Earnings call transcript: KMD Brands sees growth amid challenges in H1 2026

KMD Brands Limited reported mixed financial results for the first half of fiscal year 2026, reflecting both growth and ongoing challenges. The company’s sales rose by 7.3% year-on-year, driven by strong performance across its brands, including Kathmandu, Rip Curl, and Oboz. However, profitability metrics showed modest improvement, with a statutory net loss after tax of NZD 13.1 million. The stock has faced significant headwinds, declining 35% over the past six months and 52% over the past year, currently trading at $0.11 USD with a market capitalization of $80.5 million. Despite the challenging performance, InvestingPro analysis suggests the stock may be undervalued, with its Fair Value estimate indicating potential upside from current levels.

Key Takeaways

• Group sales increased by 7.3% year-on-year.
• Underlying EBITDA grew by 195% compared to the previous year.
• Statutory net loss after tax was NZD 13.1 million.
• Gross margin decreased by 120 basis points year-on-year.
• The stock price remained unchanged at $0.20.

Company Performance

KMD Brands demonstrated resilience in the first half of FY 2026, achieving sales growth across all brand segments. Kathmandu led the group with a notable 12.3% increase in sales, despite a reduction in the number of stores. Rip Curl and Oboz also returned to growth, contributing to the overall positive sales momentum. However, the company continued to face profitability challenges, reflected in a statutory net loss after tax.

Financial Highlights

• Revenue: Increased by 7.3% year-on-year
• Underlying EBITDA: NZD 11.5 million, up from NZD 3.9 million in the prior year
• Statutory net loss after tax: NZD 13.1 million
• Gross margin: 56.8%, down 120 basis points year-on-year
• Net debt: NZD 94 million

Outlook & Guidance

KMD Brands has laid out an ambitious strategy for future growth, focusing on product innovation and cost optimization. The company aims to achieve a net debt to EBITDA ratio below 0.5x by the end of FY 2027. Looking ahead, KMD expects to continue its turnaround strategy, leveraging digital transformation and strategic pricing to enhance profitability.

Executive Commentary

CEO of KMD Brands emphasized the company’s commitment to its Next Level turnaround strategy, stating, "We are encouraged by the sales growth across all our brands and remain focused on driving profitability through strategic initiatives." The executive team highlighted the importance of product innovation and cost management in navigating the challenging market environment.

Risks and Challenges

• The global consumer environment remains volatile, with increased financial pressures on consumers.
• The decrease in gross margin due to promotional intensity and inventory clearance strategies poses a risk to profitability.
• The company’s ability to manage currency fluctuations and supply chain costs will be crucial in maintaining financial stability.

Q&A

During the earnings call, analysts inquired about the company’s plans for further cost reductions and its approach to managing inventory levels. Executives reiterated their focus on optimizing the store network and enhancing digital capabilities to drive future growth.

Full transcript - KMD Brands Ltd (KMD) H1 2026:

Brent, CEO/Managing Director, KMD Brands: Moving to slide 10 now, where we’re pleased to deliver tangible progress against critical proof points in the first half of this financial year. It’s pleasing to see significantly positive group sales results with all three brands returning to growth. It’s particularly pleasing to see the momentum in the Kathmandu brand, which delivered a consistently strong sales result throughout the first half. Gross margin has been strategically managed while optimizing our inventory mix, deliberately positioning us to excite consumers with the acceleration of new and fresh product innovation in the second half. In the first half, we’ve also improved the group’s underlying EBITDA margin as planned. These proof points provide management with additional confidence that our strategy is beginning to build early momentum.

On slide 11, today we’re announcing that in conjunction with the equity raise, we’ve also completed the refinancing of our debt facility with a term of up to 2.5 years. These actions have been taken to provide sufficient liquidity and a stable capital structure while reducing leverage towards our target range of below 0.5 times net debt to EBITDA by the end of FY 2027. Okay, now we’ll move on to the group’s detailed results for the first half of FY 2026 and of course, our outlook statement. We’re on slide 13 now, and as noted in this summary, we’ve seen early momentum in the first half as we execute Next Level. We’ve grown group sales in both the wholesale and direct-to-consumer channels. Gross margin’s been strategically managed against the current macro and consumer backdrop, while significantly improving our inventory position and mix.

We continue to be disciplined on our cost base, illustrated by operating expenses as a percentage of sales improvement versus prior year, and now trending in the right direction towards our 50% of sales target. Lastly, we’ve also delivered significant underlying EBITDA growth year-on-year. Now I’ll introduce Carla, our group CFO, who will be taking you through the FY 2026 half year results in detail.

