations strategy aimed at increasing visibility into the institutional investment community and providing stakeholders with increased transparency into our business. Before we begin, I want to remind everyone that today's remarks may include forward-looking statements. These are based on management's current expectations and are subject to risk and uncertainties described in our SEC filings. I want to start the call today with an expression of humbleness and gratitude. I'm humbled each morning in realizing the dedication and strength of our Cal-Maine family. I'm truly grateful to have the opportunity to represent each and every one of them on this call today. I'd like to recognize a few folks who have been a huge part of building the Cal-Maine foundation, which is the platform that we operate from today. Cal-Maine has always been about people, our over 4,000 employees, our customers, our communities and our shareholders. Every day, our team demonstrates the discipline, accountability and frugalness that have defined this company from the very beginning. We stand on the shoulders of our Founder, Fred Adams, and leaders like Dolph Baker, who remains an important guide as Board Chair. Also, there is a long list that have mentored both me and our management team as a whole. I'd like to name just a few. Steve Storm, Bob Scott, Jack Self, David Jenkins, Marc Ashby, all previous vice presidents of operations; Bobby Raines and Tim Dawson, previous CFOs; Jeff Hardin and Ken Paramore, both previous Vice President of Sales. Ken Looper, former President; Joe Wyatt, former Vice President of Feed Mills; Charlie Collins and Mike Castleberry, both former Controllers. There are many more to thank, but for the sake of time, I just want to say a very simple and humble thank you to all of our employees, both past and present. Each has contributed to building a strong foundation that is in place today. The cornerstones of that foundation are simple. We have broad scale, which provides us significant benefits. Our vertically integrated model allows us to manage every step of production, which keeps costs low, enables supply reliability, safeguards quality and food safety, and gives us the flexibility to optimize output. This is also a significant competitive advantage. Our culture, what we refer to as the Cal-Maine Way is one focused on operational excellence. We define operational excellence as an unwavering focus on the fundamentals. That means investing in modernization, embedding biosecurity and applying the Cal-Maine way of accountability across our operations. With respect to biosecurity, we've invested more than $80 million in equipment, procedures and training to safeguard flock health and mitigate the risk of highly pathogenic avian influenza since 2015. Unfortunately, high-path AI remains a reality for the industry. Financially, we're operating from a position of strength with a great balance sheet and enough cash to opportunistically pursue acquisitions in furtherance of our strategy. Finally, as I mentioned, we have a fantastic team with significant depth and experience. Speaking of our team, I'd like to welcome Melanie Boulden and Keira Lombardo to Cal-Maine. Melanie, who joins our Board of Directors has deep expertise in the food and beverage industry and nearly 3 decades of global business management, brand building and experience at companies like Coca-Cola, Kraft and most recently, Tyson. Keira was recently appointed as the company's first-ever Chief Strategy Officer. Like Melanie, Keira has significant experience working with consumer-facing companies. She will work with our senior leadership team to further accelerate and shape enterprise priorities, building on Cal-Maine Foods' leadership role in a rapidly changing marketplace. Our foundation and strong business momentum allowed us to deliver the strongest first quarter in our history and also reflects the benefits of diversification, the strength of our operations and the progress we've made in positioning Cal-Maine for the future. Specifically, our results were driven by strong growth in specialty eggs and the expansion of our prepared foods platform, supported by solid performance in conventional eggs. Together, specialty eggs and prepared foods accounted for nearly 40% of net sales, underscoring their central role in Cal-Maine's strategy and long-term financial performance. These results show Cal-Maine advancing as a diversified consumer-driven food company. Our conventional egg business continues to provide stability and scale, while specialty eggs and prepared foods are increasingly shaping the future of our portfolio. Specialty eggs and prepared foods are positioned as growth engines, shifting our mix toward higher-value categories. And across it all, our vertical integration and financial strength ensure that we can execute with discipline and resilience. With that, let me turn the call over to our Chief Financial Officer, Max Bowman, to drill down into our results for the quarter and discuss our capital allocation