Q4 2026 KMD Brands Ltd Earnings Call
Speaker #1: To taking you through the KMD Brands FY26 financial results and outlook. And also providing an update on the significant progress we've made with our next-level group transformation in our first year of execution.
Speaker #1: My name is Brent Scrimshaw, and I'm the CEO of the group, and I'm joined on this morning's call by Carla Webb Sear, our Group Chief Financial Officer.
Speaker #1: We'll be talking through the presentation lodged on the NZX and the ASX this morning, and unless otherwise specified, all financial numbers are in New Zealand dollars.
Speaker #1: I'll begin with an executive summary of today's announcements before Carla takes you through the financial detail of our results. And I'll provide a more comprehensive update on our next-level transformation progress when we finish, and then we finish with a trading and outlook update.
Speaker #1: So turning to slide 4, an FY26 was a year of significant change for the group, and today represents an important milestone on our journey to creating a stronger KMD Brands.
Speaker #1: At our investor day, in September 2025, we launched next level, our 3-year turnaround strategy created to unlock the full potential of our brands, and return the group to sustainable, profitable growth after several years of disappointing performance.
Speaker #1: I'm pleased to say that we've made significant progress against each of our objectives in FY26. All 3 brands delivered sales growth. We improved gross margin, reduced operating expenses as a percentage of sales, significantly increased underlying EBITDA, and completed major technology and operating model initiatives that the group can leverage for further efficiencies and sales growth.
Speaker #1: Now, while we're encouraged by the progress made, it's important to acknowledge that this is only the first year of next level. We've created a business with clear priorities and greater alignment across the group, which provide us with confidence as we enter FY27.
Speaker #1: Moving on to slide 5, and as a management team, we've worked hard to build a high-performance culture, and I'm pleased to report that we've delivered that we have delivered a number of tangible and positive outcomes that have moved the business forward in FY26.
Speaker #1: We reset the product roadmap for each of our brands, accelerating innovation and seasonal flow, and enhancing our performance position within each brand. We also completed the implementation of a number of major technology platforms, whilst delivering 27.5 million in cost savings exceeding our original target.
Speaker #1: An importantly, we've become leaner and more efficient through improved inventory optimization, and a reset of our operating models in the USA for Ripcurl and in Europe for Kathmandu.
Speaker #1: Moving on to slide 6, an FY26 demonstrates that our next-level strategy is already translating into measurable and positive financial outcomes. Group sales for the year increased by 6.5%, or more than 60 million dollars in additional revenue, to 1.053 billion.
Speaker #1: Gross margin improved by 120 basis points to 57.7%, reflecting our product mix changes and improved marketplace management execution. Operating expenses as a percentage of sales improved by 110 basis points and underlying EBITDA also increased 138% to 42 million.
Speaker #1: Most importantly, our improved profitability was achieved whilst strategically investing in future growth and strengthening our operating foundations. There's still significant work ahead, but the progress achieved during 26 confirms our path forward.
Speaker #1: Our brands continue to build deep consumer connection, our categories remain attractive, and the potential in front of us is significant. So now I'll hand over to Carla to take you through the financial results in more detail.
Speaker #2: Thanks, Brent. I'll now talk to slide 8 and walk through the group profit and loss for FY26. On our statutory results, including the adoption of IFRS 16 leases.
Speaker #2: The comparability, the impact of IFRS 16 has been excluded from our underlying results, as well as one-off restructuring costs impairment, software as a service accounting, and notional amortization of customer relationships.
Speaker #2: Statutory EBITDA was a loss of 323.6 million. On a like-for-like basis, EBITDA was 42 million. Total group sales as Brent referenced was up 6.5% year on year, with strong growth achieved in both the direct-to-consumer and wholesale channels.
Speaker #2: Growth was also supported by the appreciation in the Australian dollar compared to the Kiwi dollar, and on a constant currency basis, total group sales were up 1.7%.
Speaker #2: By brand, Kathmandu continued momentum with strong D2C sales growth through the year in both Australia and New Zealand. Ripcurl sales growth was supported by US and European summer sales, and growing online channel momentum through H2, along with the appreciation of the Aussie dollar relative to the New Zealand dollar group reporting currency.
Speaker #2: OBOS grew year on year, driven by growth across wholesale and online. On the back of new product and investment in the online platform. Gross margin increased 120 basis points above last year to 57.7%, with strong second half performance driven by improved sourcing and import costs, disciplined markdown management, and inclusives of 8 million of tariff refunds received at the end of the year.
Speaker #2: Underlying operating expenses at constant currency reduced by 0.2%. Despite continued inflationary pressure globally. The year-on-year impact of currency movements on the group can be seen in Appendix 3 of the results presentation.
Speaker #2: Underlying EBITDA increased 42 million from 17.7 million last year, representing as Brent mentioned. Growth of 137.7%. Underlying EBIT improved to 7.5 million compared to a loss of 18 million in FY25.
Speaker #2: On a statutory basis, the group reported a loss after tax of 414.4 million. The FY26 statutory result includes a 462.7 million dollar intangible asset impairment of all 3 brands.
Speaker #2: This one-off non-cash item does not impact the day-to-day operations of the business, and as such has been excluded from underlying results. In reference to the company's trading update in July, sales in the last 2 weeks of the year were particularly strong, aiding the group to deliver sales and EBITDA results above the guided range from the trading update to the week ended 19 July 2026.
Speaker #2: Drawing your attention now to slide 9, and looking more closely at quarterly sales trends over the last 2 years by brand. You can see from these sales charts that quarterly sales results have been mixed, reflecting global market conditions albeit on an overall improving trend.
Speaker #2: Ripcurl continued to grow despite softer consumer conditions in the second half, a more challenging wholesale market in Europe. Kathmandu delivered strong growth across every quarter, finishing the year with a fourth quarter of 9.4%.