Carla, Group Chief Financial Officer (CFO), KMD Brands: Thanks, Brent. I’ll now talk to slide 14 and walk through the group’s profit and loss for the first half of FY 2027. Just a reminder, our statutory results includes the adoption of IFRS 16 leases. For comparability, the impact of IFRS 16 has been excluded from our underlying results, as well as one-off restructuring costs, software as a service accounting, and notional amortization of customer relationships. Statutory EBITDA was NZD 63.3 million for the first half of this year. On an underlying like-for-like basis, first half EBITDA was NZD 11.5 million, an increase from NZD 3.9 million last year. Kathmandu has led the group sales momentum in the first half, as Brent pointed out. The total group sales, 7.3% above the first half of last year. Group sales result is underpinned by solid growth achieved in both the direct-to-consumer and wholesale channels.

By brand, Kathmandu achieved strong direct-to-consumer sales growth in both Australia and New Zealand. Rip Curl’s wholesale sales growth outperformed the direct-to-consumer channel, with strong wholesale demand in Europe and North America. Oboz wholesale sales growth was supported by closeout activity and strong in-season buying from key accounts. Gross margin decreased by 120 basis points below last year to 56.8%, as we balanced sales growth with gross margin achievement in a promotional marketplace. The group gross margin result of 56.8% in the first half is above the group gross margin for the second half of last year. Underlying operating expenses are lower than last year on a constant currency basis, with the Next Level cost reset helping to offset strategic growth investments and continued global cost pressure.

The year-on-year impact of currency movements on group operating expenses was NZD 9.1 million, and this can be seen in Appendix A of the results presentation. The group’s statutory net loss after tax was NZD 13.1 million. On an underlying basis, the group’s net loss was NZD 11.5 million, which was an improvement on the first half of last year. Moving to slide 15. Kathmandu total sales increased by 12.3% year-on-year, despite ending the first half with 4 less stores year-on-year. Strong sales growth was maintained throughout the first half, showing improved sales momentum from 2.5% year-on-year sales growth achieved in the fourth quarter of the last financial year.

Pleasingly, Kathmandu has strong sales growth across both Australia and New Zealand, with Australia increasing 10.2% year-on-year and New Zealand increasing 8.9%. Sales continued to grow strongly through the second quarter, even when cycling a good Black Friday and Christmas result from last year. Online sales of NZD 20.6 million were broadly in line with last year’s strong growth result. On a same-store sales basis, including online, Kathmandu sales increased by 12.8% year-on-year for the first half. Kathmandu’s gross margin decreased by 150 basis points year-on-year, with a focus on selling through aged inventory in the first quarter and maintaining competitive promotional intensity in the second quarter.

It’s worth noting here that Kathmandu inventory ended the first half NZD 9.8 million lower than the first half of last year, and NZD 13.5 million lower on a constant currency basis. Underlying operating expenses reduced year-on-year, with a cost reset and ongoing cost discipline improving operating leverage. Turning to slide 16. Rip Curl total sales were up 4.6% above the first half of last year, helped by the year-on-year movement in exchange rates used to convert global sales to the New Zealand dollar reporting currency. On a constant currency basis, Rip Curl total sales were 0.3% above the first half of last year. Wholesale sales increased 9.8% year-on-year, with particularly strong demand in Europe and North America.

Within the direct-to-consumer channel, online sales delivered a first-half record of NZD 22.5 million in sales, an increase of 6.7% year-over-year. Online now comprises 12% of direct-to-consumer sales. Direct-to-consumer sales, including online, grew by 1.9% year-over-year, with strong results for North America offsetting a challenging Australian market during the Southern Hemisphere peak summer period. On a same store constant exchange rate basis, direct-to-consumer comparable sales, including online, increased by 1.5% year-over-year. Rip Curl gross margin decreased by 120 basis points year-over-year, impacted by the wholesale channel mix and a more promotional marketplace. Underlying operating expenses were in line with last year on a constant currency basis, benefiting from the cost reset and moderate growth investment to address continued global cost pressure.

Now to slide 17, Oboz. Oboz total sales were up 6.5% for the first half, mainly in the wholesale channel. Online sales increased 0.9% year-on-year, impacted by a lower closeout inventory level. In the second half, the Oboz website will move into a new group online trading platform. Digital marketing continues to be refined with new agency partners through an updated digital funnel strategy and fresh creative. Wholesale sales were up 7.5% year-on-year for the first half, benefiting from strong in-season buying from key accounts. Gross margin remained stable, improving by 20 basis points year-on-year, despite tariff impacts supported by lower closeout activity year-on-year. Underlying expenses were tightly managed and below last year.

To finish for Oboz, I’ll point out the Kathmandu segment includes sales of Oboz products through Kathmandu Australia and New Zealand store network at full vertical gross margin. These sales totaled NZD 3.2 million for the first half. What’s great to see is that consumers are adopting the Oboz brand, which is now the largest footwear brand within the Kathmandu store network. Moving to the group balance sheet. Net working capital efficiency has been a key focus. Pleasingly, the group inventory position has reduced for the third successive year and continues to reduce towards optimal levels. In terms of aged inventory and mix, inventory obsolescence provisions represented 1.7% of gross inventory, consistent with the last two years, and 50 basis points below July 2025.

