Underwear brand Step One dacked after downgrading sales growth and earnings forecasts

Underwear brand Step One dacked after downgrading sales growth and earnings forecasts

Image via Step One on Facebook.

Shares in Australian underwear brand Step One (ASX: STP) have crashed by almost 60 per cent this morning on an unfavourable trading update that downgraded sales revenue growth and EBITDA forecasts.

The company, which sells underwear direct to consumers online, says its sales revenue growth will be in the range of 15 to 20 per cent, compared to previous guidance of 21 to 25 per cent.

In addition, expected proforma EBITDA is revised to the range of $7 million to $8.5 million, down from $15 million previously.

With today’s tremendous sell-off, STP has lost more than $40 million in market capitalisation, down from around $88.9 million last Thursday to just $40.7 million today.

The company, which came out of a trading halt this morning, blames slow revenue growth in the USA and UK markets which “occurred at a lower rate than expected”, as well as a lack of interest in the company’s women’s range which failed to perform at launch rates following a restock in mid-April.

Profitability was primarily impacted by the USA business experiencing higher than expected customer acquisition costs, and will in fact return a loss exceeding $3 million in FY22.

Step One, which listed on the ASX in November last year, also says marketing and advertising costs are higher than expected in both the USA and UK, and will be approximately 46 per cent of revenue due to increased digital marketing and lower than expected return on ad spend (ROAS).

Further, STP says logistics costs have been exacerbated by inflation linked to Chinese COVID-19 lockdowns and the war in Ukraine.

“I am disappointed to inform you of the impact of the headwinds we are currently facing in our international expansion,” Step One founder and CEO Greg Taylor told shareholders.

“These challenges are by no means insurmountable, and I am completely focused on solving the issues we are facing to deliver an exceptional product to customers around the world.

“We had a track record of delivering in international markets, but we are now a much more substantial business and our focus is on building a strong platform, with the right infrastructure to support sustainable international growth. This will ensure that Step One is well-positioned to rebound strongly as global macro-economic disruption eases.”

A Step One model wearing the company's Easter-themed underwear

The company, based in Sydney’s Surry Hills, says it will continue to expand its product lineup in-line with customer demand, including expanding the women’s range as part of its growth strategy.

It also detailed how it is testing a limited release of products via e-commerce behemoth Amazon in Australia, UK and USA in order to expand customer reach and build brand awareness in international markets.

Specifically in the USA, the company hopes specially-designed products released around key holiday periods like 4 July will get the Americans buying the Aussie jocks and bras, while in the UK the company is betting that a focus on positioning Step One as a “premium brand” to grow its market share will pay off.

“We’ve continued to make operational progress, focusing on a tailored marketing strategy in each region, driving engagement with influencers and athletes in the UK and USA,” said Taylor, who founded the company in 2017.

“This will continue into FY23 as we build momentum around the brand internationally. We’re now selling some of our core products on Amazon in our key markets to drive our brand visibility and support customer acquisition.

“I remain confident in our unique product proposition. Our brand is supported by innovation, quality, and ESG values and, despite these short-term headwinds, we are laser focused on our long-term growth ambitions.”

Step One retains a cash position of approximately $27 million and has no debt as of 30 April 2022.

Shares in STP are down 59.26 per cent to $0.22 per share at 11.03am AEDT.

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