Speaker #2: Growth. For OBOS, sales accelerated as new products were launched and wholesale performance improved. Online sales accelerated with e-com sales up 30% year on year in the 5 months following the Shopify launch.
Speaker #2: Quarterly growth was influenced by product and shipment timing, with Q2 benefiting from the earlier shipment of new season product creating a corresponding impact in Q3.
Speaker #2: As flagged, Q4 returned to strong growth as forecast, with fall winter 26 product launching in market. Turning to slide 10, digital remains one of the most significant long-term growth opportunities within the group.
Speaker #2: Online sales grew 9.6% during FY26 and now represents approximately 15% of group direct-to-consumer sales. Growth was strong across all 3 brands and supported by continued investment, including the migration of Ripcurl and OBOS onto the Shopify platform and a successful trial of ship from store.
Speaker #2: Both of these investments paid immediate dividends in sales uplift and will continue to do so into FY27, evidenced by early FY27 sales results. Moving to the group balance sheet on slide 11.
Speaker #2: Group inventory balances reduced for the 4 successive year on a constant currency basis, inventory for July 26 was 240.3 million. The reduction was driven by a net 10 less stores; the wetsuit factory wind down; and delays in handing over goods due to weather-induced port conditions.
Speaker #2: In terms of aged inventory and mix, inventory obsolescence provision represented 1.5% of gross inventory. 70 basis points below July 25. The group announced prior-to-year end the planned divestment of the South East Asian Manufacturing Facility, with a phased production wind down and scale up at a third-party facility over the next 12 months.
Speaker #2: The intention is to realize value from the sale of land and buildings and working capital release. The land and building has been reclassified as held for sale on the balance sheet.
Speaker #2: Intangible assets reduced at July 26 due to a 463 million dollar impairment charge. Across all 3 brands, Goodwill and Brand Assets. The impairment reflects the group's year-end intangible asset impairment assessment.
Speaker #2: Which involves forward-looking assumptions in the exercise of judgment. In making the assessment, the board took a conservative view having regard to the current macroeconomic environment, expected trading conditions, and the company's market capitalization.
Speaker #2: The impairment is a non-cash accounting charge and does not of itself affect the company's cash flow, banking covenants, or day-to-day operations. Right of use asset and lease liabilities reduced during the year, driven by reduction in store network.
Speaker #2: Interest-bearing liabilities, included the impact of the weakening New Zealand dollar year on year, were the constant currency impact of 7.4 million. Moving to slide 12.
Speaker #2: Networking capital is a percentage of sales that's elevated in July 26 compared to the prior year, due to lower trade and other payables as a result of changes in phasing of payment timing as part of overall trading term negotiations with selected suppliers.
Speaker #2: Pleasingly, stock turns improved from 1.65 times at July 25 to 1.76 times at July 2026. The group had a net debt position of 48.1 million at July 26 and an improved leverage ratio of 1.2 times following the equity raise compared to 3.3 times in the prior year.
Speaker #2: The group updated the market in July estimating a net debt range of approximately 63 to 66 million at the end of July 26 and was expecting net debt to be higher due to changes in phasing of payment timing and investment in additional working capital to secure inventory ahead of potential supply chain disruptions.
Speaker #2: The better-than-guided net debt position was driven primarily by better-than-anticipated trade in late July, and all expected tariff refunds being received ahead of close. Moving to slide 13, which provides a walk of net debt from July 25 to July 26 and a maturity summary of the group's facilities.
Speaker #2: The group refinanced its existing syndicated debt facility on the 26th of June 2026, with a new facility term of 2.5 years, providing the group funding through to 1st of October 2028.
Speaker #2: The new facility continued to build on the company's previous sustainability-linked loan structure and includes a 43 million dollar tranche maturing on the 30th of June 2027.
Speaker #2: The total facility, as at 31 July 26, was 195.1 million. The group confirmed that it complied with all banking covenants as at 31 July 2026.
Speaker #2: The new facility included an additional working capital component that was unavailable until key milestone covenants were met. Subsequent to balance date, the group provided lenders with an independent review report on underlying forecasts to satisfy the FY27 FCCR covenant milestone and subsequent to year end, the multi-options syndicated facility increased to a total facility of 205.2 million.
Speaker #2: Turning to slide 14, cash flow. Net loss after tax of 414.4 million includes the impact of restructuring payments as well as non-cash impairment charges.
Speaker #2: In April 2026, the group completed a 65.5 million equity raise to strengthen its balance sheet and liquidity position, generating 61.9 million net of costs.
Speaker #2: Changes in net working capital cycle have impacted cash flow year on year, and management remains focused on driving positive operating cash flow by reducing inventory and net working capital into FY26.
Speaker #2: No dividend was declared in the current year as a result of operating performance. Moving on to slide 16, Kathmandu sales grew 11.1% year on year to 402.3 million, despite a net reduction of 4 stores.
Speaker #2: Stronger H1 sales momentum continued into the second half. With growth in all quarters and Q4 pleasingly, as we've mentioned closing at 9.4% year on year.
Speaker #2: Kathmandu had strong sales across both Australia and New Zealand. And on a same-store sale basis, including online, Kathmandu sales increased 8.2%. Online sales increased by 9.6% to 57.1 million, comprising 14.3% of direct-to-consumer sales.
Speaker #2: Kathmandu's gross margin decreased 40 basis points year on year due to product mix change and a focus on selling through aged inventory in the first half.
Speaker #2: And managing competitive promotional intensity during that period. Second half gross margin delivered 60 basis points improvement year on year, despite being impacted in the fourth quarter by unseasonably warm weather on the east coast of Australia.
Speaker #2: Underlying operating expenses reduced year on year on a constant currency basis, improving operating leverage following a strategic cost reset and ongoing cost discipline. Pleasingly, Kathmandu returned to positive earnings in FY26, and underlying EBITDA was 16.1 million up from an EBITDA loss of 1.3 million in the prior year.