Stock turns improved from 1.33 times at January 2025 to 1.56 times at January 2026. The year-on-year decrease in current trade and other payables at the end of January 2026 includes a NZD 17.1 million lower goods in transit balance year-on-year. At 31 January, the group net debt position of NZD 94 million was with the weakening of the New Zealand dollar year-on-year, which impacted that net debt balance by NZD 5.6 million. On January 30th, 2026, the group extended its existing debt facility and adjusted the fixed cover ratio for July 2026 and January 2027 measurement periods. The group also reduced its total syndicated bank facility by NZD 49 million to approximately NZD 283 million.

As part of the longer term refinance plan, the group has now agreed terms with a majority of our existing bank syndicate for a multi-year bank facility, which we’ll talk you through later in the presentation. Moving to slide 19, the cash flow. Working capital cash outflows is expected as January net working capital balances is elevated traditionally as stock to support Kathmandu’s autumn/winter season and Rip Curl’s summer season is shipped before Chinese New Year. Inventory purchasing timing was phased earlier than last year, helping to bring newness into stores to capitalize on Black Friday and Christmas trade, which reduced trade payables at January 2026. In addition, elevated trade payables at July 2025, which unwound in August 2025, resulted in additional cash outflow in the first half. As a result of operating performance, the directors have not declared an interim dividend. Turning to slide 20.

Now for the latest trading update. Direct-to-consumer same source sales, including online, for the first six weeks of the second half, from the 2nd of February to the 15th of March, were Kathmandu +11.1% year-on-year, combined with gross margin improvement year-on-year of approximately 50 basis points. Rip Curl was up 1.2% year-on-year. We note that this is a seasonally non-significant trading period. Turning to slide 21, before I hand you back to Brent, I’ll provide some commentary on the group’s outlook. Given early momentum in its Next Level turnaround strategy and despite a challenging global consumer environment, the group remains focused on delivering continued performance improvement compared to prior year. Kathmandu continued its recent sales momentum in the first six weeks of the second half, with the key autumn and winter trade periods still to come.

Kathmandu is on track to achieve gross margin expansion year-over-year in the second half, with consumers responding positively to improved product flow and assortment. Rip Curl and Oboz wholesale order books for the second half of FY 2026 are in line with last year, with the European and North American summer season to come. Gross margin expansion is anticipated year-over-year in the second half, reflecting actions taken to offset U.S. tariffs and cycling specific clearance of inventory in the second half of last year. Group underlying operating expense as a percentage of sales is forecast to improve year-over-year, showing progress towards midterm targets. Underlying operating expenses for the full year are planned to be broadly flat year-over-year on a constant currency basis and before FY 2026 management incentives.

The year-on-year impact of global currency fluctuation is expected to have a significant impact on operating expenses. In the first half, the impact of year-on-year currency movement was NZD 9.1 million, as shown in our Appendix A disclosures. The group remains on track to achieve its Next Level strategic cost reset savings, helping to offset cost inflation and deliver moderated reinvestment to drive Next Level strategic growth opportunities. In terms of EBITDA margin, we expect to deliver further EBITDA margin expansion in FY 2026. The group continues to focus on optimizing its store network as part of the Next Level integrated marketplace strategy. Capital expenditure for FY 2026 is targeted to be at the lower end of the guided range, approximately NZD 25 million.

Finally, KMD Brands continues to target a leverage ratio below 0.5x net debt to EBITDA by the end of FY 2027. I’ll now hand back to Brent.

Brent, CEO/Managing Director, KMD Brands: Okay, thanks, Carla. Now I’ll provide everyone with an update on our Next Level transformation strategy. Onto slide 23, and you can see we’re delivering on our promise in the first six months of our Next Level plan. Last September, we laid out ambitious goals for the business, and we’re pleased today to report that we’ve made significant progress across several critical areas, with more still to come. Our focus is on continuing to build trust through our execution and subsequent results, essentially doing what we said we would do. We’ve reset the strategy for each of our brands with accelerated product innovation, integrated storytelling, and sharper channel-relevant assortments, laying the foundations for sustainable growth. We’re improving our systems and data capabilities to drive efficiencies and deploy technology that enables better and more intelligent decision-making in critical areas of our business operations.

In addition, we also implemented Shopify e-commerce technology across the group in our priority global regions. The online channel, where we’re under-penetrated, continues to be a key opportunity for both consumer connection and business growth for the group. As previously mentioned, we’re on track to deliver NZD 27.5 million in cost savings this fiscal year, helping us to offset cost inflation and fund measured reinvestment to drive future growth initiatives. It’s important to note that we’ve moderated our growth investment this financial year with a rigorous focus on prioritizing near-term ROI. We accelerated our focus on the optimization of our global store network as part of the Next Level integrated marketplace strategy, with 15 stores closed so far and 6 more to come by September this year.

