Step One Clothing’s Loss Raises Dividend Suspension Concerns
Step One Clothing Limited reported a sharp turnaround to a $8.468 million loss for the half-year ending December 2025, driven by a 24.5% revenue decline and inventory challenges. The company suspended dividends, citing the need to restore retained earnings.
- Half-year loss of $8.468 million versus prior profit
- Revenue down 24.5% to $36.33 million
- EBITDA swung to a $9.96 million loss
- Inventory obsolescence provision increased to $11.75 million
- No dividend declared; payout to resume when earnings recover
Financial Turnaround
Step One Clothing Limited has revealed a significant financial reversal in its half-year results for the period ending 31 December 2025. The company swung from a profit of $8.181 million in the prior corresponding period to a loss of $8.468 million. This downturn was accompanied by a 24.5% drop in revenue, falling to $36.33 million from $48.12 million the previous year.
Operational Challenges and Margin Pressure
The company’s earnings before interest, tax, depreciation and amortisation (EBITDA) deteriorated sharply, registering a loss of $9.961 million compared to a positive $11.179 million a year earlier. Gross margin as a percentage of revenue halved to 43.1%, down from 78.0%, signalling intense margin pressure likely linked to pricing and cost management challenges.
Step One’s management highlighted inventory issues as a key factor. Despite targeted clearance campaigns such as Black Friday and Cyber Monday, a significant portion of stock remained unsellable at or above cost. This led to a substantial inventory obsolescence provision of $10.933 million, with an additional $819,000 set aside for shrinkage, damage, and factory shortfalls.
Customer Metrics and Market Reach
The company continues to operate primarily as an online underwear brand across Australia, the UK, and the USA. Website visits declined from 7.7 million to 5.8 million, though the conversion rate held steady at 4.7%. First-time customers fell to 114,000 from 131,000, but total customers increased to over 2 million, supported by a strong retention rate of 65.2%.
Balance Sheet and Dividend Outlook
Despite the operational setbacks, Step One maintains a robust balance sheet with no debt and $24 million in cash and financial assets, down from $33 million six months earlier. The company paid a final dividend of 2.4 cents per share for the year ended 30 June 2025 but declared no dividend for this half-year. The board confirmed dividends will resume only when retained earnings return to positive territory.
Net tangible assets per share declined to 21.06 cents from 30.05 cents, reflecting the impact of the loss and inventory write-downs. The company’s directors remain confident in its financial capacity to pursue expansion opportunities as they arise.
Looking Ahead
Step One’s results underscore the challenges facing online apparel retailers in a competitive market environment, with inventory management and margin recovery critical to the turnaround. The company’s strong cash position provides a buffer, but investors will be watching closely for signs of sales recovery and improved profitability in upcoming quarters.
Bottom Line?
Step One’s half-year loss signals a pivotal moment; the market awaits evidence of a sustainable recovery.
Questions in the middle?
- What specific strategies will Step One implement to reduce inventory obsolescence?
- How will the company address the sharp decline in gross margin moving forward?
- When might dividends realistically resume given current earnings projections?
