Earnings call transcript: KMD Brands sees growth amid challenges in H1 2026

KMD Brands Limited reported mixed financial results for the first half of fiscal year 2026, reflecting both growth and ongoing challenges. The company’s sales rose by 7.3% year-on-year, driven by strong performance across its brands, including Kathmandu, Rip Curl, and Oboz. However, profitability metrics showed modest improvement, with a statutory net loss after tax of NZD 13.1 million. The stock has faced significant headwinds, declining 35% over the past six months and 52% over the past year, currently trading at $0.11 USD with a market capitalization of $80.5 million. Despite the challenging performance, InvestingPro analysis suggests the stock may be undervalued, with its Fair Value estimate indicating potential upside from current levels.

KMD Brands demonstrated resilience in the first half of FY 2026, achieving sales growth across all brand segments. Kathmandu led the group with a notable 12.3% increase in sales, despite a reduction in the number of stores. Rip Curl and Oboz also returned to growth, contributing to the overall positive sales momentum. However, the company continued to face profitability challenges, reflected in a statutory net loss after tax.

KMD Brands has laid out an ambitious strategy for future growth, focusing on product innovation and cost optimization. The company aims to achieve a net debt to EBITDA ratio below 0.5x by the end of FY 2027. Looking ahead, KMD expects to continue its turnaround strategy, leveraging digital transformation and strategic pricing to enhance profitability.

CEO of KMD Brands emphasized the company’s commitment to its Next Level turnaround strategy, stating, "We are encouraged by the sales growth across all our brands and remain focused on driving profitability through strategic initiatives." The executive team highlighted the importance of product innovation and cost management in navigating the challenging market environment.

During the earnings call, analysts inquired about the company’s plans for further cost reductions and its approach to managing inventory levels. Executives reiterated their focus on optimizing the store network and enhancing digital capabilities to drive future growth.

Brent, CEO/Managing Director, KMD Brands: Moving to slide 10 now, where we’re pleased to deliver tangible progress against critical proof points in the first half of this financial year. It’s pleasing to see significantly positive group sales results with all three brands returning to growth. It’s particularly pleasing to see the momentum in the Kathmandu brand, which delivered a consistently strong sales result throughout the first half. Gross margin has been strategically managed while optimizing our inventory mix, deliberately positioning us to excite consumers with the acceleration of new and fresh product innovation in the second half. In the first half, we’ve also improved the group’s underlying EBITDA margin as planned. These proof points provide management with additional confidence that our strategy is beginning to build early momentum.

On slide 11, today we’re announcing that in conjunction with the equity raise, we’ve also completed the refinancing of our debt facility with a term of up to 2.5 years. These actions have been taken to provide sufficient liquidity and a stable capital structure while reducing leverage towards our target range of below 0.5 times net debt to EBITDA by the end of FY 2027. Okay, now we’ll move on to the group’s detailed results for the first half of FY 2026 and of course, our outlook statement. We’re on slide 13 now, and as noted in this summary, we’ve seen early momentum in the first half as we execute Next Level. We’ve grown group sales in both the wholesale and direct-to-consumer channels. Gross margin’s been strategically managed against the current macro and consumer backdrop, while significantly improving our inventory position and mix.

We continue to be disciplined on our cost base, illustrated by operating expenses as a percentage of sales improvement versus prior year, and now trending in the right direction towards our 50% of sales target. Lastly, we’ve also delivered significant underlying EBITDA growth year-on-year. Now I’ll introduce Carla, our group CFO, who will be taking you through the FY 2026 half year results in detail.

Carla, Group Chief Financial Officer (CFO), KMD Brands: Thanks, Brent. I’ll now talk to slide 14 and walk through the group’s profit and loss for the first half of FY 2027. Just a reminder, our statutory results includes the adoption of IFRS 16 leases. For comparability, the impact of IFRS 16 has been excluded from our underlying results, as well as one-off restructuring costs, software as a service accounting, and notional amortization of customer relationships. Statutory EBITDA was NZD 63.3 million for the first half of this year. On an underlying like-for-like basis, first half EBITDA was NZD 11.5 million, an increase from NZD 3.9 million last year. Kathmandu has led the group sales momentum in the first half, as Brent pointed out. The total group sales, 7.3% above the first half of last year. Group sales result is underpinned by solid growth achieved in both the direct-to-consumer and wholesale channels.