As Carla described, we’ve also made good progress in the first half of the year to optimize our inventory and working capital investment. Finally, we continue to work towards unlocking capital by divesting non-core assets that do not provide a competitive advantage to our three brands. On to slide 24, and let’s quickly recap on our group strategy before we dive into updates from each of our brands. As you know, we’re driving a brand and product-led strategy that’s rooted in authentic purpose. We’re introducing decision intelligence and data-led process to deliver increased efficiency as we scale. We’re doing this with a clear focus on managing our cost base and profit margins. We’ll maintain that discipline as we grow with our execution guided by clear profitability guardrails.

As a reminder, each of our brands has strong consumer and industry relevance and are trusted in technical expertise and also well-positioned in growing activity-based categories. Our brands continue to have a complementary footprint with globally diversified regions and seasons. Let’s dive a little deeper now at each brand’s strategic initiative scorecard, starting with Kathmandu on slide 26. Our focus continued to deliver an accelerated product innovation strategy combined with authentic brand storytelling. Product distinction is fundamental to Kathmandu’s success, as we’ve discussed previously, along with a refreshed focus on product assortments and new flow at retail to create consumer excitement in a newly segmented store portfolio. We’ve also reset Kathmandu’s future international strategy to be a distributor-led model with focus on capital light and digital-led expansion into FY 2027.

On to slide 27 for Rip Curl, we’re resetting and contemporizing the Rip Curl brand for the next generation of surf consumers to really discover the surf. This reset is defined through a new edit point, and it’s now at the center of all of our product creation. While we always stay true to serving core surfers, we can also expand our market capacity with new purpose-designed product to address the significant but untapped growth that the culture of beach and surf culture represents. Lastly, in the half, returning our North American business to profitability was also an immediate priority for us, as we quickly identified the need to right-size the cost base appropriately for future growth. Moving on to slide 28, our Oboz strategy is centered around re-energizing our core product offering to drive a fresher product flow for our consumer.

We’ve accelerated our product creation agenda in the last half to impact the market faster and earlier than was originally planned, with a particular focus on the significant opportunity in the fast and light category, extending penetration and opportunity beyond traditional hiking and into an all-new terrain category. We move to slide 29 now, and as I mentioned earlier, the online channel was a key growth priority for the group. We’re working at pace to reset our digital capabilities and have taken significant action in FY 2026 to reposition our digital platforms through Shopify and fuel our omni-channel experience. Our digital platform reset will provide us with the capabilities to significantly grow our online penetration with a clear pathway to reach industry averages into the future. On slide 30 now, which outlines how we’re building a data-led intelligence to drive efficiency benefits as we scale.

We’re rapidly improving our capabilities to drive profitability, enabling us to be more agile and improve our planning and our decision-making across the business. Some examples of this include delivering better efficiency through procurement to reduce cost of goods sold, streamlining and simplifying our group technology systems to improve the ability of our brands to both forecast and plan using agile technology to accelerate market insights and decision-making, and of course, continue that focus we have on supply chain optimization. We’re onto slide 31 now, and our third and final strategic pillar is to deliver sustainable profitability. As mentioned, we’re on track to deliver NZD 27.5 million of cost savings this financial year, NZD 2.5 million dollars above the NZD 25 million dollar target we set for ourselves back in September. We’ve reset the cost base, helping us to offset cost inflation and focus on profitability.

On slide 32, our Next Level strategy outlined that approximately NZD 15 million of the savings would be reinvested in growth initiatives. Over the first half, we’ve moderated our investment plans down to NZD 10.8 million for FY 2026 to prioritize near-term return on investment. We’ve held back select portions of the earmarked investment due to rapidly changing market conditions and will continue to be disciplined in any further investment, with a laser focus on returns, and we’ll earn our way into additional investment over time as performance improves. On slide 33, we can also update you on our progress optimizing the store network we outlined as part of our Next Level integrated marketplace strategy. We’re on track to deliver the 21 store closures we’d previously announced, and to date, we’ve closed 15 of these stores with annualized lease cost savings of NZD 4.2 million.

Additionally, we’re continually reviewing our store portfolio as best practice against a strict set of criteria to deliver further opportunities for network optimization over time. Slide 34 is a recap of our financial ambition for the next three years. We acknowledge that trading conditions have been challenging over the past few years, and we saw our EBITDA margin under continued pressure. Next Level sets out a financial plan with ambition to achieve a 10% EBITDA margin over the next three years. We believe this is achievable by improving our gross margin over time to approximately 60% and lowering our operating expenses to 50% of sales. The ambition over three years is based on an underlying assumption of sales growth across the group. As top-line sales growth builds, we will realize more incremental benefits on profitability through improved operational leverage.

Of course, we always look forward to updating you on our progress. Now Carla will talk you through the details of today’s equity raising and debt refinancing announcement. Carla?