framework. Max? Max Bowman: Thanks, Sherman, and good morning, everyone. Thanks for tuning into our first live earnings call. This is a new format to us and is part of an increased focus on our part to deliver increased transparency to all of our stakeholders. As a reminder, we published our earnings release and 10-Q this morning. Additionally, we have published a brief earnings presentation on our website. These documents contain detailed information on our financial results. I'll touch on the highlights for the first quarter of fiscal 2026. Net sales were $922.6 million, up 17.4% from $785.9 million last year. The increase was driven by increase in shell egg sales and from contributions from our recent acquisitions in the prepared foods space. Shell egg sales were $789.4 million, up 6.5%, driven by a 3.9% increase in net average selling price for shell eggs and a 7.5% increase in specialty egg sales volume. Shell eggs represented 85.6% of total net sales. That's down 880 basis points from last year as our portfolio mix diversified into prepared foods. Specialty eggs generated $283.5 million in sales, up 10% with double-digit growth in cage-free and pasture-raised. Specialty eggs account for more than 30% of net sales. Conventional egg sales generated $505.9 million in sales, up 4%. Prepared foods delivered $83.9 million in sales, an increase of over 800% with Echo Lake Foods contributing sales of $70.5 million. Prepared foods represented more than 9% of our net sales this quarter. This shift in mix demonstrates how specialty eggs and prepared foods are shaping our portfolio towards higher-margin categories. Gross profit was $311.3 million or 33.7% of net sales, up from $247.2 million or 31.5% of net sales last year. This nearly 26% improvement in gross profit was driven primarily by higher shell egg selling prices, growth in our specialty egg sales volume, lower feed costs and contributions from prepared foods. Operating income was $249.2 million or 27% of net sales compared with $187 million or 23.8% a year ago, a 320 basis point improvement. Net income was $199.3 million or $4.12 per diluted share, up from $150 million or $3.06 per diluted share last year. These improvements were driven by higher average selling prices for shell eggs and the incremental contributions from prepared foods. Turning to cost and expenses. Our feed costs were actually a source of support this quarter. On a per dozen basis, feed costs decreased about 4% year-over-year, driven primarily by lower soybean mill prices. That reduction translated into roughly $6 million of savings in cost of sales. SG&A expenses increased modestly, up about 12% from the prior year. This was largely tied to higher sales volumes and the integration of Echo Lake Foods, which drove higher delivery expense and other overhead. Marketing was essentially unchanged. Importantly, these added SG&A costs have directly supported growth in both shell eggs and prepared foods. In fact, SG&A as a percentage of sales decreased slightly from the prior year. On the production side, capacity expansion and rebuild post HPAI is also supporting our growth. Breeder flocks increased 46%, chicks hatched were up 77%, and the average number of layer hens rose 10%. We sold 2.5% more dozens year-over-year, with specialty dozens increasing 7.5%. Our growth is not only driven by pricing, but also by real volume expansion supported by long-term investments in our capacity. We continue to see tangible benefits from our modernization initiatives and in-line facilities. These investments enhance yields, improve our productivity and reinforce our low-cost positioning. The Cal-Maine Way, embedding best practices and process innovation remains central to our ability to operate efficiently. Operating cash flow was very strong at $278.6 million, more than double last year's level of $117.5 million. We ended the quarter with $252 million in cash and equivalents and $1 billion in investments, and we remain virtually debt-free. Our capital allocation approach is centered on maximizing total shareholder return, and we view it through five lenses. First, our dividends. Consistent with our standing dividend policy, we will pay a dividend of $1.37 per share payable November 13 to shareholders of record on October 29. Second, share repurchases. We plan to take an opportunistic approach to share repurchases, guided by our broader commitment to disciplined capital deployment. Depending on circumstances, we may use different methods to execute buybacks such as open market purchases, accelerated programs or prearranged trading plans. Third, earnings per share growth. This is supported by disciplined reinvestment in our business, particularly in modernization, margin expansion initiatives and efficiency programs. Fourth, M&A. We are focused on related areas, geographic expansion and opportunities that meet strict financial return thresholds while strengthening our supply position. Prepared foods is a great example of this, where the best investments is in our