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KMD Brands 1H FY25 Results, Rip Curl: Sales impacted by wholesale customer caution
KMD BRANDS Half Year Report For the period ending 31 January
20251H FY25 financial summary (vs 1H FY24):
- Group sales up +0.5% to $470.9 million.
- Gross margin down -0.3% of sales to 58.5%.
- Underlying operating expenses1 up +4.2% to $271.6 million.
- Underlying EBITDA1 $3.9 million, down -74.3% year-on-year (“YOY”).
- Statutory NPAT loss -$20.7 million. Underlying NPAT1 loss -$16.1 million.
- Net Working Capital $192.6 million, -$33.6 million lower YOY.
- Net Debt $76.2 million, -$20.0 million lower YOY.
- No interim dividend declared as a result of 1H FY25 operating performance.
The sales result is underpinned by an improved trend in the direct-to-consumer (“DTC”) channel (including online) for all three brands. Group online sales performance has been a highlight, with all three brands achieving double digit sales growth YOY. Online remains a key growth priority for the Group.
Wholesale sales are taking longer to recover, as wholesale accounts remain cautious on pre- season commitments in a challenging market. Forward orders and in-season buying from key accounts support an improving wholesale trend through 2025.
Gross margin decreased -0.3% of sales below last year to 58.5%, remaining resilient despite increased promotional intensity for Kathmandu and clearance of inventory for Oboz.
All brands continue to actively manage operating expenses while facing global cost pressure. In a challenging trading environment, net working capital efficiency is a key focus for the Group. Net working capital at 31 January 2025 was $33.6 million lower than 31 January 2024, with reduced inventory balances YOY.
Rip Curl
total sales increased +0.1% to $278.5 million, improving from -6.7% YOY during Q1 to +6.5% YOY during Q2. DTC sales increased +4.1%, reflecting strong sales growth over the key Australasian summer and Christmas trading period. Also, stronger results were achieved in Europe and South America, supported by store openings. Online sales increased by +13.9% to $21.1 million, comprising 11.5% of DTC sales. Wholesale sales decreased by -7.9% in a challenging global market. Forward orders support improving wholesale momentum for Q1 FY26. Gross margin increased +0.2% of sales with channel and product mix offsetting the impact of increased promotional intensity in a tough trading environment. Operating expenses continue to be tightly managed while facing global cost pressure.
Kathmandu
total sales increased +3.0%, improving from -2.7% YOY during Q1 to +6.9% YOY during Q2. Australia sales3 increased +3.8%, supported by enhanced in-store execution and new products. New Zealand sales were -2.0% below last year, with strong sales growth YOY during the Christmas trading period. Excluding the clearance of end-of-line products in ugust last year, New Zealand sales increased +4.8% YOY for the remaining 5 months of 1H FY25. Online sales increased by +26.6% to $20.8 million, comprising 13.4% of DTC sales. Gross margin decreased -0.4% of sales, with increased promotional intensity in a competitive trading environment. Kathmandu operating expenses include approximately $3 million incremental YOY to refresh brand advertising (increased first half weighting), increase product newness and innovation, and improve the consumer experience. Brand foundations are now in place, and sales momentum is building.
Oboz
Total sales decreased -6.3% YOY, impacted by wholesale customer caution. Online sales increased +32.8%, growing strongly over the Black Friday and Christmas promotions, and reinforcing the growth opportunity for the brand. Wholesale sales decreased -10.6% as wholesale accounts remain cautious on pre-season commitments in a challenging market, partly offset by improved in-season buying from key accounts. Forward orders and in-season buying from key accounts support an improving wholesale trend through 2025. Gross margin decreased -5.7% of sales as clearance of excess inventory has contributed to lower gross margins YOY. Gross margin on core styles and new launches remains in line with historical margins. Operating expenses were tightly controlled YOY. Current levels of operating expense investment will be leveraged with future sales growth as the market recovers.
Trading update
DTC sales (including online) for the 7 full weeks to 16 March 2025, a seasonally non- significant trading period for both brands:
Kathmandu +5.2% YOY4. Gross margin is under pressure YOY due to increased promotional intensity in a competitive trading environment.
Rip Curl global DTC sales for owned stores and websites approximately +0.7% YOY4. Gross margin remains resilient YOY.
Outlook
Commenting on the outlook for the Group, outgoing Group CEO Michael Daly said: “Direct-to-consumer sales have improved for all three of our brands, while the wholesale market is taking longer to recover. Global monetary policy settings have been easing, but the return of consumer confidence will take time. We are seeing short-term gross margin pressure for all brands in a highly competitive global market. However, our focus remains on growing gross margin in the medium-term as markets improve. We are monitoring the impact of geopolitical uncertainty on consumer confidence and supply chains.”
Incoming Group CEO and Managing Director Brent Scrimshaw said:
I am excited to step into the KMD Brands Group CEO role and look forward to my transition with Michael over the next two weeks. I was pleased to announce earlier this week the appointment of Ashley Reade as the new CEO of Rip Curl and additionally, have also commenced a worldwide search for a Melbourne-based Group Chief Financial Officer. Ben Washington will continue in his current role as Interim Group CFO until a permanent appointment is made.We continue to focus on delivering positive sales growth, improving profitability, maximising cash flows, and reducing inventory. We believe that with our portfolio of iconic global outdoor brands and leadership in sustainability, we remain a unique investment proposition and well-placed for the future.”