Speaker #2: Turning to slide 17. Ripcell total sales were up 3.6 million sorry, 3.6 3.8% year on year. Apologies there. Aided by the year-on-year movement in exchange rates used to convert global sales to New Zealand dollar, reporting currency.
Speaker #2: On a constant currency basis, Ripcell total sales were down 1.2% year on year. Wholesale sales increased 5.5%, with particularly strong demand in Europe. Within the direct-to-consumer channel, online sales delivered an increase of 9.1% to 45.5 million.
Speaker #2: Direct-to-consumer total Ripcell branded store sales excluding Osmosis was 5.4%, with US retail sales a highlight and European summer sales strong. Osmosis is a regional multi-brand Australian retail chain owned by Ripcell since 2020 2011.
Speaker #2: And has been referenced separately in the commentary this year. On a same-store sale basis, Ripcell branded stores excluding Osmosis increased 1.3%. Same-store sales for Osmosis were down 5%.
Speaker #2: Gross margin increased 110 basis points as a result of favorable channel mix and strengthening exchange rates across key markets and import costs. Underlying operating expenses down year on year on a constant currency basis, with benefited by the cost reset program helping to offset growth investments.
Speaker #2: Despite continued cost pressure, Ripcell delivered underlying EBITDA growth of 12.2%. Now to slide 18, OBOs. OBOs total sales were up 3.8% year on year, supported by strong product improving wholesale performance and continued online growth.
Speaker #2: Online sales recorded year-on-year growth of 11.8%. Wholesale sales increased 2.8%, with growth led by new product introductions, seasonal flow, and strong at-once sales. Gross margin improved 730 basis points, reflecting favorable channel and product mix plus one-time tariff refunds of 4.3 million dollars.
Speaker #2: Operating expenses were tightly controlled with improved operating leverage versus last year. Collectively, these FY26 results demonstrate that all three brands are continuing the group's turnaround.
Speaker #2: I will now hand back to Brent, who'll give an update on next-level transformation.
Speaker #3: Thanks, Carla. A lot to get through there. I'm on slide 20 now, and we'll provide some further detail on our progress over the last 12 months.
Speaker #3: A year ago, we outlined a number of proof points for the delivery of our next-level strategy. And I'm pleased to say that we've delivered significant progress against each points.
Speaker #3: On growth and profitability, as you've heard this morning, we delivered 6.5% or 60 million dollars in revenue growth. We reset the strategy of each brand.
Speaker #3: Led by a renewed commitment to improving our product through innovation. We restructured our cost base, and refined our strategic growth investments whilst over-delivering on our cost savings target of 25 million dollars.
Speaker #3: We also acted swiftly to close underperforming stores whilst delivering a step change in store profitability across both Ripcell and Kathmandu, and I think there's still additional opportunity to capture in FY27.
Speaker #3: Whilst there's further work to do on inventory productivity, we've continued to improve throughout the year, with inventory now at a four-year low. We also conducted a business review of non-core assets across the portfolio, and I'll provide some more detail on that later this morning.
Speaker #3: Each of these initiatives are deeply interconnected components of a broader transformation program that aims to create a simpler, more efficient, more profitable, and more agile KMD brands for the future.
Speaker #3: So I want to slide 21, and this is just a high-level reminder of our next-level strategy, and the key deliverables over the next few years.
Speaker #3: Our brand and product product-led offense is committed to delivering iconic and distinctive product franchises, that refresh each brand, and are compelling for consumers at the point of sale.
Speaker #3: Data-driven insight, process, and the introduction of AI tools enable our teams to simplify our business, make better, more informed data-led decisions, with a focus on working capital optimization, supply chain consolidation, and integrated business excellence.
Speaker #3: In short, we're committed to creating a business that consistently delivers sustainable profitability and shareholder returns. So let's dive a little deeper now at each of the brand's strategy and their FY26 scorecard, starting with Kathmandu on slide 22.
Speaker #3: For Kathmandu, FY26 was all about creating and delivering what we call product distinction. Product that's resonating with consumers, and is now driving the significant growth momentum Kathmandu has delivered in the first year of its turnaround.
Speaker #3: At the heart of this is the return of the XT series, which reinforces Kathmandu's leadership position in authentic outdoor gear, together with a sharper seasonal product offering, and improved storytelling at retail to create consumer excitement.
Speaker #3: A re-engineered digital platform, as we've spoken about, click and collect, and ship from store enablement, together with some selected strategic price increases, and a more sophisticated marketplace management program, also positively impacted the year.
Speaker #3: Lastly, as we mentioned at the half, Kathmandu's international strategy was reset to a distributor-led business model, and that we see scaling from H2 in FY27.
Speaker #3: So just a quick further, and let's look at some fundamental metrics that underpin the transformation of Kathmandu. And I think it really provides some further insight into the health of the Kathmandu brand.
Speaker #3: And in specific unit economics that underpin its most recent success. In terms of brand demand and basket quality, and despite flat in-store traffic, Kathmandu delivered positive increases in conversion, units per transaction, and average transaction value.
Speaker #3: Also, each of the focus categories in the business grew, including the largest category of insulation. So the improvement in each of these retail metrics together provide confidence in the continued turnaround of the Kathmandu business.
Speaker #3: And of course, the consumer response to our new product and growth initiatives. Onto slide 24, and the Ripcell team have also made significant progress to transform the Ripcell brand for the next generation.
Speaker #3: Earlier in the year, we relocated global product creation teams to head office in Torquay, and we reset the entire product line plan for Ripcell.
Speaker #3: With a reduction of more than 2,000 SKUs versus FY25. The result is really just coming to market now. It's the new search series collection of product, which launched only a few weeks ago with encouraging early sell-through.