sales and the fast-growing subcategories we are building. And finally, multiple expansion. Over time, as we shift our mix and deliver higher quality, more predictable earnings, we believe Cal-Maine Foods will be positioned for a valuation that reflects that improvement. In short, our strong cash generation allows us to fund growth, support our dividend, be opportunistic on repurchases and pursue disciplined M&A. In turn, these actions create even more cash flow for future deployment. That concludes my review of the financial results. I'll now turn the call back to Sherman for additional commentary on where we are going strategically. Sherman Miller: Thanks, Max. Let me close by reinforcing a few themes. Cal-Maine is the largest egg producer in the United States with significant scale and vertical integration that delivers efficiency, lower cost and supply reliability. But scale alone is not enough, consumers are demanding more choice, more convenience and more protein-rich foods. Our mission is to meet that demand with a diversified portfolio that ranges from conventional eggs to specialty eggs and increasingly into prepared foods. Specialty eggs and prepared foods are not promises for tomorrow, they are delivering today. Over time, we expect them to continue to improve the quality of our earnings and lead to margin expansion. We are executing a strategy to create a stronger, more predictable Cal-Maine. That strategy, of course, has the strong M&A component embedded in it, supported by a robust pipeline of disciplined accretive opportunities. Echo Lake is a great example of how we're executing. Since the acquisition in June, utilization has ramped quickly, and we are on track to exceed every financial and operational expectation we set forth at the time of the acquisition. We've already approved a new $14.8 million investment in a high-speed pancake production line at our Burlington, Wisconsin facility, which will expand capacity, add automation and improve packaging to capture accelerating customer demand. Projects like this will increase efficiency and scale, and they demonstrate our approach to disciplined investments in extensions and subcategories with attractive returns supported by strong consumer demand. We're becoming a house of brands from Egg-Land’s Best, Land O'Lakes, Farmhouse Eggs, 4Grain, Sunups, Sunny Meadow, MeadowCreek Foods to Crepini, reaching consumers across national, regional and private label programs. We account for roughly half of all Egg-Land’s Best sales, which remains the #1 brand of specialty eggs in the United States. Our scale, vertical integration and financial discipline provide a strong foundation, while specialty eggs and prepared foods are proven growth engines delivering higher quality, more consistent earnings. Together, these strengths make Cal-Maine a compelling combination of both value and growth in today's food sector. At the same time, our mission is clear. We provide one of the most nutrient-dense, affordable sources of protein available. That matters today more than ever. Eggs are purchased by 97% of U.S. households and remain one of the lowest cost sources of high-quality protein. Consumers are eating more protein overall with high-protein diets ranking as the most common eating pattern for the third consecutive year. Eggs fits squarely into that trend because they are fresh, versatile and cost-effective. Specialty formats and ready-to-eat products extend that value proposition, giving people more ways to include eggs in their diets. This is not just about chasing trends, it's about meeting fundamental needs for nutrition, affordability and value in the American diet. Looking forward, our strategy is clear. We will, number one, expand specialty and prepared foods; number two, leverage vertical integration and operational excellence to remain a low-cost reliable supplier; and number three, pursue disciplined M&A to drive mix uplift, expand geographically and create long-term stockholder value. Cal-Maine combines scale, vertical integration and financial strength with proven growth from specialty and prepared foods. Conventional eggs provide a strong foundation, while consumer demand for protein and the relative affordability of eggs create powerful tailwinds. Our disciplined capital allocation and operational excellence reinforce this advantage. We are confident that the initiatives we're executing today will translate into durable growth, stronger margins and higher returns for our shareholders. I want to close by thanking the entire Cal-Maine team for their dedication, our customers for their trust and our stockholders for their continued support. With that, I'll turn the call back over to the operator to begin the Q&A portion of today's call. Operator: [Operator Instructions] Our first question comes from the line of Heather Jones with Heather Jones Research. Heather Jones: I want to start with saying I appreciate you all starting these calls, they're very helpful. I guess my first question is just on pricing. Just wondering