KMD Brands delivered steady sales growth and margin improvement in Q3 FY26, driven by Kathmandu and Rip Curl, while launching a business review to explore options for accelerating shareholder value.
- Kathmandu sales up 12.0% in Q3
- Rip Curl gross margin improves 202 bps
- Oboz sales decline offset by margin gains
- Board launches business review on capital and portfolio
- Group on track for $27.5m cost savings in FY26
Q3 Sales Momentum Amid Global Headwinds
KMD Brands Limited (NZX:KMD) reported a mixed yet encouraging trading update for the third quarter of FY26, with total group sales rising 5.2% year-on-year (YOY) in Q3 and 6.6% over nine months to April. Kathmandu led the charge, posting a robust 12.0% increase in Q3 sales despite closing seven stores year-on-year, underscoring strong same-store sales growth of 12.6% including online channels. Rip Curl’s sales rose 4.0% in Q3, buoyed by favourable foreign exchange movements, although growth softened amid geopolitical tensions in the Middle East and rising fuel and interest costs. Oboz sales fell 8.9% in Q3, impacted by shipment timing, but the brand’s online sales accelerated 19.3% following a Shopify platform upgrade.
Gross Margin Expansion Across Brands
Gross margin improvement was a highlight, with the group’s Q3 gross margin climbing to 58.2%, a 258 basis point increase YOY and 140 basis points above the first half. Rip Curl’s gross margin surged 202 bps YOY, helped by a refined promotional strategy, while Kathmandu’s margin expanded 233 bps driven by product mix diversification and markdown management. Oboz posted the largest margin gain of 374 bps, reflecting tariff mitigation efforts and cycling prior year clearance inventory. These margin improvements reflect the group’s focus on disciplined pricing and product-led recovery under the Next Level strategy.
Direct-to-consumer sales showed mixed results, with Kathmandu’s same-store sales up 8.9% on a constant currency basis, while Rip Curl’s dipped slightly by 0.8%, highlighting regional variability. The group’s digital transformation continues to gain traction, with online sales up 4.7% year-to-date and now representing 13.5% of total direct-to-consumer sales, supported by recent Shopify implementations across all brands.
Strategic Execution and Store Network Optimisation
KMD Brands is actively reshaping its store footprint, having closed 16 stores so far in FY26 as part of its Next Level integrated marketplace strategy. The group is targeting further closures where rent negotiations do not meet profitability thresholds, focusing on geographic and brand alignment. The launch of the third Kathmandu “Next-Gen Concept Store” in Melbourne this month aims to enhance customer experience through improved product innovation and store navigation.
In North America, Rip Curl’s business reorganisation is progressing with management expecting EBITDA positive results by year-end, excluding restructuring costs. Kathmandu is pursuing international expansion via digital channels and third-party distribution, aiming for profitable growth beyond Australasia.
These operational moves build on the group’s recent capital raise, which provided NZ$65.3 million to reduce debt and strengthen the balance sheet, laying a foundation for Next Level strategy execution and growth initiatives NZ$65.3 million capital raise.
Board Initiates Comprehensive Business Review
In a significant development, KMD Brands’ board has launched a comprehensive business review aimed at accelerating shareholder value. The review will assess the group’s capital structure, portfolio configuration, and other value-creation opportunities. External financial and legal advisers will be appointed to bring independent commercial rigour to the process. The review is expected to conclude by the FY26 annual results announcement in September, with no certainty of material outcomes or transactions at this stage.
Chair Philip Bowman emphasised the board’s commitment to long-term shareholder value, highlighting that the review runs alongside ongoing Next Level strategy execution focused on cost control, brand capability utilisation, and margin expansion. The group remains on track to deliver $27.5 million in cost savings this financial year and maintain operating expenses broadly flat on a constant currency basis, despite currency headwinds and geopolitical risks impacting consumer spending patterns.
The group also awaits formal acceptance of approximately US$5 million in tariff receivables in North America, which could provide additional margin support in Q4. Defending market share in the competitive North American market remains a priority for Rip Curl in the near term.
The business review announcement follows KMD Brands’ recent recapitalisation, which improved its capital structure and financial flexibility to support strategic initiatives retail entitlement offer. While the group continues to execute its Next Level transformation, the review introduces a new dimension of strategic scrutiny that investors will watch closely over the coming months.
Bottom Line?
KMD Brands is building operational momentum and margin resilience, but the unfolding business review adds a layer of strategic uncertainty that could reshape its future trajectory.
Questions in the middle?
- What strategic options will the business review prioritise to unlock shareholder value?
- How will geopolitical tensions and rising costs impact KMD’s Q4 performance and consumer demand?
- Can Rip Curl sustain margin gains while defending market share in North America’s competitive landscape?