Speaker #3: And we're also proud to announce the next month's global launch of the biggest innovation in wetsuits, in I think the last 25 years, coming to market for the first time this southern hemisphere summer.
Speaker #3: Lastly, we returned our North American business to profitability, which was an immediate priority for management, as we quickly identified the need to right-size the cost base, and to balance our footprint between the mainland and Hawaii appropriately for future growth.
Speaker #3: Moving on to slide 25, and the OBO strategy is again centered around a commitment to core product innovation. A fast-tracked entry into the trail-running category to impact the market earlier than was originally planned, and for the first time, OBO's actually created a brand new category.
Speaker #3: It's called Rewild, a collection from the extensive vault of heritage products that celebrate OBO's unique trailblazing connection to the Bozeman Trail and Yellowstone, and that will also introduce the brand to a new, younger, and style-conscious consumer.
Speaker #3: Moving on to slide 26, and our shared service functions have also been restructured in FY26, as true growth enablers for each of our brands.
Speaker #3: Providing deep functional expertise with maximum efficiency that our brands can leverage for growth. The online channel remains one of the largest growth priorities for the group, and whilst there's more work to do, as you can tell from our result, we've made significant progress in FY26 by re-engineering the group's digital capabilities.
Speaker #3: After several years of planning and capital investment, major milestones were also completed in technology and systems, with Ripcell moving on to the group ERP platform, D365, together with Dayforce for H for human resources management.
Speaker #3: This completion now provides a consistent and stable platform across the group to leverage in 27 and beyond. Our focus is also about improving overall inventory management, as I've mentioned, together with its mixed productivity.
Speaker #3: We trial the introduction of AI technology to help improve our forecasting, buying, replenishment, and allocation process. And this has allowed us to improve availability for customers, whilst reducing working capital intensity.
Speaker #3: Our objective is to continue to improve inventory turns as we've done in FY26, with the right mix of stock position to drive stronger returns on invested capital.
Speaker #3: FY26 has also been a year of action. We made significant and deliberate changes across the group to immediately reshape the group's cost base, while at the same time recognizing that we need to invest in a responsible way to fuel to fuel future growth.
Speaker #3: We committed to a 25 million dollar savings target in FY26, and ultimately delivered 27.5 million dollars of savings, whilst moderating our strategic growth investments to maintain flexibility and focus on returns.
Speaker #3: The reset of our cost base was required to mitigate cost and inflationary pressure, and importantly, to responsibly self-fund our strategic growth agenda. It was important to do both at the same time.
Speaker #3: The cost savings delivered in 26 were driven for a number of initiatives, including organizational restructuring, store network review, and the reset of businesses and international markets, as I've mentioned.
Speaker #3: The next level plan initially identified 15 million dollars of the savings target, to be reinvested in FY26 for growth over the short to medium term.
Speaker #3: We committed to this being a staged approach to reinvestment, and at the half year, as a result of the equity raise and subsequent rapidly changing geopolitical and consumer market conditions, we reviewed our plans through this stage-gated approach to investment, and paused on certain initiatives, to focus on near-term ROI.
Speaker #3: The realized net savings over FY26 after reinvestment of 8.7 million dollars allowed us to offset baseline cost inflation on a constant currency basis. Moving to slide 28, which provides a summary of the ongoing fleet optimization program.
Speaker #3: And again, I'm pleased to report that we've significantly improved the quality of earnings across the entire fleet, and in particular at Kathmandu. FY26 also completed the launch of four next-generation flagship stores in Sydney for both Ripcell and Kathmandu, Melbourne, and Kathmandu's hometown of Christchurch.
Speaker #3: Representing the pinnacle experience of our store segmentation strategy. The FY27 store plan continues to focus on continued reduction of exposure to lower returning locations, and right-sizing the store network, along with improving sales density across the fleet.
Speaker #3: And so just moving now to our FY27 trading and outlook. Direct-to-consumer same store sales, including online, year on year, on a constant currency basis, for the first seven weeks from Monday, July 27th, to Sunday, September 13th, 2026, in a seasonally non-significant trading period R, Kathmandu plus 7.4% year on year, supported by strong growth in New Zealand and online channels.
Speaker #3: Ripcell plus 1% year on year, Ripcell brand stores plus 4% year on year, and Osmosis multi-brand stores minus 12.1% year on year. Ripcell brand stores grew across multiple geographies and online, while Osmosis multi-brand stores experienced some difficult trading conditions, due to some product assortment challenges.
Speaker #3: So in terms of outlook, the group remains focused on delivering continued performance improvement in FY27, when compared to prior year. And so group FY27 guidance is as follows.
Speaker #3: Sales of between 1.055 million billion and 1.075 billion. EBITDA of between 52 and 55 million. Capital expenditure of between 15 million and 16 million.
Speaker #3: The Kathmandu sales momentum is expected to continue, with seasonally relevant product flow, and enablement of online fulfillment. Ripcell sales are expected to benefit in H1 from the first deliveries of next-gen designed product into the market, in time for the Australian peak trade.
Speaker #3: And in Osmosis remediation plan is currently in place, including the closure of five underperforming stores. Ripcell and OBO's wholesale order book is consistent with prior year, with ongoing management within a dynamic shipping environment.
Speaker #3: Group gross margin expansion is anticipated to benefit from FX hedging already in place, and strategic price increases. EBITDA reflects revenue expectations with a further 10 million of annualized cost saving initiatives, already underway, to mitigate inflationary pressure.
Speaker #3: These cost initiatives for FY27 were taken to ensure the business maintains its EBITDA growth trajectory, in a challenging global consumer operating environment. The group continues to focus on the optimization of its store network, as I've mentioned, as part of the next level integrated marketplace strategy.
Speaker #3: Capital expenditure is reduced, as technology projects moderate, and targeted store capex is prioritized. Depreciation is expected to be in the range of 40 to 41 million dollars.
