KMD Brands Posts 1% Sales Growth but EBITDA Collapses 65% in FY25
KMD Brands reported a modest 1% sales increase in FY25 but faced a sharp 65% drop in underlying EBITDA, prompting a bold 'Next Level' turnaround strategy targeting margin expansion and debt reduction in FY26.
- FY25 sales rose 1% to NZD 989 million
- Underlying EBITDA plunged 64.7% to NZD 17.7 million
- Significant NZD 45.4 million impairment on Oboz intangible assets
- Net debt reduced to NZD 52.8 million with strong liquidity headroom
- FY26 guidance targets EBITDA margin growth and net debt below NZD 40 million
FY25 Financial Overview
KMD Brands closed FY25 with a slight increase in sales, reaching NZD 989 million, up 1% year-on-year. However, the group’s profitability took a significant hit, with underlying EBITDA falling by nearly two-thirds to NZD 17.7 million. This decline was driven by intensified promotional activity in a competitive market and ongoing global cost pressures.
A notable one-off non-cash impairment of NZD 45.4 million related to Oboz intangible assets weighed heavily on the results, although this did not affect day-to-day operations. The group’s net profit after tax remained in the red at NZD 28.3 million on an underlying basis, reflecting the challenging trading environment.
Operational Highlights and Market Dynamics
Despite the headwinds, KMD Brands made strides in product innovation and sustainability, including launching award-winning products and introducing bio-based wetsuit materials. The group operates over 300 stores globally, with a strong presence in Australasia, North America, and Europe.
Direct-to-consumer sales, particularly online and flagship retail stores, showed resilience and growth, offsetting weaker wholesale channels. Inventory management improved, with stock turns increasing and net working capital reduced by nearly 65% year-on-year, supporting positive operating cash flow.
The 'Next Level' Turnaround Strategy
In response to the financial pressures, CEO Brent Scrimshaw outlined the 'Next Level' strategy focusing on a brand-led offensive, cost base right-sizing, and sustainable profitability. The plan includes a targeted NZD 25 million cost reset and NZD 15 million growth investments, emphasizing product innovation, digital uplift, and international market resets.
The group aims to improve gross margins to around 60%, reduce operating expenses to below 50% of sales, and achieve an EBITDA margin exceeding 10% by FY28. This disciplined approach is underpinned by data-driven decision-making and enhanced cross-functional integration.
FY26 Outlook and Market Conditions
Early FY26 trading data is encouraging, with total sales in August up 10.5% year-on-year and Kathmandu’s direct-to-consumer sales surging nearly 20%. The group expects EBITDA margin expansion in FY26, particularly in the second half, while maintaining operating expenses broadly flat.
Net debt is targeted to fall below NZD 40 million by July 2026, supported by ongoing working capital management and a planned store portfolio reshaping, including 21 store closures and six new store openings. However, uncertainties remain, notably the impact of recently announced US tariffs on Oboz’s gross margins.
Strategic Challenges Ahead
KMD Brands faces a complex landscape with volatile market dynamics, tariff complexities, and intense competition from challenger brands. The group’s ability to execute its turnaround strategy while navigating these headwinds will be critical to restoring profitability and shareholder confidence.
Bottom Line?
KMD Brands’ FY25 results underscore the urgency of its turnaround plan, with FY26 set to test the company’s ability to rebound amid ongoing market uncertainties.
Questions in the middle?
- How will US tariffs impact Oboz’s profitability in the medium term?
- Can KMD Brands sustain margin improvements while investing in growth?
- What is the timeline and expected impact of the new flagship store concepts?
