Step One has recorded a four-digit profit lift this financial year, after an aggressive cost-cutting strategy offset a 9.7% decrease in revenue to $65.2 million.
The brand’s statutory earnings before interest, tax, depreciation and amortisation (EBITDA) hit $12 million, up 4393.9% from its $300,000 loss in FY22.
The underwear brand has prioritised profitability over top-line growth this year, with cost reductions in areas such as inventory and advertising spend. In June 2022, Step One reduced the placement of new production orders to unearth $1 million in inventory reduction value.
Step One has also reduced advertising costs by 27.5% in FY23 to $23.3 million. While this saw a 10.8% reduction in web visits and 4.4% fall in conversions, the company said this metric remains strong compared to industry standards.
“The advertising mix is regularly changed to maximise value and will be reduced when customer recruitment costs exceed ‘value’ thresholds,” Step One noted in a trading update today.
“Furthermore, additional focus has recently been placed on leveraging the customer database and deploying organic content across social media including Instagram and TikTok.”
Step One reported a lift in key sales events such as Black Friday/Cyber Monday and EOFY, with both contributing 22% of total revenue, up 2% on FY22.
Meanwhile, the company added bolder colourways to its ranges for both men and women and deliberately slowed down its release rate to generate consumer demand.
From this, Step One’s average order value (AOV) increased by 19.3% to $89.49, with an increase in average order quantity (AOQ) of 4.4 units per basket.
The company also expanded its women’s line with the introduction of the women’s bikini brief in March this year, with communication targeted to women in the second half.
Step One also initiated new touchpoints into indirect channels, including Amazon, with revenue reportedly growing slowly but not enough to impact overall revenue and profitability.
“I’m pleased with the strong profit result achieved by Step One in FY23, reflecting our pivot from prioritising top-line growth to profitability in response to challenging trading conditions in our key markets,” Step One founder and CEO Greg Taylor said.
“We continue to demonstrate our nimble business approach by adapting elements of our strategy, such as our advertising spend, to drive improvements and efficiencies throughout the company.”
Step One is aiming to further reduce its elevated inventory position, which was $23.3 million as at June 30, 2023.
“We are mindful of our elevated inventory position, and while this has helped us in managing global shipping delays to-date, we will maintain a prudent approach to inventory management,” Taylor said. “This involves focusing on reducing the levels of existing inventory SKUs while ensuring we maintain the flexibility to support new product launches.
“I am confident that as macro-economic conditions ease, Step One will be well positioned to pursue its international growth ambitions while maintaining a strong focus on profitability.”