Speaker #3: And so lastly, to the business review and the conclusion of that review and its outcomes, KMD Brands has made significant progress in strengthening and simplifying the group, as you've heard, and the board remains confident that disciplined execution of the next level strategy provides a clear pathway to improved performance, and shareholder value as demonstrated by the FY26 operating performance.
Speaker #3: As part of the comprehensive business review initiated in May 2026, the board has considered the group's portfolio, its capital requirements, and a range of potential value creation opportunities.
Speaker #3: The review was undertaken with independent financial advisory from Deloitte, and Barclay & Co., and legal advice from Chapman Tripp. The review was conducted objectively, and without a predetermined outcome.
Speaker #3: The review resulted in actions to simplify the group, and enhance its financial flexibility. These include the decisions to invest the group's manufacturing facility in Southeast Asia, the group also tested external interest in Ripcell's multi-brand retail chain Osmosis.
Speaker #3: No proposal for Osmosis emerged, that offered greater value than continuing to rationalize the chain, and improve the profitability of the remaining store fleet. The review also included a commitment to ongoing cost reduction, as you've heard, through the immediate offshoring of select group shared services.
Speaker #3: Throughout the review process, the board has received and considered a number of indicative approaches from external parties, and has determined that further engagement with a limited number of those parties is appropriate.
Speaker #3: Consistent with its responsibility to shareholders, the board will assess whether any proposal could deliver greater value than continued execution of the group's next level strategy.
Speaker #3: The approaches are indicative, non-binding, and incomplete, and no decision has been made, and there is no certainty that any proposal or transaction will result.
Speaker #3: This engagement does not change the group's strategy, priorities, or day-to-day focus. Management remains focused on delivering the FY27 next level plan, improving profitability, generating free cash flow, and reducing leverage.
Speaker #3: The board will continue support the execution of the strategy, while carefully assessing any credible alternative, that may deliver superior shareholder value, and will update the market in accordance with its continuous disclosure obligations.
Speaker #3: And so to conclude, in summary, FY26 was a year of a turnaround. We made a number of deliberate and meaningful changes across the group, and we expect to see increasing benefits over time, from the product, marketing, and capability changes implemented during '26, as new product ranges, particularly for Ripcell, begin to impact consumers, brand storytelling is reset, and we transform to a more modern and agile brand portfolio.
Speaker #3: As we move into FY27, our focus has immediately shifted from resetting the business, to the sustained and relentless execution of our initiatives, to create long-term shareholder value.
Speaker #3: There's still significant work ahead, but the progress achieved during the last 12 months confirms our path forward. And so with that, I'll now conclude, and return to the operator, and Carla and I would be pleased to take any questions that you may have.
Speaker #1: At this time, if you would like to ask a question, please press star one on your telephone keypad. Your first question comes from the line of Kieran Carling with Craig's Investment Partners.
Speaker #1: Please go ahead.
Speaker #2: Morning, Brent and Carla. Thanks for the presentation. First question's just on your outlook commentary. Appreciate that you're in the process of closing stores, but at the midpoint of your guidance for '27, it's about 1% sales growth down from 5.7% in the second half of '26.
Speaker #2: Just looking at your Q4 exit run rates by brand, that looks on the conservative side. So can you just run us through what's feeding into that assumption in terms of same-store sales expectations by brand?
Speaker #2: And make a few comments on what trends you're seeing by geography for Ripcell?
Speaker #3: Yeah, I think hi, Kieran, by the way, it's Brent here. Yeah, when you think about, obviously, the performance that we've just posted in FY26, I think the confidence that you referred to really comes from the actions that we've already taken, both in terms of delivering those results, but also the impact that we see and assumptions we've made around material improvement in the business as you look into FY27.
Speaker #3: As we just talked about, clearly we have delivered significant underlying EBITDA growth. We do have momentum in trading, as you have outlined, we've already taken action as it relates to $10 million worth of gross cost savings towards the back end of FY26.
Speaker #3: We have some further clarity around margin tailwinds with a pricing strategy in place, and of course, understanding a little more about hedging and the impact there.
Speaker #3: So I think what I would suggest is that we're confident in our future performance, clearly there is significant uncertainty, in the macroeconomic environment, and to some degree that differs by market, and in some cases it remains challenging.
Speaker #3: But from our perspective, we have outperformed the market despite a number of headwinds that we've faced in FY26, and we believe that with the decisions and changes we've made, particularly around product, store profitability, and a focus on optimization of inventory, that we can continue to deliver that in FY27.
Speaker #4: I'd probably just add, Kieran, keeping it at a relatively low.
Speaker #3: Yeah, sorry.
Speaker #4: So Kieran, I was just going to give you.
Speaker #2: Yeah, sorry, I don't understand that, but it's your guidance implies sort of one, just over 1% sales growth, which seems conservative.
Speaker #4: So Kieran, that's where I was going.
Speaker #2: Just came to get your thoughts on where the slowdown will occur. Yeah.
Speaker #4: So I guess what I can say is our guidance assumes the consumer environment remains challenging, hence why you're seeing a bit of a moderation in that growth.
Speaker #4: We obviously report seven weeks, but it's as we've pointed out, non-seasonal and a small period within the greater scheme of the guidance for the year.
Speaker #4: You're correct in terms of picking up on some of the drivers around that in terms of the sales line. It's also the impact of the store closures, which obviously impact the top line.
Speaker #4: And it's our best estimate within that range, given we've also seen the benefit of currency in the 26 results, which we've clearly pointed out.
Speaker #4: And it's management's estimate across a globally diverse group in terms of our best estimate of the revenue range as a result of the exposure within the different currencies within our portfolio.
Speaker #2: Right, so it's sort of clearly a challenging consumer environment still. So I guess just another question on your guidance. I'm trying to triangulate your comments.
