The Step One Clothing Ltd (ASX: STP) share price is in focus after the company reported its FY22 half-year result.
Step One is a direct-to-consumer online retailer for underwear. It offers high-quality, organically grown and certified, sustainable and ethically manufactured products.
Step One HY22 result
There were a number of things that Step One wanted to tell investors about:
- Revenue growth of 11.7% to $38.1 million
- Gross profit margin increased by 1 percentage point to 83.1%
- Customer orders rose 11.9% to 488,000
- Returning customers increased from 39% to 60%
- Customer orders of more than 193,000
- Underlying EBITDA down 19% to $7.4 million
- Underlying net profit down 18.8% to $5 million
The company is expanding in the northern hemisphere (UK and USA) as well as launching a thermal range. It has also launched its women’s range after the end of the half-year.
However, UK progress didn’t quite go according to plan.
Winning new customers (particularly in the UK) fell below what was achieved last year. Some of the decline reflects “changing trading conditions” with COVID and lockdowns. But the efficiency of marketing spending also declined – this refers to new customer orders for each dollar of advertising spending.
The decline has been attributed to a number of factors, particularly in the UK, which it’s in the process of resolving including the advertising channel mix, “refining the product positioning” and expanding ‘influencer’ generated content.
Whilst website traffic was up 41%, customer targeting in the UK was cast wide. Step One said it requires time to refine the targeting to the right customer. This resulted in a decrease in the conversion rate.
It is expanding into North America with an investment of $1.5 million in advertising to establish a brand presence in that market. It launched in October 2021.
Step One is planning to release a men’s sports range in 2022.
Supply chain and logistics
Management said it has managed the supply chain effectively throughout most of the pandemic, largely through the advance ordering of products from factories, use of inbound air-freight and free express shipping to customers.
However, a failure in both inbound logistics and outbound distribution in November and December resulted in a short period of customer dissatisfaction and required the delay of colour releases, lost opportunity to run a Christmas gift campaign and the delayed launch of the women’s product.
A number of things are being implemented to improve this area, with national delivery services also returning to normal delivery times, reducing the need for express delivery.
Outlook and my thoughts on the Step One share price
Step One reaffirmed that it’s expecting sales revenue to grow between 21% to 25% for FY22. Underlying/pro forma EBITDA is expected to be $15 million.
I think Step One is a very interesting business with expectations for long-term growth. I think that expansion into new product ranges – thermal, sport and women’s makes a lot of sense and increases the profit potential of the business. Geographic expansion is also very useful.
After the recent drop of the Step One share price, I think it could be an opportunistic time to jump on if investors are interested in this business.
