Step One’s Margin Squeeze Highlights Risks in a Tough Consumer Market
Step One Clothing reports modest revenue growth for FY25 despite a dip in earnings before interest and tax, highlighting ongoing consumer caution and strategic marketing restraint.
- FY25 revenue up 3% to $86.9 million
- EBITDA declines 4% to $17.4 million
- Net profit after tax edges up 1% to $12.6 million
- Cash reserves fall to $33 million from $39 million
- Marketing investment scaled back due to subdued consumer spending
Steady Revenue Growth Amid Challenging Conditions
Step One Clothing Limited, a prominent online direct-to-consumer underwear brand, has released a preliminary trading update for its fiscal year 2025. The company recorded a 3% increase in revenue to $86.9 million, a modest but positive sign in a year marked by subdued consumer spending and economic pressures.
Despite this top-line growth, Step One’s earnings before interest, tax, depreciation, and amortisation (EBITDA) declined by 4% to $17.4 million. This contraction suggests margin pressures, likely influenced by increased promotional activity and cautious marketing spend as consumers become more price sensitive.
Profitability Holds Steady, Cash Position Tightens
Net profit after tax showed a slight improvement of 1%, reaching $12.6 million, reflecting the company’s ability to manage costs effectively despite a challenging retail environment. However, cash and financial assets decreased from $39 million to $33 million, indicating tighter liquidity that may influence future investment decisions.
CEO Greg Taylor acknowledged the difficult trading environment, citing ongoing cost-of-living pressures that have shifted customer purchasing behavior towards sale events and promotions. This shift has led Step One to adopt a more cautious approach to marketing investment, balancing the need to maintain brand presence with prudent cost management.
Strong Brand Loyalty as a Competitive Advantage
Taylor emphasized that Step One’s commitment to product quality and sustainability continues to differentiate the brand in a competitive market. The company’s focus on ethically manufactured, certified sustainable underwear designed for diverse body types has fostered strong customer loyalty, which remains a critical asset as the company navigates uncertain market conditions.
Operating across Australia, the US, and the UK, Step One’s multinational footprint positions it well for future growth, though the upcoming FY25 results presentation on 20 August will provide more detailed insights into the company’s strategic direction and financial health.
Bottom Line?
Step One’s cautious navigation through FY25 sets the stage for a critical assessment of its growth and margin strategies in the months ahead.
Questions in the middle?
- How will Step One adjust its marketing strategy to balance growth and profitability going forward?
- What impact will tighter cash reserves have on the company’s expansion plans?
- Can Step One sustain customer loyalty amid increasing discount-driven purchasing behavior?