Investment analysts at Canaccord Genuity are holding out for signs of an operating performance overhaul at KMD Brands – the group company behind Kathmandu, Rip Curl and Oboz Footwear.
Canaccord Genuity told investors in a note that KMD has had weak performance for several years, adding that management needs to instil belief not only in brand health, but that cost pressures can be overcome in the medium term.
According to the analysts, KMD’s longer dated targets “seem plausible” in its view, noting that management is seeking to drive gross margin to 60 per cent, lowering operating expenses to below 50 per cent of sales, lift EBITDA margins to above 10 per cent and keep net working capital below 16 per cent. Most of these require a few hundred basis points lifts, while net working capital is currently at 15.9 per cent.
This comes as KMD’s total net profit has sunk into the red over the last two financial years, first hitting negative NZ$48 million in FY24, and then NZ$93 million in FY25. This comes amid weak sales growth, which is stubbornly just below the NZ$1 billion mark.
In FY23, KMD’s sales peaked at NZ$1.1 billion.
For FY25, KMD reported that its latest sales result (up just 1 per cent) is underpinned by improved sales in the direct-to-consumer (DTC) channel, including online. Group online sales performance has been a highlight, with all three of its brands achieving strong online sales growth year-on-year.
Rip Curl and Kathmandu’s online sales lifted by 10.2 per cent and 9.3 per cent respectively.
Following its FY25 results, KMD launched its ‘Next Level’ turnaround strategy. This includes focuses on sustainable profitability, product innovations, store portfolio and digital and data intelligence.
“Since joining KMD Brands what I’ve seen is clear, the potential of our brands is far greater than what we are delivering today,” KMD Brands CEO and managing director Brent Scrimshaw said.
“We are investing in product innovation that continues to ground our brands in technical performance whilst delivering improved speed-to-market, design and style.
“We are also introducing our integrated marketplace strategy which includes the implementation of store segmentation to drive optimisation of our store network.”
The focus also includes a cost reset target of $25 million.
Canaccord analysts noted that initial action points, including the above cost reset, should stem CODB headwinds for now, as suggested by management guidance.
KMD’s expects its operating expenses to be broadly flat before management incentives in FY26, from the FY25 expense base of NZ$541.6 million. The retail company also expects EBITDA margin expansion in FY26, delivering stronger margin expansion in the second half of FY26.
“Volatile trading conditions persisted through FY25 suggesting to us KMD may not yet be completely through its tough times but pleasingly, 1H26E has started well for Kathmandu (GP dollars +11% first 7 weeks) and management seem confident, guiding to group EBITDA margin expansion in FY26E and a target for net debt to be below $40m by July 2026 (suggests net debt/EBITDA close to 1.0x),” Canaccord analysts noted.
Across the brands in particular, Canaccord made a key point about declining wholesale sales at Oboz and Rip Curl. Rip Curl’s wholesale sales fell 2.9 per cent, despite a DTC lift of 4.6 per cent in FY25.
“Operating expenses remained a pressure point,” the note read regarding Rip Curl. “Net net, we see a level of recovery in FY26E (albeit note broadly flat sales trend in the first 7 weeks) from an earnings perspective, given we are hopeful for improvement in the wholesale channel.”
At Kathmandu, where sales lifted just 0.2 per cent alongside a NZ$1.3 million fall in EBITDA, Canaccord also pointed to a decrease of 300 basis points in Kathmandu’s gross margin, “given promotional intensity and decisioning to ‘maintain market share’ in a highly competitive retail environment.
“We see a better year ahead, albeit below prior thinking. We remind readers 2H is traditionally very important to FY earnings, given the winter trading window and as such, earnings will be second-half weighted for this brand.”
As for Oboz, KMD’s smallest subsidiary, the analysts noted that the brand’s core wholesale channel had a sales drop of 5.8 per cent, but added this was much improved half on half.
“Gross margin decreased 380bps on clearance activity,” Canaccord wrote. “Operating expenses were lower YoY. Wholesale trends improved in 2H25 (new summer season), albeit the announcement of tariffs dampened in-season demand. Whilst optionality remains, we see Oboz being loss-making in FY26E.”