if you -- this quarter, your price capture relative to industry benchmarks was materially lower than it has been in the past. And so I was just wondering if you could share some quantitative or qualitative color as to the shift that's gone on in your mix as far as cost plus versus market-based, just so that we can try to be more accurate in our projections going forward. Sherman Miller: Heather, this is Sherman, and thank you for that question. I'll start, then I'll call on Max to finish up here. But I want to start this conversation just talking about how important our customers are and us keeping their trust and their support and us always thinking about the long term. And each and every customer has their own go-to-market strategy, and there's certainly a multitude of different pricing structures out there. But I think what you're indicating, Heather, is some topside slippage and what we would encourage you to think about is just balance that with the downside, the mid-cycle uplift that comes with that. And over time, market realization actually improving for the long term, the reduction of volatility and certainly the longer-term arrangements that come with that. So we think there's a lot of appeal in this shift. And certainly, it's not complete because if you look in our Q, we do indicate that the majority of our conventional eggs are still priced off of the market framework. So there's still a lot of our history in our pricing agreements, but certainly, certain customers have different thought patterns on their go-to-market strategy. And once again, upside opportunity is balanced with the downside protection here. And always, we strive for true partnerships to be the type of partner that they can rely upon not only for supply but for meeting their other needs. So Max, I'll pass it to you if you have any other comments to add there. Max Bowman: Sherman, I think you covered it. It's just all about customer alignment and positioning ourselves as best we can for the long term through the cycle. Heather Jones: And then my follow-up is on Echo Lake. Those results were stronger than expected across the board, just the sales and the margins. And so just, one, should we be expecting significant sequential revenue growth for that business? And secondly, was there anything related to cost, timing, et cetera, that affected margins? Or is this a good gross margin to use going forward? Sherman Miller: Heather, another great question. And it's hard to express the amount of excitement that we have when you say not only Echo Lake but prepared foods and just the growth opportunity that we have, the focus on higher value, higher quality more consistent and then margin expansion over time. It opens lots of doors for us for additional organic growth and M&A, and we do feel good. The color that we added in our Q is that we feel very strongly that they're meeting and exceeding all of the initial goals that we set for them. And Echo Lake is strong. We spent a lot of time in due diligence, not only looking at the business, but looking at the team and the team is what I really like to brag about, just extremely solid team that has a mind for growth, a mind for perfection and achieving goals. So very excited there. Max, I'll see if you have any comments to add. Max Bowman: Yes, Heather. I think it's in line or exceeding, as Sherman said, some of the benchmarks that we threw out in the initial investor presentation for Echo Lake. And as Sherman said, no bias or more. We're feeling great about Echo Lake and feeling good about where it's positioned for the future. We are -- we did call out the synergies early on, and we had said $15 million. I think we're on track to achieve those and potentially more. And we're already working on reinvestment at Echo Lake with an announced additional investment there. Sherman Miller: Yes, and that's significant, Max. It's almost a 10% growth in their annual volume. So you can see how much we're believing in it, Heather. Operator: Our next question comes from the line of Pooran Sharma with Stephens. Pooran Sharma: Just wanted to say congrats on the quarter and on getting your first earnings call here. Maybe for the first question, wanted to understand a little bit about the supply situation. It looks like we've had a pretty good sequential build back in the layer flock over the last couple of months. I know in our past conversations, we've talked about how long it will take to get back to about 325 million hens. And I think the industry projections called for about 305 million to 315 million by year-end. But we have been hearing some expansion amongst smaller contract farmers may not be fully captured in the latest USDA figures of about 300 million hens. So just wanted to get your thoughts on how to think about supplies over the next few quarters from here. Sherman Miller: Pooran, thank you for that question. And the USDA hen numbers that came out September 1 indicated 101.4 million -- 301.4 million. And that certainly is a number well lower than the 