Highlights

• FY26 Revenue fell 26.7% to $63.7m as the company deliberately reduced discounting activity

• Reported EBITDA swung to a $7.4m loss vs $17.4m profit previously; adjusted EBITDA was still $1.7m positive

• Company holds $25.8m in cash and financial Assets with zero Debt — providing meaningful runway

• Customer database surpassed 2 million; Amazon and indirect channels grew strongly

Step One Clothing (ASX:STP) is an Australian direct-to-consumer underwear and apparel Brand that built its reputation on comfortable, sustainable bamboo fabric products sold primarily through digital channels. Since listing, the company became known for its aggressive performance Marketing approach, which drove rapid customer Acquisition but also involved heavy reliance on discount promotions. In FY26, management made the deliberate and strategically significant decision to pivot away from discount-led Volume toward full-price brand building — a transition that has come at a short-term Earnings cost but which management believes is essential for long-term brand Equity and profitability.

Latest Developments

Step One's FY26 result showed the cost of its strategic decision to move away from heavy discounting. Revenue fell 26.7% to $63.7m, reported EBITDA swung to a $7.4m loss versus a $17.4m profit previously, and NPAT was a $6.4m loss. Importantly, adjusted EBITDA, excluding the $9.1m inventory-obsolescence provision, was still positive at $1.7m, while cash and financial assets stood at $25.8m with no debt. Management is prioritising brand positioning and full-price selling over short-term volume, while indirect channels such as Amazon grew strongly. The customer database passed 2 million, but FY27 is still a turnaround story rather than a demonstrated earnings-growth story.

Industry Context

The direct-to-consumer apparel sector has faced significant turbulence since the post-pandemic normalisation of consumer spending patterns. Australian discretionary consumers have been under pressure from elevated cost-of-living and Mortgage stress, while DTC brands more broadly have had to grapple with rising digital Advertising costs that erode the unit Economics of performance marketing. Many DTC brands that grew rapidly during the 2020–2022 period through aggressive paid social marketing are now recalibrating toward more sustainable, brand-led growth models — a painful but arguably necessary transition for the sector.

Key Risks

• Brand repositioning may take longer than expected to drive meaningful full-price revenue growth

• The $9.1m inventory obsolescence provision suggests merchandise planning challenges that may recur

• Consumer spending conditions in Australia remain subdued, which could limit volume recovery

• Competitive intensity in the bamboo/sustainable underwear category is increasing as international brands enter

• Management execution risk in navigating the transition from a volume to a value-led Business model

Key Catalysts to Watch

• FY27 revenue stabilisation or growth demonstrating the full-price strategy is gaining traction

• Improvement in adjusted EBITDA margins beyond the FY26 $1.7m baseline as discounting costs unwind

• Amazon and indirect channel growth continuing to diversify revenue away from direct digital-only

• Any evidence of improved customer lifetime value metrics from the 2 million customer database

• Expansion into new international markets leveraging the brand repositioning

Conclusion

Step One Clothing (ASX:STP) is making a high-conviction bet on brand over volume, and FY26 represents the trough of that transition. The $25.8m cash buffer and zero debt position provide meaningful runway to execute the strategy without immediate financial pressure. However, FY27 needs to demonstrate that full-price selling can actually drive a meaningful earnings recovery. Investors with an appetite for strategic transition risk and a 2–3 year horizon will find the clean Balance Sheet and growing customer base compelling arguments to keep STP on the radar.