KMD Brands (ASX: KMD) has recorded strengthened performance across retail labels Rip Curl, Kathmandu, and Oboz as it continues to rollout its “Next Level” business improvement strategy.
Total global direct to consumer sales of Rip Curl clothing and products have grown year-on-year, benefiting from favorable foreign exchange impacts within a dynamic marketplace.
Sales momentum softened following the onset of the Middle East conflict, with higher fuel prices and rising interest rates impacting global consumer sentiment, however the brand’s North American flagship stores continued to deliver strong sales results.
Gross margin for the three months to end March improved by 202 basis points (bps) year-on-year due to promotional cadence and 62bps compared to the first half of the year.
Defending significant market share gains in a more competitive North American marketplace remains a priority for Rip Curl in the fourth quarter.
Solid Kathmandu Performance
Total sales of Kathmandu outdoor clothing and products increased by 12% despite the closure of one store during the period and a net reduction of seven stores compared to the same time last year.
Same store sales (including online) increased by 12.6% year-on-year, continuing a sales momentum in Australia and New Zealand as consumers responded positively to improved product innovation, assortment, and flow.
The third Kathmandu “next-gen concept store” opened in Melbourne this month, showcasing a return to product innovation and seasonal brand stories, offering enhanced product assortments and promoting a simplified in-store navigation to elevate the customer experience.
Kathmandu delivered growth across key product categories during the quarter, demonstrating that KMD’s product-led recovery is beginning to resonate with customers, with continued growth in member and non-member sales in the lead-up to the key winter trade period.
Kathmandu’s gross margin for the period improved 233bps year-on-year, driven by a diversified product mix and further refinement of its markdown management strategy.
Oboz Sales Downturn
Total sales of Oboz footwear dropped 8.9% during the period, impacted by wholesale shipment timing.
The previous quarter, by comparison, benefited from earlier shipments of new-season styles to fulfill accelerated demand and meet expanded partner door growth.
KMD expects sales to return to year-on-year growth in the next quarter, driven by continued online growth and flow of new product launches.
Online performance of the Oboz range accelerated 19.3% during the quarter following a launch on Shopify across key regions.
The brand’s gross margin improved 374bps year-on-year, reflecting actions taken to offset US tariffs as well as a cycling-specific stock clearance in the previous year.
‘Next Level’ Strategy
KMD Brands continues to focus on the profitability of its store network as part of its “Next Level” integrated marketplace strategy centred on disciplined cost control, margin expansion, and a more focused utilisation of brand and operating capabilities to capture identified growth opportunities.
16 of the group’s stores have closed in the year to date, with additional closures expected where sustainable rent outcomes cannot be struck with landlords.
Stores continue to be evaluated against profitability thresholds and criteria to deliver optimum performance that includes geographic alignment with strategy, presence in attractive shopping locations, and alignment with brand store segmentation and category.
The group has prioritised the reset of its digital business to leverage recent Shopify implementations across all three brands and improve product storytelling, customer experience, and drive conversion.
Online sales for the quarter were up 4.7% year-on-year and online sales as a percentage of total direct-to-consumer sales sat at 13.5% as the group continued to prioritise digital capability and initiatives to progress towards its mid-term online penetration targets.
Challenging Headwinds
Managing director Brent Scrimshaw said the quarter had delivered encouraging progress despite challenging market conditions.
“The quality of earnings across the group is strengthening, supported by disciplined pricing, improved product mix, and ongoing cost control,” he said.
“Nine months into the first year of execution, our Next Level transformation strategy is demonstrating that we are building a stronger, deeply-connected, and more resilient business, while remaining on track to achieve our medium-term targets.”
As part of the Next Level strategy, KMD’s board has implemented a review of the group’s capital structure and portfolio configuration to assess opportunities to accelerate the realisation of shareholder value, with external financial and legal advisers still to be appointed to lead the process.
KMD chair Philip Bowman called the review an “appropriate next step at this time”, adding that the group was committed to addressing all credible options that have potential to deliver “superior value”.
