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KMD Publishes FY23 Financial Results With Rip Curl Achieving Record Results

KMD Brands delivers record $1.1 billion sales in FY23

KMD Brands Limited has announced its results for the twelve months ended 31 July 2023 (“FY23”). We shared a summary of KMD’s first half 2023 financial results back in April.

FY23 key highlights (vs FY22):

Group sales record, up 12.6% to $1.1 billion
All brands grew sales, with Rip Curl and Oboz achieving record sales
Gross margin improvement 20 basis points to 59.1%
Underlying EBITDA1 of $105.9 million, up 15.1% YOY despite softening consumer sentiment in the fourth quarter
Statutory NPAT of $36.6 million; Underlying NPAT1 up 8.6% YOY to $43.3 million
Strong balance sheet position
Final dividend of 3 cents per share (not franked and not imputed); total FY23 dividend of 6 cents per share

Group CEO & Managing Director Michael Daly said:
“KMD Brands has achieved record sales of over $1.1 billion dollars in our first year of uninterrupted trade post-pandemic, a significant milestone for the Group. Strong sales growth was delivered across all key geographies, with Rip Curl and Oboz achieving record sales. Kathmandu sales grew strongly over the first three quarters of the year. The fourth quarter for Kathmandu was more challenging with increased cost-of-living pressures softening consumer sentiment, and the warmest winter on record in Australia, which cycled the best-ever winter trade season last year.”

“FY23 Group results were underpinned by strong omni-channel sales growth from all brands.
Customers returned to shopping in stores, with retail store sales increasing +17.5%. This had
an impact on online sales, a trend noted across the industry as customers returned to prepandemic shopping behaviours. Online sales remain significantly above pre-pandemic levels. Despite a challenging wholesale market, Group wholesale sales grew by +11%.”

“Our balance sheet is healthy with low net debt and improving inventory levels. We are well positioned as we begin FY24.”

“The Group achieved its goal of global B Corp certification, becoming one of just 45 publicly traded companies in the world to do so, further delivering on our goal to Lead in ESG.”

Financial Performance

Gross margin remained resilient, increasing +20 bps (0.2% of sales) to 59.1%. Improved channel mix, wholesale pricing and international freight costs offset currency headwinds.

Operating expenses were maintained year-on-year at 49.5% of sales, despite softened
sales performance in the fourth quarter. KMD FY23 financial performance

Rip Curl Performance

Rip Curl achieved a record sales result, with total sales up +8.3% to $581.5 million. The results were underpinned by strong direct-to-consumer results particularly in Australasia following lockdowns last year, plus the return of international travel to Hawaii and Thailand.

Consumers took advantage of the brand’s strong omni-channel offering – an attractive and premium brand experience in strategically placed stores. Online sales normalised at $34.9
million, significantly above pre-pandemic levels, as customers returned to shopping in stores.
Online sales represented 10.6% of direct-to-consumer sales.

The recently launched Club Rip Curl customer loyalty platform has over 220,000 members to-date, driving more than $30 million in member-based sales – a fantastic achievement given it launched just this year. Wholesale sales showed resilience despite softening wetsuit demand from record highs. KMD FY23 Rip Curl

Gross margin increased +60 bps (0.6% of sales), reflecting channel mix, improved wholesale pricing, and the easing of elevated international freight costs.

Kathmandu: sales growth +10.6%

Kathmandu total sales increased +10.6% to $422.2 million in FY23, with strong growth in the
first three quarters as customers returned to shopping in stores. Cost of living pressures
softened consumer sentiment in the fourth quarter, which impacted the key winter trade
season. Kathmandu faced the warmest winter on record in Australia and cycled its best-ever
winter season performance last year. In FY23, Australia sales grew +7.0%, and New Zealand +13.1%.

Online sales normalised at $58.8 million, comfortably above pre-pandemic levels. Online sales represented 14.0% of direct-to-consumer sales.