Speaker #2: So based on what you delivered in OPEX level in FY26, you did the '27 mill of cost out, OPEX still grew by 4.2%. You're targeting cost out of 10 million for the year ahead.
Speaker #2: But your EBITDA guidance seems to imply quite a significant lift in gross margin. For FY27? So again, against a challenging consumer backdrop, can you just help us understand what level of gross margin expansion you're expecting, and where that's going to come from?
Speaker #4: We haven't specifically guided to that today, but you have picked up correctly, Kieran, that the key drivers within that EBITDA guidance are the sales growth, as you've pointed out.
Speaker #4: There is, as we've also put within the commentary, additional gross margin expansion assumed. Through our callouts with some sourcing initiatives, the FX benefits that we already have in place with our hedge book, and as Brent has referenced, some pricing actions that we've already been putting underway.
Speaker #4: So they are driving what continues to be our belief in gross margin expansion. And then to the point you made, we come off the back of having delivered cost savings in '26, and have continued to challenge ourselves around that cost base with the further annualization of additional cost savings to get to that EBITDA position.
Speaker #4: The other thing I probably would just reinforce is, obviously we're getting the full-year benefit of store optimization, and we're getting the full-year benefit of cost savings executed in '26, which gives us a better run rate from that prior year.
Speaker #3: And also the full-year benefit of pricing decisions made at the half in FY26 annualizing in '27, in addition to other strategic price increases for the full year.
Speaker #4: But clearly inflation continues to be a pressure point, and so we make all of these comments around savings in terms of the context of inflationary pressure, which we're continuing to, like everyone is, manage.
Speaker #2: Okay, but I guess just at an absolute level, are you expecting OPEX to go up, or come down over the year ahead compared to FY26?
Speaker #4: Well, I think I'd go back to, we've given you the component parts of that gross margin expansion as absolutely part of, like we said, that growth trajectory.
Speaker #4: And obviously OPEX is a function of growing EBITDA. It's something that we continue to actively manage.
Speaker #2: Right, okay. And then maybe just final question then on your balance sheet. Obviously you came in slightly ahead of your July guidance, but this time last year you were steering the market to net bid of under 40 million, by year end.
Speaker #2: I guess where you've landed in factoring in the equity raise earlier this year, you've missed that original guidance by over 70 million dollars. Can you just help us understand how a miss of that size occurred, and give us a steer on where you've seen net working capital and debt trending over the year ahead?
Speaker #4: So I do acknowledge that we have missed that target, and that the guidance we've also provided in July for working capital to land with net debt is in a particularly dynamic environment for us.
Speaker #4: I mean, we can pull out the component parts, which I've tried to do in the commentary today, and clearly, as a percentage of sales, it's more elevated at July 26 than we had anticipated.
Speaker #4: I guess the component parts of that is that we do continue to be encouraged by what we can see, and have called out around inventory quality and our stock turns.
Speaker #4: But the timing of our payments profile, which you can see within payables, and we've provided a bridge within the cash flow, have driven the delta in terms of that position from what we'd guided to where we landed I mean, obviously we continue to focus on wanting to work towards a lower working capital investment position, and supporting more cash generation in '26.
Speaker #4: And we do believe we've got levers to do that, but to the extent that we've provided guidance, it's very much been around continuing to target we had reinforced earlier, a comment of getting our net debt below 0.5 times by the end of '27, and that's what I guess I continue to remain as our target.
Speaker #2: Okay, thank you.
Speaker #1: Your next question comes from the line of Paul Kurawa with Forsythe Bar. Please go ahead.
Speaker #2: Hey, good morning, guys. I might just pick up from where Kieran left off there, and just specifically about that payables balance. And so I think one of the concerns is, after raising the money the suppliers shortened those terms so they don't fund the inventory, and I guess my question is, is that payables balance going to be reflected in better margin as you get better pricing by shortening your supplier terms, or is this a little bit of suppliers not willing to fund the inventory as much anymore?
Speaker #4: A balance of both, but I guess I go back to reinforcing that our gross margin assumptions within that outlook assumes a benefit pulling through, flagged both in terms of pricing of our input costs as well as our FX hedge book.
Speaker #4: So I think you've picked up on the component parts of the commentary yourself in the question.
Speaker #2: Okay, and then maybe just further on the balance sheet, so 40 million net debt, I think one of our concerns was around the maturity of the 40 million dollar tranche at the end of this financial year, considering your working capital swings are quite large in this business.
Speaker #2: Are you still comfortable in how you traverse that over the next 12 months, and could you maybe give us a little bit more color on how that is going to look?
Speaker #4: So the confirmation is we are comfortable. We continue to work towards, as we've flagged, very clearly, that tranche that's going to be maturing at the end of '27.
Speaker #4: We obviously also have, as we've flagged, the commentary around a further capacity that was unlocked as a result of going through the review with our lenders.
Speaker #4: I mean, I guess I'll reiterate, we continue to have the support of our lenders to continue to fund our working capital position, and I'm really pleased to be able to provide the update today, which we worked hard to do with our lenders in terms of being able to give comfort and confidence that that facility had been unlocked because we've flagged when we first announced there was a component of it that wasn't.
Speaker #4: We've gone through that process, and we've obviously the other side of it got the full 205 million of capacity. We still ultimately though, are targeting towards delevering, so I think at this point I can just reaffirm we continue to feel comfortable with the covenants that we've negotiated, and also acknowledging we do have seasonality in our business, and we do have right now a fairly dynamic moving environment when it comes to just the timing of inventory leaving the ports, which we've flagged.
Speaker #4: But the business is, it's not one lever. We're working on multiple levers here, and we continue to remain very confident in both being able to manage within our facility and continue to meet our covenants.
Speaker #2: Awesome, thank you. And then maybe just on the tariff refunds that you guys received, $8 million, now that seemed like it was a surprise that had come in before the balance state end.