Carla, Group Chief Financial Officer (CFO), KMD Brands: Thanks, Brent. Slides 36 and 37 provide an overview of the fully underwritten NZD 65.3 million equity raising. The raising comprises a NZD 58.5 million, 1 for 7.3 pro rata accelerated renounceable entitlement offer and a NZD 6.8 million placement. The offer price is NZD 0.06, representing a 47.1% discount to the theoretical ex-rights price and a 69.2% discount to the last traded price. For our shareholders in Australia, the AUD offer price for the entitlement will be announced on the 2nd of April based on the prevailing exchange rate at the 31st of March. In total, approximately 1,088 million new shares will be issued under the offer, which represents 152.8% of KMD’s existing shares on issue.

Proceeds from the equity raise will be used to reduce KMD’s net debt position and strengthen the balance sheet in conjunction with the refinance debt facility, providing a stable balance sheet to enable execution of the Next Level strategy. We also want to highlight that all directors who are shareholders are participating pro rata in the equity raise, which is detailed on slide 37. David Kirk and Philip Bowman will apply for at least twice their pro rata. Slide 38. As announced, the institutional entitlement offer and placement open today, on 31st of March, will be conducted across today and tomorrow.

We expect to announce the results of the institutional entitlement offer placement and institutional book build on the second of April, at which point the trading halt will be lifted and shares will recommence trading on the NZX and ASX on an ex entitlement basis. Further details on the equity raising timetable is outlined in slide 38. On slide 39, we’re pleased to announce that in conjunction with the equity raise, we’ve also secured a refinance of our debt facility. A refinance debt facility provided by a majority of our existing syndicate includes facilities of approximately NZD 205 million split across tranches, with the longest date tranche giving us a term of 2.5 years. Refinance provides a stable capital structure for us to execute on our strategy.

Brent, CEO/Managing Director, KMD Brands: Okay. Thanks, Carla. Now to close out quickly with a quick recap of the key messages I mentioned earlier. Of course, while we acknowledge there is still much to be done, we’re at the beginning of our Next Level transformation. We’re encouraged by the strong progress made and the results in the first measurement point of the Next Level business turnaround, in particular with Kathmandu. We continue to have high conviction in our transformation if we continue to remain disciplined and focused in the execution of our strategy, given the significant opportunity to rebuild long-term value in KMD Brands into the future. That now concludes the formal part of today’s presentation. I wanna thank you all for taking the time. I think we’ll now open it up for questions.

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw that question, again, press star one. Your first question comes from Kieran Carling with Craigs Investment Partners. Please go ahead.

Kieran Carling, Equity Analyst, Craigs Investment Partners: Morning, guys. First question I have is on your equity raise. If we look back, you know, six months, your commentary suggested you were reasonably comfortable with the balance sheet positioning. At the September result, you said, you know, the NZD 25 million of cost-out initiatives were gonna be offset by growth investment. CapEx guidance was flat to up. There was no update on core asset sales. Then in February, you said your trading momentum was positive, and you expected to comply with amended covenants at the January testing point. You know, against that backdrop, what changed relative to your previous expectations in September, and what’s ultimately put you in the position where you’re needing to do a deeply discounted equity raise now?

Carla, Group Chief Financial Officer (CFO), KMD Brands: Well, Kieran, I guess what I would flag is that we had talked to a short-term extension of our debt facilities, so it was important that we continued to consider equity and debt in the context of getting a longer-term facility. The part of what we did was work with our advisors on was just shaping up both the appetite from our lender base, where we had some very constructive conversations and just sizing as a result of that, the size of the equity raise. That was obviously done in conjunction with a longer-term view to get the business to a position where we could get long-term financing, and equity was a component part of that.

Brent, CEO/Managing Director, KMD Brands: The only thing I’d add, just obviously, you know, we’ve sized the raise to accelerate our de-leverage to below 0.5 times net debt, as we talked about this morning, by FY 2027. We wanna make sure we have a stable capital structure to continue the progress that we’re making around Next Level.

Kieran Carling, Equity Analyst, Craigs Investment Partners: I guess, you know, why was there a lack of urgency six months ago when it came to reducing your debt?

Brent, CEO/Managing Director, KMD Brands: Well, I don’t think there was a lack of urgency. As Carla said, we have been in conversations and have obviously updated the market around conversations with our lenders around, you know, long-term debt and the right capital structure with advisory to secure, you know, certainty over the next 2.5 years to execute our plan.

Carla, Group Chief Financial Officer (CFO), KMD Brands: You can also see, Kieran, there’s obviously

Kieran Carling, Equity Analyst, Craigs Investment Partners: Okay

Carla, Group Chief Financial Officer (CFO), KMD Brands: a step down in the extension that we provided. It has been on a path to de-levering and working with our lenders around, you know, covenant packages that get towards that ambition as well.