Gross margin increased +100 bps (1.0% of sales) with the deliberate strategy to continue to
moderate the historic “high-low” pricing model.

The sales result was supported by a strong loyalty base – a strategic focus of the brand with a relaunch of the Kathmandu loyalty program in early FY24.

Kathmandu significantly reduced its inventory levels, and is now well positioned, with inventory c. $37 million below July 22. The brand continues to cycle through its second phase of recovery, with travel presenting an opportunity for growth as it steadies and returns to pre-pandemic frequency, especially for customers traveling overseas.

The international soft launch of the brand delivered initial sales of $2.6 million including first deliveries to select new wholesale customers in Europe and Canada. With the brand only just starting to diversify and leverage wholesale as a channel, the new Kathmandu CEO will be well placed to capitalise on this in the coming years, given her depth of global experience in this space.

Oboz: sales growth +61.8%
Oboz sales recovered strongly, increasing +61.8% to a record of almost $100 million. The wholesale channel recovered strongly following last year’s significant supply constraints. The brand also benefited from a commitment to diversified sales channels, delivering strong online sales growth, increasing the mix of direct-to-consumer sales with high gross margins.

Strong balance sheet
At 31 July 2023, the Group had a net debt position of $55.7 million with funding headroom of
over $200 million.

Net working capital as a percentage of sales improved to be less than 20%, with significant reduction in Kathmandu inventory. Rip Curl and Oboz continue to focus on reducing working
capital, as we transition away from inventory builds in wetsuits and footwear.

Positive operating cash flow for FY23 reflects the first year of uninterrupted trade postpandemic.

The Group’s strong balance sheet led Directors to declare a final dividend of 3.0 cents per share (not franked and not imputed). The record date for this dividend was 5 October 2023, and the payment date was 20 October 2023.

ESG

In FY23, KMD Brands had several ESG highlights, including:

B Corporation (B Corp): we proudly came together as one Group across continents to certify as a B Corp. Rip Curl and Oboz certified for the first time, while Kathmandu recertified.
Sustainability Linked Loan (SLL): balancing profit with our impact on the planet, we successfully refinanced and expanded the application of our Sustainability Linked Loan (SLL), including our first Sustainability Linked Guarantee. Unlike traditional loans where the interest rate is based on financial metrics, a SLL is connected to our achievement of specific sustainability objectives.
The Science Based Targets initiative (SBTi): our climate targets were validated by the Science Based Targets initiative, committing us formally to science-based climate action and transitioning to a low-carbon future.
Modern Slavery Statement: following in the footsteps of previous brand statements, we released our first Statement as a Group in early 2023. In conjunction with our 2023 results, we release our second Modern Slavery Statement as a Group.
Industry recognition: we were recognised at the Australasian Reporting Awards for our 2022 Annual Integrated Report and received multiple awards and nominations for excellence in integrated reporting. We were also the winner of the Deloitte Top 200 The Aotearoa Circle Sustainable Business Leadership Award, which recognises businesses working towards the creation of long-term environmental, social and economic value.

Mr Daly said, “In addition to what we achieved at a Group level; our iconic brands also delivered true leadership in this space. Rip Curl launched its first Reconciliation Action Plan
(RAP) in partnership with Reconciliation Australia; Oboz’s long running ‘One More Tree’ initiative to plant trees on behalf of customers reached a milestone of over 5 million trees planted since it began in 2007; and Kathmandu launched a pilot circularity project ‘KathmanREDU’, supported by a grant from the Victorian Government, which aim to commercialise a complex non-linear new business model, the first of its kind in ANZ.”

Focused strategy underpins outlook
Group sales for August 2023 were -6.4% below last year. The trend in Kathmandu sales continued from the fourth quarter of FY23 into August, but consistent with pre-pandemic
sales levels at this time of year. Rip Curl and Oboz have seen good momentum in direct to consumer sales.