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Sales: 11.2% below last year’s record sales result.
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Gross Margin: Decreased by 0.2% to 58.9%.
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Operating Expenses: Reduced by $19.6 million or 3.6% below last year.
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Underlying EBITDA: Decreased to $50 million.
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Net Loss After Tax: $48.3 million; underlying net loss excluding impairments and restructuring costs was $1.1 million.
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Net Working Capital: Decreased by 9.7% with a $23.5 million reduction in inventory.
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Net Debt: $59.7 million with approximately $230 million of available funding headroom.
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Rip Curl Online Sales: Record $37.9 million.
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Kathmandu Online Sales: $47.7 million, 13.3% of direct-to-consumer sales.
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Oboz Online Sales: Record $7.4 million, a 31.7% increase year-on-year.
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Store Locations: Over 300 own stores, brands sold in over 8,000 locations globally.
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Regional Sales: Australasia: $600 million; North America: $200 million; Europe: $100 million; Asia: $40 million; South America: $20 million.
Release Date: September 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
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Gross margin remained resilient at 58.9% despite sales challenges.
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Operating expenses were tightly controlled, reducing by $19.6 million.
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Net working capital decreased by 9.7%, with a significant $23.5 million reduction in inventory.
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Rip Curl and Oboz achieved record online sales, with Rip Curl reaching nearly $38 million.
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Kathmandu recorded sales growth in North America and Europe, indicating successful international expansion efforts.
Negative Points
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Sales declined by 11.2% compared to last year’s record, reflecting ongoing weakness in consumer sentiment.
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The group’s net loss after tax was $48.3 million, primarily due to a one-off noncash impairment of Oboz’ goodwill.
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Kathmandu’s total sales decreased by 14.5% year-on-year, with significant declines in both Australia and New Zealand.
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Wholesale sales for Rip Curl and Oboz were subdued, with wholesale customers reducing inventory holdings.
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The challenging macroeconomic environment and consumer sentiment negatively impacted overall trading conditions.
Q & A Highlights
Q: Can we assume gross profit dollar growth is also positive in Australia and even growing at a greater rate than what you’ve got for the whole brand? A: Yes, absolutely. With GP dollars being up across Australia and New Zealand for Kathmandu, definitely. Australia is the bigger part of the business, is in positive territory and certainly higher than the total Australian New Zealand number. (Michael Daly, CEO)
Q: What are your key competitors? How should we think about the success of those changes in FY ’25? A: Our focus is on stabilizing sales and growing sales. We’ve seen continued improvement in the Kathmandu sales trend quarter-on-quarter. We expect sales to continue to grow from innovative products and new categories, reducing reliance on outerwear. Success looks like continued sustained growth. (Michael Daly, CEO)
Q: Can you talk about your feedback from wholesale partners on where inventory is at in the channel and market share positioning? A: For surf, inventory issues are being processed more quickly, and we see a return to growth in the second half of this financial year. For outdoor, particularly in the US, inventory processing is lagging and may take until the first half of FY ’26 to see clear growth. (Michael Daly, CEO)
Q: Could you provide any guidance on FY ’25 OpEx expectations? Can we expect further cost reduction? A: We can continue to control expenses well, with ongoing integration benefits. The underlying trend in expenses will be very low single digits, lower than inflation rates in each region. (Michael Daly, CEO)
Q: Do you have plans to reduce the average square meter for Kathmandu stores going forward? A: Yes, we believe our long-term strategy for Kathmandu stores involves reducing square meterage, particularly in New Zealand. We will look at each case commercially, but on average, our store sizes will continue to decline. (Michael Daly, CEO)
Q: How far along are we into the Kathmandu brand turnaround? A: We are about halfway through the turnaround timeline. Megan Welch has been in the role for a year, and we are seeing positive signs from the strategy. Continued focus and execution will return Kathmandu to sustainable sales growth. (Michael Daly, CEO)
Q: Is there anything specific you can talk to around the changes that the business has been implementing actually improving sales trends? A: We are seeing good positive signs in categories outside of outerwear, such as packs, bottoms, and third-party brands. This gives us confidence that the strategy is working and will continue to translate to improvements. (Michael Daly, CEO)
Q: What is the expectation for store openings in the next coming years? A: We believe the market can hold up to 200 stores. We will wait to see what the market does over the next 6-12 months and focus on brand and product execution. We aim to return to adding stores in FY ’26. (Michael Daly, CEO)
Q: Are you seeing any market share gains in Rip Curl’s D2C segment? A: We believe we are holding up well relative to the market and possibly picking up some market share. We continue to focus on being the ultimate surfing company. (Michael Daly, CEO)
Q: How are you thinking about CapEx and new store openings for the year ahead? A: We are focusing on constrained capital in the short term to improve product and brand execution. We will continue to invest in IT systems for integration savings and moderate CapEx from FY ’24 levels. (Michael Daly, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.