Kieran Carling, Equity Analyst, Craigs Investment Partners: All right. I might move on to Rip Curl. I mean, we’ve seen the sales run rate decline there for the last three quarters, and that’s despite some modest improvement in the wholesale channel. You know, clothing and footwear sales trends in Aussie have improved for the last three quarters, and you’ve obviously had FX tailwinds as well. Can you just talk us through why sales trends have been softening in that brand? Do you think it’s market share loss or just category softness? How do you expect it’ll trend from here?

Brent, CEO/Managing Director, KMD Brands: Yeah, I’d love to give some comments. I think, as we all know, the surf industry has been what we would call a sea of sameness for quite a while now. You know, it’s been a messy promotional marketplace. Some competitors have flooded the market with lots of excess inventory. We’ve seen some of that inventory show up in, you know, undesirable channels, let’s call them. I think the other observation we made in resetting the strategy was the fact that the industry’s predominantly been focused on a much older consumer. For us, that really represents opportunity.

As we detailed with our Next Level strategy reset for the Rip Curl business, you know, less than six months ago, there’s a few things that we are laser-focused on to turn that business into what we believe, you know, can be in terms of opportunity to reset against a far more youthful consumer edit point that we talk about, and we’ve reset all of our product engines against that edit point. You won’t see that product into the marketplace probably till early next year, but it’s a much, much more youthfully oriented perspective around surf. Obviously, Rip Curl is, you know, the one remaining true, authentic surf brand around the world, and we’ve restructured our teams to focus on that opportunity.

The second thing I’d point out is that over the last six months, or for the full year, we will have taken $13 million worth of cost out of that business while restructuring it. That’s in terms of resetting its overall profitability into the future. We’ve right-sized the USA marketplace cost base, as I mentioned. We’re focused on range and SKU consolidation, and we’re resetting our digital capability.

While I don’t think that that’s all obvious in the results that you see for the first half, we’ve made really significant decisions that’s driven change in that business that you will start to see play out, you know, over the course of the next 12 months as all of the elements of that strategy come together and work in unison to reframe that brand as the true, authentic, you know, surf brand with a connection to youth culture.

Kieran Carling, Equity Analyst, Craigs Investment Partners: Okay, thanks. Just to give us a steer, you know, do you think the sales run rate of that brand is gonna improve going forward, or do you think it’ll continue to trend down in the near term and pick up in FY 2027?

Carla, Group Chief Financial Officer (CFO), KMD Brands: Our ambition is for improvement.

Kieran Carling, Equity Analyst, Craigs Investment Partners: Okay, thank you. Then just last question is on your outlook commentary. You’ve talked about expecting gross margin expansion in the second half of 2026 for Kathmandu and then Rip Curl and Oboz in the wholesale channel. You know, given the gross margin trend through the first half where we saw compression, you know, the fact consumers are coming under increased financial pressure and other retailers are talking about fairly significant lifts in freight costs, you know, what gives you confidence you can actually grow gross margin in the second half of the year?

Brent, CEO/Managing Director, KMD Brands: Yeah, maybe I’ll talk to the consumer-facing opportunity, and Carla may talk to the cost side of it. I think particularly talking about Kathmandu, and if you do look at the outlook statement, it’s the first time you’ve seen some gross margin expansion for Kathmandu in those first six weeks of trade in the second half. For us, that’s very encouraging because all of the major shifts in both product innovation, flow of that product into market, some strategic pricing decisions that we had made, the way that we’ve readjusted our markdown calendar together with some strategic price increases, means that, for us, that strategy is starting to come together. Obviously the momentum in the Kathmandu business has now been sustained for over a half, which we feel pleased about.

Obviously, the larger part of the Kathmandu trade happens in the second half, and I think we feel quite positive about our offering and the way that the changes we’ve made will come together over the second half. No doubt there’s a volatile macro marketplace that everybody is facing at the moment, and we all know the reasons for that. I’ll let Carla talk a little bit just about our agility as it relates to cost base.

Carla, Group Chief Financial Officer (CFO), KMD Brands: Well, I think as Brent said, we’re obviously, like everyone, managing and monitoring in a reasonably volatile environment. I guess to the extent the things that we can focus on and control, which gives us some of the sentiment, as Brent mentioned, around our commentary, you know, we continue to monitor those logistics and input costs closely. What we can control and maintain is our, you know, being tighter on our margin management. We have seen and continue to prioritize full price mix, which has been pulling through from what we can see in that trading update. We’ve been tightening up our promotional cadence, and we’ve seen some, you know, pretty good opportunities with things like the Summit Club in our loyalty offering, where we can see opportunity there as well that’s possibly been underutilized in the past.

I mean, we’re trying to balance out with what we’re doing around working capital. Not to suggest that it’s an easy balance, but it’s something that I think, like all out there who are trying to give the best guidance they can see at the time, we continue to manage the things that we feel we can control.

