KMD Brands Faces Margin Pressure Despite Strong Sales Growth
KMD Brands reports a solid 7.9% increase in first quarter sales, driven by strong Kathmandu and Rip Curl performances, while managing inventory and margin pressures ahead of key seasonal trading.
- Total group sales up 7.9% year-on-year in Q1 FY26
- Kathmandu same store sales surge 14%, Rip Curl grows 3%
- Gross margin dips 120 basis points to 55.8% amid inventory clearance
- Inventory reduced by NZ$8 million compared to last year
- On track to achieve NZ$25 million annualised cost savings in FY26
Strong Sales Momentum in Early FY26
KMD Brands Limited has kicked off its 2026 financial year with encouraging sales growth, reporting a 7.9% increase in total group sales for the first quarter ending November 2, 2025. This uplift was primarily driven by Kathmandu, which posted a robust 14% rise in same store sales, and Rip Curl, which contributed a steady 3% growth. The outdoor and apparel group’s performance reflects positive consumer demand across its key brands despite ongoing market challenges.
Margin Pressure Amid Inventory Management
While sales have improved, KMD Brands faced a slight contraction in gross margin, which fell by approximately 120 basis points to 55.8%. The company attributes this decline to a strategic focus on clearing aged inventory, a move aimed at strengthening the balance sheet and making room for fresh seasonal products. Notably, the current gross margin remains above the levels seen in the second half of the previous financial year, suggesting some resilience despite margin pressures.
Inventory and Wholesale Outlook
Inventory levels have been successfully reduced by NZ$8 million year-on-year, a significant improvement that supports the company’s efforts to optimise working capital. Meanwhile, forward wholesale order books are stable and slightly ahead of last year, indicating steady demand from retail partners. This stability bodes well as KMD prepares for the critical Black Friday and Christmas trading periods, which the CEO Brent Scrimshaw highlighted as pivotal for the first half results.
Cost Savings and Strategic Growth
KMD Brands is on track to deliver NZ$25 million in annualised cost savings throughout FY26. These savings are part of the company’s ‘Next Level’ transformation plan, designed to reset the cost base, mitigate inflationary pressures, and self-fund strategic growth initiatives. CEO Scrimshaw expressed satisfaction with the progress made so far, emphasising a disciplined approach to investment and a focus on reducing net debt during the year.
Looking Ahead
As KMD Brands moves into the traditionally more significant second quarter, the company’s ability to balance sales growth with margin optimisation will be critical. The upcoming holiday season will test the strength of its brands and the effectiveness of its inventory and cost management strategies. Investors will be watching closely to see if the early momentum can translate into sustained profitability and further debt reduction.
Bottom Line?
KMD Brands’ early sales gains set a positive tone, but the holiday season will be the true test of its strategic reset.
Questions in the middle?
- How will KMD Brands manage margin recovery post-inventory clearance?
- What impact will the Black Friday and Christmas trading periods have on overall profitability?
- Can the company sustain cost savings while investing in growth initiatives?