5-year, but I think we would challenge you to think a little bit broader than that. There's a general rule of thumb that it takes one chicken for each person in the U.S. And the U.S. population hovering somewhere around 340 million indicates that we're well short of the potential that the market could use. And there's certainly lots of things on the demand side. But unfortunately, there's some early indicators that the high-path avian influenza certainly has not gone, and this is a lot bigger than the U.S. problem. It's a global problem and the global indicators indicate the same thing that there's lots of challenges sitting at the doorstep with high-path avian influenza. And unfortunately, about 3.1 million hens has been taken away from that 301.4 million already and numerous turkey flocks also depopulated. And the migration is certainly turning the volume up as we speak. And so there's lots of things that are concerning about the migration and about how this fall could play out. We have no exact indicators what that would be, but certainly, just looking and listening to the experts, there's lots of concerns around future high-path avian influenza. And you pair the supply with demand. And certainly, there's always seasonality that comes into play. The last few years has been a roller coaster. Normal seasonality has been disrupted by loss of birds during those times, which has kind of muddied the waters, but supply stabilization is just one of the important pieces to think about whenever marketing programs work most effectively, it's when they can count on supply. And the tailwinds that are sitting there for the demand side are extremely favorable, and we're excited about them. FDA now lets us put the word healthy on an egg carton. American Heart Association recommended eggs as a part of a heart healthy diet. American Academy of Pediatrics, they're recommending eggs from conception to 2 years of age because of choline. These GLP-1 drugs are certainly a catalyst. People looking for clean, unprocessed foods and eggs just become a spotlight as 97% of households buy eggs. And of course, the United Nations is pushing eggs still, but at the end of the day, eggs fit very well into the healthy trends, the convenient trends, and they're still affordable on a per gram of protein serving. And they also -- some of the other spotlights against foods containing sodium, sugar and saturated fat were either low or 0. So we think there's tremendous tailwinds to pair with this supply. And unfortunately, over the last 3 years, it's been one step forward, two steps back. And we're all hoping for a much better fall than what the early indicators show. Max? Max Bowman: I think you covered it, Sherman. Pooran Sharma: Great. I appreciate the color there. Just wanted to maybe hone in on HPAI. We had the 3.1 million case in Wisconsin. And I think in the northern states, you've been hearing about some turkey flocks that had been impacted by the virus. It seems a little bit earlier than expected, early in the migration period, as you called it. Do you think the industry is better prepared this year than last? I know you talked about your own biosecurity measures, your own investments into your biosecurity. But just from an industry kind of perspective, do you think they're better prepared this time around than last time? And do you think we could see the potential for a similar magnitude just given where the industry is at? Sherman Miller: I can't predict the magnitude, but what I do feel confident in is a lot of work is went into biosecurity and preventing the lateral spread. The big question mark still comes from these point source introductions, and that ties back to not only migrating birds, but also the pair of domestic species that are around farms, and just a huge need for concrete epidemiology to know how this virus is not only getting on to farms but getting into chicken houses. And there's work certainly being done on that, but the silver bullet of here's the problem, here's how to solve it is still out there. We've got to find it. And certainly, biosecurity is top of mind. We have invested over $80 million. It's something that we've been very serious about since 2015 and beyond that even. So unfortunately, I can't give you a prediction of how it's going to play out, but the early indicators are that the birds are certainly carrying it as they migrate, and it's certainly a virulent strain that's still well capable of infecting chickens and turkeys. Max Bowman: I think, Poorn, we can't -- as Sherman said, we can't speak for the industry and wouldn't pretend to. But I think it's evident that everyone in the industry has taken it very seriously. We just continue to focus on what we can control, and we know and trust in our scale and diversity of our operations that give us advantages. But we know at the same time, we've got to execute and remain diligent every day. You're only as good as your worst day when it comes down to it. So consistency is very important in our operations. And I think all