I'd now like to welcome Greg Taylor, Founder and CEO, to begin the conference. Greg, over to you.
Good morning, everyone. Welcome to Step One's FY 2026 results conference call. I'm Greg Taylor, CEO and founder of Step One, and I'm joined by our CFO, Nigel Underwood. We're going through the presentation that was lodged this morning with the ASX, and we have time for questions at the end. Turning to slide two, results highlights. FY 2026 was a year of deliberate change for Step One. We set out for half to reset the business, and the full-year result reflects both the impact of that decision and some early indicators of progress against that reset program. Revenue for the year was AUD 63.7 million, down 26.7% on FY 2025. As we flagged in February, the reduction in discounting was a significant contributor to the revenue decline during the year. A decision we took to restore brand equity and pricing integrity rather than chasing volume.
We report an EBITDA loss of AUD 7.4 million for the year. On an adjusted basis, excluding the inventory provision, EBITDA was a profit of AUD 1.7 million. The provision expense for the full-year settled at AUD 9.1 million, down from the AUD 10.9 million we raised at the half as we recovered AUD 1.8 million through the second half as older product moved. We reported an adjusted gross margin of 75.9%, at just 0.5% below FY 2025. Maintaining the adjusted gross margin at level while reducing discounting provides an encouraging indication of the resilience of our pricing and product proposition. Our indirect channel continued to grow during FY 2026. Revenue through third-party channels, which is Amazon, TikTok Shop, and John Lewis, grew 62.3% and now represents 18.2% of total revenue.
We also released six new products during the year, extending the range beyond our core, in line with our vision of owning more of the customer's drawer. Revenue of our women's range was down 35.7% and represented approximately 15% of revenue. This performance was below our expectations, and we're reviewing opportunities to improve the performance of this segment. Nigel will speak to the cost pressures that weighed on the result. We have more work to do, and the reset program has further run. Turning to slide three. Our growth strategy continues to be anchored around the same four pillars that underpin the reset program. We'll remain disciplined in executing these priorities while responding to changes in customer demand and market conditions. First, on products and range. We released six new products during the year, being our Cloud Mesh, Men's Briefs, Socks, Period Underwear, and Sleepwear, and our X-Cup.
Our priority from here is to keep expanding into logical adjacencies and to extend beyond bamboo fabric where customer demand supports it. With bralettes, PJs, and socks now established, we are building a more complete offering to position Step One as part of the customer's broader base wear wardrobe. Despite releasing new women's products during the year, performance in the women's range was below our expectations. We are reviewing opportunities to improve performance and grow this segment of the business. Second, customer acquisition. We recruit through consistent brand-led advertising that positions Step One as a comfortable and quality brand. We have increased our brand investment with sharper focus on marketing efficiency. Over 2.1 million customers have purchased Step One products.
Encouragingly, new customers made up 47% of orders in the second half, up from 36% in the first half, which is an early indicator of new customer acquisition as we increase our focus on brand investment. Thirdly, indirect channels. Revenue from these channels grew 62.3% during FY 2026, and our approach remains selective. We expand with partners who align to the brand. We protect brand integrity and margin discipline in every one of those relationships. Our presence in John Lewis continues to provide credibility and market insight in the U.K.. Finally, footprint. Australia remains our foundation, though it is worth noting that the U.K. was more resilient this year, down 11.1% against a 36.1% decline in Australia, and it now represents 41% of group revenue. Our U.K. strategy is digitally focused, and our approach to U.S. remains disciplined.
Across both markets, we are prioritizing sustainable growth and improving profitability rather than growth at any cost. Turning to slide four. Average order value for the year was AUD 98 and recovered to AUD 101 in the second half as the benefit of reduced discounting came through. Our customer mix shifted to 41% new customers, which reflects the brand investment I mentioned, with returning customers at 59%. Conversion moderated to 4.1% for the year and compared with 4.6% in FY 2025. Our customer database grew to 2.1 million, an increase of 215,000 over the year. The remaining charts illustrate the revenue and profit performance we have discussed. I will now hand over to Nigel to walk through our financials in more detail.
Thanks, Greg. Turning to slide five. Revenue for the year declined 26.7% to AUD 63.7 million. Australia was down 36.1% to AUD 35 million. The U.K. was down 11.1% to AUD 26.2 million, and the U.S. was down 7.2% to AUD 2.5 million. As Greg mentioned, the U.K. was more resilient than Australia during the reset period. Reported gross margin was 61.6% after including a AUD 9.1 million specific inventory obsolescence provision. Shareholders can obtain more information about the specific provision and its impact on the financial result on slide 12 of this presentation and in the annual report. While the reported gross margin was 61.6%, excluding the impact of the AUD 9.1 million specific inventory provision, it improved to 75.9%. This is 0.5 percentage points below FY 2025, predominantly reflecting the higher discount rates applied in the first half.