By brand, Kathmandu achieved strong direct-to-consumer sales growth in both Australia and New Zealand. Rip Curl’s wholesale sales growth outperformed the direct-to-consumer channel, with strong wholesale demand in Europe and North America. Oboz wholesale sales growth was supported by closeout activity and strong in-season buying from key accounts. Gross margin decreased by 120 basis points below last year to 56.8%, as we balanced sales growth with gross margin achievement in a promotional marketplace. The group gross margin result of 56.8% in the first half is above the group gross margin for the second half of last year. Underlying operating expenses are lower than last year on a constant currency basis, with the Next Level cost reset helping to offset strategic growth investments and continued global cost pressure.

The year-on-year impact of currency movements on group operating expenses was NZD 9.1 million, and this can be seen in Appendix A of the results presentation. The group’s statutory net loss after tax was NZD 13.1 million. On an underlying basis, the group’s net loss was NZD 11.5 million, which was an improvement on the first half of last year. Moving to slide 15. Kathmandu total sales increased by 12.3% year-on-year, despite ending the first half with 4 less stores year-on-year. Strong sales growth was maintained throughout the first half, showing improved sales momentum from 2.5% year-on-year sales growth achieved in the fourth quarter of the last financial year.

Pleasingly, Kathmandu has strong sales growth across both Australia and New Zealand, with Australia increasing 10.2% year-on-year and New Zealand increasing 8.9%. Sales continued to grow strongly through the second quarter, even when cycling a good Black Friday and Christmas result from last year. Online sales of NZD 20.6 million were broadly in line with last year’s strong growth result. On a same-store sales basis, including online, Kathmandu sales increased by 12.8% year-on-year for the first half. Kathmandu’s gross margin decreased by 150 basis points year-on-year, with a focus on selling through aged inventory in the first quarter and maintaining competitive promotional intensity in the second quarter.

It’s worth noting here that Kathmandu inventory ended the first half NZD 9.8 million lower than the first half of last year, and NZD 13.5 million lower on a constant currency basis. Underlying operating expenses reduced year-on-year, with a cost reset and ongoing cost discipline improving operating leverage. Turning to slide 16. Rip Curl total sales were up 4.6% above the first half of last year, helped by the year-on-year movement in exchange rates used to convert global sales to the New Zealand dollar reporting currency. On a constant currency basis, Rip Curl total sales were 0.3% above the first half of last year. Wholesale sales increased 9.8% year-on-year, with particularly strong demand in Europe and North America.

Within the direct-to-consumer channel, online sales delivered a first-half record of NZD 22.5 million in sales, an increase of 6.7% year-over-year. Online now comprises 12% of direct-to-consumer sales. Direct-to-consumer sales, including online, grew by 1.9% year-over-year, with strong results for North America offsetting a challenging Australian market during the Southern Hemisphere peak summer period. On a same store constant exchange rate basis, direct-to-consumer comparable sales, including online, increased by 1.5% year-over-year. Rip Curl gross margin decreased by 120 basis points year-over-year, impacted by the wholesale channel mix and a more promotional marketplace. Underlying operating expenses were in line with last year on a constant currency basis, benefiting from the cost reset and moderate growth investment to address continued global cost pressure.

Now to slide 17, Oboz. Oboz total sales were up 6.5% for the first half, mainly in the wholesale channel. Online sales increased 0.9% year-on-year, impacted by a lower closeout inventory level. In the second half, the Oboz website will move into a new group online trading platform. Digital marketing continues to be refined with new agency partners through an updated digital funnel strategy and fresh creative. Wholesale sales were up 7.5% year-on-year for the first half, benefiting from strong in-season buying from key accounts. Gross margin remained stable, improving by 20 basis points year-on-year, despite tariff impacts supported by lower closeout activity year-on-year. Underlying expenses were tightly managed and below last year.

To finish for Oboz, I’ll point out the Kathmandu segment includes sales of Oboz products through Kathmandu Australia and New Zealand store network at full vertical gross margin. These sales total