The prospect of improved wholesale sales performance into the second half of FY25 and summer Rip Curl sell-through “are the key near-term potential catalysts we are watching for”, Canaccord Genuity analysts wrote in a note to investors this week.
The latest sentiment comes after KMD Brands recorded a “undeniably challenged” FY24 result, with the business falling into loss territory below EBIT.
EBIT sales were down 78.4 per cent to just $16 million, with net profit hitting negative at minus $1.1 million.
CG analysts added that market conditions - particularly a weakness in North American wholesale - and continuing weak Kathmandu performance drove the outcome.
“Gross margin, operating cost execution and working capital management were pleasing given the context but with a lot of this in the numbers for FY24, driving a top-line turnaround into FY25E (more likely 2H25E) is required to stir investor interest, in our view.
“We applaud management for not stepping away from its financial KPIs and target points, but these look distant based on recent trends, in our view.”
CG analysts noted that these targets cover working capital - 18 per cent of sales, with FY24 around 20 per cent - alongside EBITDA margin, as well as medium-term store growth and sales targets.
Regarding Rip Curl, its annual revenue fall of 7.3 per cent in FY24 was driven by a 13 per cent fall in wholesale sales.
CG analysts noted that its revenue performance was below FY23 but in line with FY22 and up on FY21.
“EBITDA margin was comfortably below the past four prior periods,” the analysts reported. “Net net, we see FY25E as still being fairly challenged (negative LFL trends in the first eight weeks) but are hopeful for improvement in the wholesale channel which appears to have taken its medicine earlier than the outdoor brands (we anticipate this is a 2H25E phenomenon).”
KMD Brand’s outdoor wear subsidiary Kathmandu recorded a 14.5 per cent fall, with gross margin decreasing 220 basis points reportedly due to August 2023 clearance activity.
KMD management pointed to stabilisation of the ANZ as a key immediate priority, according to CG analysts, with improved breadth and depth of offering initiatives already underway. This includes diversifying away from outerwear, shorter development cycle, lessening winter seasonal reliance, introducing wholesale offerings in-store).
“We see the 1H25E period as a particularly important execution point, especially so given it is cycling a weak comparator as well as being punctuated by key trading events (e.g. Black Friday) which should help demonstrate the degree of exoutwear sell-through success.”
As for Oboz Footwear, KMD Brands’ smallest subsidiary, its wholesale sales plummeted by 23.1 per cent in FY24, driving a 20 per cent fall in revenue. CG analysts claimed the wholesale plummet came about through general consumer weakness and wholesale customer inventory destocking in a competitive North American outdoor footwear category.
“Whilst below pcp, FY24 sales were above historical ranges,” the analysts wrote. “A high level of operating expense investment has taken place over the past two periods positions the business well for future sales growth, albeit FY25 performance is likely to be challenged, in our view.”
Outlook statements are still cautious, CG analysts concluded, adding that it is waiting on wholesale improvement.
“Kathmandu gross profit dollars being 5 per cent higher for the first eight weeks of the year was pleasing to see.
“Potential improvement in Rip Curl wholesale orders into 2H25 and the anecdotes from the current ‘sell-in’ period are near-term focus points, in our view.”
Meanwhile, analysts at Macquarie told its investors that they continue to see headwinds across KMD Brands subsidiaries, with a tougher macro environment and “ongoing wholesale channel constraints”.
“We see the improvement in sales trading encouraging, with 2H24 cycling a weaker prior period,” Macquarie analysts wrote. “However, we continue to expect near-term headwinds, with Kathmandu required to execute at the top-line.”
The reports of wholesale challenges at KMD Brands comes as Australia’s wholesale market faces continue declines up until 2030 according to IBISWorld. You can read more about Australia’s wholesale challenges here.