Advertising and marketing fell AUD 2.4 million in absolute terms to AUD 21.1 million, but rose to 33.1% of revenue, up 6.1 percentage points on PCP. As we maintain brand led investment through our lower revenue base. Distribution and fulfillment costs of AUD 12.7 million were broadly flat in dollar terms but increased to 19.9% of revenue, up 4.9 percentage points. Cost pressure on global logistics and distribution was compounded by higher inventory levels and the costs associated with the transition to a new 3PL in Australia. Overhead was held at AUD 9.7 million, down 1.4% on the prior year. The result was reported EBITDA loss of AUD 7.4 million, with an adjusted EBITDA profit of AUD 1.7 million against an AUD 17.4 million profit in FY 2025. Reported loss after tax was AUD 6.4 million, with an adjusted profit after tax of AUD 0.8 million.
Turning to the balance sheet on slide six. The business is debt-free, with AUD 25.8 million in cash and financial assets held with licensed banks across a variety of terms. Inventory on hand increased to AUD 1.7 million during the year through range expansion and accumulation of slow-moving lines. The net inventory balance reduced by AUD 9.4 million to AUD 15.8 million, predominantly as a result of the obsolescence provision. We plan to dispose of the obsolete inventory in the H1 of 2027. Net assets closed the year at AUD 40.4 million. After allowing for AUD 8.2 million of liabilities and AUD 1.3 million of inventory purchase orders placed but not yet fulfilled, available cash at 30 June was AUD 16.4 million. Step One remains a capital-light business and that provides a financial foundation from which to continue executing the reset plan. Looking at cash flow on slide seven.
Operating cash flow reflected the softer trading performance, with an outflow of AUD 2.7 million against an inflow of AUD 8 million in FY 2025. Receipts declined 27.3%, in line with reduced revenue. Dividends totaling AUD 4.4 million were paid during the year, distributing 100% of earnings to 30 June 2025. There is no change to our dividend policy, and declarations are expected to recommence once retained earnings returns to a positive balance. Term deposits with a duration greater than three months are classified as investments. Closing cash was AUD 15.7 million, and with term deposits together totaling AUD 25.8 million, all held with licensed banks. I will now hand back to Greg to talk about FY 2027.
Thanks, Nigel. Turning to slide eight. In FY 2027, we'll continue to execute the reset plan. We'll release new products with adjacencies, we'll enhance our brand advertising, and we'll maintain our brand premium through reduced discounting. Step One will prioritize long-term value creation over short-term performance, with a focus on sustainable growth and improving profitability. There is no change to our dividend policy, and as Nigel noted, declarations are expected to recommence once retained earnings return to a positive balance. We'll not be issuing financial guidance. FY 2026 was a hard year. We've not shied away from that, but we finished it with a stronger margin structure, materially clean inventory position, a growing indirect channel, and a customer base over 2 million.
We believe the decisions we took this year were the right ones for the business over the longer term. I am confident they position Step One to deliver sustainable, profitable growth. I will now hand back to the operator and open the line for questions.
Thank you, Greg. As mentioned, we will now begin the Q and A session. For those listening by phone and would like to ask a question, please press star followed by one on your telephone keypad to raise your hand and join the queue. To withdraw your question, simply press star one again. When called upon, please use your handset, ensure your line is unmuted, and be ready to ask your question. Again, that is star one to raise your hand and join the queue. Your first question is from the line of Emily Porter of Morgans. Please go ahead.
Yeah. Hi, Greg and Nigel. Thanks for the presentation. I guess I appreciate you haven't given guidance, but I guess, how should we think about top-line growth moving forward, maybe a bit of color by region? I guess just generally how you are seeing the consumer environment and how your customers are responding to the pricing reset. Thanks.
As we say, we are focused on the reset plan. We are focused on rebuilding the full price customer within our cohort. We will look to growth where we can see growth. At this stage, we are focusing on the reset plan. Overall, from a market perspective, yes, the consumer is under cost of living pressures. We acknowledge that. However, our focus remains the same. We are clear on where our plan is, and we will continue to execute that throughout the next year.
Yeah. Okay. That's great. Maybe just in terms of the women's revenue down a fair bit on last year, and I think you noted probably below your expectations. Maybe if you can just give a bit more color around why you think this is.
So in line with reduced discounting across the site, we've looked at where our brand sits and how we speak to our customers. What we've identified is that the way we speak to our women's customer is a little bit different to the way we speak to our men's customers. What we'll be doing is we'll be focusing on, as we said during the presentation, the product will still remain on the site. However, we will continue to develop strategies that can bring back that revenue and provide a stable yet profitable path forward within that women's category.
Yeah. Okay. Thank you. Maybe on the indirect channels, some really strong growth up over 60%. Maybe if you can just talk to that by the different channels and how you think about indirect moving forward as well.
Yeah. Indirect was strong for us. It grew over 62% and made up 18.2% of our revenue. So it's profitable and disciplined, and we look at partners who fit our brand. We protect our margin in every relationship there. It also puts the brand in front of customers that we're not reaching. Whilst D2C remains our core focus, indirect will extend it.
Okay, thanks guys. I will leave it there. I will let someone else have some questions. Thanks.
Your next question comes from the line of Leo Armati of Bell Potter Securities. Please go ahead.
