category: consumer

Key Highlights

  • Revenue declined 26.7% to $63.7 million from $86.9 million as subdued consumer Demand and reduced discounting affected sales.
  • Reported EBITDA moved from a $17.4 million profit to a $7.4 million loss, while adjusted EBITDA was $1.7 million.
  • Reported net loss after tax was $6.4 million, compared with a $12.7 million profit in FY25; adjusted NPAT was $0.8 million.
  • No FY26 Dividend was declared, compared with a 2.4 cents per share final dividend in FY25, while the company ended the year debt-free with $25.8 million of cash and financial assets.

Step One Clothing Limited (ASX:STP) reported a sharp decline in FY26 Revenue and moved to a statutory loss as the online underwear retailer reduced discounting, responded to subdued consumer demand and worked through legacy inventory. Revenue fell 26.7% to $63.7 million from $86.9 million, while reported net profit after tax moved from a $12.7 million profit to a $6.4 million loss.

Revenue Falls as Discounting Is Reduced

The decline in revenue reflected weaker consumer spending across Step One's markets and the company's decision to reduce the level of discounting used to support sales in previous periods.

Revenue declined by $23.2 million to $63.7 million. The company also broadened its product range during the year and introduced six new products across adjacent categories.

Indirect channel revenue increased by more than 60%, while the United Kingdom accounted for a larger share of group revenue. Step One continued Investment in localised content and indirect channels in the UK.

Despite the lower sales base, the company said its adjusted gross Margin remained broadly comparable with the previous year.

Gross Margin Hit by Inventory Provision

Reported gross margin fell to 61.6% from 76.4%, a decline of 14.8 percentage points. However, after excluding the specific inventory obsolescence provision raised during FY26, adjusted gross margin was 75.9%, compared with 76.4% in FY25.

The relatively small 0.5 percentage point decline in adjusted gross margin indicates that the underlying margin percentage was broadly maintained despite the weaker revenue environment.

The inventory provision nevertheless had a significant effect on reported Earnings and contributed to the gap between reported and adjusted profitability.

EBITDA Moves Into Loss

Reported EBITDA declined from a $17.4 million profit in FY25 to a $7.4 million loss in FY26. This represented a $24.8 million deterioration.

On an adjusted basis, excluding the inventory obsolescence provision, EBITDA was a $1.7 million profit, down from $17.4 million in the previous year.

The results therefore show that lower revenue had a substantial impact on earnings even after excluding the inventory-related charge. Step One said the reduction in promotional activity, subdued demand and costs associated with its Business reset contributed to the near-term earnings pressure.

Net Loss and Dividend Suspension

Reported NPAT declined from a $12.7 million profit in FY25 to a $6.4 million loss in FY26. Adjusted NPAT was $0.8 million, compared with $12.7 million in the previous year.

No dividend was declared for FY26. This compares with a final dividend of 2.4 cents per share for FY25.

The company said there had been no change to its dividend policy and that the Board presently intends to recommence dividends once Retained Earnings return to a positive balance, subject to the company's financial position and trading conditions at that time.

Balance Sheet Remains Debt-Free

Despite the deterioration in reported profitability, Step One ended FY26 with cash and financial Assets of $25.8 million and no debt.

The company also increased its customer database to more than two million for the first time. Repeat purchase rates softened during FY26 as promotional activity was reduced, but the expanded customer base provides a larger pool of existing customers as the company continues its reset program.

Step One said it would continue taking a disciplined approach to clearing remaining aged inventory.

FY27 Focus on Business Reset

The company enters FY27 focused on rebuilding its Brand positioning, expanding its product range and developing additional sales channels. The shift away from deeper discounting contributed to the FY26 revenue decline, while the broader product offering is intended to support a wider role for Step One products within customers' wardrobes.

The company also intends to continue developing indirect channels, particularly as the UK becomes a larger contributor to group revenue.

With the Balance Sheet debt-free, Step One has entered the new financial year without borrowings, although the timing of a return to dividend payments remains dependent on retained earnings, financial conditions and trading performance.

Conclusion

Step One Clothing's FY26 results highlight the short-term financial cost of its business reset. Revenue fell 26.7%, reported EBITDA moved to a $7.4 million loss and statutory NPAT declined from a $12.7 million profit to a $6.4 million loss. The company also suspended its dividend for FY26. Against these negatives, adjusted gross margin remained broadly stable at 75.9%, indirect channel revenue increased by more than 60%, the customer database surpassed two million and the company finished debt-free with $25.8 million in cash and financial assets.