Kieran Carling, Equity Analyst, Craigs Investment Partners: Sorry, just another follow-on there. To, you know, with your gross margin commentary and the outlook statement and your OpEx guidance, can you sort of talk us through what you factor in terms of freight cost increases?

Carla, Group Chief Financial Officer (CFO), KMD Brands: Look, we’re not specifically calling out a freight cost increase, but I think, like I said, I’ll just keep reiterating that we’re monitoring those things closely.

Kieran Carling, Equity Analyst, Craigs Investment Partners: Okay, thanks. I’ll pause there.

Brent, CEO/Managing Director, KMD Brands: Okay. Thanks a lot. Yeah, we should keep moving. Thank you.

Operator: Your next question comes from the line of Guy Hooper with Jarden. Please go ahead.

Guy Hooper, Equity Analyst, Jarden: Yeah. Morning, team.

Carla, Group Chief Financial Officer (CFO), KMD Brands: Morning.

Guy Hooper, Equity Analyst, Jarden: If I could start with the intangibles value. I mean, there’s, I think it’s in the balance sheet about NZD 650 million. I mean, that’s quite a marked gap to where the market cap is or going to sit post the raise. If I could maybe just ask a quick three-part on it. You know, what risks exist around impairment? And then, you know, could you give us any steer on the breakdown of that intangibles value by business unit and why, you know, you wouldn’t consider a breakup of the brands?

Carla, Group Chief Financial Officer (CFO), KMD Brands: Look, I’ll take the impairment question. I’m not gonna give a breakdown to the component parts, but obviously, you can see back through history in terms of the size of the purchasing of Rip Curl that that’s a significant component of it. Guy, as we would always do with audited accounts, we continue to do trigger testing and consider headroom that we have within that impairment testing. Both management and our auditors remain comfortable that we don’t have any indicators of impairment at this time. Clearly that’s a test that we do every six months and will continue to do, but we haven’t seen any need for impairment because of the headroom we currently have.

Guy Hooper, Equity Analyst, Jarden: I mean, given that and the material gap in value, I mean, could you talk about the considerations for a breakup of the various brands? You know, or maybe why the market might be missing such a big gap in value.

Brent, CEO/Managing Director, KMD Brands: I think as we’ve said, we, you know, we did a strategic review last year that resulted in the Next Level strategy. We’ve been clear about the significant synergy that exists between the brands, whether that be some of the things we’ve mentioned this morning from sourcing, logistics, freight, Oboz now being the largest footwear business within the Kathmandu brand. I think it’s also fair to acknowledge that it’s, you know, difficult market conditions out there. I talked about rebuilding value in brands like Oboz and obviously Rip Curl is part of our reset as well. The strategy is consistent with the three brands in our portfolio and the interrelationship and synergy that exists between them as at today.

Guy Hooper, Equity Analyst, Jarden: Okay. Maybe if I could turn just to, I guess, some of the performance and moving parts at the moment. Maybe just a little bit around the supply chain risk from a raw commodity point of view, and particularly around neoprene and other wetsuit inputs. I mean, what sort of cost inflation are you seeing there, and, you know, what is the risk that supply chain from a raw input point of view, you know, how far away are we from basically seeing that stop?

Brent, CEO/Managing Director, KMD Brands: All I would say is we’re working very hard with our factories and partners as upstream in the supply chain on mitigating cost increases and in some cases driving synergy to, you know, to offset any potential cost inflators into the future. As you can imagine, given product lead times, some of that takes a while to flow through. From our perspective, that’s something that we’re focused on. We won’t get into specifics about the cost of neoprene or anything else. Needless to say, I think we’ve called that out as a potential opportunity for efficiency into the future.

Guy Hooper, Equity Analyst, Jarden: Okay. Maybe just one last one, a bit of a follow-up on the gross margin outlook commentary. I mean, year-on-year expansion in gross margins are fairly low hurdle given what we’re cycling. Can you talk to us about maybe direction, half on half, and then also to what extent some of this cost inflation is actually factored into the guidance or outlook?

Carla, Group Chief Financial Officer (CFO), KMD Brands: Well, I think what I would just go back to reinforcing is some of the commentary. You’re right, you acknowledge that the second half is a key trading period for Kathmandu in particular. The commentary in itself is acknowledging a peak trade period ahead. I think what we’ll keep going back to is, at this point, looking at how we’ve improved the product assortment and some of the full price product that’s coming through as a way in which we continue to be able to talk to that margin expansion. I guess to the extent that, you know, we have talked to cost out across our target for the current year and have over-delivered against that target.

Cost base is something we continue to keep reviewing and it’s part of what we would be needing to do in this type of environment where we’re seeing cost-based inflators. We continue to challenge ourselves around those cost-out initiatives and making sure we’re addressing any other inflators we see to impact that margin.

