Underwear brand Step One dramatically reduced its days on sale in FY26, which hampered sales but improved gross margin.
The ASX-listed online retailer reported FY26 revenue of $63.7 million, down 26.7 per cent. Including a $9.1 million inventory provision, it posted an earnings before interest, tax, depreciation and amortisation (EBITDA) loss of $7.4 million and a net loss after tax of $6.4 million.
Excluding the provision, adjusted EBITDA was $1.7 million and adjusted net profit after tax was $0.8 million.
In an address to shareholders today, chair David Gallop said two factors shaped the year: subdued consumer spending and the strategic reset announced with the FY25 result.
“For several years, Step One’s sales relied on frequent sitewide promotions. That approach supported volume. It also risked diluting the brand and the value customers place on it, and the Board did not consider it sustainable,” Gallop said.
Under the reset, the business cut how often and how deeply it discounted, and put more weight on product innovation and premium positioning. Sale events made up 26 per cent of direct revenue in FY26, down from 63 per cent. The deepest discounts are now limited to older and slower-moving stock.
According to Step One founder Greg Taylor, the number of days Step One products were on sale fell from 109 to 27.
Gallop said margins improved in the second half, but revenue did not follow. Adjusted gross margin rose to 79.5 per cent in the second half, up from 74.4 per cent a year earlier. The company put this down to firmer pricing and fewer promotions, and noted the comparison also reflected the absence of a mid-year sale in FY26.
“That change came at a cost,” founder and CEO Greg Taylor said.
“Direct-to-consumer revenue fell 34.7 per cent, which accounts for the decline in group revenue David described. Website visits were 17 per cent lower, and a smaller share of those visits turned into orders.
Removing the sitewide discounts also showed that older lines had relied on being bundled with newer products at a discount. Without that support, demand for those lines was limited, and the company raised the $9.1 million provision against the stock in December 2025.
Step One expects to finish disposing of the remaining obsolete inventory in the first half of FY27. It has also brought buying into line with demand: open production orders at June 30 were $1.3 million, down from $7 million a year earlier.
Step One’s offshore markets and marketplaces performed differently. UK revenue fell 11.1 per cent to $26.2 million, compared with a 36.1 per cent fall in Australia under the same pricing changes, and the UK now makes up around 41 per cent of group revenue.
Indirect revenue, led by Amazon, rose 62.3 per cent to $11.6 million, or 18.2 per cent of group revenue.
The US business recorded revenue of A$2.5 million and a reported loss of A$3.9 million, which included a A$2.6 million inventory provision. Taylor said the company is assessing the US business against its progress towards positive contribution, with clear review points and disciplined investment.
Step One’s customer database grew 11.3 per cent to a record of more than 2.1 million, after the company added 215,000 new customers during the year. It launched six new products in FY26, compared with one the year before, including men’s briefs, socks, sleepwear, a period range, X-cup and CloudPress, a performance range developed with NBL players.
Together, these new products contributed 4.3 per cent of revenue.
The company invested more than $550,000 in basketball over the year, through its partnership with the NBL as Official Compression Partner and through junior programs including Aussie Hoops. Its custom team range, released at the end of the NBL season, sold out in most adult sizes.
Plans to expand further into womenswear are on hold.
“The women’s category remains an opportunity for Step One. However, given the challenges of FY26, our focus for FY27 is on restoring growth and profitability in our core business before committing further resources to expanding the range,” Taylor said.
FY27 priorities include improving conversion, getting existing customers to buy socks, CloudPress and NiteKnit, a brand refresh, a website rebuild and better customer communications.
“Our priority is not simply to recover sales, but to rebuild a business that can deliver sustainable revenue growth at healthy margins,” Taylor said.
No final dividend was declared for FY26. Step One held $25.8 million in cash and financial assets at June 30 and had no debt. Gallop said the board intends to restart dividends once retained earnings return to a positive balance.
Proxy votes on the remuneration report showed 17.84 per cent against. Rick Dennis, who had chaired the Audit and Risk Committee since the company listed in 2021, stepped down from the board in October for personal reasons.
Catherine Thompson is chairing the committee on an interim basis while the board searches for a new independent non-executive director with financial, assurance and risk management expertise.
“The task ahead is to rebuild profit and growth on the strength of the brand rather than on discounting,” Gallop said.