of our locations are they talk about it literally daily and are focused on it, and that's what we're going to depend on going forward. Operator: Our next question is from Leah Jordan with Goldman Sachs. Leah Jordan: Sherman and Max, thanks for hosting this call. Really appreciate all the detail. I wanted to ask about specialty eggs. You called out double-digit growth in cage-free and pasture-raised. Just any more detail on the trends you're seeing in specialty? And how are you thinking about capacity growth for that segment going forward? And ultimately, where would you like to land in terms of mix between conventional and specialty longer term? Sherman Miller: Leah, great question. As you pointed out, pasture-raised double-digit growth year-over-year in dollars and volumes. And Leah, one thing that we continue to focus on is the word choice. We want to produce what the customer, the consumer wants to purchase. We focus on a very broad range so that we make sure that we service all customers. We also love to talk about the strength of Egg-Land’s Best, the #1 branded specialty eggs that we produce over 50% of the dozens for Egg-Land’s Best, huge, huge tailwinds for us. The way we think about it is that we want to move at our customers' long-term pace. We don't make short-term decisions. We've been in this business a long time, and we think very forward on how different categories play out, and that circles us right back to choice. So we invest broadly, and we make sure that we're positioned for the long term. But we certainly see growth that's happening both in branded and private label, in pasture-raised and certainly cage-free as well. And we really focus hard on our long-term enterprise value to increase that over time. So we will continue to invest in cage-free, we will continue to invest in pasture-raised as well as the other items, and the customer will be our guide on the pace and scale that we do that at. Max Bowman: Yes. I mean Leah, long term, we focus on capacity growth in specialty, particularly. that's typically around double digits, 10% or so, and we continue to keep focusing there. And over time, it's hard to predict exactly that mix. I mean, obviously, acquisitions could play into that. We've purchased some nice acquisitions in the last 3 years that had some significant conventional production. So those numbers go up. But over time, we believe and think that the specialty will continue to grow as a percentage of the overall mix. Leah Jordan: That's very helpful. And then maybe just sticking with the theme of shifting the mix of your business. I wanted to go back to the Echo Lake discussion. What have been the initial learnings or key surprises over the past few months? And then just on the longer-term growth, any more color there? I guess, how many more opportunities like the recently announced line extension for pancakes are there? Sherman Miller: We do believe there are more, which would definitely fall under the organic growth. But the other exciting part of this, we've added a lot of scale to our company through M&A. And this opens the door to a new channel of M&A, and we think there will be some opportunities there. And no surprises with Echo, we knew that there was a tremendous team coming with Echo, and they've absolutely delivered in every area. A lot of key initiatives out of the gate, working on leadership and labor, reliable manufacturing, operational excellence, sales planning, gross margin management, net margin management, market expertise, just everything about the business that we should be touching the team is driving forward on and extremely exciting. And we're excited about showing the growth that we did this quarter, but we certainly believe that there's opportunities as we mentioned earlier about the approval of $14.8 million for a new pancake line. That's almost a 10% increase in our volume right out of the gate. So good things to come there. Max? Max Bowman: Sherman, again, I think you covered it well. I will remind everyone, Leah, we're less than a full quarter into this, I mean June 2 was the closing date. I know we've got some exciting meetings planned to really drill down with the Echo Lake team on longer-term plans. And what I think we've been very excited about, as Sherman said before, is just learning more about the capability of that team, the very disciplined approach and logical approach that they're taking, strategic approaches to both maintaining the business they have and structuring the business for -- and positioning for more growth in the future. So more to come. But as we said from the outset, Echo Lake has been everything that we projected and maybe a little more. You can go back to those initial investor decks and kind of see what was there, and you can get a good idea of the margins and from what we showed this first quarter. So we're really excited about the future for Echo and our old prepared foods. Not to leave out, MeadowCreek is sort of beginning to achieve, I think, a good base to go from. They're getting