KMD Brands reports improving sales in direct-to-consumer channels for FY25’s first five months, offset by ongoing wholesale challenges and a forecasted dip in EBITDA.
- Direct-to-consumer sales up across all three brands
- Wholesale sales remain subdued, continuing year-on-year declines
- Group online sales surge 18.4% year-on-year
- Underlying EBITDA expected to drop sharply to $1–3 million in 1H FY25
- Net debt forecast to reduce to approximately $85 million by January 2025
Improving Direct-to-Consumer Momentum
KMD Brands Limited has revealed a cautiously optimistic trading update for the first five months of its 2025 financial year. The group’s three core brands, Rip Curl, Kathmandu, and Oboz, have all experienced a notable rebound in direct-to-consumer (DTC) sales, signaling a positive shift in consumer engagement and brand traction.
Rip Curl’s global DTC sales are up 2.4% year-on-year, buoyed by strong performance during the critical Christmas trading period and the addition of new stores. Kathmandu’s DTC sales have stabilised, showing a slight decline overall but with encouraging recent growth in New Zealand. Oboz has seen robust online sales growth, particularly during Black Friday and Christmas promotions, underscoring the brand’s expanding digital footprint.
Wholesale Sales Lagging Recovery
Despite the DTC gains, wholesale channels remain a drag on overall sales. Rip Curl’s wholesale revenue is down 13.4% year-on-year, while Oboz wholesale sales have fallen 12.1%. The cautious stance of wholesale accounts on pre-season commitments reflects broader market uncertainties and slower inventory turnover. However, the group notes some improvement in forward orders and in-season buying, suggesting a tentative recovery may be underway as 2025 progresses.
Financial Outlook and Cost Management
KMD Brands expects underlying EBITDA for the first half of FY25 to fall sharply to between NZ$1 million and NZ$3 million, a significant drop from NZ$15.1 million in the prior corresponding period. This decline is attributed to the challenging trading environment and increased promotional activity, particularly impacting Oboz’s gross margins due to inventory clearance.
On the balance sheet front, the group anticipates net debt to reduce to approximately NZ$85 million by the end of January 2025, down from NZ$96.2 million a year earlier. With funding headroom of around NZ$200 million and no covenant restrictions following pre-emptive amendments, KMD maintains financial flexibility to navigate ongoing market pressures.
Strategic Investments and Future Prospects
Kathmandu has invested an additional NZ$3 million year-to-date to refresh brand advertising, enhance product innovation, and improve customer experience, reflecting a strategic focus on long-term brand strength. The group is targeting further sales improvements in the second half of the financial year, historically its most profitable period, and aims to reduce net debt below NZ$50 million by July 2025.
Group CEO Michael Daly emphasised the importance of the DTC channel, stating, "Direct-to-consumer sales trends continue to improve for all three of our brands, while the wholesale market is taking longer to recover. We continue to focus on delivering positive sales growth, maximising cash flows, and reducing inventory." The upcoming half-year results in March will be closely watched for signs of sustained recovery and margin improvement.
Bottom Line?
KMD’s pivot to direct-to-consumer sales is gaining traction, but wholesale headwinds and profitability pressures remain key challenges ahead.
Questions in the middle?
- Can wholesale sales recovery accelerate enough to support margin expansion?
- Will increased marketing investments translate into sustained brand growth?
- How will KMD manage inventory and cost pressures amid a tough retail environment?