Morning, Greg and Nigel. Just a few from me. Just to start, as we saw Australian revenue had a significant drop, and that was below our expectations. While the U.K. seemed far better, and it is great to hear that it was more resilient in your words. Can you just talk to what made the U.K. market more resilient versus Australia?
Yeah. U.K. is less mature as we are in Australia. As we said last year, we focus, and it is also a bigger market as well. As we said last year, we focused on local advertising, local tone of voice, and looking at ways in which we can extend not only our D2C business, but through Amazon and through John Lewis. So we are in John Lewis in the U.K., and whilst it does not provide what I call meaningful revenue at the moment, it does provide credibility and brand credibility to us. So we will continue to focus on the U.K. market, as we said, and that all forms part of the reset plan.
Yeah, great. Thank you. Then just moving on to advertising. So obviously it grew as a percentage of revenue, but we saw conversion drop quite a bit. So you are basically spending more to convert less. Is there just sort of a weaker underlying customer here or is it a traffic issue, or can you just talk to that?
Yeah. The total spend fell AUD 2.3 million for the year. But within that, we shifted the mix towards brand TV sponsorships, ambassadors, and away from discount-led performance spend. So less money was spent, but it is pointed at building the brand rather than essentially renting the next transaction. And that forms part of our strategy moving forward.
Yeah. Okay. Great. Then just lastly, if we talk about inventory. So obviously inventory on hand increased when you release a new product range. And I think you noted that there is an accumulation of slower-moving lines. I am just wondering if the slower-moving stock is still accumulating, and does that then or at least signal risk into FY 2027 of more obsolescence?
In the actual annual report, we flag that we have modified the way we look at the inventory provision. But we will take the lesson of what we have had to do currently, and we will improve the way we push through inventory. But what we are looking at is that our processes over the last period of time have improved considerably. So we are not expecting any repeat of this specific obsolescence provision.
Okay, great. Well, that is all from me. Thanks, Nigel, and thanks, Greg.
Before we move on to our question, a reminder, if you would like to join the queue, to press star one. Your next question is from the line of John Burgess of RaaS Research. Please go ahead.
Good morning. Do I read the accounts correctly that the U.S. lost AUD 3.9 million this year versus AUD 0.5 million last year?
That is correct. It was predominantly because of the inventory write-off.
Okay. Can you give a number ex inventory write-off?
We haven't gone through it, but if you held probably last year's number, you're pretty close.
Yeah.
For the base.
Right. Got you. I noticed there's a bit of a headcount reduction that were basically female. Is that an indication, I guess, of a restructuring of the people behind the women's brands?
No. Had nothing to do with women's market. It was just the roles that were changing just happened to be female.
Okay. Are you happy with new products being 4.3% of revenue? Is that sort of what you expected behind your expectations, and what do you expect for these product adjacencies as a percentage of revenue over time?
We are not guiding as to mix by products. We obviously would like all new products to be a much bigger portion of our revenue. Whilst we target growth, we are not indicating what sort of mix we are looking for.
Yeah. I guess you did not have an end of financial year sale, as you said. Are you going from one extreme to the other, do you think, in terms of having obviously, buy seven, get 10 pairs free to basically not even having an end of financial year sale?
Yeah. I want to be very clear on this. This reset is very deliberate and is very cost-structured, and it is about rebuilding the LTV of our customer base. We have seen and reported on this, that discounting is not the way to do that. We are not here to compete on price. We are here to compete on quality and brand, and we will continue to do that. So the purpose of not doing a big year sale was to signify to our customer base that we are no longer offering those discounts, and that if you do want a Step One product, then this is the price and we stand behind that.
But I guess normally, retailers use it as, obviously there is a number of reasons, but it is used as a clearance process as well for obviously stock and slow-moving stock. How do you do that if you do not have sales like that?
Whilst we are not completely ruling out sales totality, what we will be potentially looking to do is that come Black Friday, potentially looking at any slow-moving stock and providing a much smaller discount on those lines, but we will not be reverting back to the previous levels of discounting.
Yeah. I guess in terms of marketing spend, how do you now look at it in terms of a customer acquisition cost or a cost per number of emails you have got on board? How do you look at the cost of acquisition and accept or think it is too high or too low?
Yeah. Cost of acquisition is something we look at very closely, but we also look at the LTV of the customer. With your product adjacencies now on board, what we need to look at, and what we do look at, is the AOV of first customer, and then the time to repeat on the second customer, and then thirdly, the mix of new products versus underwear within that product. It is a mix of looking at each customer on value, but we are more focused on the LTV of the customer and increasing the AOV cross-selling adjacencies to them.
With the email addresses, you can measure the first order and then the following orders and have a pretty good idea of what the composition is.
Correct.
Yeah. Right. Thank you.
That concludes our Q and A session for today. I would like to hand back over to Greg for closing remarks.
Thank you everyone for dialing in today. FY 2026 was a challenging year, but we maintain forward and in continuing our reset plan. Thank you for your time, everyone.
This concludes today's conference call. Thank you all for joining us. You may now disconnect.