their volumes up, and Crepini has got some exciting developments as well. So we'll be continuing like try to grow and invest in our sales in that important area of our business. Operator: Our next question comes from the line of Ben Mayhew with BMO Capital Markets. Benjamin Mayhew: I guess just on your comments on share repurchases, you only did the $50 million so far this year. You still have quite a bit left on the authorization. And you mentioned a couple of options in your prepared remarks. So I just wanted to dig into that a little bit more. Do you think share repurchases are going to become a bigger piece of your allocation strategy? And is your goal to defend shares against commodity swings as you grow your value-added business? Or how are you thinking about utilizing that? Sherman Miller: I'll start and pass it to Max pretty quick. But Ben, we're excited to have share repurchases in our capital allocation strategy. It's certainly a solid tool, and we know that, I think the investor community is as well. And we've not given any formal guidance on what the buyback criteria will be, but I will assure you that we have our eyes wide open and we've described it as opportunistic. And certainly, we're waking up every morning keeping our eyes wide open and being ready. Max, any other color you want to add? Max Bowman: Yes. Ben, you're well aware of the authorization that we have out there. And as you said, we spent $50 million against that authorization. The keyword we're talking is opportunistic primarily through -- we're thinking at this point, open market type purchases. When we feel the time is right, as Sherman says, we're watching things very closely. A lot happening in our industry and people are trying to figure out kind of where we're going. We've already talked about a lot of the factors this morning that will affect the future from a supply side, what happens with HPAI. And so we've got a lot to factor in there. But believe me, it's at the height of our thought process. I can't leave this point without talking about -- I mean, that is an important part of our capital allocation, just having that share repurchase there. It's a tool that we historically have not had. We'll continue to use it. But we're always going to lean into some of the other triggers that we like to talk about, which are acquisitions and organic growth and those things that are very important in our capital allocation strategy. Benjamin Mayhew: Great. And then I'll just ask one more. When you think about the relative price of competing proteins, right? So record beef prices, chicken prices that are high relative to historical averages, pork prices that are high. How do you feel about where eggs kind of sit in that relative competitive basis or landscape? And headed into this holiday season, could we see more consumer trade down into eggs? How are you looking at the demand environment over the next 1 to 2 years? Do you think eggs will outperform from a consumer value perspective? And that will be my last question. Sherman Miller: Yes. So Ben, great question. And certainly, eggs are competing exceptionally well being the lowest on a per serving a protein basis, except for milk. And we feel really good about it because a lot of focus is being put on ultra processed and of course, eggs are not, you get to crack an egg. And certainly, the products that are created in prepared foods, they're clean, healthy. These things are awesome, the expansion of different formats as well as dayparts. Eggs are good each and every part of the day, and that's one of my favorite things to do at night is to cook an egg. And so I think that carries over well into what you described. There's lots of things going on with other proteins, but the focus is being put on health and ultraclean as well as the sodium, sugar and saturated fat. It just keeps elevating eggs as a better choice for consumers. Max Bowman: Yes. Great comment, Sherman. It's just all part of those tailwinds that we like to talk about. And this is, in my judgment, one of the most important ones. I mean we've got a lot of people to feed in this country and then around the world. Choice is a big part of that, as Sherman has said already many times today, but we're really excited about expansion into some of these additional formats in daypart, prepared foods just gives us another platform to move into -- to really give more convenience and more access and making it easier for consumers in general to consume eggs. And we're excited about that future. Operator: Our next question comes from the line of Heather Jones from Heather Jones Research. Heather Jones: I just wanted to -- I have two follow-ups actually. Just wanted to ask about the current market. It's honestly surprised me how much pricing has dropped given the numbers you mentioned, Sherman, as far as the layers on the ground. I mean, clearly, there's been a rebuild from the spring lows. But -- so I guess I was just wondering if you think that's either, a, demand destruction? Or do you think maybe