PBT fell 12.8% on 114bp gross margin squeeze; tax rate masked NPAT

NPAT looks softer at just -2.3% ($59.2m) because the effective tax rate dropped from 36.2% to 28.6%, so the cleaner operating read is the PBT decline, not the NPAT line.

Operating cash flow fell 6.7% to $102.4m, and closing cash declined $12.1m to $130.3m despite lower capex of $50.4m (versus $58.2m). The balance sheet remains debt-free. Inventory closed $8.9m below last year at $90.8m, and trade receivables fell to $1.6m.

The final dividend was declared at 10.0 cents per share, identical to the prior year's final.

Sales grew only 0.9% and gross margin took 114bps. Management's own split shows the squeeze easing through the year (a 154bp decline in H1 versus 76bps in H2), which matters because it suggests either promotional intensity moderated or input/freight pressure annualised, rather than a structural margin reset. The H2 improvement is not yet enough to call a turn.

The tax line is doing real work on NPAT. PBT fell 12.8% but NPAT only 2.3% because the effective tax rate normalised from an elevated 36.2% to 28.6%. This matters because the headline -2.3% NPAT understates underlying operating deterioration; investors should anchor on PBT and gross margin when tracking trading performance.

Segment-result erosion is broad-based. Homeware result fell to $50.6m from $56.5m on slightly higher revenue, and Sporting goods result fell to $41.8m from $44.2m on essentially flat revenue. Neither division grew profit, so the margin story is group-wide rather than a mix problem in one banner.

What the release does support is a tentative read that gross-margin pressure was easing into H2 (76bps versus 154bps), and that inventory was reduced into year end ($8.9m lower) without an obvious clearance hit large enough to crash full-year margin further.

What it does not support is a view that operating profit has stabilised. PBT down 12.8% on a 0.9% revenue rise means cost-to-serve and merchandise margin are still the binding constraint, and a flat top line cannot offset further gross-margin slippage if H2's improvement does not extend.

The PBT-to-NPAT growth gap is 10.5 percentage points, driven by the lower effective tax rate; this is the cleaner operating read because gross margin and segment results all moved the same way as PBT. The release does not explicitly attribute the lower current tax rate, so the durability of a 28.6% effective rate going forward is not established by the supplied materials.

Cash conversion deteriorated relative to last year. FCF pre-lease was $52.0m versus $94.8m, and FCF-to-NPAT fell to 87.8% from 156.4%. The prior comparison is flattered (consistent with disclosed building-sale proceeds in that period), so the current 87.8% conversion is closer to a normalised reading than the headline drop implies. Operating cash flow was also supported by a $14.0m working-capital release, with inventory days falling from 46.0 to 41.5 and receivable days from 3.2 to 0.7. That release is helpful for FCF in the year but cannot repeat indefinitely.

Payout ratio versus pre-lease FCF is suppressed because pre-lease FCF is negative.

This briefing cannot assess same-store sales, store-count movements, or any forward earnings trajectory because no comparable-sales data or FY27 guidance is supplied in the release.