Step One Clothing Shares Plummet Amidst Disappointing Half-Year Results
Shares in Step One Clothing Ltd (ASX: STP) have experienced a significant downturn this week, following the release of the company’s half-year financial results for FY26. The direct-to-consumer online retailer, specialising in men’s undergarments, saw its share price tumble by 12% on Wednesday, with further investor exits on Thursday contributing to a total weekly decline of 17%.
The company’s H1 FY26 report revealed a challenging period, with key financial metrics falling short of previous performance.
Key Financial Highlights for H1 FY26:
- Revenue: $36.3 million for the six months ending 31 December 2025. This represents a substantial decrease of 24.5% when compared to the same period in the prior year.
- EBITDA: The company recorded an EBITDA loss of $10 million. This starkly contrasts with the $11.2 million profit reported in the preceding year.
- Statutory Net Profit After Tax (NPAT): Step One posted a statutory NPAT loss of $8.5 million, a significant shift from the $8.2 million profit achieved in 1H25.
- Gross Margin: A sharp decline was observed in the gross margin, which fell to 43% from a robust 78% in the prior corresponding period.
Addressing the Inventory Challenge
Greg Taylor, Founder and CEO of Step One, attributed the disappointing sales performance in late 2025 primarily to slower-than-anticipated clearance of legacy inventory. Despite promotional efforts, the company was forced to take a significant provision against this stock.
“Sales in late 2025 were below our expectations, primarily due to slower-than-expected clearance of legacy inventory despite promotional activity,” Taylor stated. “As a result, we have taken a $10.9 million provision against this stock, which is now fully provided for, with no material additional provisions anticipated.”
This substantial provision directly impacted the company’s profitability and contributed to the negative financial results.
Brokerage Insights and Future Outlook
In the wake of the earnings announcement, two prominent brokerage firms have updated their assessments of Step One shares, offering insights into the company’s path forward.
Morgans’ Perspective: A Year of Reset
Morgans noted that the H1 FY26 earnings were broadly in line with the guidance previously provided in December, though they acknowledged that the results fell materially short of prior expectations. The brokerage views FY26 as a crucial “reset year” for Step One, with management’s focus shifting towards rebuilding brand equity to foster long-term profitable growth.
Key strategies identified by Morgans include:
* Pricing Reset: Adjusting pricing strategies to improve market competitiveness.
* Scaled-Back Promotions: Reducing reliance on extensive promotional activities.
* Increased Brand Marketing: Boosting investment in brand marketing to attract new customers.
* Product Expansion: Launching new products in adjacent categories to diversify offerings.
Morgans has made modest adjustments to its earnings forecasts and maintained a HOLD recommendation for Step One shares, setting a price target of $0.29 (down from $0.30). This target suggests a potential upside of approximately 9.4% from the previous day’s closing price of $0.265.
Bell Potter’s Cautious Optimism
The team at Bell Potter also provided an updated assessment, reiterating their HOLD recommendation and revising their price target to $0.29. While acknowledging the market-leading quality of Step One’s products, Bell Potter expressed caution regarding inventory management. This concern is amplified by the increased investment in new product development, particularly as the company ventures into new market segments that present broader competitive pressures.
Bell Potter’s analysis highlights potential future strains on the business, stemming from:
* Market Maturation: A potential saturation or maturation within the core customer base.
* Cost of Living Pressures: The broader economic environment and the impact of the higher cost of living on consumer spending.
Despite these challenges, Bell Potter continues to view STP’s product offering as superior in terms of quality.
What Lies Ahead for Investors?
The significant share price drop has presented a potential “buy low” opportunity for some investors. However, the brokerage reports suggest a period of strategic rebuilding and operational adjustments for Step One. Investors will be closely watching the company’s execution of its new strategies, particularly its success in clearing legacy inventory and acquiring new customers without compromising profitability. The upcoming quarters will be critical in determining whether Step One can navigate these challenges and return to a path of sustainable growth.
