Margin Pressure and Rising Emissions Pose Challenges for Step One Clothing

• Revenue up 2.8% to $86.9 million
• Net profit after tax increased 2.0% to $12.65 million
• EBITDA declined 3.9% to $17.42 million amid margin pressure
• Customer base grew 15.1% to 1.9 million
• Strong sustainability focus with FSC® certification and emissions transparency

Financial Performance in a Challenging Market

Step One Clothing Limited has reported modest yet resilient financial results for the year ended 30 June 2025. Revenues increased by 2.8% to $86.9 million, supported by growth in both the Australian and UK markets. Net profit after tax rose 2.0% to $12.65 million, reflecting the company’s ability to maintain profitability despite a 3.9% decline in EBITDA to $17.42 million. This EBITDA contraction was primarily driven by increased promotional activity necessary to sustain market share amid subdued consumer confidence.

Gross margins softened to 76.4% from 80.8% in the prior year, underscoring the margin pressures from discounting and sales events. Nevertheless, Step One’s strong balance sheet, with $33.1 million in cash and no debt, provides ample financial flexibility to pursue strategic growth initiatives.

Customer Growth and Channel Expansion

The company’s customer base expanded by 15.1% to nearly 1.9 million, driven by targeted brand marketing and product innovation. Notably, the women’s product line grew by 7.9%, contributing $12 million in revenue, while indirect sales channels surged 53.1%, reflecting successful partnerships with platforms such as Amazon and TikTok Shop. Despite a 12.2% decline in website visits, conversion rates remained robust at 4.6%, indicating strong customer engagement and brand loyalty.

Sustainability Credentials and Environmental Reporting

Step One continues to lead in sustainability within the apparel sector. The company is the first in Australia to achieve Forest Stewardship Council (FSC®) Chain of Custody Certification for its bamboo-based underwear products, ensuring responsible sourcing and ethical manufacturing practices. This certification aligns with Step One’s broader environmental, social, and governance (ESG) commitments, including transparent greenhouse gas emissions reporting.

Greenhouse gas emissions increased by 18% to 10,348 tonnes CO2-equivalent, mainly due to higher sales volumes and expanded operations. Step One is actively refining its emissions measurement and reduction strategies, focusing on supplier engagement and low-emission logistics, positioning itself ahead of regulatory requirements.

Strategic Outlook and Risk Management

The Board and management remain focused on long-term value creation through product innovation, customer acquisition, and international expansion, particularly in the US market where losses persist but are viewed as investments in future growth. The company’s capital-light model and strong cash position support this strategy.

Risks identified include supply chain disruptions, marketing effectiveness amid evolving digital platforms, and climate-related operational impacts. Step One has implemented robust governance and risk management frameworks to mitigate these challenges, maintaining a disciplined approach to capital allocation and operational execution.

Dividend and Shareholder Returns

Reflecting confidence in its financial position, Step One declared dividends totaling 6.8 cents per share for FY25, representing a near 100% payout of post-IPO retained earnings. The Board intends to continue reviewing capital requirements and returning surplus funds to shareholders where appropriate.

Bottom Line?

Step One’s steady growth and sustainability leadership set the stage for renewed momentum as market conditions evolve.

Questions in the middle?

• How will Step One balance margin recovery with customer acquisition in FY26?
• What progress can be expected in the US market’s path to profitability?
• How will evolving digital advertising platforms impact Step One’s marketing effectiveness?