How Step One Clothing Plans to Reboot Growth Amid Retail Challenges
Step One Clothing reported modest FY25 revenue growth amid a challenging retail environment, driven by strong UK performance and a strategic shift to balance discounting and profitability.
- FY25 revenue up 2.8% to $86.9 million
- EBITDA declined 3.7% to $17.4 million amid increased discounting
- UK market revenue grew 8.7%, boosted by refreshed marketing and TikTok Shop trials
- Company plans moderated discounting, product innovation, and brand investment
- FY26 EBITDA guidance lowered to $10-12 million reflecting strategic investments
Steady Growth in a Tough Market
Step One Clothing Limited, a direct-to-consumer underwear brand listed on the ASX, has released its FY25 results showing modest revenue growth of 2.8% to $86.9 million. Despite a subdued retail environment marked by cost of living pressures and inflation, the company managed to increase net profit by 2.0% to $12.7 million. However, EBITDA slipped 3.7% to $17.4 million, reflecting the impact of heightened promotional activity and discounting necessary to maintain market share.
Strategic Focus on Profitability and Market Expansion
CEO Greg Taylor acknowledged the challenging trading conditions, noting a deliberate reduction in marketing spend in Australia to protect profitability. The company’s strong cash position of $33.1 million and zero debt provide a solid foundation to navigate these headwinds. Notably, Step One’s UK operations delivered an 8.7% revenue increase, driven by a refreshed marketing approach tailored to local consumer insights and successful test campaigns on TikTok Shop, which the company sees as a promising scalable channel.
Balancing Discounting and Brand Equity
While discounting has been a key tactic to remain competitive, Step One is cautious about its long-term effects on brand equity. The company is initiating a reset to moderate discount depths, emphasizing value-led product innovation and reinforcing quality. This approach aims to sustain customer loyalty while attracting new buyers through an expanded product range and enhanced brand awareness.
Adaptive Measures and Outlook for FY26
Step One is implementing several adaptive initiatives, including pricing realignment, refined promotional strategies, and an inventory optimisation program to clear slower-moving stock. Brand investment will accelerate, focusing on global messaging and leveraging e-commerce, social commerce, and AI-driven search technologies. These measures are expected to moderate gross margins and increase operating costs, with FY26 EBITDA forecast between $10 million and $12 million. Management remains confident these investments will position the company for sustainable growth when market conditions improve.
Looking Ahead
With a capital-light approach maintained in the US and a clear roadmap centered on profitable growth pillars, Step One is navigating the complexities of the current retail landscape with discipline and strategic agility. The company’s ability to balance short-term profitability pressures with long-term brand and market development will be critical as it seeks to capitalize on emerging opportunities across its key markets.
Bottom Line?
Step One’s FY26 strategy signals a cautious but confident pivot towards sustainable growth amid ongoing retail challenges.
Questions in the middle?
- How effective will Step One’s inventory optimisation be in improving working capital?
- Can the UK market momentum be sustained and replicated in other regions?
- What impact will increased marketing investment have on profitability in FY26?