Australian retail group KMD Brands has rejected a proposal from US surfwear company Stokehouse Unlimited to demerge its Rip Curl business.
Stokehouse is the former owner of Billabong, and currently manages Vissla and Sisstr, while KMD also owns Kathmandu and Oboz Footwear.
The proposed transaction would have involved KMD demerging Rip Curl into a separate NZX and ASX listed company and subsequently merging Rip Curl with the US entity.
Stokehouse proposed that after the full transaction is complete, Stokehouse shareholders would own 22 per cent of the merged Rip Curl entity.
According to KMD Brands, this proposed ownership structure is misaligned with the earnings delivered by the Stokehouse and Rip Curl businesses “given Stokehouse’s immaterial contribution to combined EBITDA”, and added it would unfairly dilute KMD Brands shareholders.
KMD also pointed out that Paul Naude, the current CEO of Stokehouse who was once an executive of Billabong, would be CEO of the combined business, and that he would lead the business from California.
Following an evaluation of the proposal, KMD determined it was not in the best interests of shareholders as it does not provide a clear path to enhance shareholder value. The Australian retail group added shareholders would get more value from KMD’s ongoing ‘Next Level’ strategy.
Launched last year, the Next Level strategy is aimed at a full cost reset of at least $25 million, driven by an “organisational restructure” aligned to the new strategy and a store network portfolio review. This included more than ten senior leadership roles changing in 2025.
The overall aim, according to KMD, is to unlock the full potential of its brand portfolio and deliver sustainable, profitable growth.
Further to its reasoning for rejecting the Rip Curl demerger, KMD noted there is significant advantage in the structure of KMD, given its brands both sit within the outdoor apparel and footwear space, as well as all being either Australian or New Zealand.
The group also noted that the Stokehouse business has limited scale and profitability and reportedly has “significant debt” relative to its earnings profile, and that the transaction concept would create two smaller entities with less combined profitability versus KMD Brands standalone, given the dis-synergies of separation and standalone costs.
“There is no new capital being introduced by Stokehouse, and instead the transaction concept relies on a large capital raising by the smaller demerged Rip Curl-Stokehouse entity which would create significant further dilution for KMD Brands shareholders in addition to the dilution they would suffer through Stokehouse shareholders owning 22 per cent of the demerged Rip Curl entity,” KMD concluded.
KMD chairman David Kirk said the concept proposed by Stokehouse creates no value for shareholders and is challenging from an execution standpoint.
“In addition, the combination of multiple surf brands that directly compete with each other is not a strategy that has proven effective,” Kirk added. “Our focus remains on executing the Next Level strategy, which has already gained momentum.”
KMD Brands is expected to release its audited half-year results on March 25. In a preliminary trading update in early February this year, Rip Curl recorded a 5.6 per cent lift in sales for the five months to December 2025, with Kathmandu sales up 12.9 per cent in the same time frame.
Despite the sales jump, group gross margin in those same five months was down by around 100 basis points to 56.7 per cent. This was reportedly due to an elevated level of promotional activity in the marketplace, as well as a continued focus by all brands to optimise mix and sell through aged inventory, according to KMD.
KMD added that this gross margin of 56.7 per cent is above the second half of FY25 gross margin.