Speaker #2: Sort of reflected in that debt position being lower. But it was obviously booked through the COGS line, and so is the read that the actual underlying EBITDA here was slightly worse than what you guys were looking at?
Speaker #2: If you booked that $8 million through COGS?
Speaker #4: So it was a bit of a balance when it came to it wasn't when I say it's not a surprise, we'd obviously disclosed what we were anticipating in terms of the tariff refund.
Speaker #3: And the team had been very proactive in lodging claims at the front of the queue.
Speaker #4: Yes, but given it's a new process and one that no one had undertaken, we had to work on a conservative basis of not knowing when those funds would land.
Speaker #4: And so we considered that we were going we flagged that we were going to be going through that process and claiming it, but the timing of it was out of our control, and it was pleasingly received all within the close of the fiscal period, but that was not within our control, and it was quite an unusual process, so we had no other basis to estimate when it would land.
Speaker #3: The only other thing I would add there is just.
Speaker #2: But your guidance.
Speaker #3: Sorry, I was just going to say the only other thing I would add there is obviously it's a dynamic market with the introduction of tariffs, the uncertainty around tariffs, the team at both OBOs and at Ripcurl as it relates to the United States took immediate action and made a number of decisions to offset any of the specific impact of those tariffs as best as possible.
Speaker #3: Obviously, Carla's spoken to the timing of that, but the pleasing thing from my perspective was the demand that you saw in the fiscal '26, even with increased price, as one component of offsetting a potential tariff given the uncertainty of the situation.
Speaker #3: Obviously, everybody was in the same position, and no one had really clear ideas about what that might do to demand. And both for OBOs and Ripcurl, we continued to see strong demand even after that action had been taken.
Speaker #2: Yeah, no, that makes sense. I guess the point was in July when you set the guidance, whether you had baked in any tariff refund in that number in your EBITDA guidance, or if the fully result was supported by the $8 million you got refunded.
Speaker #4: We had assumed a portion of it, but we couldn't assume the fullest extent, and then we also, as I highlighted through the commentary today, had some particularly strong trading conditions in the last two weeks, which again was not within the guidance range that we had assumed.
Speaker #4: Yes.
Speaker #2: Okay, awesome, thank you. Yeah, and then maybe just last one, on the strategic review outcome, now obviously there's a few offers in there that you guys have had that you are looking into a little bit further.
Speaker #2: There was a comment around the board is going to decide whether it's the value it provides is greater than continuing on the executing on the current plan.
Speaker #2: I guess the question is, at what point if it all does the market get informed about what these offers might look like, noting that the market might have a slightly different opinion on what the fair value for this business is?
Speaker #2: To maybe what the board does?
Speaker #3: Yeah, I think as we've disclosed this morning, and we're not going to go into more detail around it, yes, there has been indicative opportunity come to the board, and that's a process that's ongoing.
Speaker #3: Of course, at a particular time when the board feels it appropriate, aligned with continuous disclosure, we'll update the market. But for today, there's no further color that we can provide around specificity within those conversations.
Speaker #2: Okay, that's all good, thanks guys. And congratulations on an improved result.
Speaker #1: You're final question on the phone comes from Harrison Elliott with Jordan. Please go ahead.
Speaker #2: Oh, hi, just to talk a bit about the appendix seven, I think you had your FY28 targets on there. Given FY25 was 4% EBITDA margin, then 5% in FY20 sorry, FY26 was at 4%, and if I take the midpoint of your FY20s guidance, I get to 5%.
Speaker #2: What do you guys thinking when we go to that 10% target for EBITDA margin, if it's going 4, 5, 10? Is that a bit of a jump?
Speaker #4: I think we continue to remain focused on what we're provided in terms of 27 guidance, but clearly we're not walking away from this three-year ambition.
Speaker #4: So it continues to be something that we're targeting, and we're looking to continue to get momentum from 27 into 28 in an effort to work towards those targets.
Speaker #4: And to the extent we get a little bit further into 27, we'll continue to update the market, but I guess I go back to these are intentionally within that timeframe, and we're continuing to guide specifically in 27 with more guidance and building out towards that 28 view.
Speaker #3: The one thing I would add, and I think we've been as tried to be as transparent as possible in terms of performance, specifically you've seen Kathmandu, who are probably 12 to 18 months ahead of implementing some of the significant change than Ripcurl, and so number one, it's pleasing to see the continued momentum of Kathmandu.
Speaker #3: But what we really need to do is make sure that we also have a healthy Ripcurl and a healthy OBOs adding fuel to that contribution.
Speaker #3: And so a number of the significant changes that were made in Ripcurl throughout FY26, the consumer is not yet seen any of that product come to market until literally the last few weeks.
Speaker #3: So what we do expect with that brand reset the decisions made around a sharper, younger, fresher product range creating distinctive point of view from a sea of sameness in surf, we believe that will only accelerate as we get into the back half of FY27.
Speaker #3: And so the collective ambition of the brand portfolio together we still think the consumer has yet to see the full benefit of the decisions that we've made in FY26.
Speaker #2: Okay, thank you.
Speaker #1: Your final question comes from the line of Marcus Curly with UBS. Please go ahead.
Speaker #2: Good morning, just a couple from me. Could you just confirm, just on the gross margin guidance for an improvement this year, that that's on off the basis of the reported number?
Speaker #2: So I think the reported number included the tariff refund benefit. So you're basing it off that number rather than excluding that tariff refund.
Speaker #4: We are, yes, when it comes to Ripcurl, we absolutely are. And in the case of OBOs, which is a lot more material to their gross margin, that we do see that as more of a structural one-off.
Speaker #4: So I guess our guidance continues to be different.
Speaker #2: So just to be clear, sorry, did you
Speaker #4: want to go ahead?
