Investment Analysts Urge KMD Brands to Revamp Operations Amid Weak Performance
Investment experts at Canaccord Genuity are advocating for KMD Brands, the parent company of popular outdoor brands Kathmandu, Rip Curl, and Oboz Footwear, to initiate significant changes in its operational strategies. In a recent communication to investors, Canaccord highlighted that KMD has struggled with subpar performance over the past several years. They emphasized that the company’s leadership must not only restore confidence in the brand’s vitality but also demonstrate its ability to navigate ongoing cost pressures in the near future.
Ambitious Targets Set by KMD Brands Management
According to the analysts, KMD’s long-term goals appear achievable, as management is striving to increase gross margins to 60%, reduce operating expenses to less than 50% of sales, enhance EBITDA margins to over 10%, and maintain net working capital below 16%. Achieving these goals will require improving various metrics by several percentage points, with net working capital currently sitting at 15.9%.
Financial Decline and Sales Challenges for KMD Brands
KMD Brands has reported a decline in total net profit over the last two fiscal years, with losses reaching NZ$48 million in FY24 and NZ$93 million in FY25. This downturn comes as the company grapples with stagnant sales growth, which has struggled to surpass the NZ$1 billion threshold. In FY23, KMD’s sales peaked at NZ$1.1 billion, but the company reported only a modest 1% increase in sales for FY25, driven primarily by improvements in its direct-to-consumer (DTC) sales channels, including online platforms.
Strong Online Sales Growth Amidst Struggles
Despite the overall sales challenges, KMD has seen encouraging growth in its online sales, with both Rip Curl and Kathmandu experiencing year-on-year increases of 10.2% and 9.3%, respectively. In response to its FY25 results, KMD unveiled its ‘Next Level’ turnaround strategy, which emphasizes sustainable profitability, product innovation, an optimized store portfolio, and enhanced digital capabilities.
KMD Brands’ CEO Outlines Growth Potential
Brent Scrimshaw, the CEO and managing director of KMD Brands, expressed his belief that the potential of the company’s brands exceeds current performance levels. He indicated that investments in product innovation are aimed at enhancing technical performance while improving delivery speed, design, and style. Additionally, an integrated marketplace strategy is in the works, incorporating store segmentation to optimize the retail network.
Cost Management and Expense Expectations
The company has set a cost reset target of NZ$25 million. Canaccord analysts noted that initial steps, including the planned cost savings, should help mitigate the challenges posed by costs of doing business (CODB) as per management’s guidance. KMD anticipates that its operating expenses will remain stable before management incentives in FY26, based on an expense base of NZ$541.6 million from FY25. The company also expects an expansion in EBITDA margins for FY26, particularly in the latter half of the fiscal year.
Mixed Sales Trends and Future Outlook
While trading conditions were volatile throughout FY25, Canaccord analysts remain cautiously optimistic about KMD Brands’ prospects. They noted a positive start to the first half of FY26 for Kathmandu, with gross profit dollars increasing by 11% in the initial seven weeks. Management has expressed confidence in guiding a group EBITDA margin expansion for FY26 and aims to reduce net debt to below NZ$40 million by July 2026, which would indicate a net debt-to-EBITDA ratio approaching 1.0x.
Concerns Over Declining Wholesale Sales
Canaccord also pointed out the concerning decline in wholesale sales for Oboz and Rip Curl. Specifically, Rip Curl’s wholesale sales dropped by 2.9%, even as its DTC sales rose by 4.6% in FY25. The analysts highlighted that operating expenses remain a significant concern for Rip Curl, but they foresee some recovery in FY26, although sales trends in the first seven weeks have been largely flat.
Challenges for Kathmandu and Oboz Brands
Regarding Kathmandu, which saw a mere 0.2% increase in sales alongside a NZ$1.3 million drop in EBITDA, Canaccord noted a 300 basis point decline in gross margin due to heightened promotional activities and a strategy to maintain market share amid fierce competition. They anticipate a better year ahead for the brand, although it may fall short of earlier expectations, particularly given that the second half of the year is typically critical for financial performance due to winter trading.
For Oboz, KMD’s smallest subsidiary, the analysts observed a 5.8% decrease in sales within its core wholesale channel; however, they noted a significant improvement on a half-year basis. They reported a 380 basis point drop in gross margin linked to clearance activities, though operating expenses were lower year-on-year. While there is potential for recovery, Oboz is expected to remain unprofitable in FY26.
