The elastic has worn thin for Step One Clothing (ASX: STP) after the online underwear retailer revealed an expected $20 million-plus swing into the red for its bottom line in the December half as it struggles to move older inventory.
Shares in Step One are down more than 39 per cent at $0.295 today, shaving $35 million off a market capitalisation that had already deteriorated by more than 60 per cent in the year to date before trading commenced this morning.
The Sydney-based company forecasts a 31-37 per cent year-on-year decline in revenue to a range of $30-33 million for the current half year, alongside an EBITDA loss of $9-11 million compared to a profit $11.3 million in 1H25.
Around half the year-on-year decline can be explained by a $10 million provision for inventory obsolescence.
"The recent sales results were materially below expectations, and our efforts to clear older and slower moving inventory were not successful. As a result, the company has raised a $10 million obsolescence provision against this legacy stock," Step One stated in an ASX announcement today.
"This inventory is now fully provisioned, and no further material provisions are anticipated at this stage."
At Step One's annual general meeting (AGM) last month, founder and CEO Greg Taylor said earnings performance was set to soften in the near term, although he was confident that a variety of measures - including brand investment acceleration, an inventory optimisation program and pricing realignment - would help navigate current market conditions effectively.
At the time he said FY26 EBITDA was due to be in the range of $10-$12 million, reflecting the group's "deliberate investment in brand building, product expansion, and inventory optimisation". That guidance has now been withdrawn.
"The combined impact of softer sales and this one-off inventory provision has led the company to reassess its full-year outlook," the group said today.
"The company will update the market once greater visibility over trading and inventory outcomes is available.
"These estimates are preliminary and subject to trading conditions over the remainder of the reporting period, including pre- and post-Christmas sales, foreign exchange movements, and logistics timings. The financial results remain subject to auditor review."
Last financial year Step One reported a marginal 3.7 per cent decline in EBITDA to $17.4 million, and a slightly higher net profit of $12.6 million - up by 2 per cent.
"We adapted quickly to challenging market conditions by deploying promotional periods strategically to align with consumer behaviour, while managing our advertising spend efficiently," Taylor said of the year to 30 June at the AGM last month.
"Average order values grew, but gross margins were impacted by the additional promotional activity required to maintain market share in a tough environment. This was a trade-off we navigated deliberately and thoughtfully."
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