Speaker #2: So would you say in the guidance for yeah, for improved gross margin, that's off the reported gross margin that you had for the year?
Speaker #4: No, we have adjusted sorry, we have adjusted for the impact of tariffs as being considered structural. So as in being one-off, not being repeated in a subsequent year.
Speaker #4: But we have other levers outside of the tariff refund, which continues to give us the confidence in the statement that on the reported basis, we will get gross margin improvement in the current period.
Speaker #4: FY27.
Speaker #2: Okay, so the guidance includes gross margin at FY27 above 57.7?
Speaker #4: On the reported basis.
Speaker #2: Yes. And could you just give us an update on where you're sitting with tariffs at the moment? Are you? And how does that compare to?
Speaker #4: All being completely so it's all received. It's a one-time period in '26, and it has all been received and banked in '26. The cash is physically all been received.
Speaker #4: We have no outstanding cash.
Speaker #2: Are you paying? Are you paying any tariffs at the moment?
Speaker #4: Sorry, I'm talking about the tariff refunds. We obviously continue to work within a tariff regime, yes. But I thought, sorry, I must have misunderstood your question.
Speaker #4: I was referencing the tariff refunds.
Speaker #2: No, I'm talking about I've moved on from tariff refunds to talk about the current tariff situation. So when you look at what you're paying today, on tariffs, is that ahead of what you paid before the refund in FY26?
Speaker #4: Yes.
Speaker #3: Just trying to could you maybe repeat the question?
Speaker #2: Okay, so that's I'm just trying to understand. Is there a tariff for your gross margin this year in your guidance, is there a tariff headwind on what you're actually paying?
Speaker #2: Forget about the refund.
Speaker #4: Yes. Yes, there is. Having had tariff refunds received in the previous period.
Speaker #3: Yeah, but we paid tariffs like any other business who are bringing product into the United States, which, as you know, can change quite quickly.
Speaker #2: Okay, so because the US is obviously changed some of their tariffs over. So you are assuming that the existing tariffs continue, and despite that, you're expecting an improvement in gross margin above 57.7 on a reported basis in FY27?
Speaker #4: Yes, that's correct. Because I think I've confirmed in terms of some of those gross margin expansion levers it's a combination of. So acknowledging your tariff point, it's also a combination of input sourcing initiatives, FX benefits, and pricing actions, which feed into that commentary around gross margin.
Speaker #3: And of course, the tariffs are different rates for different country of manufacturer. And across Ripcurl and OBOs, there are different countries of manufacture for different lines of product at different tariff rates that then obviously are applied into the US market.
Speaker #2: Okay, and then just I know that you're limited ability to talk about the approaches that you are working with, but can you put any timeframes around any likely decision?
Speaker #2: Would shareholders expect to hear something by the end of the calendar year?
Speaker #3: No, we're not going to put a timeframe on it. I think it's about what is the best way to extract value for the business for shareholders.
Speaker #3: And so I don't want to put a deadline on that. Needless to say, as we've referenced today, that there are a number of inbound indicative offers and the board is actively considering those.
Speaker #2: Okay, thank you.
Speaker #1: There are no more questions via the phone.
Speaker #5: We have received a question through the online platform from Richard Wilkins. Have we been paying our suppliers on time or are we missing payments like David Jones?
Speaker #5: Can you elaborate on the changes to payment terms that you have made with selective suppliers?
Speaker #3: Yes, we clearly are paying our suppliers on time, and we're not missing payments like David Jones, just to be clear. And it's a very complex suite of payment terms across many tens of suppliers in our supply chain.
Speaker #3: That we and the team have done a good job in terms of negotiating new terms with all in a effort to continue to optimize our business.
Speaker #5: Further question from Richard Wilkins. Regarding the impairments in FY26, have the carrying value of the Ripcurl and Kathmandu brands been written down to the average of the offers received from these businesses?
Speaker #5: There can be no better assessment of the value of the brands than what you have received in the business review. If not, how have the impairments been calculated?
Speaker #4: So Richard, I can answer this one. If you go to our annual report, you'll actually find some substantial disclosures around how we calculate recoverable amount and our value in use calculation for the purposes of impairment.
Speaker #4: To your point, it is not writing it to a point of offer, but it's absolutely a judgment based on what the management and board and our auditors put together around our future cash flow position.
Speaker #4: But we do triangulate to things like our referenced in my commentary such as market capitalization and the premium to market cap that might be implied from that recoverable amount.
Speaker #4: We do look as part of that process with our auditors around market multiples. But ultimately, we're not goal seeking to something around offers; it is more a fairly robust process that continues to be done by all companies to assess recoverable amount, but it does take in market inputs as part of that assessment.
Speaker #5: Final online question from Richard. Will any offers for the Ripcurl business be put to the shareholders before any potential divestment? What is the absolute minimum offer that needs to be received for any potential offer to be considered?
Speaker #3: I mean, I think the comment I would make there is the board clearly has an obligation to engage with shareholders before any such decision.
Speaker #3: So if it gets to that place and the board considers an offer to represent fair value, and on behalf of shareholders, of course, within which it acts, there will be engagement with shareholders at that point in time.
Speaker #5: Further online question.
Speaker #3: From Samanthi. I would like to understand from management team on when we are expecting to reach in pet positive based on current transformations underway.
Speaker #4: I'm probably just going to refer back to the best we can give you as our guidance is around what we've put in market today for FY27.
Speaker #4: And you can continue to look towards our broader three-year ambition that's been published as part of investor day. But they continue to become the best markers of our continued moving towards both EBITDA expansion, but ultimately net profit after tax as well.
Speaker #5: We have no further online questions.
Speaker #3: Okay, no further questions. So thank you everyone for your attendance today. We appreciate it. We hope you are as optimistic as we are about the future given our results in FY26 in the first year of the execution of our next level strategy and will end the call here.