the USDA has undercounted the numbers that are on the ground? And then I've got a follow-up to that. Sherman Miller: Heather, I would tie it more back to seasonality. I think there's certainly so many disruptions that's happened over the last couple of years. It's kind of easy to forget about normal eating patterns and seasonality. But I think another huge piece of it is just tied back to the supply stabilization factor that to plan business, to plan features, to showcase eggs that are so important with being a $65 difference in a basket in the grocery store if eggs are in the baskets or not in the baskets. I don't see the demand destruction, but certainly, supply stabilization is key because if you're going to market eggs and move eggs, you've got to have #1 eggs on the shelf. And there's been some very strained times over the last few years where there's just simply not been enough eggs. And the price points they're sitting at today should be very attractive for the end consumer, especially paired with all these tailwinds that we've talked about. So see good things happening back in 2015, there was certainly some demand destruction on the liquid side where some reformulations happened, and that was very difficult to get eggs put back in some formulas, but the liquid side has remained extremely strong. So that should have prevented any demand destruction on that side. Max Bowman: The point there, Sherman, I think, obviously, the imports of eggs played into that liquid side staying strong because all those eggs that were brought into the country were further processed and put into that channel. So while that's not our -- hasn't been historically our main focus, it certainly helped with the overall balance in supply of eggs. So we don't see a lot of demand destruction at this point. In fact, I think we would say just the opposite, we think there's the tailwinds that we keep talking about. And as we move out of October or into late October, early November and we move towards the normal seasonal periods that really show demand. And remember, we're in our first quarter, which we typically think of it -- and our fourth quarter is our weakest quarters. So we think we've got a good year ahead given the current supply levels. Heather Jones: Okay. And then my follow-up is going back to your comments, Sherman, about leveraging your vertical integration to remain the low-cost producer. And I suspect you're not going to quantify this specifically, but just more of a qualitative idea. Thinking about the Echo Lake, your other prepared foods, your further processed eggs, is it part of your strategy to divert more and more of Cal-Maine's production, owned production into those products and leave less to have to sell in the open market? Or how should we be thinking about that and the cadence of it over the next 2 or 3 years? Sherman Miller: Great question. Vertical integration is important to us to be able to have control over each step of the process to create efficiencies in each step of the process and to ultimately ensure supply for our customers. It's very important to us. And we've even thought of it as a skyscraper approach, each step along the way, adding another floor to that skyscraper. And every floor, it creates efficiencies, it creates value for the end consumer that we all benefit from and leveraging low cost. We have a great capacity to learn with the broadness of our -- and diversity of our locations. And that learning can be shared among our locations, and we all benefit in a hurry from it. And as far as the Echo Lake piece, we certainly have some agreements in place at the time of the acquisition that we absolutely honor for sourcing eggs. And the thing that we really think we bring to the table is stabilizing their supply during some of these crazy periods over the last few years where supply was there and then wasn't there. We do have the breaking capacity to supply these. And for sure, we want to ensure that they have the eggs that they need to continue to grow that business. So we'll continue to develop our long-term plan, but ensuring they have supply is one of the key factors there. Operator: [Operator Instructions] All right. This will conclude the Q&A session. I will pass it back to Sherman Miller for final remarks. Sherman Miller: Once again, thank everybody for their time. We'd look forward to this day to have our first call, and we look forward to having greater visibility going forward. And thanks for all the thoughtful questions today, your continued interest in Cal-Maine Foods. And operator, we're ready to conclude the call. Operator: Thank you so much. This concludes today's conference call. A replay of today's call will be available beginning at 12:00 p.m. Eastern Time on October 1, 2025 for 1 year and can be accessed on the Events and Presentations page in the Investor Relations section of Cal-Maine's website. A transcript of today's call will also be posted in the Investor Relations section. Thank you all for participating. You may now disconnect.