Brent, CEO/Managing Director, KMD Brands: I would say that the product mix in the second half for Kathmandu obviously contains a lot of insulation, rainwear, higher-priced products, as an example. It’s fair to say that our mix of go-to-market will change and has changed, in terms of percentage of different categories of product and percentage of different categories with different price mix. I mentioned earlier about markdown strategy. Carla touched on rewards. These are all inputs to an integrated marketplace strategy that means we will look and feel slightly different at retail deliberately, most importantly with the consumer and the consumer experience through product. Starting to ramp up from now, as you’ve seen in some of our results.

I think that’s just important context, but it clearly is a marketplace that is, you know, very uncertain given all the things going on in the world from a macro perspective.

Carla, Group Chief Financial Officer (CFO), KMD Brands: Yeah, probably my only other add, if I just think in reference to particularly Kathmandu with that trade period ahead. I mean, in looking at our trading update, I mean, what we’ve called out is something where we’re seeing that growth across Australia and New Zealand. We’re seeing growth in ATV year-over-year. We’re seeing stronger customer conversion. Those sort of points are ones that we continue to monitor, appreciating that sentiment changes over time, but they’re pleasing to see in what we have got in front of us and can see pulling through.

Guy Hooper, Equity Analyst, Jarden: Great. Thanks for the color there, team. I’ll pause there.

Operator: Your next question comes from the line of Bianca Murphy with UBS. Please go ahead.

Bianca Murphy, Equity Analyst, UBS: Morning, team. You’ve outlined a number of operational milestones under your Next Level strategy. Given the scale of the dilution from today’s rates, which two or three do you see as most important in delivering earnings growth needed to offset some of that dilution over time?

Brent, CEO/Managing Director, KMD Brands: Well, I mean, I might start, and I’m sure Carla will have some comments. I think they’re all important for us, and they’re all interrelated, as you know. The key priorities that we’ve laid out, though, which is why the first half result is encouraging as a first step on this journey, is that we need to ensure that we get back to growth. You know, the growth in Oboz, the growth in Kathmandu, obviously Rip Curl with some currency adjustment is slightly more challenged. But we need to grow the top line, and the only way to do that is by, you know, refreshed and improved focus on authenticity and innovation. So that’s the first thing. The second thing, clearly is cost and management of cost, and, redefining how we think about cost for both investment and in an absolute terms.

Hopefully what you’ve seen in the first half is testament to how we articulated our goals for the fiscal year. Thirdly is gross margin, which we’ve obviously just had a conversation about. From a financial perspective, we talked about reducing our operating leverage and getting and right sizing, you know, OPEX as a percentage of revenue and EBITDA as a percentage of revenue. You can see through these results that we’ve taken the first step on that journey.

Carla, Group Chief Financial Officer (CFO), KMD Brands: I mean, all that I’d add is, yeah, I think wholesale distribution still provides an opportunity into the future. Look, I think we, while off a small base, remain under-penetrated in online as well. These are things that we’ve continued to call out. You’re not seeing all of the pull-through of the hard work that’s going on within the business around the digital reset and some of the retooling that we’ve had to do for those businesses in getting those content engines and getting the product in place, but I think that’s probably the only other thing I’d emphasize. I think it’s all important. I mean, I think we’ve got to do all things balanced and equally important, but I think online provides, again, another opportunity.

Brent, CEO/Managing Director, KMD Brands: Yeah. Lastly, just to follow up on that, this isn’t easy, right? We are driving significant change across the group with a mindset that captures the value we see and the opportunity for KMD Brands into the future. You know, there’s a lot of tough decisions here that have been made, some of which clearly have shorter term impact and you’re starting to see some of those today. Some of those decisions you won’t see, as I mentioned, for example, with regards to Rip Curl and product, you know, for another 6 to 8 to 12 months in terms of impacting the consumer. You know, we feel that we’re on the right track as a marker in the first half since our announcement of the Next Level strategy. We’re encouraged by that.

Bianca Murphy, Equity Analyst, UBS: Okay. In terms of your hedging, net debt has been impacted by FX moves in the first half. Can you share what your current hedging position is, as we move into the second half?

Carla, Group Chief Financial Officer (CFO), KMD Brands: It hasn’t changed. We sort of hedge out across a sort of 12- to 12-month time horizon, and nothing has changed in terms of that approach or policy. We sort of tend to look that far out and feel like we’re in a good position. Obviously, you’ve seen in our results where we’ve pulled out the impact of currency. There’s an appendix at the back, so we acknowledge that there is a fair bit of currency movement going on. Our approach hasn’t changed in terms of our hedge book.

Bianca Murphy, Equity Analyst, UBS: Okay. Thank you. That’s all from me.

Brent, CEO/Managing Director, KMD Brands: Okay.

Operator: We have no further questions.

Brent, CEO/Managing Director, KMD Brands: Sorry, I think you were gonna say the same thing as me, is that there’s no further questions. With that, we’ll just say thank you very much to everybody for your time and for dialing in. That will be the conclusion of this morning’s call. Thanks.

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